WORLD TRADE  
ORGANIZATION  WT/DS299/R 
17 June 2005 
 
 (05-2366) 
 Original:  English 
  
 
     
 
    
EUROPEAN COMMUNITIES – COUNTERVAILING  
MEASURES ON DYNA MIC RANDOM ACCESS  
MEMORY CHIPS FROM KOREA 
(WT/DS299) 
  
Report of the Panel 
 
 
  
 
  WT/DS299/R 
 Page i 
 
 
 
TABLE OF CONTENTS 
Page  
 
I. INTRODUCTION ................................................................................................................... .1 
A. COMPLAINT OF KOREA ................................................................................................................1  
B. ESTABLISHMENT AND COMPOSITION OF THE PANEL ...................................................................1  
C. PANEL PROCEEDINGS ...................................................................................................................2  
II. FACTUAL ASPECTS ..............................................................................................................2  
III. PARTIES' REQUESTS FOR FIND INGS AND RECOMMENDATIONS.........................3  
A. KOREA ............................................................................................................................... ..........3  
B. EUROPEAN COMMUNITIES ...........................................................................................................3  
IV. ARGUMENTS OF THE PARTIES ........................................................................................4  
V. ARGUMENTS OF THE THIRD PARTIES ..........................................................................4  
VI. INTERIM REVIEW................................................................................................................. 4 
A. KOREA COMMENTS .....................................................................................................................4  
B. EC COMMENTS ............................................................................................................................6  
VII. FINDINGS....................................................................................................................... ..........7  
A. GENERAL ISSUES .........................................................................................................................8  
1. Standard of Review............................................................................................................. ......8  
2. Burden of Proof................................................................................................................ .........9  
B. CLAIMS CONCERNING THE EC'S SUBSIDY DETERMINATION .......................................................9  
1. Claim regarding the EC's determinations of the existence of a financial 
contribution by the government ............................................................................................11  
(a) Korea.......................................................................................................................... ...............11  
(i) General standard of entrustment or directi on under Article 1.1(a)1(iv) of the SCM 
Agreement ...................................................................................................................... ...........11  
(ii) Syndicated Loan................................................................................................................ ........12  
(iii) KEIC Guarantee ................................................................................................................. ......12  
(iv) KDB Debenture Programme.....................................................................................................13  
(v) May 2001 Restructuring Programme .......................................................................................13  
(vi) October 2001 Restructuring Programme .................................................................................14  
(b) EC ............................................................................................................................. ................15  
(i) General standard of entrustment or directi on under Article 1.1(a)1(iv) of the SCM 
Agreement ...................................................................................................................... ...........15  
(ii) Syndicated Loan................................................................................................................ ........16  
(iii) KEIC Guarantee ................................................................................................................. ......17  
(iv) KDB Debenture Programme.....................................................................................................17  
(v) May 2001 Restructuring Programme .......................................................................................17  WT/DS299/R 
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(vi)
 October 2001 Restructuring Programme .................................................................................18  
(c) Panel Analysis................................................................................................................. ..........19  
(i) General standard of entrustment or directi on under Article 1.1(a)1(iv) of the SCM 
Agreement ...................................................................................................................... ...........20  
(ii) Syndicated Loan................................................................................................................ ........24  
(iii) KEIC Guarantee ................................................................................................................. ......30  
(iv) KDB Debenture Programme.....................................................................................................31  
(v) May 2001 Restructuring Programme .......................................................................................33  
(vi) October 2001 Restructuring Programme .................................................................................38  
Woori Bank ..................................................................................................................... ........................ 40  
Chohung Bank................................................................................................................... ...................... 42  
KEB............................................................................................................................ ............................. 44  
NACF ........................................................................................................................... ........................... 45  
Citibank....................................................................................................................... ............................ 45  
Conclusion..................................................................................................................... .......................... 48  
2. Claims regarding the EC's determinations of  the existence and amount of benefit .........48  
(a) Korea.......................................................................................................................... ...............48  
Syndicated  Loan................................................................................................................ ...................... 49  
KEIC Guarantee ................................................................................................................. ..................... 49  
KDB Debenture Programme ........................................................................................................ ........... 49  
May 2001 Restruct uring Programme ............................................................................................... ....... 49  
October 2001 Restru cturing Programme........................................................................................... ...... 50  
Additional calcu lation errors.................................................................................................. ................. 50  
(b) EC ............................................................................................................................. ................50  
Syndicated  Loan................................................................................................................ ...................... 52  
KEIC Guarantee ................................................................................................................. ..................... 52  
KDB Debenture Programme ........................................................................................................ ........... 52  
May 2001 Restruct uring Programme ............................................................................................... ....... 53  
October 2001 Restru cturing Programme........................................................................................... ...... 53  
Additional calcu lation errors.................................................................................................. ................. 54  
(c) Panel Analysis................................................................................................................. ..........54  
(i) Existence of a benefit in the sense of Ar ticle 1.1(b) of the SCM Agreement.............................56  
Syndicated  Loan................................................................................................................ ...................... 56  
KEIC Guarantee ................................................................................................................. ..................... 58  
KDB Debenture Programme ........................................................................................................ ........... 60  
May 2001 Restruct uring Programme ............................................................................................... ....... 63  
October 2001 Restru cturing Programme........................................................................................... ...... 64  
(ii) Calculation of the amount of the be nefit – The EC's grant methodology .................................66   WT/DS299/R 
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3. Claim regarding the EC's dete rminations on specificity.....................................................67  
(a) Korea.......................................................................................................................... ...............67  
(b) EC ............................................................................................................................. ................68  
(c) Panel Analysis................................................................................................................. ..........68  
4. Claim regarding Articles 19.4 of the SCM Agreement  and VI:3 of the GATT 1994 ..........71  
(a) Korea.......................................................................................................................... ...............71  
(b) EC ............................................................................................................................. ................71  
(c) Panel Analysis................................................................................................................. ..........72  
5. Claim regarding the EC's applic ation of "facts available".................................................72  
(a) Korea.......................................................................................................................... ...............72  
(b) EC ............................................................................................................................. ................73  
(c) Panel Analysis................................................................................................................. ..........74  
(i) Economic Ministers' meetings / Attendance by  an FSS official at a creditors' meeting...........75  
(ii) The Arthur A ndersen report..................................................................................................... .76 
(iii) Citibank....................................................................................................................... ..............78  
C. CLAIMS CONCERNING THE EC'S INJURY AND CAUSALITY DETERMINATIONS .........................80  
1. Claim concerning Article 15.1 of the SCM Agreement .........................................................80  
(a) Korea.......................................................................................................................... ...............80  
(b) EC ............................................................................................................................. ................81  
(c) Panel Analysis................................................................................................................. ..........81  
2. Claim concerning the EC's determination regarding the volume of the 
subsidized imports ............................................................................................................. .....83  
(a) Korea.......................................................................................................................... ...............83  
(b) EC ............................................................................................................................. ................84  
(c) Panel Analysis................................................................................................................. ..........85  
(i) Was the consideration based on data regarding subsidi zed imports?......................................85  
(ii) Should data on imports of DRAMs produced or exported by LGS have been combined 
with that of Hynix for the purpose of  carrying out the consideration required under 
Article 15.2?.................................................................................................................. ............88  
(iii) Does the EC determination properly concl ude that the increase was "significant" in 
terms of Article 15.2?......................................................................................................... .......90  
(d) Conclusion ..................................................................................................................... ...........91  
3. Claim regarding the EC's determination concerning the effect of the subsidized 
imports on  prices.............................................................................................................. .......91  
(a) Korea.......................................................................................................................... ...............91  
(b) EC ............................................................................................................................. ................93  
(c) Panel Analysis................................................................................................................. ..........94  WT/DS299/R 
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(i)
 Impossibility to reconcile market dynamics w ith the EC's conclusion that Hynix's 
imports had an effect on domestic prices..................................................................................94  
(ii) Absence of a "price leader" in the DRAMs market...................................................................95  
(iii) Whether the EC's methodology complied w ith the requirements in paragraphs 1 and 
2 of Article 15 ................................................................................................................ ...........95  
(iv) Other factors that affect DRAMs prices....................................................................................98  
(v) Refusal to extend the injury POI............................................................................................... 99 
(d) Conclusion ..................................................................................................................... .........100  
4. Claim regarding the EC's determination on the condition of the domestic 
industry....................................................................................................................... ...........100  
(a) Korea.......................................................................................................................... .............100  
(b) EC ............................................................................................................................. ..............101  
(c) Panel Analysis................................................................................................................. ........102  
(i) Evaluation of certain economic factors: Ec onomic downturn/Business cycle, Export 
performance and Wages .........................................................................................................1 02 
Wages.......................................................................................................................... .......................... 103  
Other factors.................................................................................................................. ........................ 104  
(ii) Infineon statements ............................................................................................................ .....105  
(iii) Overall assessment of the stat e of the domestic industry........................................................105  
(d) Conclusion ..................................................................................................................... .........107  
5. Claim regarding the EC's causation determination ..........................................................108  
(a) Korea.......................................................................................................................... .............108  
(i) Causation determination........................................................................................................ .108 
(ii) Non-attribution/Examination of "any known factors other than the subsidized 
imports"....................................................................................................................... ............108  
Treatment of the drop in demand ................................................................................................ .......... 109  
"Inventory burn"............................................................................................................... ..................... 109  
Changes in re lative cap acity................................................................................................... ............... 109  
The volume of unsubsidized imports/Samsung's imports ..................................................................... 109  
(b) EC ............................................................................................................................. ..............110  
(i) Causation determination........................................................................................................ .110 
(ii) Non-attribution/Examination of "any known factors other than the subsidized 
imports"....................................................................................................................... ............111  
Treatment of the drop in demand ................................................................................................ .......... 111  
"Inventory burn"............................................................................................................... ..................... 111  
Changes in re lative cap acity................................................................................................... ............... 111  
The volume of unsubsidized imports/Samsung's imports ..................................................................... 111  
(c) Panel Analysis................................................................................................................. ........112   WT/DS299/R 
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(i) Whether the EC properly demonstrated the exi stence of a causal relationship between 
subsidized imports and injury .................................................................................................1 13 
(ii) Whether the EC's causation analysis sa tisfies the non-attribution requirement ....................114  
Economic downturn  in the market ................................................................................................ ........ 117  
"Inventory burn"............................................................................................................... ..................... 118  
Overcapacity................................................................................................................... ....................... 119  
Other (non-subsidized) imports................................................................................................. ............ 120  
(d) Conclusion ..................................................................................................................... .........124  
D. OTHER CLAIMS ........................................................................................................................124  
1. Claim regarding the requirement of adequate public notice............................................124  
(a) Korea.......................................................................................................................... .............124  
(b) EC ............................................................................................................................. ..............124  
(c) Panel Analysis................................................................................................................. ........124  
2. Claim regarding Articles 10 and 32.1 of the SCM Agreement ...........................................125  
(a) Korea.......................................................................................................................... .............125  
(b) EC ............................................................................................................................. ..............125  
(c) Panel Analysis................................................................................................................. ........125  
VIII.  CONCLUSIONS AND RECOMMENDATIONS..............................................................125  
 WT/DS299/R 
Page vi  
 
 
TABLE OF ANNEXES 
 
ANNEX A 
 
SUBMISSIONS OF PARTIES AND THIRD PARTIES FOR THE 
FIRST SUBSTANTIVE MEETING 
 
Contents Page 
Annex A-1 Executive Summary of the Submission of Korea  A-2 
Annex A-2 Executive Summary of the Submission of the European 
Communities A-11 
Annex A-3 Executive Summary of the Third Party Submission of Japan A-19 
Annex A-4 Executive Summary of the Third Party Submission of the United 
States A-23 
 
 
ANNEX B 
 
ORAL STATEMENTS OF PARTIES AND THIRD PARTIES AT THE 
FIRST SESSION OF THE FIRST SUBSTANTIVE MEETING 
 
Contents Page 
Annex B-1 Executive Summary of the Statement of Korea B-2 
Annex B-2 Executive Summary of the Statement of the European 
Communities  B-9 
Annex B-3 Third Party Oral Statement of China B-13 
Annex B-4 Third Party Oral Statement of Japan B-16 
Annex B-5 Third Party Oral Statement of Chinese Taipei B-19 
Annex B-6 Third Party Oral Statement of the United States B-22 
 
 
ANNEX C 
 
REBUTTAL SUBMISSIONS OF PARTIES 
 
Contents Page 
Annex C-1 Executive Summary of Korea's Rebuttal Submission C-2 
Annex C-2 Executive Summary of th e European Communities' Rebuttal 
Submission  C-12 
 
 
ANNEX D 
 
ORAL STATEMENTS OF PARTIES AT THE  
SECOND SUBSTANTIVE MEETING 
 
Contents Page 
Annex D-1 Executive Summary of the Statement of Korea D-2 
Annex D-2 Executive Summary of the Statement of the European 
Communities D-7 
 
  WT/DS299/R 
 Page vii 
 
 
 
ANNEX E 
 
REQUEST FOR THE ESTABLISHMENT 
OF A PANEL 
 
Contents Page 
Annex E-1 Request for the Establishment of a Panel – Document WT/DS299/2 E-2 
 
 
ANNEX F 
 
TIMELINE OF EVENTS; SUMMARY OF THE PANEL'S CONCLUSIONS 
ON SUBSIDIES AND INJURY 
 
Contents Page 
Annex F-1 Timeline of Financial Progra mmes and Salient Events in 2000 and 
2001 F-2 
Annex F-2 Panel's Conclusions as to  the WTO Consistency of the EC 
Determinations on Subsidies  F-3 
Annex F-3 Panel's Conclusions as to  the WTO Consistency of the EC 
Determinations on Injury F-4 
 
 
 WT/DS299/R 
Page viii  
 
  
TABLE OF CASES CITED IN THIS REPORT 
 
Short Title Full Case Title and Citation of Case 
Argentina – Footwear (EC) 
  
 
 
 Appellate Body report, Argentina – Safeguard 
Measures on Imports of Footwear , WT/DS121/AB/R, 
adopted 12 January 2000, DSR 2000:I, 515 
 Panel report, Argentina – Safeguard Measures on 
Imports of Footwear , WT/DS121/R, adopted 
12 January 2000, as modified  by the Appellate Body 
report, WT/DS121/AB/R, DSR 2000:II, 575 
Argentina – Poultry  Panel report, Argentina – Definitive Anti-Dumping 
Duties on Poultry from Brazil , WT/DS241/R, adopted 
19 May 2003 
Canada – Aircraft Panel report, Canada – Measures Affecting the Export 
of Civilian Aircraft , WT/DS70/R, adopted 
20 August 1999, as upheld by the Appellate Body report, WT/DS70/AB/R, DSR 1999:IV, 1443  
EC – Bed Linen Panel report, European Communities – Anti-Dumping 
Duties on Imports of Cotton-Type Bed Linen from 
India , WT/DS141/R, adopted 12 March 2001, as 
modified by the Appellate Body report, 
WT/DS141/AB/R, DSR 2001:VI, 2077 
EC – Bed Linen  (Article 21.5 – India)
  Appellate Body report, European Communities – Anti-
Dumping Duties on Imports of Cotton-Type Bed Linen 
from India – Recourse to Article 21.5 of the DSU  by 
India , WT/DS141/AB/RW, adopted 24 April 2003  
EC – Hormones Appellate Body report, EC Measures Concerning Meat 
and Meat Products (Hormones) , WT/DS26/AB/R, 
WT/DS48/AB/R, adopted 13 February 1998, DSR 1998:I, 135 
EC – Tube or Pipe Fittings Appellate Body report, European Communities – Anti-
Dumping Duties on Malleable Cast Iron Tube or Pipe 
Fittings from Brazil , WT/DS219/AB/R, adopted 
18 August 2003  Panel report, European Communities – Anti-Dumping 
Duties on Malleable Cast Iron Tube or Pipe Fittings 
from Brazil , WT/DS219/R, adopted 18 August 2003, as 
modified by the Appellate Body report, WT/DS219/AB/R 
Egypt – Steel Rebar  Panel report, Egypt – Definitive Anti-Dumping 
Measures on Steel Rebar from Turkey , WT/DS211/R, 
adopted 1 October 2002 
Mexico – Corn Syrup Panel report, Mexico – Anti-Dumping Investigation of 
High Fructose Corn Syrup (HFCS) from the United 
States , WT/DS132/R and Corr.1, adopted 
24 February 2000, DSR 2000:III, 1345  WT/DS299/R 
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Short Title Full Case Title and Citation of Case 
Thailand – H-Beams 
   Appellate Body report, Thailand – Anti-Dumping 
Duties on Angles, Shapes and Sections of Iron or Non-
Alloy Steel and H-Beams from Poland , 
WT/DS122/AB/R, adopted 5 April 2001, DSR 2001:VII, 2701 
 
Panel report, Thailand – Anti-Dumping Duties on 
Angles, Shapes and Sections of  Iron or Non-Alloy Steel 
and H-Beams from Poland , WT/DS122/R, adopted 
5 April 2001, as modified  by the Appellate Body 
report, WT/DS122/AB/R, DSR 2001:VII, 2741 
US – Countervailing duty on DRAMs Panel report, United States – Countervailing Duty 
Investigation on Dynamic  Random Access Memory 
Semiconductors (DRAMS) from Korea , WT/DS296/R, 
not yet adopted 
US – Export Restraints Panel report, United States – Measures Treating 
Exports Restraints as Subsidies , WT/DS194/R and 
Corr.2, adopted 23 August 2001, DSR 2001:XI, 5767 
US – Hot-Rolled Steel  Appellate Body report, United States – Anti-Dumping 
Measures on Certain Hot-Ro lled Steel Products from 
Japan , WT/DS184/AB/R, adopted 23 August 2001, 
DSR 2001:X, 4697  
US – Lamb  Appellate Body report, United States – Safeguard 
Measures on Imports of Fresh,  Chilled or Frozen Lamb 
Meat from New Zealand and Australia , 
WT/DS177/AB/R, WT/D S178/AB/R, adopted 
16 May 2001, DSR 2001:IX, 4051  
US – Line Pipe Appellate Body report, United States – Definitive 
Safeguard Measures on Impo rts of Circular Welded 
Carbon Quality Line Pipe from Korea , 
WT/DS202/AB/R, adopted 8 March 2002 
 
Panel report, United States – Definitive Safeguard 
Measures on Imports of Ci rcular Welded Carbon 
Quality Line Pipe from Korea , WT/DS202/R, adopted 
8 March 2002, as modified by the Appellate Body 
report, WT/DS202/AB/R  
US – Softwood Lumber IV Appellate Body report, United States – Final 
Countervailing Duty Determ ination with Respect to 
Certain Softwood Lumber from Canada , 
WT/DS257/AB/R, adopted 17 February 2004 
US– Softwood Lumber VI  Panel report, United States – Investigation of the 
International Trade Commission in Softwood Lumber 
from Canada , WT/DS277/R, adopted 26 April 2004 WT/DS299/R 
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Short Title Full Case Title and Citation of Case 
US – Steel Safeguards Panel report, United States – Definitive Safeguard 
Measures on Imports of Certain Steel Products , 
WT/DS248/R, WT/DS249/R, WT/DS251/R, WT/DS252/R, WT/DS253/R, WT/DS254/R, WT/DS258, WT/DS259, adopted 10 December 2003, 
as modified by the Appellate Body report, 
WT/DS248/AB/R, WT/DS249/AB/R, WT/DS251/AB/R, WT/DS252/AB/R, WT/DS253/AB/R, WT/DS254/AB/R, WT/DS258/AB/R, WT/DS259/AB/R 
US – Wheat Gluten Appellate Body report, United States – Definitive 
Safeguard Measures on Imports of Wheat Gluten from 
the European Communities , WT/DS166/AB/R, adopted 
19 January 2001, DSR 2001:II, 717 
US – Wool Shirts and Blouses Appellate Body report, United States – Measure 
Affecting Imports of Wove n Wool Shirts and Blouses 
from India , WT/DS33/AB/R and Corr.1, adopted 
23 May 1997, DSR 1997:I, 323 
  WT/DS299/R 
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I. INTRODUCTION 
A. COMPLAINT OF KOREA  
1.1 On 25 July 2003, the Government of Korea ("Korea")1 requested consultations with the 
European Communities ("EC") pursuant to Article 4 of the Understanding on Rules and Procedures 
Governing the Settlement of Disputes (" DSU "), Article 30 of the Agreement on Subsidies and 
Countervailing Measures (" SCM Agreement "), and Article XXII of the General Agreement on Tariffs 
and Trade 1994 (" GATT 1994 "), with regard to the provisiona l countervailing measures imposed on 
dynamic random access memory chips ("DRAM s") from Korea, as announced in Commission 
Regulation (EC) No. 708/2003 and published in the O fficial Journal of the EC on 24 April 2003, and 
with regard to any final measures on the same products.2  A first round of consultations took place on 
21 August 2003. 
1.2 On 25 August 2003, Korea requested further cons ultations with the EC pursuant to Article 4 
of the DSU , Article 30 of the SCM Agreement , and Article XXII of the GATT 1994 , with regard to the 
EC's final countervailing measures imposed on DRAMs from Korea, as adopted by the Council on 11 August 2003 through Regulation No. 1480/2003 and s ubsequently published in the Official Journal 
of the EC on 22 August 2003.
3  Korea and the EC held a s econd round of consultations on 
8 October 2003, but failed to reach a mutual ly satisfactory resolution of the matter.  
1.3 On 19 November 2003, Korea requested the establishment of a Panel to examine the matter.4 
B. ESTABLISHMENT AND COMPOSITION OF THE PANEL  
1.4 At its meeting on 23 January 2004, the DSB est ablished a Panel in accordance with Article 6 
of the DSU  and pursuant to the request made by Korea in document WT/DS299/2. 
1.5 At that meeting, the parties to the dispute al so agreed that the Panel should have standard 
terms of reference.  The terms of reference are, therefore, the following: 
"[t]o examine, in the light of the relevant  provisions of the covered agreements cited 
by Korea in document WT/DS299/2, the matter  referred by Korea to the DSB in that 
document, and to make such finding s as will assist the DSB in making the 
recommendations or in giving the rulings provided for in those agreements." 
1.6 China, Japan, Chinese Taipei and the United States reserved their third-party rights. 
1.7 On 24 March 2004, the parties agreed to the following composition of the Panel:5 
Chairperson: Ms. Luz Elena Reyes de la Torre Members: Mr. Scott Gallacher   Mr. Thinus Jacobsz 
                                                     
 
1 We note that the term "Korea" is used in this report to refer to both the Government of Korea and the 
country, Korea, depending on the context.    
2 WT/DS299/1 and WT/DS299/1/Rev.1. 
3 WT/DS299/1/Rev.1/Add.1. 
4 WT/DS299/2. 
5 WT/DS299/3 and WT/DS299/3/Corr.1. WT/DS299/R 
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1.8 Ms. Luz Elena Reyes de la Torre resigned from the Panel on 22 June 2004.  On 27 July 2004, 
the parties appointed Mr. Gary Clyde Hufbauer as a ne w Chairman of the Panel.  On 29 July 2004, the 
Panel was re-composed as follows:
6 
Chairman: Mr. Gary Clyde Hufbauer Members: Mr. Scott Gallacher 
   Mr. Thinus Jacobsz 
C. 
PANEL PROCEEDINGS  
1.9 The Panel met with the parties on 3-4 Novemb er and on 9 December 2004.  The Panel met 
with third parties on 4 November 2004.  
1.10 The Panel submitted its Interim Report to the pa rties on 15 March 2005.  The Panel submitted 
its Final Report to the parties on 19 April 2005. 
II. FACTUAL ASPECTS 
2.1 This dispute arises from the EC's imposition of definitive countervailing duties on DRAMs 
from Korea.  The countervail investigation was in itiated on 25 July 2002, following a complaint filed 
by Infineon, the largest domestic producer in the EC.  Micron, the other EC producer, supported the 
complaint and cooperated in the investigation.  Th e EC sent questionnaires to a number of interested 
parties, including two exporters in Korea (Hynix and Samsung), the Government of Korea, and a number of Korean financial institutions.  The pe riod of investigation ("POI") for the subsidy 
investigation covered 1 January to 31 December 2001, while the injury POI covered 1 January 1998 
to 31 December 2001.     
2.2 On 24 April 2003, the Commission published Regulation 708/2003 imposing provisional 
countervailing duties on DRAMS from Korea (hereaf ter, "the Preliminary Determination").
7  T w o  
programmes were found to be countervailable subsidies, i.e., the KDB Debenture and the 
October 2001 Restructuring Programme.  The rate of  the provisional duty for Hynix was set at 33 per 
cent.  No duty was imposed on Samsung, as the s ubsidy amount determined for this exporter was de 
minimis .   
2.3 On 22 August 2003, Regulation 1480/2003 impos ing a definitive countervailing duty on 
DRAMs from Korea was published (hereaf ter, "the Final Determination").8  At this stage, the EC 
determined that five programmes were counter vailable: the Syndicated Loan, the Korea Export 
Insurance Corporation ("KEIC") Guarantee, the Korea Development Bank ("KDB") Debenture 
Programme, the May 2001 Restructuring Programme, and the October 2001 Restructuring Programme.  The amount of subsidisation for Hy nix was 34.8 per cent, while for Samsung it was 
determined to be de mininis .  The EC confirmed its provisional finding that the domestic industry 
suffered material injury and that it was caused by  subsidised imports of DRAMs from Korea.  The 
rate of the definitive countervailing duty for Hynix was equal to the subsidy amount, i.e., 34.8 per 
cent.  Given the de minimis subsidisation finding, no countervailing duty was imposed on Samsung. 
                                                     
 
6 WT/DS299/4. 
7 Commission Regulation (EC) No. 708/2003 of 23 April 2003 imposing a provisional countervailing 
duty on imports of certain electronic microcircuits  known as DRAMs (dynamic random access memories) 
originating in the Republic of Korea. 
8 Council Regulation (EC) No. 1480/2003 of 11 August 2003 imposing a definitive countervailing duty 
and collecting definitively the provisional duty imposed on  imports of certain electronic microcircuits known as 
DRAMs (dynamic random access memories) or iginating in the Republic of Korea.  WT/DS299/R 
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III. PARTIES' REQUESTS FOR FINDINGS AND RECOMMENDATIONS  
A. KOREA  
3.1 Korea requests that this Panel find that the EC has acted inconsistently with its obligations 
under Articles 1, 2, 10, 12, 14, 15, 19, 22 and 32 of the SCM Agreement , as well as Article VI:3 of 
GATT 1994 .  Specifically, the Korea requests this Panel to find the EC acted inconsistently with: 
• Article 1.1(a) of the SCM Agreement in determining the existence of financial 
contributions with respect to the Syndicated Loan, the KEIC Guarant ee, the KDB Debenture 
Programme, and the May and October 2001 Restructuring Programmes; 
• Articles 1.1(b) and 14 of the SCM Agreement  in determining the existence of a 
benefit, and its measurement, for the Syndicated Loan, the KEIC Guarantee, the KDB Debenture Programme, and the May and October 2001 Restructuring Programmes; 
• Articles 1.2 and 2 of the SCM Agreement  in making an erroneous finding of de facto  
specificity, specifically with respect to the KDB Debenture and the May and October 2001 
Restructuring Programmes; 
• Articles 19.4 of the SCM Agreement and VI:3 of the GATT 1994 in levying 
countervailing duties in excess of the amount allowed under those provisions; 
• Article 12.7 of the SCM Agreement  in applying "facts available" with respect to 
certain aspects of its subsidy investigation; 
• Article 15.1 of the SCM Agreement  because the EC's injury and causation 
determinations were not based on positive evidence and did not involve an objective 
assessment of the effects of allegedly subsidized imports; 
• Article 15.2 of the SCM Agreement  because, inter alia,  the EC determinations 
improperly assessed the significance of the volume effects of Hynix imports; 
• Article 15.2 of the SCM Agreement  because, inter alia , the EC determinations 
improperly assessed the significance of the price effects of Hynix imports; 
• Article 15.4 of the SCM Agreement  because, inter alia, the EC failed to consider all 
factors relevant to the overall condition of the Community industry; 
• Article 15.5 of the SCM Agreement  because  the EC failed to demonstrate the requisite 
causal link between Hynix imports and injury , and because the EC improperly assessed the 
role of other factors and, therefore, failed to ensure that it did not attribute the effects of other 
causes to Hynix's imports; 
• Article 22.3 of the SCM Agreement  because the EC's injury determination did not set 
forth in sufficient detail the EC's findings and conclusions on all material issues of fact and 
law; and, 
• Articles 10 and 32.1 of the SCM Agreement  in imposing a definitive countervail 
measure on DRAMs from Korea that was neither in  accordance with the relevant provisions 
of the SCM Agreement nor with the relevant provisions of the GATT 1994 . 
 
3.2 Korea also requests the Panel to recommend th at the EC terminate its countervailing duty 
order against imports of DRAMs from Korea immediately.9  
B. EUROPEAN COMMUNITIES  
3.3 The EC invites the Panel to reject all claims and arguments raised by Korea in these 
proceedings.10 
                                                      
9 Korea First Written Submission,  para. 677.  
10 EC First Written Submission,  para. 581. WT/DS299/R 
Page 4  
 
IV. ARGUMENTS OF THE PARTIES 
4.1 The arguments of the parties as submitted, or  as summarized in their executive summaries as 
submitted to the Panel, are attached as Annexes (see Ta ble of Annexes, page vi).  Replies to questions 
posed by the Panel were received from both parties.  
V. ARGUMENTS OF THE THIRD PARTIES 
5.1 The arguments of those third parties which have  made submissions to the Panel, as submitted 
or as summarized in their executiv e summaries, are attached as Annexes (see Table of Annexes, 
page vi).  Neither China nor Chinese Taipei made written submissions.  China did not submit replies 
to the Panel's questions. 
VI. INTERIM REVIEW 
6.1 On 15 March 2005, we submitted the Interim Re port to the parties. On 29 March 2005, both 
parties submitted written requests for the review of  precise aspects of the Interim Report.  On 
5 April 2005, the EC submitted written comments on Ko rea's comments.  Neither party requested an 
interim review meeting. 
6.2 We have briefly outlined our treatment of partie s' requests below.  Where necessary, we have 
also made certain technical revisions to our Report. 
A. K
OREA COMMENTS  
Status of the KDB  
 6.3 Korea asserts that the Panel's characterization with regard to Korea' s position regarding the 
status of the KDB under the Syndicated Loan and the KDB Debenture Programme – as set forth in 
paragraphs 7.69 and 7.91 – does not fairly describ e its position during the panel procedure.  Korea 
asserts that in footnote 339 to its First Written Su bmission and in its response to question 1 of the 
Panel, it made it clear that it did not agree that the KDB is a public body and that, given the other issues involved in the dispute, it was simply unn ecessary to contest the public body issue.  Korea 
requests the Panel to more accurately reflect Kore a's position on the KDB in the Final Report.  The 
EC considers that the Report accurately reflects Ko rea's position and notes that Korea is unable to 
make any concrete suggestion for re-drafting.  In  our view, the Report appropriately reflects Korea's 
position.  We note that our Report does not state that Korea agrees with the EC's characterization of the KDB as a public body.  We only conclude that Kor ea chose not to contest this characterization.  It 
is clear from both the footnote referred to by Korea in its comments on the Interim Report, and in its 
answer to question 1 of the Panel, that Korea was not contesting this determ ination of the KDB as a 
public body.  In its comments on the Interim Re port, Korea once again confirmed that it was not 
contesting the public body issue.  We therefore do not consider it necessary to amend our Report and 
reject Korea's request in this respect.  
Qualifications to the Panel's analysis of benefit and the May 2001 Restructuring Programme
 
 
6.4 Korea asserts that a qualificati on similar to that contained in  paragraph 7.200 should appear 
after paragraphs 7.201 to 7.203, in case these paragraphs were to be maintained in the Final Report. 
The EC has no difficulty with such  an amendment.  We have amended the Report as requested by 
Korea.   WT/DS299/R 
 Page 5 
 
 
Qualifications and Corrections to the Panel's Analysis of the KEB  
 6.5 Korea requests that the Panel reiterate in para graph 7.134 its earlier conclusion set forth in 
paragraph 7.103 that evidence of past conduct, wh ether direction or otherwise, cannot establish 
entrustment or direction with resp ect to a future event.  The EC does not agree that past conduct is 
irrelevant to a future event and fully reserves its lega l position in this respect.  We are of the view that 
our footnote 143 sufficiently explains our position with  regard to the EC' s reliance on the question of 
evidence relating to government direction at the time of the Syndicated Loan for the purposes of 
establishing government direction with regard to  the KEB's participation in the October 2001 
Restructuring Programme.  The stat ement referred to by Korea in paragraph 7.103 about the use of 
evidence concerning past events h as to be read in the context of our discussion of the May 2001 
Restructuring Programme.  While, in our view, evidence of past conduct cannot as such establish 
entrustment or direction with respect to a future ev ent, this does not mean that it is irrelevant.  The 
importance of such evidence has to be seen in th e context in which it is used and the purposes for 
which it is used.  We explain in our Report the diffe rent context of the May and October Restructuring 
Programmes.  We thus do not find it necessary to amend our Report and reject Korea's request in this 
respect.  
6.6 In addition, Korea asserts that our finding in pa ragraph 7.134 is premised on a serious factual 
error.  Korea considers that the Panel improperly fo und relevant the EC's considerations that the KEB 
was until 1998 a specialized government bank.  Acco rding to Korea, evidence on the record before 
the investigating authority showed that since December 1989 the KEB was a public corporation under 
the Korean Commercial Code and its shares were  traded on the Korean Stock Exchange.  Korea 
asserts that under these circumstances, the Panel should revise its discussion and analysis of the 
KEB's participation in the October 2001 Restructuri ng.  The EC points out that the investigating 
authority referred to the year 1998 with respect to Ko rea's shareholding in the bank.  In light of these 
comments, we have amended our Report in paragra phs 7.133 and 7.134 in order to more accurately 
reflect what the investigating authority asserted with regard to the KEB.  This clarification does not, 
however, change the basis for our an alysis that we find relevant the EC's considerations concerning 
the important role played by the Korean  Government in the KEB in the past. 
Comments on Panel's Analysis of the KDB Debenture Programme
 
 6.7 Korea asserts that in paragraphs 7.197 and 7.198, the Panel gives the appearance of 
effectively adopting certain factual assertions fr om the EC Final Determination which Korea 
considers to have been contradicted by evidence of record.  In particular, Korea considers that 
comments made before the investigating authority by the KDB contradict the authority's conclusion 
that the CBO programme was created only for relativ ely small firms and that the KDB controlled the 
roll-over of programme bonds placed in CBO funds.
11  Korea requests that the Panel either note the 
basis for the EC authority's conclusions within its discussion and identify the contested facts or 
disassociate itself from these facts.  The EC cons iders that Korea nowhere indicates where these 
alleged facts were contested during the panel proceedi ngs.  In addition, the EC argues that the exhibit 
referred to by Korea contains mere assertions by one of the interested parties made before the investigating authority. 
6.8 We note that our task is not to conduct a de novo  review of the investigation, rather to 
examine whether the authority provided a reasona ble and reasoned explanation of how the facts 
support the determination made.  In the paragraphs referred to by Ko rea, we consider that similar 
arguments were made before the investigating authority as were made before us concerning the KDB 
Debenture Programme.  The investigating author ity responded to these arguments in the Final 
Determination, and therefore we considered it useful  to directly quote from the Final Determination. 
                                                     
 
11 Korea refers to KDB's Comments on the European Commission's Final Disclosure Document 
(30 June 2003). ( Exhibit GOK-17 ) WT/DS299/R 
Page 6  
 
In relevant part, we considered reasonable the inve stigating authority's explanations provided in the 
Final Determination.  The two alle ged inconsistencies raised by Korea in its comments are clearly not 
essential to the overall analysis of the investigating au thority, as is also evidenced by the fact that 
Korea did not put much emphasis in its arguments before the Panel on these alleged inconsistencies. 
In our view, the two alleged errors in the EC inv estigating authority's statement which we quoted are 
not particularly relevant to the qu estion of benefit to Hynix.  We do  not consider it necessary for us to 
further examine the correctness of the statements made .  We therefore reject Korea's request to amend 
our Report in this respect. 
Comments on Panel's Analysis of Financial Cont ribution with respect to Woori Bank in the 
October 2001 Restructuring Programme  
 
6.9 Korea asserts that in paragraph 7.121, the Pane l noted that the record of the investigation 
shows that Woori Bank participated as an Option 1 bank in the October 2001 Restructuring 
Programme on the basis of public policy considera tions.  Korea disagrees with this conclusion, 
pointing to some evidence of record allegedly show ing that Woori Bank decided to participate in the 
October 2001 Restructuring Programme based on comme rcial considerations.  Korea is of the view 
that the EC's reliance on only three paragraphs of what is a detailed commercial analysis in the so-
called Loan Committee Report discussing what the EC  viewed as public policy considerations is 
improper and takes these factors out of context.  Korea requests that the Panel reconsider its entrustment or direction analysis and calculus with respect to Woori Bank and the October Restructuring Programme, given that the misstatement  of the record of investigation identified above 
affected the Panel's ultimate c onclusions regarding Woori Bank's participation in the October 2001 
Restructuring Programme.  The EC considers that th e facts on the record simply show that, as well as 
the "commercial" explanations provided by Woori Bank, public policy considerations also played a 
role, as Korea admits in its comments.  The EC th erefore sees no reason to amend the Report on this 
point.     
6.10 We note that we do not state in our Report that  the record of evidence shows that Woori Bank 
based its participation only on public policy considerations.  However, as Korea acknowledges, the 
record shows that Woori Bank participated, inter alia,  on the basis of such public policy 
considerations.  In light of Korea's comments,  we decided to clarify the first sentence of 
paragraph 7.121 to reflect this nuance.  However,  this does not alter our overall assessment with 
regard to Woori Bank.  First, as we state in paragra ph 7.121, we consider relevant in the context of an 
examination of government entrustment or direction the fact that a private body bases its decision to 
invest on public policy considerations, albeit onl y in part.  Moreover, Woori Bank's public policy 
reasons for participating was only one piece of eviden ce that led us to the conclusion that the EC's 
determination of government directi on with regard to Woori Bank was justified.  It was certainly not 
the only evidence of such direction, nor was it a de terminative factor in our assessment.  In sum, we 
reject Korea's request to reconsider our analysis with respect to Woori Bank's participation in the 
October 2001 Restructuring Programme.  
B. EC
 COMMENTS  
Paragraph 8.1   
 6.11 The EC requests the Panel to replace in Sec tion  "VIII. Conclusions and Recommendations", 
the term "countervailing measures" (plural) in para graph 8.1 with "definitive countervailing measure" 
as the Panel did not make any findings with respec t to the provisional measures imposed.  Korea did 
not provide any comments on this request.  We ag ree with the proposed change, and have amended 
our Report accordingly.   WT/DS299/R 
 Page 7 
 
 
"Entrustment or direction"  
 6.12 With regard to the Panel's findings regarding en trustment or direction generally, the EC first 
requests that the Report should always refer to "entrustment or direction" and not just "direction".  Second, the EC requests the Panel to reconsider th e question of the relevance of the totality of the 
facts and evidence available.  The EC asserts that, for example, the existence of an express guarantee 
– the KEIC Guarantee – by Korea because Hynix was c onsidered too big to fail, throughout the POI, 
as well as the implied guarantee, is highly relevant to the question of entrustment or direction in the 
context, for example, of the October 2001 Restructuring Programme.  No comments were received from Korea on these requests. 
6.13 With regard to the EC's first request, we note th at the use of the term "direction", rather than 
"entrustment or direction", when discussing the EC  investigating authorities' determinations is not 
accidental.  We made a deliberate choice to use this term as the EC investigating authority itself made 
findings of government direction, and not governme nt entrustment.  We therefore reject the EC's 
request in this respect.  In the general section of  the Report entitled "General standard of entrustment 
or direction under Article 1.1(a)(1)(iv) of the SCM Agreement ", where we discuss the legal standard 
in more general terms, we did add the term "entrustment" in the middle of paragraph 7.59.   
6.14 As far as the EC's second request is concerned, we recall that our views as to the "totality of 
facts" argument of the EC are set forth in paragraph 7.63.  We see no reason to change this view at this stage.  We therefore reject th e EC's request in this respect.   
Paragraph 7.87
 
 
6.15 The EC requests the Panel to delete the wo rd "potential" in the first sentence of 
paragraph 7.87.  No comments were received fro m Korea on this request.  We note that the 
investigating authority found in paragraph 45 of th e EC Final Determination, which is quoted in 
paragraph 7.86 of our Report, that the guarantee is  a financial contribution by the government within 
the meaning of Articles 2.1(a)(iv) and (i) of th e EC's basic Regulation, which provisions are in 
relevant part identical to Article 1.1(a)(1)(iv) and (i) of the SCM Agreement  and refers to a direct or 
potential direct transfer of funds.  We have amende d our Report to more accurately reflect the fact 
that the EC made a finding of a direct or potential direct transfer of funds.    
Paragraph 7.320   
 
6.16 The EC requests the Panel to delete the words "the usual practice of making" in the final 
sentence of paragraph 7.320.  No comment was re ceived from Korea on this request.  We accept the 
EC's comment and have amended our Report accordi ngly in order to clarify the EC's views on this 
matter.   
Paragraph 7.393  
 
6.17 The EC requests the Panel to make two changes to paragraph 7.393:  (1) state in the second 
sentence that Hynix imports increased by "(361 per cent overall)" instead of by "(461 per cent overall)" and (2) to end the third sentence with th e following: "and fell from 31.4 per cent in 2000 to 
20 per cent in 2001".  No comments were received from Korea on this request.  We accept the EC's comments and have amended our Report accordingly.  
VII. FINDINGS 
7.1 This case concerns a challenge by Korea of the definitive countervailing measure imposed by 
the EC on imports of DRAMs from Korea.  The EC  found that, of the two Korean DRAMs producers, 
Hynix and Samsung, the latter di d not receive a subsidy above de minimis  and it thus decided not to WT/DS299/R 
Page 8  
 
impose any countervailing duty on imports from this producer.  However, the EC determined that, 
from December 2000 through November 2001, Korea extended subsidies to Hynix, either through the provision of a financial contribution by its public bo dies or by directing private bodies to take part in 
the restructuring operation of Hynix.  The EC determ ined that such financial contributions conferred a 
benefit to Hynix and thus constitu ted subsidies in the sense of the SCM Agreement .  Examining 
developments in the state of the domestic industr y from 1998 to  2001, the EC concluded that the 
subsidized imports of DRAMs were causing injury to the domestic producers of DRAMs.  The EC 
thus imposed a countervailing duty on imports of DRAMs from Hynix equal to the margin of subsidization of 34 per cent ad valorem . 
7.2 Korea's challenge concerns both the EC's subs idy determination, and the determination of 
injury to the domestic industry.  In particular, Korea claims that the EC's finding of a financial 
contribution by the government is not c onsistent with Article 1.1(a) of the SCM Agreement .  Korea 
further claims that the EC's determination of the existence and amount of benefit conferred to Hynix 
was in breach of Articles 1.1(b) and 14 of the SCM Agreement , and that the EC failed to demonstrate 
that some of the alleged subsidy programmes were specific in the sense of Articles 1.2 and 2 of the 
SCM Agreement .  A final claim relating to the subsidy determination concerns the use of facts 
available by the EC which Korea considers to have  been inconsistent with Article 12.7 of the SCM 
Agreement . 
7.3 With regard to the injury determination, Kor ea submits that the EC failed to properly examine 
the volume and price effects of the allegedly subsid ized imports and did not adequately evaluate all 
relevant factors having a bearing on the state of the domestic industry as required by Articles 15.1, 
15.2 and 15.4 of the SCM Agreement .  In addition, Korea claims that the EC did not establish the 
required causal relationship between the subsidized imports and the injury to the domestic industry 
found to exist and failed to ensure that injury caused by other factors was not attributed to the subsidized imports thereby acting in breach of Article 15.5 of the SCM Agreement . 
A. G
ENERAL ISSUES  
1. Standard of Review 
7.4 Article 11 of the DSU sets out the mandate of the Panel in WTO dispute settlement 
proceedings.  It provides that: 
[t]he function of the panel is to assist the DSB in discharging its responsibilities under 
this Understanding and the c overed agreements.  Accord ingly a panel should make an 
objective assessment of the matter before it , including an objective assessment of the 
facts of the case and the applicability of a nd conformity with th e relevant covered 
agreements, and make such other findi ngs as will assist the DSB in making the 
recommendations or giving the rulings provi ded for in the covered agreements.  
(emphasis added) 
7.5 The requirement under Article 11 of the DSU for a panel to make an objective assessment of 
the matter before it has been interpreted, inter alia , in the context of trade remedies other than anti-
dumping (for which the AD Agreement  contains its own specific standard of review) to entail an 
examination by the panel of whether the investigati ng authority examined all relevant facts, whether 
adequate explanation has been provided of how the facts support the determination made, and 
consequently, whether the determina tion was made consistent with the international obligations of the 
Member concerned.  In this regard, we recall the Appellate Body's guidance regarding the application 
of Article 11 of the DSU in the US – Lamb  case: 
"[w]e wish to emphasize that, although panels are not entitled to conduct a de novo  
review of the evidence, nor to substitute  their own conclusions for those of the  WT/DS299/R 
 Page 9 
 
 
competent authorities, this does not mean that panels must simply accept  the 
conclusions of the competent authorities.  To the contrary, …, a panel can assess 
whether the competent authorities' explana tion for its determination is reasoned and 
adequate only if the panel critically examines the explanation, in depth, and in the 
light of the facts before the panel.  Panels must, therefore, review whether the 
competent authorities' explanation fully addresses the nature, and especially, the 
complexities, of the data, and responds to othe r plausible interpretations of that data.  
A panel must find, in particular, that an  explanation is not reasoned, or is not 
adequate, if some alternative explanation  of the facts is plausible, and if the 
competent authorities' explanation does not seem adequate in the light of that 
alternative explanation.  T hus, in making an "objective assessment" …, panels must 
be open to the possibility that the explana tion given by the competent authorities is 
not reasoned or adequate."12 (emphasis in original) 
7.6 We are, therefore, fully conscious of the fact th at it is not the role of the Panel to perform a de 
novo  review of the evidence which was before the i nvestigating authority at the time it made its 
determination.  We will, therefore, examine whether on the basis of the record before it, a reasonable 
and objective investigating author ity could have reached the conc lusions the EC investigating 
authority reached with regard to the de termination of subsidization and injury. 
2. Burden of Proof 
7.7 In WTO dispute settlement proceedings, the burden of proof with respect to a particular claim 
or defence rests with the party th at asserts such claim or defence.13  The burden of proof is "a 
procedural concept which speaks to the fair and orderly management and disposition of a dispute".14  
In the context of the present dispute, which is c oncerned with the assessment of the WTO consistency 
of a definitive countervailing measure imposed by the EC, Korea is obliged to present a prima facie  
case of violation of the relevant articles of the SCM Agreement .  In this regard, the Appellate Body 
has stated that "a prima facie  case is one which, in the absence of effective refutation  by the defending 
party, requires a panel, as a matter of law, to rule in favour of the complaining party presenting the 
prima facie  case".15  Thus, where Korea presents a prima facie case in respect of a claim, it is for the 
EC to provide an "effective refutation" of Ko rea's evidence and arguments, by submitting its own 
evidence and arguments in support of the assertion that  the EC complied with its obligations under the 
SCM Agreement .  Assuming evidence and arguments are presented on both sides, it is then our task to 
assess that evidence and those arguments in order to  determine whether Korea has established that the 
EC acted inconsistently with its obligations under the SCM Agreement .  The role of the Panel is not to 
make the case for either party, but it may pose ques tions to the parties "in order to clarify and distil 
the legal arguments".16 
B. CLAIMS CONCERNING THE EC'S SUBSIDY DETERMINATION  
7.8 Korea challenges the EC's subsidy determination w ith regard to each of the five restructuring 
measures through which the EC found that subsidies we re provided to Hynix.  Korea considers that 
the EC's findings that each of these five restructur ing efforts constituted a financial contribution by 
the government that conferred a benefit are inconsistent with Articles 1 and 14 of the SCM 
Agreement . 
                                                      
12 Appellate Body report, US – Lamb , para. 106.   
13 Appellate Body report, US – Wool Shirts and Blouses , p. 14. 
14 Appellate Body report, Canada – Aircraft , para. 198. 
15 Appellate Body report, EC – Hormones , para. 104. 
16 Appellate Body report, Thailand – H-Beams , para. 136. WT/DS299/R 
Page 10  
 
7.9 In general, Korea claims that the EC's financia l contribution analysis with respect to these five 
measures is flawed as it failed to establish, inter alia , that the private bodies that participated in the 
restructuring measures were entrusted or directed by the Government of Korea to do so.  Moreover, 
Korea asserts that the EC's benefit analysis faile d to rely on the correct market benchmarks and 
illegitimately considered all measures as grants, in cl ear contradiction with the nature of the measures 
adopted.  The EC, on the other hand, rejects all of Korea's assertions and considers that the 
investigating authority conducted an objective exam ination in which it found sufficient evidence that 
Korea entrusted or directed private bodies to partic ipate in the restructuring.   In addition, the EC 
argues that, in light of the reasonable conclusion  that no market operator would have provided 
financing to Hynix in the course of the period of in vestigation, the investigating authority was entitled 
to consider all measures as grants.  
7.10 In light of the reference that will need to be ma de to the various restructuring efforts found to 
constitute subsidies to Hynix, we consider it usef ul to first describe briefly each of these five 
programmes which were examined by the EC.  We  will then examine in detail the claims and 
arguments of the parties with resp ect to the EC's determination of financial contribution and benefit 
for each of these programmes.
17 
7.11 We note that the record shows that Hynix's fi nancial situation was critical during the years 
following the financial crisis in Korea of 1997, an d that, by the end of 2000, Hynix had accumulated 
more than USD 9.46 billion of liabilities, almost tw ice its net worth and more than four times the 
market capitalisation of the company.18 It appears that the important problem that Hynix was facing 
consisted of the maturing of the majority of these liabilities in the year 2001, which would imply 
serious liquidity problems for Hynix.  The EC dete rmined that, by November 2000, Korea decided to 
take action to "alleviate Hynix' cash crunch" and provided subsidies through fi ve different support and 
restructuring programmes from December 2000 to October 2001: the Syndicated Loan, the KEIC 
Guarantee, the KDB Debenture Programme, th e May 2001 Restructuring Programme and the 
convertible bonds purchase in particular, a nd the October 2001 Restructuring Programme. 
7.12 The Syndicated Loan of a total amount of KRW 800 billion was part of a financial plan to 
resolve the problem of a "mismatch" between Hynix 's cash flow and the extent of debt obligations 
that matured and had to be repaid in 2001.  While ten banks participated in the Syndicated Loan, the 
EC examined only three banks, the Korea Deve lopment Bank ("KDB"), the Korea Exchange Bank 
("KEB") and the Korea First Bank ("KFB") and consider ed that their participation in the Syndicated 
Loan constituted a financial contribution by Korea conferring a benefit on Hynix.  The EC found the 
KDB  to be a public body, and the KEB and KFB (each participating in the Syndicated Loan for an 
amount of KRW 100 billion) to be acting under the direction of Korea.  
7.13 In January 2001, Hynix benefited from an in crease in its 90 day D/A (documents against 
acceptance) export credit facility from USD 800 million to  USD 1.4 billion.  It documents each export 
transaction, on the basis of which it receives immediate payment from the fourteen participating 
banks.  The overseas purchasers later pay the bank s.  The Korea Export Insurance Corporation 
("KEIC") guarantees that the banks will receive payment,  in case either the exporter or the importer 
goes bankrupt.  The EC concluded that, without the KEIC Guarantee, the banks would not have been 
willing to extend the export credit facility for Hynix and determined that the KEIC, as a public body, 
was therefore providing a financial contribu tion that conferred a benefit to Hynix. 
7.14 Around the same time, i.e., on 4 January 2001, Hynix was admitted to the KDB Debenture 
Programme.  Under this progra mme, maturing debt was to be rolled-over and re-packaged for 
investors.  Hynix had to pay 20 per cent of th e due debt, while 80 per cent was purchased by the 
                                                      
17 In addition, and for ease of understanding, Annex F-1 contains a timeline of these programmes and 
salient events in 2000 and 2001 based on the relevant information on the record.  
18 Final Determination, para. 19, referring to Hynix Business plan filed with the FSC, 21 March 2002.   WT/DS299/R 
 Page 11 
 
 
KDB, which then repackaged 70 per cent thereo f for sale to investors as collateralised bond 
obligations ("CBOs") and/or collateralised loan oblig ations ("CLOs"), guaranteed by the Korea Credit 
Guarantee Fund ("KCGF"); and 10 per cent was retained by the KDB.  The EC found that the bond purchase by the KDB as part of this programme  constituted a financial contribution by the 
government which conferre d a benefit on Hynix. 
7.15 In May 2001, a further recapitalisation plan, referred to as the "May 2001 Restructuring 
Programme", was agreed by the eighteen Hynix cr editor banks united in the Creditors' Council.  The 
May Programme included an injection of fresh capital into Hynix through the offering of KRW 1.3 trillion of global depositary  receipts ("GDRs"); an extension of the maturities of short and 
long-term debt (a debt roll-over); and the purchase by the creditor banks of convertible bonds ("CBs") 
worth KRW 1 trillion.  The EC found that the creditor banks had been directed by Korea to agree to 
these measures and countervailed the CBs purchase as being a financial contribution by the 
government which conferre d a benefit on Hynix. 
7.16 Finally, on 31 October 2001, the Creditors Fi nancial Institutions Council ("CFIC") decided on 
a second restructuring package for Hynix, the so-called "October 2001 Restructuring Programme". 
Creditor banks were given several options, rangi ng from walking away from Hynix and collecting 
part of the amount owed as determined by a liquida tion report, to providing even further financing. 
Six banks provided new funds to Hynix and agreed to a new loan of KRW 1 trillion to Hynix with an interest rate of 7 per cent; a debt-to-equity swap  by acceptance of bonds convertible into shares; and 
extending the maturities of existing loans until 31 December 2004, converting the maturing corporate 
bonds into corporate bonds with a three year maturity and an interest rate of 6.5 per cent and adjusting 
the interest rate of the remaining loans in Korean currency to 6 per cent.  The EC considered that the 
participation by these six so-called "Option 1" banks in the October 2001 Restructuring Programme 
constituted a financial contribution by the governme nt which conferred a benefit on Hynix, as these 
banks were either public bodies or directed to  take part in the restructuring by Korea. 
7.17 The EC concluded that the overa ll amount of the subsidy provided by Korea to Hynix through 
these five programmes was 34.8 per cent ad valorem .
19     
1. Claim regarding the EC's determinations of the existence of a financial contribution by 
the government  
(a) Korea  
7.18 Korea argues that the EC's findings of financia l contribution with regard to five different 
programmes are inconsistent with Article 1.1(a) of the SCM Agreement , mainly because the EC failed 
to establish that the private bodies that participated in the programme were entrusted or directed by 
Korea to provide a financial contribution to Hynix.  
(i) General standard of entrustment or direction und er Article 1.1(a)1(iv) of the SCM Agreement 
7.19 With respect to the appropriate legal standard of entrustment or direction under Article 1.1(a) 
of the SCM  Agreement , Korea argues that, in order to find a financial contribution through a private 
body, an authority must demonstrate an explic it and affirmative government action addressed to a 
particular party to perform a particular task or duty.20 Korea asserts that the ordinary meaning of the 
term "entrust" is "to give responsibility for" while the ordinary meaning of "to direct" is "to give a 
formal order or command".21 As the French and Spanish versions of Article 1 of the SCM Agreement  
confirm, the most appropriate interpretation of the term "to direct" must be the meaning that conveys 
                                                      
19 See Final Determination, table in para. 166. 
20 Korea First Written Submission, para. 396. 
21 Id., para. 404. WT/DS299/R 
Page 12  
 
the idea of ordering the private body to take some action, and not the looser idea of mere guidance or suggestions.
22  Korea argues that Article 1 of the SCM Agreement  only targets government action.  In 
this context, the terms "entrust or direct" must ther efore be read to mean that the disciplines of the 
SCM Agreement  apply to the actions of private bodies only in case the private body becomes the 
instrument of the government.  If any discretionary au thority is left to private body, its actions cannot 
be imputed to the government, and the SCM Agreement  does not apply.23 In the view of Korea, the 
"entrusts or directs" standard is not merely an "e ffects test".  Korea argues that the perceived reaction 
of private entities to reported government inducement,  or even confirmed react ion by private entities, 
cannot  be the basis on which the Member's compliance with its treaty obligations under the WTO is 
established.  Korea finds support for its inte rpretation in the report of the panel in US – Export 
Restraints .  Korea submits that, under this legal standard , the EC failed to establish that the private 
bodies that participated in the five programmes which were alleged to constitute a financial 
contribution were entrusted or directed by the Kor ean government or a Korean public body to do so. 
(ii) Syndicated Loan 
7.20 With regard to the Syndicated Loan that wa s provided by ten banks in December 2000, Korea 
submits that there is no basis in the facts of the r ecord for the EC's finding that two private banks, the 
KEB and KFB24, took part in the loan because they were  entrusted or directed to do so.  Korea 
considers that the EC attached undue importance to  the letter of the Ministry of Finance and Economy 
to the KEB dated 28 November 2000.  According to  Korea, all this letter did was to advise or 
recommend the KEB to seek a lending limit waiv er from the FSC.  The letter clearly does not 
command the KEB to provide financing to Hynix.25 According to Korea, even if the letter is read to 
require the KEB to act in a certain manner, then at  best the letter requires the KEB to seek a lending 
limit waiver from the Financial Supervisory Comm ission ("FSC"), a Korean public body.  The letter 
did not order the KEB to participate in the Syndicated Loan and provide funds.26 Korea argues that 
while the FSC waiver which was obtained by the KEB may have enabled the KEB and two other banks which had reached their lending limits to pa rticipate in the loan, this does not explain these 
banks' decision to actually participate in the lo an.  Korea notes that seven other banks also 
participated in the loan without the need for a waiv er.  In sum, while the waiver granted by the FSC, a 
public body, permitted the transaction, this does not su ffice to conclude that this public body or the 
government required the KEB to take part in the tr ansaction.  Korea recalls that the Syndicated Loan 
was already on the table in early November and that  the question in December was simply a matter of 
how to execute the loan.
27  
(iii) KEIC Guarantee 
7.21 Korea submits that the financial contribution th at was countervailed by the EC consisted of 
the extended D/A financing of the creditor banks which was guaranteed by the KEIC.  Korea argues 
that the EC failed to establish that these creditor ba nks were directed by the government to provide 
further D/A financing, and ignored the fact that the financing was driven by the very rational and 
commercial considerations of the creditors involved, as is not contested by the EC.28 While it may 
well be correct that a public body such as the KEIC made available export insurance to creditors, this 
cannot be read to constitute an explicit and affi rmative delegation or command by Korea to Hynix 
creditors to extend such D/A financing in the amount of USD 600 million.29  The fact that the KEIC 
                                                      
22 Korea Second Written Submission,  para. 162. 
23 Korea First Written Submission,  paras. 405-406. 
24 We recall that the KFB contribution was considered to be negligible by the EC and was therefore not 
countervailed.  
25 Korea First Written Submission, para. 445.  
26 Id., para. 445.  (Korea Second Written Submission,  para. 187) 
27 Korea First Written Submission, para. 446. 
28 Id., para. 453. 
29 Id., para. 454.   WT/DS299/R 
 Page 13 
 
 
may be considered to be a public body is irrele vant as KEIC only provided insurance, and not any 
D/A financing.  It was the D/A financing which the banks provided that constituted the financial 
contribution that was countervailed without evidence of entrustment or direction of those banks. 30 
(iv) KDB Debenture Programme 
7.22 Korea submits that the EC did not establish that  all creditors that took part in the KDB 
Debenture Programme were entrusted or directed by Korea to provide funds.31 The EC was therefore 
not entitled to consider their participation as a fina ncial contribution by the government or a public 
body under Article 1.1(a) of the SCM Agreement .  Korea asserts that, even if the EC characterisation 
of the KDB as a public body is correct, numerous cr editors other than the KDB were also involved 
and the EC did not establish entrustment or direction with regard to these creditors.32  Korea notes that 
the KDB Debenture Programme did not actually invol ve the provision of new funds but merely a 
refinancing of existing bonds.33 In any case, Korea points out that  there is no evidence on the record 
that any specific lender was legally obligated by th e KDB Debenture Programme to participate in any 
specific refinancing.34 Therefore, the EC statement that all Hy nix creditors were directed by Korea to 
participate in the KDB Programme is unsubstantiate d and incorrect and reveals a confusion between 
financial contribution and the possible benefit to Hynix.35 
(v) May 2001 Restructuring Programme 
7.23 Korea submits that the EC's finding that the May 2001 Restructuring Programme of Hynix 
constituted a countervailable subsidy is also flawed .  Korea recalls that the May 2001 Restructuring 
Programme occurred at a time of rising DRAMs prices and that it was successful only because Hynix could persuade sophisticated interna tional investors to invest a huge sum of money in the company, as 
was recognised by the EC in the Preliminary Determination.
36 Korea argues that the EC's finding of 
financial contribution in the context of the May 2001 Restructuring Programme was based on 
insufficient circumstantial evidence of entrustment or direction. 
7.24 In particular, Korea first asserts that the EC  relied on erroneous press reports concerning the 
reason for the presence of an FSS official at one meeting of the Creditors Council and alleging 
government pressure being exercised on one of the ei ghteen participating banks.  Korea submits that 
the presence of an FSS official at this one meeting is explained by the fact that it was only logical that 
the FSS, as the principal Korean agency concerned with bank supervision, was present at the meeting 
to witness discussion of the prior commitments of the cr editors.  All this shows, at a maximum, is an 
abstract government interest, not direction or entrustment.37  Moreover, Korea argues that the press 
reports about Korea putting pressure on one bank, th e KorAm Bank,  were mistaken as this bank was 
                                                      
30 Korea Second Written Submission, para. 191.  
31 Korea argues that the KDB programme was not specific to Hynix but was designed to address a 
common problem of maturing bonds in the Korean market.  The creditors' decision to apply for the KDB 
programme was based on commercial considerations.  (Korea First Written Submission, para. 458) 
32  Korea First Written Submission, para. 455. 
33  Id., para. 456.  Under the programme, 20 per cent of the bonds had to be paid off by the debtor, and 
of the 80 per cent remaining, KDB only retained 10 per cent of the refinanced bonds.  The existing creditors 
were to hold only 16 per cent of the outstanding debt being refinanced (20 per cent of 80 per cent), and all the 
rest was refinanced on the open market. 
34 Id., para. 457. 
 35 Id., paras. 459-463. Korea points, in particular, to the specific criteria that need to be met in order to 
be allowed to participate.  Moreover, Korea states th at the fact that FSC waived the lending limit for certain 
banks does not equal a requirement to participate in th e programme.  Finally, Kore a asserts that the example 
provided in the EC Final Determination of the KFB being forced into participating is based on erroneous press reports, as the KFB did not take part in the programme, contrary to what it is stated in the Final Determination.
 
36 Korea First Written Submission, paras. 466-469. 
37 Id., para. 472. WT/DS299/R 
Page 14  
 
simply waiting for certain legal documents from Hyni x before finalizing its investment.  The KorAm 
went ahead with the investment as s oon as it received the documents concerned.
38 
7.25 Secondly, Korea considers incorrect and inappropria te the reliance of the EC on the fact that 
there was insufficient market financing available to Hynix by May 2001 to conclude that the participating banks thus must have  been acting under the entrustment or direction of the government. 
Korea refers to opposite conclusions  reached by the EC itself in its Preliminary Determination. 
Moreover, according to Korea, th e commercial reasonability of the financing is a matter which relates 
to the question of benefit to Hynix rather than the question of the existence of a financial contribution. 
7.26 Thirdly, Korea also considers inappropriate the EC reliance on alleged earlier cases of 
directed financial contributions (such as the Sy ndicated Loan, the KEIC Guarantee and the KDB 
Debenture Programme) to support of a finding of entrus tment or direction in respect of the May 2001 
Restructuring Programme.  Especially, in light of  the fact that the EC itself treated all five 
restructuring efforts as distinct measures, and in the absence of any demonstrated linkage between the 
restructuring operations, such past actions are simply irrelevant in establishing direction in the May 2001 restructuring.  
7.27 Finally, Korea submits that the EC failed to  examine all of the banks involved in the 
May 2001 restructuring before making findings of an  alleged financial cont ribution provided by all 
participating banks.  The EC relie d on press reports concerning allege d pressure put on one bank only, 
the KorAm Bank, and failed to show that this bank w as representative of all others.  The EC did not 
examine which of the banks were alleged to have b een entrusted or directed by Korea due to presence 
of an FSS official at the March meeting of the Cred itors Council.  Korea argues that it appears that the 
only basis for the EC's conclusions seems to have been that such presence was not disclosed earlier, 
which entails an attempt to penalize Korea for an a lleged failure to cooperate, and such a penalty is 
not authorized by Article 12.7 of the SCM Agreement . 
(vi) October 2001 Restructuring Programme 
7.28 With regard to the October 2001 Restructuri ng Programme, Korea asserts that the EC relied 
on a patchwork of circumstantial evidence most of which bears no relationship to the October 
Restructuring Programme as such, but rather rehash es press reports relating to the Syndicated Loan, 
the FSC waiver, the presence of an FSS official at the March 2001 meeting, and the allegations concerning the KorAm Bank.  In fact, Korea submits  that the EC based its conclusion of financial 
contribution in the context of the October 2001 Restructuring Programme on only one new press 
report.  This report contains a statement of the deputy PM which does not address the question of 
Korea's direction of banks to participate in the October 2001 Restructuring Programme. 
7.29 Korea asserts that the EC conclusion of entrustmen t or direction of the banks that took part in 
the October 2001 Restructuring Programme was largel y based on the fact that the government was a 
shareholder in a number of these banks.  Korea s ubmits that the government-shareholding in and of 
itself does not prove direction or entrustment.  Acco rding to Korea, for such a determination to be 
made, it needs to be positively established that the go vernment actually exercised its control to direct 
the particular bank in a particular way.  The EC failed to do this.
39 Moreover, Korea argues that the 
existence of a choice that was given to creditors as to  whether they wanted to continue to invest in 
Hynix as well as the fact that some 100 per cent government-owned banks, when given this choice, 
decided not to participate in the October Restru cturing Programme, clearly prove the absence of 
entrustment or direction.  
                                                      
38 Id., para. 477. 
39 Id., para. 506.  WT/DS299/R 
 Page 15 
 
 
7.30 In particular, Korea asserts that with regard to  Citibank, the EC ignored all relevant evidence 
(such as a Citibank affidavit; statements of Kor ea with regard to Citibank, as well as Citibank 
officials' statements) and merely relies on the a lleged close relationship between Citibank and the 
government, which does not prove direction or en trustment.  Korea notes that, in a parallel 
investigation concerning Hynix, the US Departme nt of Commerce found Citibank not to have been 
directed.  With regard to the KEB, Korea argues th at the KEB's low internal rating of Hynix does not 
show direction by the government, especially sin ce the KEB, as an existing creditor, may have had 
different objectives than new creditors.  The EC's argument, based on an alleged past culture of 
government influence over the KEB lending practices, ev en if correct, is unlikely to be valid in 2001 
now that an outside international bank like Commerzbank controls the KEB's lending practices. 
Concerning Woori Bank, Korea points out that the EC ignored the fact that, at the time of the 
restructuring in October 2001, there were still two banks, Woori Bank and Peace Bank, which later 
merged as Woori Bank.  The EC completely fail ed to examine Peace Bank's involvement or its 
alleged direction or entrustment.  The fact that Woori Bank seemed to have taken certain public policy 
objectives into account when deciding to take part in the restructuring is only normal for an important 
national bank.  It does not suffice to conclude, as the EC does, that this bank was entrusted or directed 
by the government to participate.  In the vi ew of Korea, the fact that a Memorandum of 
Understanding ("MOU") existed between Woori a nd the government is irrelevant for the 
October 2001 Restructuring Programme.  In any cas e, this MOU only set forth general prudential 
rules for Woori Bank as the recipient of public funds.40 With regard to Chohung Bank, Korea submits 
that government shareholding does not equal entrustmen t or direction, as the EC failed to demonstrate 
that the government actually used its alleged power to influence decisions as shareholder or under the 
MOU, which was put in place to protect the banks from government influence ra ther than the reverse. 
As far as the National Agricultural Cooperative Fe deration ("NACF") is concerned, Korea submits 
that the economic public policy obj ectives of the NACF relate only to the agricultural sector, and do 
not imply any government direction in a no n-agricultural sector like DRAMS.  The NACF's 
cooperative goals have, in any case, no bearing on the question of direction or entrustment. 
(b) EC 
(i) General standard of entrustment or direction und er Article 1.1(a)1(iv) of the SCM Agreement 
7.31 According to the EC, the terms "entrust or di rect" in Article 1.1(a)(1)(iv) have a wider 
meaning than the meaning advanced by Korea.  The EC argues that the use of the term "direct" in the 
SCM Agreement  rather than the term "order" implies that  the term "direct" has a wider connotation 
including "to regulate, conduct or control affairs", "to give commands or orders with authority".  It is 
thus of the view that an indication or a nudge by the government or a public body to a private body is also a "direction".
41 Similarly, the EC submits that the concept of "entrust" indicates a particularly 
light control and includes the notion of "putting so mething into the care or protection of someone".42 
The fact that a certain discretionary authority is le ft to the private body is therefore not inconsistent 
with a finding of entrustment or direction.  Such  acts of entrustment or direction may well include 
threats, encouragements, or even in certain ci rcumstances attending a meeting and monitoring the 
results of that meeting, depending on the facts of the case.43  
7.32 According to the EC, the real issue in this case is  an evidentiary one.  In this respect, the EC 
emphasises the general problems of evidence gather ing in countervail investigations which concern 
the behaviour of states and the difficulty of finding "the smoking gun".  The EC submits that Korea 
                                                      
40 Korea Second Written Submission, para. 214. 
41 The EC argues that, since Korea acknowledges the government nudged the banks into participating,  
this acknowledgement equals an admission of govern ment entrustment or direction.  (EC First Written 
Submission, para. 276) 
42 EC First Written Submission, para. 268. 
43 EC response to question 5 of the Panel, paras. 21 and 24. WT/DS299/R 
Page 16  
 
did not discharge its obligations under the SCM Agreement  since it did not place evidence in relation 
to the subsidies determination before  the investigating authority at the time of investigation.  In this 
regard, the EC refers, for instance, to the minutes of the Economic Ministers'  meeting which were not 
submitted by Korea.  The EC recalls that Article 1.1 of the SCM Agreement  provides that a subsidy 
will be deemed to exist  in any of the circumstances described in  that provision, and argues that the use 
of the term "deemed" refers to th e possibility of an evidentiary gap.
44,45  
7.33 According to the EC, the panel report in US – Export Restraints  is irrelevant to the case at 
hand and does not in any case support Korea's assertions.46 The EC is of the view that the panel 
findings in that report need to be put in context of facts of the case.  The EC recalls that the US – 
Exports Restraints  case concerns a restriction on exports, whic h is an inherently prohibitive or passive 
government action, and thus comple tely different from the affirmative government action at issue in 
this case.47  That panel's interpretation cannot be exte nded beyond the specific facts of the case as the 
fact pattern differs significantly from the fact pattern of this case.48 In any case, the EC considers that 
the panel report in that case, in so far as it is applicable or relevant, does not support Korea's 
argument.  The EC asserts that the US – Export Restraints  panel recognized the possibility of a 
general act of entrusting or directing a private body to  take a certain course of action.  In other words, 
there can be government direction or entrustment if a government generally entrusts or directs a 
company or a bank to act in the public interest and, in such case, there is no need to show that there 
was a specific entrustment or direction with resp ect to each specific act leading to a financial 
contribution. 
7.34 The EC considers that it has established the exis tence of a financial contribution in the sense 
of Article 1.1(a) of the SCM Agreement  with regard to each of the five challenged Hynix rescue 
operations.  
(ii) Syndicated Loan 
7.35 The EC first notes that it is not contested th at the KDB and FSC are public bodies, and that 
the KDB's participation in the loan thus cons tituted a financial contribution in the sense of 
Article 1.1(a)(1) of the SCM Agreement .  The EC argues that, as far as the two private banks are 
concerned, the KEB and KFB, there was sufficien t evidence on the record to support the conclusion 
that they had been entrusted or directed to provi de the loans to Hynix.  The EC submits that the 
28 November 2000 letter from the Ministry of Economy and Finance ordered, and thus "entrusted or 
directed", the KEB to apply for the extension of the credit ceilings, including on behalf of the KDB and KFB.  In other words, the letter did more than simply recommend or advise the KEB to seek a 
waiver.
49  The EC is of the view that it is impossible to dissociate the extension of the credit ceilings 
from the participation in the loan.  While preparator y steps for the Syndicated Loan were taken before 
the November letter, it was only put in place follo wing the steps taken by the government, at the 
28 November Economic Ministers' meeting, the results of which are contained in the letter.50 The 
                                                      
44 Id., para. 20.  
45 The EC thus argues that, if the evidence and the totality of the facts reasonably support the view that 
the government has guaranteed the company, and thus the risk associated with any capital supplied by private 
banks, then an investigating authority is entitled to conclude that there is a financial contribution within the 
meaning of Article 1.1 of the SCM Agreement , resulting from such government guarantee.  Another way of 
saying essentially the same thing is that, in these circumstances, the private banks have been entrusted or 
directed by the government to supply the necessary capital, under the umbrella of the overarching government 
guarantee.  (EC response to question 8 of the Panel, para. 47) 
46 EC First Written Submission, para. 279. 
47 EC response to question 4 of the Panel, para. 10. 
48 EC First Written Submission, paras. 282-283. 
49 Id., para. 290. 
50 Id., paras. 291-292. The government thus "provided" or made available to certain banks the right to 
derogate from the normal prudential banking rule s.  (EC First Written Submission, para. 294)  WT/DS299/R 
 Page 17 
 
 
participation of other banks does not prove the comme rcial viability of participation.  The EC argues 
that the other banks were simply not investigated by  the EC and, if anything, their participation shows 
that the "too big to fail"-policy of intervention in favour of Hynix was successful.  It convinced other 
banks to participate in the loan as the credit would be a safe bet.51  For these reasons, participation by 
the seven non-examined banks in the Syndicated Loan does not provide a valid benchmark for the 
commercial reasonability of participation in the Sy ndicated Loan.  The acti ons of these seven banks 
were, in any case, profoundly influenced both by the actions of the government in relation to Hynix, 
and by the actions of the government in rela tion to the Korean capital markets as a whole.52 
(iii) KEIC Guarantee 
7.36 The EC submits that Hynix would not have been able to obtain the D/A extension by 
USD 600 million (from USD 800 million to USD 1.4 billio n ) without the KEIC Guarantee, and this 
due to its precarious financial situation and the fact that some banks had already reached their 
prudential lending limits.53  The EC notes that Korea does not co ntest the EC's finding that the KEIC 
is a public body and hence no entrustment or direction in respect of KEIC needs to be demonstrated.  
In the case of the KEIC however, th e EC submits, there is also evidence that the government directed 
the KEIC to provide the additional guarantee.  Moreover, the government itself guaranteed the 
guarantor - the KEIC - that, in the event of future  problems caused by the guarantee to Hynix, the 
government would provide additional funds to the KE IC.  In sum, the EC concludes that Hynix was 
only able to secure the further guarantee from the KE IC due to government direction to the KEIC and 
the government's assurance that it would underwrite th e guarantee.  The EC argues that three letters of 
28 November 2000 (from the Ministry of Economy  and Finance), 30 November 2000 (from the 
Ministry of Commerce) and 10 January 2001 (from th e three Ministries involved) contain clear and 
irrefutable evidence of this government direction of the KEIC. 
(iv) KDB Debenture Programme 
7.37 The EC submits that the KDB is a public body and that the purchase of corporate bonds under 
the programme was therefore a clear financial contri bution in the sense of Article 1.1(a)(1) of the 
SCM Agreement .  The EC notes that Korea does not contest its determination of the KDB as a public 
body.  In the view of the EC, of the total pr ogramme budget of KRW 2.9 trillion, 1.2 trillion (41 per 
cent) was used for purchasing Hynix bonds, of wh ich Hynix paid back KRW 280.4 billion under the 
conditions of the programme, thus receiving a fi nancial contribution of  KRW 919.6 billion. 
(v) May 2001 Restructuring Programme 
7.38 The EC submits that the investigating authority based its determination on the totality of facts, 
and that it is not appropriate to assess the strength of each piece of evidence in isolation.  The EC also 
notes that the authority was to a certain extent obliged to use facts available due to the non-
cooperation of Korean actors.54  
                                                      
51  Id., paras. 286-287. 
 52 EC response to question 11 of the Panel, para. 64.  As the EC stated:  
"[c]onsider the situation in which a government gives a guarantee that induces a bank to 
provide a company with risk capital that will certa inly be lost.  There are essential two ways 
of viewing this situation, which both lead to e ssentially the same result.  First, the guarantee 
itself, with no premium, is a financial contribution, the amount of the subsidy being at least 
equivalent to the capital that it is certain will be lost.  Second, the bank has effectively been 
entrusted or directed to provide a subsidy, the amount of the subsidy being at least equivalent to the capital that it is certain will be lost".  (E C response to question 11 of the Panel, para. 62) 
 
53 EC First Written Submission, paras. 435-437. 
54 Id., para 304. WT/DS299/R 
Page 18  
 
7.39 Addressing the arguments by Korea, the EC submits, first, that the use of press reports as 
evidence is common and accepted.  The EC asserts that , in this particular case, the press reports 
concerning the FSS official's presence at the Credito rs Council meeting were from a reputable source 
specialized in economic and financial matters.  The EC considers important the fact that the press 
report was dated the day of the meeting and that th e information was thus fresh.  Moreover, the EC 
notes, the government failed to present the written reco rd of the minutes of this meeting to contradict 
information contained in the press report.
55 The EC further argues that the significance of the press 
reports has to be put in the context of this case, in which 2/3rds of the CBs were purchased by banks 
100 per cent owned by government or with government majority or decisive shareholding.  Moreover, 
and with respect to the press reports concerning the government pressure on one bank, the KorAm 
Bank, the EC submits that these reports clearly show the reluctance of this bank and the fact that it 
eventually participated only due to government direction.  As these reports are evidence of the 
willingness of the government to use pressure, there is no reason why the government would not have 
been as willing and able to similarly put pressure  on the other seventeen participating banks.  
7.40 Second, the EC emphasises that the absence of alternative financing on the market is very 
important in the totality of facts on wh ich the authority based its conclusions.56 The EC considers that 
the absence of alternative financing is a major fa ctor supporting the authority's conclusion that the 
banks were entrusted or directed to take part in the restructuring as there would have not been any 
need for government direction had su ch alternative financing existed. 
7.41 Third, and in a similar vein, the EC submit s that the existence of earlier financial 
contributions is important in the totality of fact s given the close temporal and economic connection 
between the various events.  According to th e EC, it is only reasonable to assume that the 
government's  interest in saving Hynix would continue. 
7.42 Finally, the EC is of the view that no bank-by -bank analysis was required as the totality of 
facts showed government direction for each of th e banks involved in the May 2001 Restructuring 
Programme. 
(vi) October 2001 Restructuring Programme 
7.43 The EC considers that the Final Determinati on sets forth sufficient evidence to support its 
finding of the existence of a financial contribution to Hynix.  The EC asserts that state control or participation is a strong indicator of entrustment or di rection.  In this regard, the EC asserts that four 
of the largest Hynix creditors, i.e., the KDB, Woori Bank, Chohung Bank, and the KEB, were either 
totally or by large majority owned by the governme nt.  Of the two less important creditors in the 
October Restructuring Programme, the NACF and Citibank, one (NACF)  is a cooperative established 
by a special law and jointly managed by the Ministry of Finance and Economy and the Ministry of Agriculture and Fishery. 
7.44 In the case of two of the banks, Woori Bank and Chohung Bank, the EC  submits that there 
was direct evidence on the record  that they based their decisions on public policy considerations, 
rather than their own commercial considerations.  In the view of the EC, the fact that the failure of 
company would cause a shock to the national economy would not justify a commercial bank's 
decision to inject money in a company with no reasonable expectation to receive its money back.  The EC asserts that these factors, taken as a whole, are sufficient to demonstrate that there was government entrustment or direction, in particular taking into account that the investigating authority 
operated under a facts available standard. 
                                                     
 
55 The EC considers that the press release which was issued by the FSC shortly after the press report in 
question and contradicting th e information stated therei n only shows the degree of connexity between FSS, FSC 
and the government.  The EC concludes that in  the case of FSC, "qui s'excuse, s'accuse". 
56 EC First Written Submission, paras. 319-320.  WT/DS299/R 
 Page 19 
 
 
7.45 With regard to Korea's claim that the EC s hould have taken into account that a number of 
Hynix's creditor banks with substantial government pa rticipation did not participate in Option 1 of the 
October 2001 Restructuring Programme, the EC st ates that Korea's argument is posited on the 
assumption that it was reasonable for any bank to pa rticipate in Option 1 because there was a chance 
that it could recover losses.  However, the EC st ates that it was not commercially reasonable on any 
view for any of the players to participate in Option 1, irrespective of the amount of exposure at the 
time of the October 2001 Restructuring Programme.  Fi nally, the EC considers that evidence of prior 
government entrustment or directi on is relevant as it shows the government's involvement which was 
likely to continue as long as necessary to save Hynix. 
7.46 In response to some of Korea's arguments concer ning each of the specific participating banks, 
the EC asserts that the authority did not ignore any Citibank evidence.  In fact, according to the EC, 
what Korea calls "evidence" are no more than self-int erested statements and affidavits of little or no 
probative value.  The EC also disagrees with Korea's assertion that Commerzbank controlled the 
lending practice of the KEB, as in fact, of the twenty directors, only four were from Commerzbank, and the government as the largest shareholder was able  to influence the other directors' appointments. 
Finally, with regard to Woori Bank, the EC emph asises that Peace Bank no longer existed at the time 
of the investigation and that none of the inte rested parties made any arguments before the 
investigating authority about the need to examine Peace Bank.  In  fact, according to the EC, Peace 
Bank had effectively been taken over by  the government by October 2001.   
(c) Panel Analysis 
7.47 Korea's claim concerns the definition of a subsidy under Article 1 of the SCM Agreement , and 
the requirement of determining the existence of a financial contribution by the government under 
Article 1.1(a) of the SCM Agreement  in particular.  Article 1 of the SCM Agreement  provides in 
relevant portion as follows:  
1.1 For the purpose of this Agreement, a subsidy shall be deemed to exist if: 
(a)(1) there is a financial contribution by a government or any public body 
within the territory of a Member (referred to in this Agreement as 
"government"), i.e. where: 
(i) a government practice involves a direct transfer of funds (e.g. 
grants, loans,  and equity infu sion), potential direct transfers 
of funds or liabilities (e.g. loan guarantees); 
(ii) government revenue that is otherwise due is foregone or not 
collected (e.g. fiscal incen tives such as tax credits);  
(iii) a government provides goods or services other than general 
infrastructure, or purchases goods; 
(iv) a government makes payments to a funding mechanism, or 
entrusts or directs a private body to carry out one or more of 
the type of functions illustrate d in (i) to (iii) above which 
would normally be vested in the government and the practice, in no real sense, differs from practices normally followed by governments; 
(....) 
and WT/DS299/R 
Page 20  
 
(b) a benefit is thereby conferred. (footnote omitted) 
(i) General standard of entrustment or direction und er Article 1.1(a)1(iv) of the SCM Agreement 
7.48 Article 1.1 of the SCM Agreement  thus provides that a subsidy shall be deemed to exist in 
case there is a financial contribution by the governme nt or any public body wi thin the territory of a 
Member which confers a benefit.  Article 1.1(a)(1) s ubparagraphs (i) to (iii) set forth three situations 
that are considered to constitute such a financia l contribution by the government.  Subparagraph (iv) 
adds that a financial contribution may also  be considered to have been provided by the government , in 
cases where the government has entrusted or directed a private body  to provide one of the types of 
financial contributions described in subparagra phs (i) to (iii) of Article 1.1(a)(1) of the SCM 
Agreement .  In other words, the Agreement provides that a financial contribution will be considered to 
have been provided by the government in cases wher e the government or a public body itself provides 
such a financial contribution, or in cases where the gove rnment entrusts or directs a private body to do 
so.   
7.49 In our view, two situations thus need to be distinguished.  If the government or a public body 
carries out one of the functions illustrated in subparagr aphs (i) to (iii), then such action constitutes a 
financial contribution in the sense of Article 1.1(a) of the SCM Agreement .  If a private body 
undertakes the same action, there is no financial c ontribution in the sense of Article 1.1(a) of the SCM 
Agreement , unless it is established that the private body w as entrusted or directed by the government 
to provide the financial contribution.  We note, in this respect, that Article 1.1(a)(1) of the SCM 
Agreement  clarifies that the term " government" as used in the SCM Agreement  covers both the 
government as such, as well as any public body with in the territory of a Member.  In our view, 
therefore, and the parties do not seem to disagree in this respect, there is no need for a finding of 
entrustment or direction in cases where it has been established that the party providing the financial 
contribution was itself a public body. 
7.50 However, in cases where the financial contri bution was provided by a private body, as the 
investigating authority considered to have been the case on a number of occasions with respect to 
support for Hynix, the disciplines of the SCM Agreement  will not apply as there is no financial 
contribution by the government , unless it can be demonstrated that the private body was entrusted or 
directed by the government to provide such a financia l contribution.  We will thus need to examine 
the exact scope and meaning of the terms "entrust" a nd "direct" as used in Article 1.1(a)(1)(iv) of the 
SCM Agreement .    
7.51 Article 3.2 of the DSU requires us to interpret the terms of the various WTO Agreements in 
accordance with the "customary rules of interpreta tion of public international law".  This is a 
reference to the rules of treaty interpretation laid down in the Vienna Convention on the Law of 
Treaties  (the "Vienna Convention"), particularly Articles 31-32 thereof.
57  We will therefore examine 
the ordinary meaning of the terms used in Article 1 of the SCM Agreement , in their context and in 
light of the object and purpose of the Agreement. 
7.52 The ordinary meaning of the term "entrust" is "to give (a person etc.) the responsibility for a 
task" or "to commit the execution of (a task) to a person".58  The term "direct" in turn means, inter 
alia, "to give authoritative instru ctions to; order (a person) to do , (a thing) to be done; order the 
performance of."59  In other words, the term "entrust" refe rs to a delegation over the performance of a 
                                                      
57 See, e.g., Appellate Body report, US - Reformulated Gasoline , page 17. 
58 The New Shorter Oxford Dictionary, Third edition, p. 831.   
59 Id., p. 681.  In a similar vein, another dictionary defines the term "direct" (followed by to + 
Infinitive, as is the case in the provision in question) as  "to give a formal order or command to".  (The Concise 
Oxford Dictionary, Ninth edition, p. 382)    WT/DS299/R 
 Page 21 
 
 
task, while the term "direct" refers to a more direct command, an order.60 Both, in our view, clearly 
contain the notion of the imposition of a requirement  or an obligation  on the person that is entrusted 
with a task or that is directed to carry out a t ask.  The private body that is directed to provide a 
financial contribution or is entr usted to do so, is thus acting on behalf of the government, and its 
actions can therefore be ascribed to the government.  
7.53 The use of these terms is not surp rising in the context of the SCM Agreement  which, like the 
WTO Agreements generally, deals with government  behaviour and not the behaviour of private 
parties.  Article 1.1(a)(1) provides that the first el ement of a subsidy is a "financial contribution by a 
government or any public body".  All four subparagr aphs (i) to (iv) thus deal with government 
behaviour.  Subparagraphs (i) to (iii) focus on expl aining what is meant by a financial contribution, 
while subparagraph (iv) deals with situations in which the financial contribution was provided by a 
private body, but acting under the entrustment or di rection of the government.  In this context, the 
terms "entrust or direct" thus bridge the distance between private parties' actions, which fall outside 
the scope of the SCM Agreement , and the government behaviour to which the disciplines of the SCM 
Agreement  apply.  By entrusting or directing a private body to carry out one of the functions 
illustrated in subparagraphs (i) to (iii), the governme nt is providing a financial contribution, and the 
private parties' actions may thus be attributed to the government.61  
7.54 Korea argues on the basis of the language used in the report of the panel in the US – Export 
Restraints  case that there is a requirement to demonstrate an explicit and affirmative act by 
government to a particular entity to perform a partic ular task.  In our view, the specific language of 
the panel in that case was inspired by the facts of that case, which are entirely different from the facts 
currently before us.  Indeed, the panel in US – Export Restraints  made it quite clear that the scope of 
its rulings was squarely focussed upon the particular fa ct pattern that Canada – the complainant in that 
case – had cited, i.e.: 
"… a border measure that takes the form of a government law or regulation which 
expressly  limits the quantity of exports or places explicit  conditions on the 
circumstances under which exports are perm itted, or that takes the form of a 
government-imposed fee or tax on exports of the product calculated to limit the 
quantity of exports."62  (emphasis added) 
7.55 The panel in US – Export Restraints  then observed that it was these "essential characteristics" 
of an export restraint that delineated the scope of Canada's claims in that case and the panel's 
rulings.63 
7.56 We share that panel's basic understanding of the terms "entrust" or "direct" as requiring a 
government action which obliges a private body to act in  a particular way and generally refers to the 
situation in which government executes a particul ar policy by operating through a private body.  
However, we do not feel bound by the precise language used by the panel in the US – Export 
Restraints  case which had a completely different factual setting.  Neither do we feel that we need to 
interpret what this panel may or ma y not have intended to imply by using the words it did, as our task 
is not to interpret panel reports but rather the provisions of the SCM Agreement  in accordance with 
customary rules of interpretation of public international law. 
                                                      
60 We note that the panel in the US – Export Restraints  case based itself on the same definitions to 
reach a similar conclusion.  (Panel report, US – Export Restraints , paras. 8.28-8.29) 
61 We find support for our reading of the terms "entrust or direct" in the panel report in the US – Export 
Restraints case, paras. 8.29-8.34. 
62 Id., para. 8.17. 
63 Ibid. WT/DS299/R 
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7.57 In that respect, we consider that Article 1.1(a)(1) of the SCM Agreement  does not require that 
the government's entrustment or di rection be conveyed to the private bodies in a particular way.  
Rather, it encompasses entrustment or direction i rrespective of the precise form it takes.  As the US –
Export Restraints  panel observed, it follows from the ordina ry meanings of the two terms "entrust" 
and "direct" that the action of the government must  contain an element of delegation (in the case of 
entrustment) or command (in the case of direction).
64  And such delegation or command should 
invariably take the form of an affirmative act.  But it does not necessarily need to be "explicit".  It 
could be explicit or implic it, informal or formal.65  The key is being able to identify such entrustment 
or direction in each factual circumstance.  This will obviously need to be determined, on a case-by-case basis, whether an investigating authority coul d reasonably have conclude d on the basis of all of 
the relevant and probative evidence before it that such entrustment or direction existed.
66 
7.58 This ordinary meaning of the terms "entrusts or  directs" is consistent with the object and 
purpose of the SCM Agreement to discipline certain – but not all – forms of government action which 
distort international trade.  As such, Article 1.1.(a )(1)(iv) should not be read too broadly so that it 
encapsulates the actions of private bodies acti ng independently of government delegation or 
command.  But neither should it be read too narrowl y so that it allows governments to escape their 
obligations under the SCM Agreement by acting indirectly, implicitly or informally through private 
bodies.  In our view, the ordinary meaning of the terms "entrusts or directs" that we have outlined above in paras. 55-56 fits squarely in  line with the object and purpose of the SCM Agreement . 
7.59 We consider that it is important to distinguish between the legal standard that has to be met 
and the evidence that is relied upon to prove governme nt entrustment or direction.  We note that the 
EC placed much importance on the fact that th e private bodies participating in the various 
restructuring efforts were not acting in a commercia lly reasonable way.  We agree with the EC that, 
when demonstrated, such non-commercial behaviour  may well be seen as an indication of possible 
government entrustment or direction.  It can thus be taken into account as an element of evidence that 
the government was perhaps entrusting or directing these private bodies to act in a certain way, but it 
is not sufficient as evidence of government entrus tment or direction as such.  Rather, it raises 
evidentiary issues that the investigating authority will need to work through  in order to ascertain 
whether an action by a private body was the object  of some form of government entrustment or 
direction.  In other words, the investigating au thority will need to ensu re that the evidence of 
entrustment or direction is probative and compelling a nd this will obviously differ from case to case.  
In this respect, we consider that evidence which de monstrates merely that the government encouraged 
or facilitated private investment would not be suffici ent to conclude that the government entrusted or 
directed such private actions.  Something more will be required.
67 
                                                      
64 Id., para. 8.29. 
 65 In this regard, we note that the focus of Article 1.1(a)(1)(iv) would be significantly undermined if an 
"explicit" act was required in all instances.  After all, this provision is supposed to encapsulate those instances 
where the government attempts to execute a particular policy by operating through a private body.  In other words, it is trying to ensure that indirect government action does not fall outside the scope of the SCM 
Agreement .  If we were to limit the scope of Article 1.1(a)(1 )(iv) to only those instances where the government 
acted "explicitly", governments would be able to circumvent their commitments under this provision by removing those elements that were "explicit".
 
66 Neither are we of the view that the SCM Agreement  contains the requirement that it be demonstrated 
that the private body was entruste d with, or directed to, execute a particular task . 
 67 We note that at the time of the investigation, the EC set a very similar standard for entrustment or 
direction for itself as becomes clear from the Final Determination:  
"(15) With regard to the notion of "direction" in Article 2(1)(a)(iv), this exists where the 
government requires  a private body to carry out functions normally vested in the government 
and the practice does not differ from practices  normally followed by governments.  It is not 
sufficient to show th at a government merely encouraged or facilitated  such actions,  WT/DS299/R 
 Page 23 
 
 
7.60 In reviewing the findings of the investigating au thority, the extent to which the interested 
parties cooperated with the authority is, of course, al so a relevant element to be taken into account.  In 
those cases where certain essential information which was clearly requested by the investigating 
authority is not provided, we consider that this uncooperative behaviour may be taken into account by 
the authority when weighing the evidence and the fact s before it.  The fact that certain information 
was withheld from the authority may be the element that tilts the balance in a certain direction. 
Depending on the circumstances of the cases, we cons ider that an authority may be justified in 
drawing certain inferences, which may be adverse, fro m the failure to cooperate with the investigating 
authority.  We consider relevant, in this respect, the following statement of the Appellate Body in the 
US – Hot-Rolled Steel  case concerning the facts available provision of Article 6.8 of the AD 
Agreement , which is very similar both textually a nd contextually to Article 12.7 of the SCM 
Agreement :  
"[i]n order to complete their investigations , investigating authorities are entitled to 
expect a very significant degree of effort  – to the "best of their abilities" – from 
investigated exporters.  At the same time , however, the investigating authorities are 
not entitled to insist upon  absolute  standards or impose unreasonable  burdens upon 
those exporters".68  (emphasis in original) 
7.61 While we acknowledge that this statement was, at  least in part, based on several paragraphs of 
Annex II to the AD Agreement , we consider that a similar signifi cant degree of cooperation is to be 
expected of interested parties in a countervailing duty investigation.69 The fact that the SCM 
Agreement does not contain a similar Annex is not determinative as the role played by the facts 
available provision in an anti-dumping investigatio n and a countervailing duty investigation is the 
same.  Article 12.7 of the SCM Agreement is an essential part of the limited investigative powers of an 
investigating authority in obtaining the necessary in formation to make proper determinations.  In the 
absence of any subpoena or other evidence gathering powers, the possibility of resorting to the facts 
available and, thus, also the possibility of drawi ng certain inferences from the failure to cooperate 
play a crucial role in inducing interested par ties to provide the necessary information to the 
authority.70 If we were to refuse an authority to take  such cases of non-cooperation from interested 
parties into account when assessing and evaluating th e facts before it, we would effectively render 
Article 12.7 of the SCM Agreement meaningless and inutile.  We wish to add that we do not suggest 
that non-cooperation provides a blank cheque fo r simply basing a determination on speculative 
assumptions or on the worst information available.  Ultimately, the determination has to be made on 
the basis of the available facts , and not on mere speculation.  Therefore, and in the absence of such 
supporting facts, mere non-cooperation by itself do es not suffice to justify a conclusion which is 
negative to the interested party that failed to coop erate with the investigating authority.       
7.62 We will therefore now examine, with this st andard in mind, the EC  determination of a 
financial contribution concerning each of the five di fferent programmes at issue.  We recall in this 
respect that we must, under Article 11 of the DSU, make an objective assessment of the matter before 
us.  This requires us to examine whether the invest igating authority examined all relevant facts and 
whether adequate explanation has been provided of how the facts support the determination made.  In 
                                                                                                                                                                     
although such encouragement or facilitation may be a factor to be considered." (emphasis 
added) 
68 Appellate Body report,  United States – Hot-Rolled Steel , para. 102. 
69 In that respect, we see an important similarity between the power of an investigating authority to 
draw inferences from the failure to cooperate with the authority and the discretionary power of panels in the 
WTO dispute settlement context, as well as international tr ibunals of various kinds in public international law, 
to draw such inferences, as recogn ized by the Appellate Body in the Canada – Aircraft  case.  (Appellate Body 
report, Canada – Aircraft , para. 202)  
70 We thus disagree with the views expressed by China in  its Third Party Oral statement, in this respect.  
(China Third Party Oral St atement, paras. 6-13)  WT/DS299/R 
Page 24  
 
other words, the question before us is whether on the basis of the record evidence, the EC reached 
reasoned and reasonable conclusions as to the existen ce of a financial contribution by the government 
or a public body in the sense of Article 1.1(a) of the SCM Agreement . 
7.63 Finally, we wish to add in this respect that in the Final Determination, the EC clearly 
addressed each of these five different programmes as distinct measures, making findings of a financial 
contribution and benefit w ith regard to each of these five programmes.  Therefore, we will examine 
these five programmes as five distinct programmes.   We do not consider a ppropriate the suggestion 
made by the EC before us on various occasions that evidence with regard to all of the five 
programmes can be placed in a pot labelled "the tota lity of facts" and then be drawn upon in justifying 
a conclusion as to financial contribution and benefit with respect to each different programme.  This 
approach could have been followed perhaps had th e investigating authority itself treated the five 
programmes as one big Hynix bail-out exercise.
71 But it did not do so, and that is why we will thus 
also examine the merits of the EC determination in  light of the specific evidence it relied on to make 
its findings with respect to each of the different re-financing programmes at issue in this case.  
(ii) Syndicated Loan  
7.64 The Syndicated Loan was developed by Hynix's financial advisor Salomon Smith Barney Inc. 
("SSB") during the second half of 2000 as part of a financial plan to resolve the problem of a "mismatch" between Hynix 's cash flow and the extent of debt ob ligations that would mature and had 
to be repaid in 2001, which was some times referred to at the time as Hynix 's "short term liquidity 
problems".  Citibank was appointed as lead mana ger of the Syndicated Loan and Citibank held 
meetings with domestic banks to present its plan in  the course of December 2000.  In total, 10 banks 
participated in the loan which amounted to KRW 800 billion:
72  the Korea Development Bank 
("KDB"), Hanvit Bank, Chohung Bank, the Korea Exchange Bank ("KEB"), the Korea First Bank ("KFB"), Kookmin Bank, Citibank, Shinhan Ba nk, Hana Bank and the KorAm Bank.  The EC 
examined three banks, the KDB, KEB and KFB and considered that their participation in the 
Syndicated Loan constituted a financial contribution by the government which conferred a benefit on 
Hynix. 
7.65 From the record, we conclude that the loan was released in two tranches and the interest rate 
of the tranches was set at that of unsecured three- year corporate bonds for BBB- rated companies, 
plus an additional margin to reflect the risky natu re of the financing, bearing in mind the high debt 
ratio of Hynix.  One of the conditions of the loan was the separation of Hynix from the Hyundai group.  The loan agreement further provided that the loan amount was to be used exclusively for 
redeeming the previously issued corporate bonds, re financing the existing debt or securing liquidity.
73    
7.66 The EC made determinations with regard to the existence of a financial contribution with 
regard to only three of the ten participating banks, i.e., the KDB, KFB and KEB .  What these three 
banks had in common is the fact that, due to the prudential lending limits that had been put in place by the government after the Korean financial crisis of 1997, these banks would not have normally been 
able to take part in the Syndicated Loan, as they had already reached their lending limits.
74 However, 
Article 20(3) of the Enforcement Decree of th e Banking Act allowed a governmental body, the 
Financial Supervisory Commission ("FSC"), to gran t an approval permitting banks to exceed these 
                                                      
71 However, the "one big bail-out" approach must, in any case, confront the fact that the financial 
condition of Hynix changed dramatically (for the worse) between fall 2000 and fall 2001. 
72 For the benefit of better understanding these amount s, we note that at the time KRW 800 billion was 
around USD 650 million. 
73 EC Preliminary Determination, para. 27.  This de scription of the conditions under the loan agreement 
was not contested by Korea. 
74 In particular, Article 35 of the Banking Act of Ko rea provides that no financial institution can extend 
credits exceeding 25/100 of the relevant  financial institution's equity capital to the same individual, corporation 
and person, or 20/100 to the same individual or corporation.  WT/DS299/R 
 Page 25 
 
 
ceilings "when it is recognised that it is inevitable for industrial development (…) or the stability of 
national life." The three banks mentioned above recei ved such a waiver from the FSC and participated 
in the Syndicated Loan.  
7.67 The EC determined that one of these three banks, the KDB, was a public body, and its 
participation in the loan was, therefore, consider ed to be a financial contribution in the sense of 
Article 1.1(a) of the SCM Agreement  without any need for evidence of entrustment or direction.75 
With regard to the KEB and KFB, which each partic ipated in the Syndicated Loan for an amount of 
KRW 100 million, the EC concluded that these two banks had been directed to take part in the loan by 
the government in pursuing the public policy goal of  alleviating the difficult financial situation of 
Hynix for reasons of industrial development.76 It thus found these banks' participation in the 
Syndicated Loan also to constitute a fina ncial contribution by the government.  
7.68 We will thus need to examine the EC's determ ination with regard to these three banks, the 
KDB, KEB and KFB.  Of these three banks, one was de termined to be a public body, while the two 
other banks, the KEB and KFB were considered as private bodies.  We will first examine the EC's 
determination of the existence of a financial contri bution by the government with respect to the public 
body, the KDB.  We will then examine the EC's dete rmination with regard to the KEB and KFB.  In 
this respect, we note that, upon examining the benefit question, the EC concluded that the KFB contribution was negligible and its participa tion in the Syndicated Loan was therefore not 
countervailed.  For that reason, and in line with th e arguments as set forth by Korea in its various 
submissions before us, our discussion of the EC's de termination with regard to the two private bodies, 
the KEB and KFB, will focus on the KEB only.
77  
7.69 Korea does not challenge the EC determination of  the KDB as a public body.  Neither does it 
contest the fact that a loan of the kind extended by the KDB in this programme is a government practice which involves a direct transfer of funds in  the sense of subparagraph (i) of Article 1.1(a)(1) 
of the SCM Agreement .  In light of our above analysis of the requirements of Article 1 of the SCM 
Agreement , and the fact that Korea did not adduce a prima facie  case otherwise, we consider that the 
EC finding that the KDB's participation in the Syndi cated Loan constituted a financial contribution by 
the government is consistent with Article 1.1(a) of the SCM Agreement . 
7.70 With regard to the loans extended by the two fina ncial institutions that were not considered to 
be public bodies, the KEB and KFB, the EC reasoned its  conclusion that they had been directed by the 
government to take part in the loan in the following manner:  
"(32) On 28 November 2000, a letter from the Ministry of Finance and Economy, 
signed by the Minister of Finance and Economy, was sent to the President of the 
Korea Export Insurance Corporation ("KEIC") and the President of the KEB.  The letter transmits the results of the disc ussion on "alleviating the cash crunch of 
Hyundai Electronics", which was on the agenda of the Economic Ministers' meeting held on the same day (November 28).  The le tter orders the recipients to make sure 
that the measures decided would be "carried out perfectly".  The letter also states that 
the measures to help Hynix were initiated by  the Financial Supervisory Service.  The 
letter orders KEB to request an extensi on of the credit ceilings on behalf of the 
creditor financial institutions, which accord ing to the results of the Economic 
                                                     
 
75 Final Determination, para. 36.  
76 Ibid.   
77 The benefit amounts to the extent to which the lending limit was exceeded by the KDB, KFB and 
KEB.  For the KFB, this meant that the amount was negligible.  The amount provided by the KDB and KEB were rolled-over into the October 2001 Restructuring Pr ogramme.  Since the contribu tions of the KDB and KEB 
were, in any event, also to be coun tervailed as part of the October 2001 Restructuring Programme, a single 
countervailing duty was imposed in relation to both measures, in order to avoid double-counting. WT/DS299/R 
Page 26  
 
Ministers' discussions would be subject to special approval by the FSC.  The Minister 
thereby imposed an obligation on KEB to apply for the extension and on the FSC to approve such an application. 
(33) In December 2000, KEB filed the requ est for approval of this extended credit 
limit for Hynix financing and submitted similar requests for Korea First Bank 
("KFB") and the KDB.  In the FSC decision it was explained that these banks 
intended to grant a syndicated loan and a D/A facility (documents against acceptance-
backed loans) to Hynix.  FSC approv ed these requests on the basis of Article 
20(3)1.3. of the Enforcement Decree.  This provision allows FSC to extend the 
ceilings "when it recognises that it is inev itable for the industrial development ... or 
the stability of the national life".  This provision is a public interest provision and 
shows that from the GOK point of view, the granting of the extra credit was a public 
interest issue. 
(34) It is noted that according to the mi nutes of the relevant FSC meeting, the FSC 
Commissioners approved the increase in the credit ceiling for Hynix financing 
because Hynix was too big and too important to fail.  In the minutes the following is 
explained: "The semiconductor industry is a strategic industry; after Hynix's merger 
with LG Semicon in 1999, the company accounted for 20 per cent of the world semiconductor market and 4 per cent of the Korean exports.  Hynix employs 24,000 employees in the industry, and other i nvolved companies exceed 2,500 with over 
150,000 employees.  To support the syndicated loan and D/A financing would 
improve Korea's international competitiveness.   Therefore, for the promotion of the 
electronics industry policy, the FSC finds it in the best interest to increase the 
ceiling". 
(35) It is noted that without the extensi on of the credit ceilings it would have been 
impossible for the three abovementioned banks to participate in the syndicated loan. 
They would have breached their obligations under the Banking Act.  The GOK, by 
directing the FSC to approve the extension and by directing KEB to apply for such extension, had effectively directed the banks  to extend the loans in a way that they 
would not otherwise have been able to do under Korean banking laws.  It was evident 
that the credit limits needed to be lifted in order to provide the financing to Hynix. Indeed, when the GOK and Hynix were inv ited specifically to comment on the new 
information indicating the GOK direction as regards the lifting of the credit limits, 
neither of them indicated in their comme nts that there would have been another 
source of funding available to Hynix at th e time of the measures.  Moreover, neither 
party invoked any such probability at any other stage of the investigation. 
(36) In accordance with the findings set out in recitals 55 to 59 of the provisional 
Regulation which are hereby confirmed, KDB is considered to be a public body 
within the meaning of Article 1(3) of th e basic Regulation.  As regards KEB and 
KFB, their participation in the syndicated loan for an amount of KRW 100 billion each is considered to be directed by the GOK in pursuing the public policy goal of alleviating the difficult financial situati on of Hynix for reasons of industrial 
development.  Therefore, they are in this  case considered to be directed by the GOK 
to carry out a function normally vested in the GOK.  The fact that the particular 
provision of the Enforcement Decree was evoked also demonstrates that lifting the 
credit limits was considered as a question of public interest.  Moreover, the GOK intervention shows that the granting of the extra credit was a question of public interest, which falls within the practi ces normally followed by governments. 
Therefore, the participation of the banks in  the syndicated loan fulfils the criteria 
explained in recital 15.  Consequent ly, these measures constitute a financial  WT/DS299/R 
 Page 27 
 
 
contribution by government within the meaning of the basic Regulation in Article 2(1)(a)(i) for KDB and Article 2( 1)(a)(iv) for KEB and KFB."  (footnotes 
omitted) 
7.71 In sum, the EC based its finding of government  entrustment or direction of the KEB and KFB 
on three considerations.  First, the EC alleges that  the letter of the Minister of Finance and Economy 
of 28 November 2000 orders the KEB to request an extension of the credit ceilings on behalf of the 
creditor financial institutions, and that, in so doing,  the Minister thereby imposed an obligation on the 
KEB to apply for the extension, and on the FSC to approve such an application.
78 A second important 
consideration for the EC was that the FSC gran ted the lending limit waiver based on the public 
interest provision of Article 20(3) of the Enforcement Decree of the Banking Act.79 Finally, the EC 
emphasises the crucial relevance of this waiver as the three banks in question would not have been 
able to lend without the waiver.80 Its overall conclusion was therefore that  
"[t]he GOK, by directing the FSC to appr ove the extension and by directing KEB to 
apply for such extension, had effectively di rected the banks to extend the loans in a 
way that they would not otherwise have been able to do under Korean banking 
laws."81 
7.72 We start our examination by looking at th e letter of 28 November 2000 to which the EC 
attached particular importance in reaching its finding of government-direction of the KEB.82  T h e  
letter which is signed by the Minister of Fina nce and Economy and sent to the attention of the 
Presidents of the KEIC and the KEB states as follows83: 
"[e]nclosed please find discussion results on alleviating the cash crunch of Hyundai 
Electronics which are part of discussion items at the Economic Ministers meeting 
held today (28 Nov., Tuesday). Please make sure they are carried out perfectly." 
7.73 The enclosure, entitled "Results of Discussion at the Economic Ministers' Meeting (28 Nov.) 
(Measures to alleviate the cash crunch of Hyundai El ectronics: Initiated by the Financial Supervisory 
Service)", states in relevant part: 
"[a]s for the issue of (lifting) the ceilings  on loans extended to the same borrower in 
connection with the syndicated loan in won, pursue a resolution of special approval by the Financial Supervisory Commission upon the request of the Korea Exchange 
Bank representing creditor financial institutions". 
                                                     
 
78 Final Determination, para. 32.  
79 Id., para. 33. 
80 Id., para. 35.  
81 Ibid.  In the view of the EC, the fact that these banks were directed to take part in the loan is further 
confirmed by the dire financial state of Hynix as presented by one interested party challenging the provisional 
negative subsidy determination:  
"[o]ne interested party argued that Hynix was not creditworthy at the time of the measure and 
therefore the GOK direction is the only possi ble explanation for the creditors' decision to 
extend new lending to Hynix."  (Final Determination, para. 29) 
 82 This is evidenced by the fact, th at in the Preliminary Determination, the EC concluded that the banks' 
participation in the Syndicated Loan was in conformity with market conditions.  The only important difference 
between the negative Preliminary and the positive Final Dete rmination in this respect seems to have been the 
discovery of the letter, as is clear from para. 30 of the Final Determination.   
83 Document of 28 November 2000 from the Ministry of Finance and Economy to the KEIC and KEB 
(the "28 November letter").  ( Exhibit EC-3 ) WT/DS299/R 
Page 28  
 
7.74 In our view, this letter – and its enclosure – re veal that the Economic Ministers had decided to 
take certain action to alleviate the so-called cash crunch of Hyundai Electronics/Hynix.  One of the actions they decided on was to pursue a special approval by the FSC of lifting the lending limits upon the request of the KEB.  It is clear that the deci sion taken was thus to require the public body FSC to 
lift the lending limits, when such a request would be made by the KEB.  
7.75 The EC concluded that the letter was clear ev idence that the government was directing the 
KEB to request a lending limit waiver from the FSC and that the KEB was informed that it would receive a positive reply to such a request.  The next step in the EC's reasoning is that by directing the 
KEB to apply for a waiver and by directing the FSC to approve the waiver, Korea had effectively 
directed the KEB to extend the lo ans in a way that it would otherwise not have been able to do under 
Korean banking laws.  
7.76 In examining this letter, we find very important  that this letter from the government together 
with its enclosure was directly addressed to the KE B.  In the letter the government requests the KEB 
to make sure that the results of the discussion on alleviating the cash crunch of Hyundai Electronics/Hynix, as set forth in the enclosure are "c arried out perfectly".  The title of the enclosure 
itself also refers to "measures to alleviate the cash  crunch of Hyundai Electronics".  In our view, the 
fact that the letter was sent to the KEB, may reaso nably be read to imply that the government was 
requiring the KEB to assist in carrying out the m easures to alleviate Hynix's cash crunch decided upon 
by the three Economic Ministers.  At  the same time, we acknowledge that  the text of the letter, and its 
enclosure, could be read more narrowly to require the KEB only to apply for a lending limit waiver, 
and not to require it to provide a financial contribut ion by participating in the loan.  However, and 
taking into account the particular circumstance s of this case, we do not find unreasonable the 
conclusion of the EC that this letter actually requir ed the KEB to participate in the Syndicated Loan.  
7.77 We note that an important element in the ev aluation and assessment of this piece of evidence 
by the EC was the fact that this letter and ot her information concerning the Economic Ministers' 
meeting was withheld from the investigating authority by the government.  As stated in paragraph 30 
of the Final Determination: 
"(30) Since the publication of the provisional Regulation, new information of the 
GOK directing the FSC to raise the legal le nding limits of some banks participating in 
the syndicated loan has b een obtained.  The Commission's provisional findings as 
regards this measure should therefore be reassessed in the light of the new 
information.  The interested parties, Hynix and the GOK, were specifically invited to 
comment on the new information and their comments have been taken into account in 
the reassessment of this measure."
84 
7.78 We recall that, in the Final Determination, the EC  clearly stated that in the appreciation of the 
facts, it had taken due account of the failure of certain  parties to cooperate fully with the investigating 
authority: 
"(16) When determining the existence of a public body or of government direction, 
the investigating authority bears the burden of proof when making a positive finding. Such findings must be made on the basis of positive evidence, taking account of the totality of the facts on the record and availa ble to the authority, and weighing these 
facts in accordance with th e considerations above.  In  appreciating the facts in 
question, due account must be taken, in accordance with Article 28 of the basic 
Regulation, of the failure of certain parties to cooperate fully with the investigation, 
which has in some cases necessitated the use of information from other sources.  In this particular case, it has become apparent that the GOK failed to provide a number 
                                                     
 
84 Final Determination, para. 30.  WT/DS299/R 
 Page 29 
 
 
of requested documents on meetings relating to the future of Hynix.  The GOK also 
failed to inform the Commission that such meetings took place, in spite of clear requests being made to this end in the questionnaire and at the on-the-spot verification.  The GOK has been made aware of the consequences of non-cooperation 
in accordance with Article 28(1) and (6) of the basic Regulation.  In view of this lack 
of cooperation, it has been necessary, in addition to taking accoun t of relevant GOK 
documents submitted by other parties, to  use information from secondary sources, 
including from the Korean press.  Such in formation has been viewed with special 
circumspection, the GOK and Hynix given the opportunity to comment on it, and, where practicable, it has been cross-ch ecked with other independent sources."
85  
7.79 As we explain in detail in our section dealing with Korea's claims under Article 12.7 of the 
SCM Agreement , we are of the view that the investigating authority was justified in concluding that 
this information was not provided to it, in spite of clear requests to do so.  We do not accept Korea's argument that it did not understand the EC's general request for information to include the provision 
of this letter and other related information.  It was only because Micron, one of the EC DRAMs 
producers, included this letter in its comments on the Preliminary Determination that the investigating 
authority became aware of the letter and its enclosur e.  In other words, we find that Korea failed to 
cooperate with the EC in this respect, and the EC was thus entitled to make its determination based on 
the facts available.  In this case, the facts thus ultimately became available due to the submission of 
the information by Micron. 
7.80 In our view, it is not unreasonable of an inves tigating authority to read the information which 
was withheld from it in light of such non-cooperation.  In other words, in case the information is such 
that it could be read in more than one way, we  can accept that the failure to cooperate with the 
authority is an important element in tilting the balan ce towards a reading of this information which is 
less favourable to the interested party that was withhol ding the information.  We recall, in this respect, 
that the possibility of Article 12.7 of the SCM Agreement of resorting to facts available is the only 
possibility that investigating authorities have to obt ain the necessary informa tion in the absence of any 
subpoena or other powers.  This im plies that, if this "stick" is to have any meaning in forcing 
interested parties to provide the ne cessary information, the failure to provide the information must be 
accepted as a relevant factor in the evaluation of the evidence, if it is later produced by another party. 
At the same time, we hasten  to add that we are of the view that  facts available should not be used as a 
punishment, and that non-cooperation does not allow an investigating authority to simply use the 
information available which leads to the worst possi ble result for the interested party that failed to 
provide such information.  Ultimately, the determination still has to be based on the facts that are available, not on mere inferences.  But it is not  because facts available should not be used in a 
punitive manner that the failure to cooperate beco mes completely irrelevant in weighing and assessing 
the information before the authority.  
7.81 We recall that our standard of review re quires us to examine whether a reasonable 
investigating authority on the basis of the facts before it could have reached these conclusions and 
thus whether the EC provided a reasonable and ad equate explanation of how the facts support the 
determination made.  We are not to make a de novo review of the letter ourselves, nor, however, 
should we show total deference to the investigating authority.  
7.82 In our view, in light of the clear withholding of this information, the fact that the letter 
required the KEB to request a waiver of the lending  limits and informed the KEB that this waiver 
would be granted, it was not unreasonable of the inv estigating authority to reach the conclusion that, 
effectively, the KEB was required to take part in the Syndicated Loan.  We find reasonable the 
conclusion that the government, by requiring the KEB to request that the last hurdle ( i.e., the lending 
limit) to its participation in the loan be lifted, wa s actually telling this bank that it had no excuse not to 
                                                     
 
85 Id., para. 16. WT/DS299/R 
Page 30  
 
take part in the Syndicated Loan.  In other words,  this letter can reasonably be read to demonstrate 
that the government was expecting, and thus directing,  the KEB to participate.  In this respect, we find 
relevant the EC's consideration that it would not have been possible under Korean law for the KEB to 
lend the KRW 100 million to Hynix, as it did under the Syndicated Loan, without the lending limit waiver from the FSC.  While, in the absence of a ny additional facts such as the withholding of 
information, this would not, in and of itself, n ecessarily imply that the government actually entrusted 
or directed the KEB to provide such funds to Hynix, it is clearly a factor to be taken into account when examining and evaluating such direct evidence  of government direction as constitutes the letter. 
All the more so in this case where the letter w as withheld from the investigating authority.  
7.83 Similarly, we consider relevant the fact that the FSC approved the waiver for public interest 
reasons.  In fact we note that the th reshold for lifting the legal lending limits, i.e., when this is 
"inevitable for industrial development (...) or the stab ility of national life" appears to be very high, but 
yet it was considered to have been met in the case of the three banks in question.  This, again, clearly 
shows that the government had taken a particular interest in trying to assist Hynix and that it 
considered the survival of Hynix to be in Korea's pub lic interest.  While it may not be, in and of itself, 
sufficient evidence to establish that the government entr usted or directed the KEB to participate in the 
Syndicated Loan, it does, in our view, strengthen the position of the EC that it was reasonable to read the letter as requiring the KEB to participate in the Syndicated Loan.  The fact that the letter was 
withheld from the authority further tilts the bala nce in favour of the EC's overall conclusion of 
government direction. 
7.84 In sum, and taking into account the circum stances of this case and the clear case of non-
cooperation by Korea in producing clearly necessary information, we consider reasonable the EC's 
conclusion that Korea directed the KEB to particip ate in the Syndicated Loan.  For these reasons, we 
find that the EC's determination with regard to the existence of a financial contribution by the KEB to 
Hynix was consistent with Article 1.1(a) of the SCM Agreement .    
(iii) KEIC Guarantee 
7.85 The second action which was found to be a subsi dy was the extension of a guarantee by the 
Korea Export Insurance Corporation ("KEIC") which is the official export credit agency of Korea. 
The KEIC provides export insurance and guarante es to manage the risk associated with overseas 
transactions.  In January 2001, fourteen Hynix cred itor banks increased the ceiling of the export credit 
facility for D/A's (documents against acceptanc e) provided to Hynix from USD 800 million to 
USD 1.4 billion, an increase of USD 600 million.  The KEIC granted the short-term export credit 
insurance for the extended D/A limit as regards the transaction between Hynix and its overseas 
subsidiaries.  In other words, Hynix collects the foreseen payment for the export transaction from the 
banks concerned, which hold the D/A documents.  The affiliated importer in the country of 
destination then makes the payment for the goods con cerned directly to the banks against the D/A.  
Hynix pays the KEIC a premium for the guarantee a nd pays interest to the banks concerned for the 
D/A amounts withdrawn until the importer makes the fi nal payment.  The KEIC insurance covers the 
amounts due to the banks which cannot be collected due to bankruptcy of either the exporter or the 
importer. 
7.86 In its Final Determination, the EC found that  the KEIC Guarantee constituted a financial 
contribution by the government and concluded as follows:  
"(45) Thus the guarantee was given by KEIC due to specific GOK direction in 
pursuing the public policy goal of alleviating the difficult financial situation of Hynix 
for reasons of industrial development.  Th erefore, KEIC, despite being a public body, 
was specifically directed by  the GOK to carry out a function and follow practices 
normally vested in the GOK.  Consequently , the guarantee is a financial contribution 
by government within the meaning of Ar ticles 2(1)(a)(iv) and (i) of the basic  WT/DS299/R 
 Page 31 
 
 
Regulation.  This guarantee conferred a bene fit to Hynix, since without the guarantee 
Hynix was not able to receive the D/A extension of USD 600 million.  At the same time, the GOK's assurance that KEIC would be compensated in case of default showed that the premium paid by Hynix could not cover the risk undertaken by KEIC to guarantee the D/A extension and, theref ore constituted a non-commercial act.  The 
GOK effectively underwrote the risk of fa ilure of payment by Hynix without asking 
for any compensation for it.  According to  the information on the record, the banks 
would not have granted the D/A facility wit hout the guarantee.  Moreover, there is no 
information that Hynix could have obtained comparable financing from other sources.  
This coverage of the guarantee, without  any adequate premium being paid, is 
therefore considered to have conferred a benefit to Hynix within the meaning of 
Article 2(2) of the basic Regulation.  In view of the provisions of Article 6(c) of the basic Regulation, since no comparable co mmercial loan could have been obtained 
without the guarantee, the coverage of the D/ A extension is effectively a grant.  The 
benefit to Hynix and thereby the amount of the subsidy is the amount of the D/A 
extension, USD 600 million."  
7.87 The EC considered that the KEIC was a public body.
86 It further found that the KEIC 
provided an export insurance guarantee, which involved a direct or potential direct transfer of funds and thus constituted a financial contribution.  Kor ea does not contest the EC's determination of the 
KEIC as a public body.  Korea only takes issue with  the fact that what was countervailed by the EC 
was the amount of the D/A extension of USD 600 mil lion, and not the guarantee as such.  In addition, 
it notes that the fact that an extension of USD 600 million of the D/A facility was granted by the 
banks does not necessarily imply that such an amount of USD 600 million was actually provided to Hynix.  We are of the view that these arguments relate to benefit and the calculation of the amount of the subsidy rather than to the question of the ex istence of a financial contribution, which we are 
addressing here.  It is clear from the EC's Final Dete rmination that what was considered by the EC to 
constitute the financial contribution was the KEIC Guar antee.  As the provision of a guarantee of this 
sort involves a potential direct transfer of funds , we consider that this Guarantee constituted a 
financial contribution in the sense of Article 1.1(a)(1)(i) of the SCM Agreement .  Given that the KEIC 
was found to be a public body, we consider there was no further need for an additional finding of 
entrustment or direction by government  to the KEIC to provide the guara ntee.  Therefore, we consider 
that the EC's finding that the KEIC provided a fina ncial contribution to Hyni x was not inconsistent 
with Article 1.1(a) of the SCM Agreement .   
(iv) KDB Debenture Programme 
7.88 A third programme found to constitute a subsidy by Korea was the KDB Debenture 
Programme to which Hynix was admitted on 4 Ja nuary 2001.  This was a programme which 
essentially lasted for one year (2001) and was set- up by the government in response to financial 
instability in Korea caused by th e fact that a large amount of bonds issued by a few companies 
(including Hynix) were due to mature simultane ously.  Under this Programme, maturing debt was 
rolled-over and re-packaged for investors.  A partic ipating company repayed on its own 20 per cent of 
its corporate bonds falling due and the KDB assumed th e remaining 80 per cent.  This constituted the 
first phase of the programme.  Of the 80 per cent originally assumed by the KDB, 20 per cent of the 
bonds was then sold to the company 's creditor banks in proportion to their debt exposure to the 
company; 70 per cent was re-packaged for sale to investors as collateralised bond obligations 
("CBOs") and/or collateralised loan obligations (" CLOs"), guaranteed by the Korea Credit Guarantee 
                                                     
 
86 Final Determination, para. 42; Preliminary Determination, para. 32.  WT/DS299/R 
Page 32  
 
Fund ("KCGF");
87 and the KDB retained the remaining 10 per cent.  The participating company had 
to repurchase at least 3 per cent of any CBOs and 5 per cent of any CLOs.88  
7.89 We note that companies were placed in the Programme upon nomination by the main creditor 
bank, and needed the approval by the Creditors Fi nancial Institutions Council ("CFIC"), based on an 
assessment of the company 's financial future.  The CFIC consis ted of representatives of the KCGF, 
the KDB and seventeen other creditor banks.89  The CFIC ultimately decided on participation in the 
programme.  If banks holding 75 per cent of the loans of the company agreed to the participation of 
the company in the Programme, the CFIC considered  the decision unanimous.  To be placed in the 
Programme, companies had to be able to repay 20 per cent of their maturing bonds; normalise 
business operations through a rescue plan; have credit ratings below A but higher than BB; and agree 
to any change in majority share holdings requested by their creditor banks, or to the replacement of 
management in case of insolvency.  Hynix was ad mitted to the programme on 4 January 2001 with a 
credit rating of BBB-.  In total six companies were  admitted; four of which, including Hynix, 
belonged to the Hyundai group.90 The EC found that the bond purchase by the KDB as part of this 
programme constituted a financial contribution by  the government which conferred a benefit on 
Hynix. 
7.90 The EC found that the KDB was a public body.  It considered that the KDB was not only 
100 per cent government-owned, but also entrusted w ith a specific public policy role which obliged it 
to carry out policies normally followed by the government, as defined in the KDB Act.  Since, under the KDB Debenture Programme, the KDB first purchased all the maturing bonds before refinancing most of them, the EC concluded that this purchase of corporate bonds constituted a financial 
contribution – direct transfer of funds – by a public body.
91 
7.91 We note that Korea does not contest the EC de termination of the KDB as a public body.  Nor 
does it appear to contest that the purchase of corporat e bonds constitutes a direct transfer of funds and 
thus a financial contribution in the sense of Article 1.1(a)(1)(i) of the SCM Agreement .  However, 
Korea argues that numerous creditors  other than the KDB were also in volved and that the EC did not 
establish entrustment or direction with regard to these creditors.92 We are of the view that this is not a 
relevant consideration as it was the public body KDB wh ich first provided a direct transfer of funds to 
Hynix by purchasing 80 per cent of Hynix corporate bonds.  This is the financial contribution that 
went to Hynix and this is the financial contribution th at the EC found to have been provided to Hynix.  
Whether or not the full cost of this financial contribution was borne by the public body KDB is not relevant in determining the existenc e of the financial contribution.  We therefore consider that there 
was no need for the EC to establish that other bank s that participated in the Programme and that 
purchased bonds were entrusted or dir ected by the government to do so. 
7.92 Neither do we consider relevant the fact that the programme did not involve the provision of 
any new funds, but merely a refinancing of existing bonds, as argued by Korea.  Article 1.1(a)(1)(i) of 
the SCM Agreement  provides that there is a financial contribution where a government practice 
involves a direct transfer of funds, such as in the case of a grant, loan and equity infusion for example.  
The purchase of corporate bonds is such a direct transf er of funds, and therefore constitutes a financial 
contribution.  Finally, we are of the view that Korea's argument that the cr editors' decision to enrol 
                                                     
 
87 The CBO's and CLO's are asset backed secur ities that are sold to investment trusts. 
88 Preliminary Determination, paras. 47-48. 
89 Id., para. 49. 
90 Id., paras. 49-52.  The EC states that the budget for the programme was KRW 6.2 trillion, of which 
KRW 2.9 trillion was ear-marked for Hynix; eventu al expenditure being KRW 2.9 trillion of which 
KRW 1.2 trillion (41 per cent) for Hynix and 38 per cent  was used for the other three Hyundai companies. 
91 Id., para. 59.  According to the EC, of the total programme budget of 2.9 KRW trillion, 1.2 trillion 
(41 per cent) was used for purchasing Hynix bonds, of which Hynix paid back KRW 280.4 billion under the 
conditions of the programme, th us receiving a financial cont ribution of KRW 919.6 billion. 
92 Korea First Written Submission, para. 455.  WT/DS299/R 
 Page 33 
 
 
Hynix in the KDB Debenture Programme was based on  commercial considerations  is not relevant in 
determining the existence of a financial contribution by a public body in the sense of the SCM 
Agreement .   
7.93 In our view, the EC determination that the purchase of corporate bonds by a public body such 
as the KDB was a financial contribution was consistent with Article 1.1(a) of the SCM Agreement . 
(v) May 2001 Restructuring Programme 
7.94 The fourth programme on which the EC based its subsidy determination is the May 2001 
Restructuring and the convertible bonds ("CBs") pur chase, in particular.  In March 2001, seventeen 
Hynix creditor banks set up the Creditors Financia l Institution Council ("CFIC"), and, in April 2001, 
Hynix' s financial advisor, SSB, prepared a furthe r recapitalisation plan for Hynix.  In May 2001, 
three measures were agreed: an injection of fresh capital into Hynix through the offering of 
KRW 1.3 trillion of global depositary  receipts ("GDRs"); an extension of the maturities of short and 
long-term debt (a debt roll-over); and the purchase by the creditor banks of CBs worth KRW 1 trillion.  The creditors agreed to support this fi nancial restructuring on the condition that the GDRs 
offering in the international capital markets would be successful.  If not, the roll-over of maturities 
would be cancelled and the CBs re-purchased by Hyni x.  In addition, the fu nds received from the CBs 
issuance had to be maintained in an escrow acco unt and could only be used for the repayment of 
corporate bonds maturing in the first half of 2002.  In mid-June 2001, Hynix raised USD 1.25 billion 
in the GDRs offering and, on 20 June 2001, as ag reed, the creditor banks purchased the CBs in 
proportion to their debt exposure on  30 November  2000, and short and long term debt was rolled-
over for between 1 to 4 years.
93 The EC countervailed the CBs purchase which it found to be a 
financial contribution by the government  which conferred a benefit on Hynix. 
7.95 In the Final Determination, the EC concludes th at the creditor banks that participated in the 
May 2001 Restructuring Programme were directed by the government to buy the bonds, and their CBs 
purchase thus constituted a financial contribution.  In  reaching this conclusion, the EC emphasises the 
importance of the fact that essential information concerning the presence of Financial Supervisory 
Service ("FSS")94 and FSC officials at the 10 March Cred itors' Council meeting was withheld from 
the EC authorities in spite of explicit requests to  make known any government involvement in the 
restructuring and any government participation in meetings of the creditor banks.  This un-cooperative 
behaviour, combined with the fact that the official of the FSC was not just anybody but its vice-chairman, led the EC to the conclu sion that the creditor banks were directed to participate in the 
May 2001 Restructuring Progr amme and to purchase the CBs.
95  
                                                      
93 Preliminary Determination, paras. 40-41. 
94 The FSS is a public agency whose main task is to carry out fina ncial supervision under the FSC's 
guidance.  The EC considered the FSS to be a public body.  (Final Determination, para. 40) 
95 In its Final Determination, the EC stated  its conclusion in the following manner: 
"(94) Following the disclosure of this informati on to the interested parties, the parties admitted 
that an FSS official was present in one m eeting and that subsequent contacts between 
FSC/FSS and the banks took place.  It was explai ned that the FSS official was only present as 
an observer to act as a witne ss for the creditors' prior commitments of funding, and not to 
influence the creditor banks or their decision to extend further credits to Hyundai companies. 
It was also explained that the "follow-up ph one calls" with the FSS/ FSC officials and the 
creditor banks were only conducted in the exercise of the normal prudential supervisory role of the FSC/FSS.  However, considering that the parties have been withholding important 
information until confronted with it and impeding the investigation by instructing other parties 
not to cooperate, it is difficult to find these explanations fully convincing.  In addition, information on the record indicates that the official attending the meeting of 10 March 2001 
was the FSC Vice Chairman, i.e. a high-ranking of ficial.  In these circumstances, pursuant to 
Article 28 of the basic Regulation which allows the conclusions to be based on best facts WT/DS299/R 
Page 34  
 
7.96 The question before us is thus whether the EC  drew a reasonable and reasoned conclusion on 
the basis of the facts before it when it found that the creditor banks that pur chased such bonds were 
directed to do so by the govern ment.  The answer to that question will determine whether the EC's 
finding that the purchase of CBs worth KRW 1 trillion by the creditor banks constituted a financial contribution by the government was cons istent with Article 1.1(a) of the SCM Agreement .  We recall 
that, in our view, a financial contribution exists in case a direct or potential direct transfer of funds, 
such as the purchase of CBs, is made by the gove rnment or a public body, as well as in the case where 
this is done by the government entrusting or directin g a private body to provide such funds.  In so far 
as there are banks whose status as a public body is not contested and which took part in the May 2001 Restructuring Programme, we are of the view that there would be no need for an additional finding 
that these banks had been entrusted or directed by the government to participate.  However, and with 
regard to the private banks' participation, an i nvestigating authority will only be able to find a 
financial contribution by the government if it has established that such private bodies were entrusted 
or directed by the government to purchase the CBs. 
7.97 We note that, in the Preliminary Determinati on, the EC considered that there was not 
sufficient evidence to conclude that it was commerc ially unreasonable for the banks to participate in 
the May 2001 Restructuring Programme.
96 In the Final Determination, however, the EC considered 
that this conclusion had to be reconsidered in  light of new information from secondary sources, 
including press articles that contacts had taken place  between the banks and government officials of 
the FSC/FSS.  As the EC states in its Final Determination: 
"[t]he parties failed to rebut this new info rmation.  In fact, both of them admitted 
expressly that the FSS representatives were indeed present in the meeting of 
10 March 2001 and had contacts with the ba nks in the context of these measures, as 
indicated by the new information."97 
7.98 While the parties argued about the possible role of press reports as evidence, it appears to us, 
that the facts are not contested: FSS/FSC officials had contact with the banks in March to May 2001, 
and FSS/FSC officials, among which the FSC vice-chairman, were present during the 10 March 
creditors' meeting.  One press article relied on by th e EC concluded that the March meeting was held 
to get the banks to support the Hyundai group, and that government officials persuaded the reluctant 
banks to provide support to Hynix.  The press repor ts thus revealed a set of facts which was later 
confirmed by the parties, and their value as a source of information is thus not an issue.  We are of the 
view that a distinction should be made between the facts described in the press reports and the 
journalistic colouring of these facts.  While we do not reject press reports as a source of evidence, we 
are of the view that the investigating authority shou ld be very careful about attaching too much weight 
to unverified statements in press reports.  The ch aracterisation of the events by the press reports, 
without supporting evidence, is in other words not particularly probative in a trade remedy 
investigation.  In our view, while the government  officials' presence may show the interest the 
government took in the survival of Hynix, this is not sufficient to conclude that the government 
delegated this task of rescuing Hynix to pr ivate banks or ordered them to do so.    
7.99 It appears that, when the EC confronted the pa rties with this new information, and with the 
various press reports, the interested parties to the investigation explained that the FSC/FSS official 
was present at the meeting as an observer to act as a witness for the creditors ' prior commitments of 
                                                                                                                                                                     
available in cases of non-c ooperation by the parties, it is concluded that the banks were not 
freely and independently deciding on the i ssue of the CB purchase on the basis of 
commercial considerations, but were direct ed to buy the bonds by the GOK .  The 
information from the secondary sources referred to above supports this conclusion."(emphasis added)  
96 Preliminary Determination, paras. 42-45. 
97 Final Determination, para. 84.   WT/DS299/R 
 Page 35 
 
 
funding, and not to influence the creditor banks or their decision to extend further credits to Hyundai 
companies.98 They further indicated that the follow-up phone calls with the FSC/FSS officials and the 
creditor banks were only conducted in the exercise of  the normal prudential supervisory role of the 
FSC/FSS.99 The EC considers that, in light of the fact  that this information was withheld from the 
authorities and that the FSS official present at the meeting was its vice-chairman, this explanation is 
"hardly convincing".  According to the EC, "the banks were not freely and independently deciding on 
the issue of the CB purchase on the basis of commercial considerations, but were directed to buy the bonds by the GOK."
100 
7.100  The EC considered important, in the evalua tion of the evidence concerning the presence of 
the government officials, the fact that this inform ation was not provided by th e parties concerned, but 
was discovered only through press reports.  While it is  clear that the investigating authority enjoys a 
wide discretionary authority in weighing the evidence  before it, we consider that an authority cannot, 
in the absence of other supporting information, si mply assume that, in case certain information was 
not provided, the information is necessarily incrim inating or that the investigating authority is 
justified in reading the information in the most nega tive light.  In our view, there is a clear difference 
between the situation with regard to the May 200 1 Restructuring Programme and the earlier discussed 
Syndicated Loan.  In the Syndicated Loan, we consid ered that the EC was ju stified when assessing the 
letter as a critical piece of evidence to take into account  the fact that this letter was withheld form the 
investigating authority.  In the case of the Sy ndicated Loan, the non-cooperation was an additional 
element that entitled the authority to read the dir ect evidence in a certain light.  In the case of the 
May 2001 Restructuring, however, as we will discu ss below, we find that the facts on the record do 
not, as such, seem to support the EC's reading that  the government was directing the eighteen creditor 
banks to purchase the CBs.  In such circumstanc es, the mere fact that the information was not 
provided when requested, is not sufficient to reach a conclusion which is not sufficiently supported by 
the facts on the record.  This is why in this case we do not find that the non-cooperation was sufficient 
to tilt the balance in favour of the EC's conclusion of government direction.  In this case, the EC 
rejected the explanation given by Korea and some of  the banks involved in the March meeting of the 
presence of the FSS officials, without any further adequate explanation, mainly because the presence 
of the government officials was not revealed by Kore a, when pertinent questions were put to it by the 
investigating authority.  In our view, the fact that  such information was not provided may be a factor 
in the overall assessment of the evidence but it is not,  in our view, sufficient to relieve the authority of 
demonstrating direction or entrustment where this is required for a finding of  a financial contribution 
by the government.   
7.101  Moreover, the fact that an important FSC/FSS offi cial was present at the meeting is certainly 
relevant, but in our view cannot be considered to  be determinative of government entrustment or 
direction.  It may be instructive as to the importa nce of Hynix or reveal the interest of the Korean 
government in Hynix, but it is, in our view, insu fficient as a basis for the conclusion that this 
government interest went beyond that and that the government was actually entrusting or directing the 
private creditors to invest in Hynix.  
7.102  As we explained earlier, the term s "entrust or direct" refer to the government using the private 
bodies as the instrument through which the government is  providing a financial c ontribution, either by 
giving the private body a command or by delegating a task to the private body which involves a financial contribution.  We consider that the maximum one can conclude from this high ranking 
government official's presence is that the pr ivate bodies may have felt that the government was 
interested in seeing the creditor banks reach agre ement to rescue Hynix, and that the government 
would also be doing what it could to achieve that goal by acting through its public bodies for example. This, however, is not the same as the government entrusting or directing  the banks to accept the terms 
                                                     
 
98 Id., para. 94. 
99 Ibid.  
100 Ibid.  WT/DS299/R 
Page 36  
 
of the May 2001 Restructuring Programme.
101 In a similar vein, we read the press reports that 
financial support to Hynix, and acceptance of the CBs  by the reluctant banks, became more likely 
after the request by Hynix's financial advisor C itibank for financial support from the government for 
Hynix and the positive position expressed by the FS C chairman, as an indication that the general 
government interest in Hynix may have facilitated  the restructuring.102  
7.103  We do not wish to imply that this information is therefore irrelevant, simply that it is not 
enough, in and of itself.  We will therefore now ex amine the remainder of th e evidence the EC relied 
on in reaching its conclusion that the creditor bank s were directed by the government to buy the 
bonds.  On the basis of the Final Determination, we consider that the EC based its conclusion on the 
following additional arguments.103 First, the EC argues that the "totality of the facts" reveals that the 
government had been directing banks and other ins titutions since November 2000 to take measures in 
order to alleviate the liquidity problems of Hynix and to promote the electronics industry policy.104 
We found earlier in our Report that with regard to  the Syndicated Loan, the KEIC Guarantee and the 
KDB Debenture Programme, the financial contributi ons provided, were mainly those provided by 
public bodies , while the May 2001 Restructuring Progr amme raises the question of alleged 
entrustment or direction by the government of private bodies .  While we considered consistent with 
the SCM Agreement the EC's determination that the KEB, a private body, had been directed by the 
government to participate in the Syndicated Loan , we fail to see how evidence relating to what 
happened in December 2000 can support the specific  finding that in May 2001 the creditor banks 
were directed to buy bonds. 
7.104  The EC also relies on the argument that the in formation on the record shows that creditors 
had no commercial reasons in June 2001 to pu rchase KRW 1 trillion worth of CBs from Hynix.  
According to the EC, the banks acknowledged the inability of Hynix to service its debts already at the beginning of May 2001, in the 7 May 2001 CFIC resolution.  According to the EC, several banks also increased their loss provisions with respect to Hynix debt.
105 In addition, the EC points to the sharply 
declining Hynix stock price between mid-June and 20 June 2001, when the banks purchased the CBs, 
and the fact that the banks reported certain portions of the acceptance price of Hynix CBs as losses in 
settling their accounts at the end of June 2001.   
7.105  We wish to note that we do not share Kore a's view that the commercial reasonableness of a 
private body's actions is a matter which relates only to the question of benefit and cannot be used as 
evidence of government entrustment or direction.  In our view, entrustment or direction can be 
demonstrated by all means of evidence as long as the overall conclusion is re asonable and adequately 
explained.  In the absence of a clear and explicit government order, the evid ence to be relied on will 
inevitably be circumstantial.  The fact that priv ate parties act in a strange or not commercially 
reasonable manner can form part of the proof that someone was requiring these private parties to act 
in this abnormal way.  Such evidence of non-co mmercial behaviour is, however, not enough to 
establish government entrustment or direction.   
7.106  In our view, the information the EC is pointing to  certainly reveals the less than rosy state of 
affairs for Hynix, but it fails to support a finding of en trustment or direction with regard to the private 
bodies participating in the May 2001 Restructur ing Programme.  The banks were obviously well-
aware that their investment in Hynix was very risky and that it could well go terribly wrong.  But we do not consider that the situation was such that one  can reasonably conclude from this that the only 
explanation for the banks' participation was that th ey were directed by the government to buy Hynix 
                                                     
 
101 As we will discuss later, it may have an impact on the use of the creditor banks as market 
benchmarks in determining the existence of benefit.  
102 Final Determination, para. 91. 
103 Id., paras. 81-98.  
104 Id., para. 86. 
105 Id., paras. 88-89.  WT/DS299/R 
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bonds in June 2001.  Moreover, some of the elements  mentioned by the EC are not informative of the 
situation in May 2001 when the banks committe d themselves to purchasing Hynix bonds.  For 
example, of the banks mentioned106 to have increased their loan loss provisions with respect to Hynix 
debt, only one bank, Shinhan Bank, had actually done this at the time of the May 2001 Restructuring 
Programme.  We fail to see how a similar action ta ken by certain banks in late September 2001 and 
late October 2001 can be relevant in assessing the commercial reasonableness of a decision taken in 
May 2001.  In a similar vein, the fact that stock prices were going down between mid-June and 20 June 2001 when the banks purchased their CBs a nd that they continued to go down thereafter is 
hardly informative of the situation in May 2001 wh en the decision to participate was taken by the 
banks in question.  The purchase of the CBs on 20 June 2001 was only the execution of a commitment 
taken well before that date. 
7.107   In addition, we note that the EC's analysis of the financial situation of the DRAMs industry 
in the Preliminary Determination seems to contradict  the very negative situation it is portraying in the 
Final Determination.  As the EC noted in the Preliminary Determination, DRAMs prices were going up again in March 2001 at the time the SSB report was made, which would become the basis for the 
May 2001 Restructuring Programme.  The SSB for ecast indicated that the DRAMs market would 
recover in the third quarter of 2001 so that the e quity infusion and the extension of maturities would 
be sufficient to help Hynix to overcome its liquidity crisis.  It further stated that the credit rating of 
Hynix at the time of the measures was set at BB+ by  Korean rating agencies and B- by international 
ones.
107 While these are clearly not good ratings, they ar e not such as to make investment decisions 
automatically suspicious or extraordinary.   More over, and this we find particularly relevant, the 
banks made their participation in the measures conditional upon the success of the GDRs issuance, 
which was successfully carried out by 15 June 2001 .  It was only thereafter that the banks executed 
the remainder of the SSB re-capitalisation plan, and purchased the CBs.108 In sum, we do not find 
reasonable the conclusion that the only possible e xplanation for the banks' participation in the 
May 2001 Restructuring Progra mme was government direction. 
7.108  Finally, the EC refers in support of its conclu sion of direction by Korea of the eighteen banks 
participating in the May 2001 Restructuring Prog ramme to the press allegations of government 
pressure exercised on one bank, the KorAm Bank.  The press report suggests that the FSS threatened the KorAm Bank into participating, which it finally did.
109 According to the KorAm Bank itself, it 
was simply waiting for a memorandum to be delivered by Hynix pledging to make its best efforts to 
reduce its debt.  The KorAm Bank went ahead w ith the CBs purchase as soon as it received this 
memorandum.  In the absence of any additional suppor ting material and in light of the uncontested 
fact that the KorAm Bank indeed only particip ated after having received the memorandum, we 
consider that allegations in a press article are insu fficient as a basis for a conclusion of direction by 
the government of the KorAm Bank to purchase Hynix bonds.  Moreover, and even assuming, 
arguendo , that this press report would demonstrate government direction of the KorAm Bank, we 
consider that evidence of one bank having been directed to participate does not, without any 
                                                      
106 These banks are mentioned in footnote 1 to para. 89 of the Final Determination.  
107 Preliminary Determination, para. 43.  
 108 In para. 44 of the the Preliminary Determination, the EC came to the following conclusion:   
"[u]nder these circumstances, the behaviour of the banks is considered to be equal to that of 
other market investors who invested in Hynix GDR's at the same time.  However there is some 
evidence in the records that indicate that the investor's interest to invest in Hynix GDR's at the 
time might have been influenced by the belief that the GOK would ultimately make sure that Hynix does not default on bonds and loans.  The Commission however has no indication that 
there was an actual GOK guarantee gr anted for the bonds in question."   
109 According to the press report, the FSS stated that it would not forgive the bank if it did not 
participate, adding that it would take stern measures against the bank, such as disapproving new financial 
instruments and subjecting the bank to a tighter audit.  (Final Determination, para. 92.  Korea Times, 
21 June 2001; Dow Jones International News 20 June 2001)  WT/DS299/R 
Page 38  
 
additional supporting evidence, provide sufficient su pport for a finding that the totality of the CBs 
purchase in which seventeen other banks partic ipated was a government-directed financial 
contribution.  
7.109  We wish to add, by way of conclusion, that we are not blind to the problems of evidence 
gathering in countervail investiga tions, and do not want to be seen as requiring an investigating 
authority to come up with the smoking gun in the sense of a written order by the government to a 
private body to provide a financial contribution.  We understand that, in most cases, the authority will 
have to base its decision on a number of argume nts and pieces of evidence which perhaps when 
considered in combination may all point in the di rection of government en trustment or direction, 
especially in cases where the level of cooperation by th e interested parties is low.  However, practical 
evidence gathering problems are not an overriding jus tification for finding that financial contributions 
by private bodies meet the entrustment or direction standard set by the SCM Agreement.   Nor should 
such problems create the impression that an authority is entitled to assume a lot from very little.  If the 
overall picture is such, however, that it is reasona ble to conclude that the government entrusted or 
directed the private body to do something which involves a financial contribution, then its 
determination is consistent with the SCM Agreement .  While the May 2001 Restructuring Programme 
is a close case, we consider that the evidence befo re the investigating authority was insufficient to 
reasonably conclude that the govern ment entrusted or directed the private banks to purchase the 
Hynix CBs.
110  
7.110  In sum, we find that the EC's determination that  the creditor banks were directed to participate 
in the May 2001 Restructuring programme and that their purchase of KRW 1 trillion of CBs as part of 
that Programme therefore constitutes a financial c ontribution by the government was not consistent 
with Article 1.1(a) of the SCM Agreement .  
(vi) October 2001 Restructuring Programme 
7.111  The fifth and final programme considered to  constitute a subsidy was the October 2001 
Restructuring Programme.  On 4 October 2001, a second Hynix CFIC was set up in accordance with 
the provisions of the Corporate Restructuring Pr omotion Act ("CRPA").  The CRPA was enacted in 
August 2001 and its purpose was to facilitate corporate restructuring, which before was based on 
agreements between creditor banks and the companie s concerned.  The CFIC consisted of a hundred 
and ten financial institutions including seventeen banks  and fifteen investment trust companies.  The 
decisions of the CFIC were taken by a 75 per cent ma jority.  The votes were allocated in proportion of 
each institution's exposure to the total loans to Hynix.  Any financial institution exercising its 
dissenter's rights by disagreeing with a CFIC resolution would be ex cluded from the CFIC 
permanently.  In its second meeting held on 31 October 2001, the CFIC decided on a "second 
restructuring package" for Hynix.  The following measures were proposed:  
(a) provision of new loan of KRW 1 trillion to Hy nix with an interest rate of 7 per cent; 
(b) debt to equity swap by provision of bonds convertible into shares; 
(c) extending the maturities of existing loan s until 31 December 2004, converting the 
maturing corporate bonds into corporate bonds with a three year maturity and an 
                                                      
110 If, for example, evidence on the record demonstrat ed (akin to the evidence in the Syndicated Loan 
programme) that the FSC/FSS vice-chairman had esse ntially pressured the banks to pledge, then non-
cooperation by Korea could, in our view, have sufficed to tilt the balance in favour of the reasonableness of the 
EC's determination as to the May 2001 Restructuring Programme.  However, mere speculation that the vice-
chairman's presence turned the March meeting into a ple dging session does not, in our view, suffice to justify 
the EC's determination.   WT/DS299/R 
 Page 39 
 
 
interest rate of 6.5 per cent and adjusting th e interest rate of the remaining loans in 
Korean currency to 6 per cent. 
7.112  The financial institutions were given three opti ons by the CFIC in the 31 October meeting.  
The first option was to agree with the proposals by  extending new credit and participating in a debt-
to-equity swap ("Option 1").  Secondly, the banks wh ich did not want to participate in the new loan 
were obliged to swap 28.5 per cent of their loans in to equity and waive the rest of the Hynix debt 
("Option 2").  Thirdly, the CFIC also decided th at those banks which objected to the measures and 
used their dissenter's rights would have their loans purchased back at the liquidation value as 
established by Arthur Andersen, the firm that wa s commissioned to conduct a study on the financial 
situation of Hynix at the time ("Option 3"). 
7.113  Nevertheless, only six banks agreed to extend new credit, which amounted to 
KRW 658 billion instead of the planned KRW 1 trilli on.  These banks swapped a considerable amount 
of their loans into equity.  These so-called Op tion 1 banks were the KE B, Woori Bank, Chohung 
Bank, KDB, NACF and Citibank.111 Eight banks refused to extend new loans, so they swapped 
approximately one-third of their loans into equity  and wrote-off the rest as a loss.  The remaining 
banks objected to the restructuring and elected to re ceive the liquidation value of their loans, and had 
to write the remaining debt off as a loss.  The lo ans remaining with the banks of the first category 
were subject to maturity extensions an d interest rate cuts as explained above.112 The EC considered 
that the participation by the six Option 1 banks in the October 2001 Restructuring Programme constituted a financial contribution by the government which conferred a benefit on Hynix.  The rate 
of subsidization for this October 2001 Restructur ing Programme was calculated to be 19.4 per cent. 
7.114  In the Final Determination, the EC determined  that the Option 1 banks were either public 
bodies or entrusted or directed by the government to participate in the October 2001 Restructuring Programme.
113  The EC came to the conclusion that no mark et investor would have invested in Hynix 
in October 2001.  The EC put particular emphasis on the seriously deteriorating situation of Hynix 
from June 2001 onwards.114 From June 2001 to August 2001, 128 megabit DRAMs prices fell on 
average by 68 per cent and continued to fall by a further 52 per cent by November 2001, with similar 
developments for 64 megabit DRAMs prices.115 Hynix stock prices collapsed almost immediately 
after the 15 June 2001 GDRs issuance, and, by 6 September 2001, the price of GDRs had fallen by 72 per cent resulting in great losses for the purchasers.
116 According to the EC, these developments 
were recognised by the Hynix creditor banks as th ey downgraded the credit rating for Hynix and for 
the semiconductor industry in general during 2001.117 Standard & Poor downgraded Hynix to CC in 
September and SD (selective default) in October 2001.118  In October 2001, the debts of Hynix were 
six times greater than its equity.119  Hynix was, according to the EC, virtually bankrupt.120 Therefore, 
the EC considered that the six Option 1 banks which extended new loans to Hynix, extended the 
maturities of the existing loans, and held a great amount of Hynix shares, did not behave in a 
                                                      
111 Preliminary Determination, para. 77.  The KDB did not participate in the new loan of 
KRW 658 billion. 
112 Id., paras. 69-71. 
 113 Final Determination, paras. 120-135; Preliminary Determination, para. 99.  Only the financing by 
the Option 1 banks was treated as a subsidy and, consequently,  countervailed.  In order to avoid double-
counting, where earlier subsidies were effectively subsum ed within the October 2001 Restructuring Programme, 
only one countervailing duty was imposed . 
114 Final Determination, paras. 101-112.  
115 Preliminary Determination, para. 73. 
116 Id., para. 74. 
117 The six Option 1 banks rated Hynix internally from "precautionary" to "doubtful".  (Final 
Determination, para. 104)  
118 Final Determination, para. 103; Preliminary Determination, para. 75. 
119 Final Determination, para. 106. 
120 Preliminary Determination, para. 76. WT/DS299/R 
Page 40  
 
commercially reasonable manner.  The EC went  on to examine whether the apparently non-
commercial behaviour of the six Option 1 banks was due to the involvement of the government in the 
banks concerned.
121 Before conducting a bank-by-bank analysis, the EC pointed to the fact that, of the 
nine banks which stopped financi ng Hynix in October 2001, seven were private banks, while of the 
six Option 1 banks, the four largest creditors were ei ther totally or by a large majority owned by the 
government.122 It added that one of them was a special bank with a public policy role and that three 
others were under government control due to the fa ct that they were themselves under restructuring, 
had agreements with the government regulati ng their business operations and received capital 
injections from the government.123 The EC further concluded that the KDB was a public body.124  
7.115  The Final Determination also addresses the argument made by parties that certain banks, in 
spite of being government-owned, did not take pa rt in Option 1 of the October 2001 Restructuring 
Programme.  Korea argued that this fact contradict s the EC's conclusion, based to a large extent on 
government shareholding power, that the six Option 1 ba nks were directed by the Korea to participate.  
In the Final Determination, the EC explains that , of the four government-owned banks that did not 
participate in Option 1 ( i.e., government-owned Option 3 banks), two – the Kwangju Bank and the 
Kyongam Bank – were to be merged with Woori Bank that did take part.  Similarly, a third one – the 
Seoul Bank – was going to be sold to Hana Bank following the IMF's recommendations.  As for the 
fourth, the Industrial Bank of Korea ("IBK"), the EC  considers that to force it to participate again 
would be such an obvious breach of IBK's mandate as a specialized bank for SME's that it was better 
not to.125 
7.116  We recall that, under Article 1.1(a)(1) of the SCM Agreement , when a financial contribution is 
provided by a public body, there is no need for an a dditional finding of "entrustment or direction" by 
the government.  The EC found the KDB to be a pub lic body and its participation in the October 2001 
Restructuring Programme by, inter alia , extending new loans was considered to be a financial 
contribution in the sense of the SCM Agreement .126 Korea does not object to the EC's determination 
that the KDB is a public body.  In this respect, we find that Korea has not made a prima facie case 
that the EC's finding that the KDB provided a fina ncial contribution to Hynix was inconsistent with 
Article 1.1(a) of the SCM Agreement .   
7.117  With respect to the five other banks which the EC  considered not to be public bodies, we will 
examine whether the EC made reas onable and reasoned conclusions on th e basis of the facts before it 
that these banks were directed by Korea to carry out the measures in question.127 
Woori Bank 
7.118  In its bank-by-bank analysis, the EC asserts that Woori Bank was aware of the gloomy 
financial state of Hynix and took part on the b asis of public policy considerations, which are not 
commercial and can only be explained by the governme nt using its 100 per cent shareholder status to 
influence decisions.128 
7.119  It is not contested that Woori Bank was 100 per cent government-owned via the Korea 
Deposit Insurance Corporation ("KDIC") since late 2 000.  The EC did not consider Woori Bank to be 
                                                      
121 Ibid. 
122 Id., para. 79. 
123 Ibid. 
124 Final Determination, para. 120. 
125 Id., paras. 134-135. 
126 Id., para. 120. 
127 Ibid. 
128 Id., para. 129; Preliminary Determination, para. 88.  WT/DS299/R 
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a public body.129 This implies that, in order for a loan by  this bank to be considered a financial 
contribution in the sense of Article 1.1(a)(1) of the SCM Agreement , the EC was required to establish 
that the government entrusted or directed the bank to provide the financial contribution in question.  
In our view, even if an investigating authority d ecides that such 100 per cent government ownership is 
not sufficient to qualify an entity as a public body, the extent of government ownership still remains a 
very relevant factor in the evaluation of the evid ence concerning possible entrustment or direction by 
the government.  It is clear that, as the sole sharehol der, it is easier for the government to direct the 
bank to act in a certain manner than in a situati on of no or only minor government involvement.  At 
the same time, it should be clear that, in our view , government ownership, in and of itself, is not 
sufficient to establish entrustment or di rection under Article 1.1(a)(1) of the SCM Agreement .  We 
consider that Article 1.1(a)(1) of the SCM Agreement  is clear: either a financial contribution is 
provided by the government or a public body, or it is  provided by a private body, in which case it will 
be covered by the SCM Agreement  only in case this private body acted under the direction or the 
entrustment of the government to behave in this  manner, in which case the private body's action may 
be attributed to the government, and the SCM Agreement  applies.   
7.120  In the case of a 100 per cent government-owned bank, such as Woori Bank, it thus needs to 
be demonstrated that the government actually exercised  its shareholder power to direct the bank to 
support to Hynix.  In light of our standard of re view, we will therefore ex amine whether on the basis 
of all the facts before it, the investigating author ity made a reasonable and reasoned conclusion when 
it found that Korea directed Woori Bank to participate in the October 2001 Restructuring Programme.   
7.121  The record of the investigation shows that Woor i Bank participated as an Option 1 bank in the 
October 2001 Restructuring Programme, inter alia,  on the basis of public policy considerations, 
referring to the impact on the national economy of H ynix going bankrupt.  While we agree with Korea 
that important national banks such as Woori Bank may well take into account the broader picture 
rather than pursuing a pure strategy of profit maximiza tion, we do not agree that this consideration is 
irrelevant.   
7.122  We further find highly relevant in the assessmen t of the evidence before the EC, the seriously 
deteriorated situation of Hynix in October 2001 compar ed with the situation of Hynix at the time the 
creditor banks agreed on the May 2001 Restructuri ng Programme.  We recall that the uncontested 
figures mentioned in the Preliminary and Final Determination show that, between June 2001 and 
August 2001, 128 megabit DRAMs prices fell on aver age by 68 per cent and continued to fall by a 
further 52 per cent by November 2001, with simila r developments for 64 megabit DRAMs prices.130 
Hynix stock prices collapsed almost immediately after the 15 June 2001 GDRs issuance, and, by 
6 September 2001, the price of GDRs had fallen by  72 per cent resulting in great losses for the 
purchasers.131 According to the EC, these developments were recognised also by the Hynix creditor 
banks as they downgraded the credit rating of Hyni x and for the semiconductor industry in general 
during 2001.  Standard & Poor downgraded Hyni x to CC in September and SD in October 2001.132 
Korea does not contest the accuracy of this account of events.  In our view, these developments are 
very relevant in evaluating the behaviour of these non-public bodies. 
                                                      
129 We do not wish to imply that it would not be possible or justified to treat a 100 per cent government 
owned entity as a public body, depending on the circumstances.  Our task, however, is to review the 
determination actually made by the EC, not to make our own de novo interpretation of the facts in this case. 
Since the EC considered Woori Bank to be a private body, we will examine the question of entrustment or direction by the government with regard to Woori Bank.  A similar consideration applies to our discussion and 
analysis of Chohung Bank and the KEB in which the government of Korea held 80 per cent and 43 per cent of 
the shares, respectively, at the time of the investigation.  
130 Preliminary Determination, para. 73. 
131 Id., para. 74. 
132 Id., para. 75. WT/DS299/R 
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7.123  Another important difference between the May 2001 Restructuring Programme and the 
October 2001 Restructuring Programme is, in our view, the fact that the second Hynix creditors' council – the CFIC – was set up in October 2001, in accordance with th e CRPA.  The CRPA was 
enacted in August 2001 with the purpose of fac ilitating corporate restructuring through a majority 
voting procedure.  Before, such restructuring w as based on individual private agreements between 
creditor banks and the distressed companies.  In our view, this difference indicates that the May 2001 
Restructuring Programme took place under an info rmal approach that allowed small dissenting 
creditor banks the option of not participating in the re-financing programme.  By the time of the 
October 2001 Restructuring Programme, a government-d riven policy considerably circumscribed the 
options of dissenting creditors. 
7.124  Korea argues that the MOU between Woori Ba nk and the government is irrelevant for 
October 2001 Restructuring Programme and, in an y case, only provided general prudential rules for 
Woori Bank as the recipient of public funds.
133 We first wish to note that we do not consider that the 
MOU between Woori Bank and the government formed the basis of the EC's decision of direction by the government with regard to this bank.  We not e that it is explained in the EC's Preliminary 
Determination, that in December 2000, Woori Ba nk concluded an agreement for the implementation 
of the management improvement plan for the bank in the form of a MOU with the government, which gave the government important powers in case of a failure to implement the plan.  A further MOU 
was entered into with the government in July 2 001 to implement a business plan.  While these MOUs 
are not directly relevant to the October 2001 restru cturing of Hynix, and did not appear to have 
formed the basis for the EC's decision, we can se e how an investigating authority could reasonably 
take these MOUs into account as evidence of a possible means for th e government to intervene in the 
daily operations of the bank in question.   
7.125  In our view, Korea failed to demonstrate that  the EC finding of government direction of 
Woori Bank in the October 2001 Restructuring Programme was not a reasonable and reasoned 
conclusion.  The EC based its finding on the combin ation of a 100 per cent government ownership of 
Woori Bank, the disastrous financial situation of  Hynix in October 2001, the recognised public 
interest considerations in deciding to participate in  the Programme, and the fact that the restructuring 
took place in the framework of a formal government act,  the CRPA.  We thus reject Korea's claim that 
the EC finding of a financial contribution with re gard to the Woori Bank's participation in the 
October 2001 Restructuring Programme was in consistent with Article 1.1(a) of the SCM Agreement .   
Chohung Bank 
7.126  With regard to Chohung Bank, in which the government held 80 per cent of the shares at the 
time of the investigation, the investigating authorit y considered that the internal rating did not support 
the decision to invest in Hynix, and noted that this bank immediately raised its loss reserves after 
participating in the measures and approved th e measures by reference to its MOU with the 
government.  This, in the view of the investigati ng authority showed that banks under restructuring 
were restricted in their business decisions to comp ly with government conditions.  According to the 
EC, it is clear that the government used its 80 per cent shareholder status to  influence the decisions.
134 
The EC also considered relevant the fact that it found that the government directed Chohung Bank to 
support Hynix on earlier occasions, in particular  in the May 2001 Restructuring Programme.135  
                                                      
133 We note that Korea also argued before us that the EC ignored the fact that in October 2001 there 
were still two banks (Woori Bank and P eace Bank) which later merged to become Woori Bank and that the EC 
failed to examine the involvement and alleged government direction of Peace Bank.  We  consider reasonable the 
investigating authority's approach in lig ht of the EC's reply that Peace Bank no  longer existed at the time of the 
investigation and that nobody made an y arguments about the n eed to examine Peace Bank at the time of the 
investigation.   
134 Final Determination, para. 129; Preliminary Determination, para. 89. 
135 Final Determination, para. 129.  WT/DS299/R 
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7.127  We are of the view that a very similar reas oning as the one developed above with regard to 
Woori Bank applies to Chohung Bank, in which the government held 80 per cent of the shares.136  We 
agree with Korea that shareholding does not equal di rection.  But, as we stated earlier, it remains a 
relevant fact which, in combination with other rele vant facts, may lead to a conclusion that the power 
of a majority shareholder may have been used to direct the private body to provide a financial 
contribution.  In this respect, we do not see much  of a difference in prac tical terms between 80 per 
cent shareholding and 100 per cent shareholding.  In both cases, it is clear that, if the government 
wants to impose a decision on the private bank, its proposed action will not be seriously scrutinized.   
7.128  The situation would, of course, be different in  case the government, in spite of being a 80 per 
cent shareholder of a bank would not be able to de facto  impose its decision on the bank because, for 
example, a majority of the directors were appoint ed by the minority shareholders.  Korea has argued 
that Chohung Bank explained to the EC that Korea had no direct or indirect influence on its management activities, and that, in spite of the gove rnment ownership of 80 per cent of the shares, it 
remained a commercial bank that took its d ecisions on the basis of purely commercial 
considerations.
137  In particular, Chohung Bank pointed to the fact that all of its directors started their 
careers in that bank and that Korea thus did not force the Chohung Bank to have directors nominated 
by the government or any other public body.138 The career-director argument, however, could equally 
be cited for the proposition that these were not independent-minded pe rsons, dedicated to the 
management of Chohung Bank stric tly on commercial principles.   
7.129  In our view, the amount of shareholding by th e government determines the extent to which it 
can influence the decision-making process set out in company law and the articles of association of 
the company concerned.139 Korea has not provided any evidence that the government shareholding 
power did not allow the government to exercise s ubstantial management power .  We thus consider 
reasonable the conclusion of the EC that this im portant government shareholding power enabled the 
government to control and direct the actions of Ch ohung Bank.  As such, this potential direction and 
control is not, however, sufficient to establish actual direction in the sense of Article 1.1(a)(1)(iv) of 
the SCM Agreement .  We therefore examine additional evid ence that the EC relied upon in reaching 
its conclusion. 
7.130  The EC refers to the internal rating by Chohung Bank of Hynix as "inappropriate for 
investment".  The EC also notes that the bank imme diately raised its loss reserves after participating 
in the October 2001 Restructuring Programme, and a ccounted the whole debt-to-equity conversion as 
a loss.  It also refers to the fact that Chohung Bank itself approved the measure by reference to its 
need to comply with a MOU it signed with the government in November 1999, which was amended 
in May 2000.  Korea argues that the EC ignored the explanations provided by Chohung Bank itself 
concerning, inter alia , the fact that the MOU only concerned the restructuring measures imposed by 
the government in response to the 1997 financia l crisis.  Chohung Bank also argued to the 
investigating authority that, in th e Board's meetings held during the POI, there was no mention made 
of the fact that the government w as willing to subsidize Hynix, or that it directed the Chohung Bank 
to inject funds into Hynix.  Rather, Chohung Bank  submitted to the investigating authority that the 
decisions concerning Hynix were taken by three sp ecifically trained teams and following a generally 
applied procedure.140  The EC replied to these concerns by simply stating that Chohung Bank did not 
provide any new evidence in its comments which woul d alter the Commission's conclusion.  It further 
referred to alleged earlier cases of government dire ction in respect of the May 2001 Restructuring 
Programme, the letters to the KEIC and KEB re garding the Syndicated Loan, the FSC lending limit 
                                                      
136 We refer to our consideration in footnote 129 concerning the nature of this bank as a private body.  
137 Korea First Written Submission, para. 552.   Chohung Bank's Comments on the Preliminary 
Determination of 19 May 2003.  ( Exhibit GOK-24 ) 
138 Chohung Bank's Comments on the Preliminary Determination of 19 May 2003.  ( Exhibit GOK-24 ) 
139 Final Determination, para. 121. 
140 Chohung Bank's Comments on the Preliminary Determination of 19 May 2003.  ( Exhibit GOK-24 ) WT/DS299/R 
Page 44  
 
waiver and the KEIC Guarantee.  We do not consider  that such information is highly relevant to the 
question of possible government direction of Chohung Bank in October 2001 .  As far as the alleged 
government direction in the May 2001 Restructuri ng Programme is concerned, we found that there 
was insufficient evidence to reach a conclusion of direction or entr ustment, and thus we also fail to 
see how that same evidence  could somehow confirm or strengthen the EC reasoning with regard to 
the October 2001 Restructuring Programme.    
7.131  What remains, however, is the EC reliance on the disastrous financial state of Hynix at the 
time the October 2001 Restructuring Programme was ag reed on, as explained earlier.  In our view, 
given the deterioration of the situation since May 2001, and taking into account the credit rating for 
Hynix both from independent sources such as Standard  & Poor and internally by Chohung Bank, it 
seems to us to have been a reasonable conclusion of  the EC that the renewed investment in Hynix by 
Chohung Bank did not correspond with normal commercia l behaviour.  In combination with the very 
important amount of government shareholding pow er, and the absence of any convincing evidence of 
the commercial reasonableness of such investments,  we consider that the EC was acting in a 
reasonable manner when it concluded that Chohung  Bank had been directed by the government to 
participate in the October 2001 Restructuring Programme of Hynix.   
7.132  We therefore reject Korea's claim that the EC's  determination of a fi nancial contribution by 
the Chohung Bank in October 2001 was incons istent with Article 1.1(a) of the SCM Agreement . 
KEB 
7.133  With respect to the KEB, the EC asserts that th e bank's internal rating of Hynix did not justify 
granting further financing, especially in light of th e fact that the KEB  was undergoing restructuring 
itself and should have avoided risky investments.  The EC also notes that this bank used to be a 
specialized government bank and that  Korea remained the largest shareholder with 43.17 per cent of 
the shares.  Given the fact that the loans were made  available at rates for financially sound companies, 
and based on the available facts, the EC conclu ded that Korea must have used its shareholder 
influence to influence decisions.  The EC also refe rs to the reports disclosing government pressure on 
the KEB at the time of the Syndicated Loan, supporti ng  the view that as majority shareholder, the 
government did influence decisions.
141 
7.134  We find relevant the EC's considerations that this bank used to be a specialized government 
bank and that the government of Korea remains th e largest shareholder with 43.17 per cent of the 
shares.142 We are of the view, as explained above, that the fact that the government is the largest 
shareholder of the KEB is an important but not a determinative factor in establishing government 
direction of private bodies in the sense of Article 1 of the SCM Agreement .  It is a factor which may 
be taken into account when assessing all the ev idence concerning government direction.  The 
remainder of the evidence relied on by the EC shows that the KEB's internal rating of Hynix was very 
bad, but that the loans were nevertheless made av ailable at rates for financially sound companies.  
While Korea argues that Commerzbank, the second la rgest shareholder of the KEB, controlled the 
lending practices of the KEB, we find relevant the fact that only four of the twenty directors of the 
KEB were from Commerzbank, and that the governme nt, as the largest shareholder, was able to 
influence appointments of the other directors.143  On this basis, and in light of the particularly negative 
                                                      
141 Final Determination, para. 126; Preliminary Determination, para. 91. 
142 We refer to our consideration in footnote 129 concerning the nature of this bank as a private body. 
143 The EC also relied on the letters concerning the results of the Ministers meeting of 
28 November 2001, which were discovered following the Preliminary Determination and had been withheld by 
the parties concerned.  The EC asse rts that, through these le tters, the government on this earlier occasion had 
already directed the KEB to act in a cer tain manner, which thus confirms its view that Korea was able to use its 
majority shareholder power to direct the KEB.  As we discussed earlier, we do not find unreasonable this 
conclusion.  In any case, and, at the very least, the letter could reasonably be considered as evidence of the 
government's power to direct the KEB to request a lending limit waiver.   WT/DS299/R 
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financial state of Hynix in October 2001, we co nsider reasonable the EC conclusion  that the 
government must have been using its shareholder power to influence decisions.144 We wish to 
emphasize that we consider particularly relevant  the precarious financial state of Hynix at the time of 
the October 2001 Restructuring Programme, which was di fferent from the situation that existed at the 
time of the May 2001 Restructuring Programme.  In our view, the combination of important 
government control and the extremely negative financ ial state of Hynix justifies, in the absence of 
strong evidence to the contrary, the reasonable c onclusion by the EC of the actual exercise of  
government control to direct the bank to partic ipate in the October 2001 Restructuring Programme, 
and to provide a financial contribution. 
7.135  We therefore reject Korea's claim that the EC 's finding of a financial contribution by the 
government with regard to the KEB was in consistent with Article 1.1(a) of the SCM Agreement .  
NACF  
7.136  The EC considered the NACF to be a bod y which carries out an economic policy of 
supporting the agricultural sector.  It adds that the NACF had an underwriting from the government of 
the losses incurred resulting from its activities, and th at the NACF's internal rating for Hynix did not 
justify further financing, and certainly not at inter est rates below market rates.  In sum, according to 
the EC, there can be no other explanation for th e non-commercial behaviour than the government 
direction.145  
7.137  We recall that it is not contested that the NACF is a body which carries out an economic 
policy of supporting the agricultural sector, and is jointly managed by the Ministry of Economy and 
Finance and the Ministry of Agriculture and Forest ry, and has specialized f unctions as an agricultural 
policy bank, such as implementation of Korea's agricultural policy.  We note that the EC argued 
before us that, for that reason, the NACF was to be  considered as a public body.  It seems, however, 
that at the time of the investigation, the EC did not consider the NACF to have this public body status.  While it is clear that the NACF was not acting in its agricultural role when investing in Hynix, we do 
not agree with Korea that, for that reason, its general public policy orientation is completely 
irrelevant.  We note again that it is uncontested th at the bank's own internal credit rating for Hynix 
was not such as to justify further financing.  Once agai n, in light of the deteriorated situation of Hynix 
and given Korea's role in the NACF, and its public policy orientation, we consider that it was not 
unreasonable of the EC to conclude that a quasi public body like the NACF was directed by the 
government to participate in the October 2001 R estructuring Programme.  We do not consider, as 
Korea seems to be arguing, that the EC should ha ve simply accepted the NACF's statement that it had 
commercial reasons for participating in the Oc tober 2001 Restructuring Programme, and was not 
directed to take part by the government, given th e other facts on the record which the EC reasonably 
explained to have led it to the opposite conclusion.
146  
7.138  We therefore reject Korea's claim that the EC 's finding of a financial contribution by the 
government with regard to the NACF was in consistent with Article 1.1(a) of the SCM Agreement . 
Citibank 
7.139  In the Final Determination, the EC notes that Citibank  had very close relationship with the 
government, as it was one of the first foreign banks to operate in Korea in 1967.  The EC considers 
                                                      
144 Preliminary Determination, para. 91. 
145 Final Determination, para. 128; Preliminary Determination, para. 97.  
146 We note that Korea only contested the EC determination with respect to the NACF in its First 
Written Submission and did not further elaborate on this argument in the subsequent submissions or statements before us.  In response to a question by the Panel concerning the NACF, Korea merely replied that the EC did 
not consider the NACF to be a public body at the time of the investigation, and that it was therefore precluded 
from doing so before the Panel.  (Korea response to question 79 of the Panel)  WT/DS299/R 
Page 46  
 
that Citibank failed to cooperate and that its assertions  that it was not acting under the direction of the 
government could therefore not be verified vi a a proper response to the questionnaire and a 
verification visit.  According to the EC, Citiba nk failed to explain why it became involved in Hynix 
only in January 2001, when the situation was alre ady sufficiently bad to deter most private banks, 
outside the context of special programmes such as the May 2001 Restructuring.   By October 2001, 
Citibank rated Hynix as "D" (doubtful).  The EC conc ludes that Citibank's links with the government 
were intensified during the financ ial crisis which made it particularly vulnerable to government 
direction.  The EC considers that Citibank's failure  to cooperate suggests that Citibank had something 
to hide.  The EC considers that the bank's internal  rating for Hynix did not justify new financing.  In 
light of the failure to cooperate, the EC consider s that the only conclusi on for such non-commercial 
behaviour can be government direction.
147  
7.140  In our view, in the case of Citibank, the situati on is considerably different in one important 
respect with regard to the alleged direction by th e government of Citibank.  The government had no 
shareholder power in Citibank.  While it is correct  that Citibank had a close relationship with the 
government since the late 1960's, and was clearly an  important player in assisting Korea's economic 
recovery after the 1997 financial crisis, this does not necessarily demonstrate that the government had 
some form of control over Citibank.  Hence, the qua lity of the evidence with regard to Citibank will 
have to be higher to demonstrate that the government  actually directed Citibank to participate in the 
October 2001 Restructuring Programme.  In our vi ew, had Citibank from the outset fully cooperated 
with the investigating authority the evidence relied on  by the EC would not be sufficient to reasonably 
conclude that the government actually directed Citiba nk to participate.  As with the other banks, we 
consider relevant the fact that the commercial reasonableness to take part in the October 2001 
Restructuring Programme appears doubtful, given Citib ank's internal rating of Hynix and the general 
state of Hynix and the industry at the time.  But we do not consider this distre ss context sufficient to 
conclude that Citibank had been directed to particip ate.  For the other banks that participated, we are 
of the view that the important government share holding position was precisely that bit of additional 
evidence that could justify a reasonable investigating authority's conclusion of direction.  In the case 
of Citibank, it appears that the non-cooperation by Citibank was considered the additional element 
that led the EC to the conclusion of government dire ction.  As we conclude elsewhere in our Report, 
we consider that the EC was entitled to consider  that Citibank had failed to respond to the EC 
questionnaire and, thus, did not provide any spec ific and verifiable information concerning its 
involvement in the October 2001 Restructuring Programme. 
7.141  We recall that in the Final Determination, th e EC reached the following conclusion based on 
Citibank's failure to cooperate: 
"(133) As for the GOK direction, information on the record indicates that there were 
considerable links between the GOK, Hynix and Citibank.  For the GOK and 
Citibank these went beyond the loans investig ated.  Such links can be interpreted in 
two ways.  Firstly, they can be interprete d as indicating that Citibank may well have 
had commercial reasons for providing financi ng to Hynix, or as alleged by one of the 
parties, they could be interpreted as pl acing Citibank in a vulnerable position with 
regards to direction by the GOK.  Due to the non-cooperation it was not possible to establish whether Citibank acted on coercion or  whether this was in accordance with 
their normal business practice.  In this respect, it is recalled that the reason for non-
cooperation was to prevent access to Hynix's cost, finance and accounting data.  In 
the absence of any other explanation, this  can reasonably be taken as an indication 
that this data in Citibank's possession contai n information revealing that there were 
no commercial reasons to provide the financ ing in question, and that the financing 
was provided due to GOK direction.  This reason is also the one suggested in the 
complaint.  In addition, as explained in  recital 94 of the provisional Regulation, 
                                                     
 
147 Final Determination, paras. 130-133; Pr eliminary Determination, paras. 93-94.   WT/DS299/R 
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Citibank has had an unusually close and symbiotic relationship with the GOK since 
1967, when it was authorised to operate in Korea.  This close relationship between 
the GOK and Citibank is witnessed in the ro le played by Citibank in assisting the 
GOK to extricate itself from the Korean fina ncial crisis of 1997.  Citibank led and 
successfully completed Korea's bank debt restructuring for a total of USD 21,75 
billion in 1998.  Moreover, Citibank helped the GOK and government-related 
institutions to access capital markets dur ing the Korean financial crisis by 
successfully sponsoring a USD 4 billion global bond offering.  All these facts confirm 
that Citibank has a very close relationship to  the GOK.  On the b asis of these facts, 
and of the refusal of Citibank to grant access  to the information in its possession, and 
failing any other verifiable evidence being av ailable, the conclusion to be drawn in 
accordance with Article 28(6) of the basic Regulation is that the GOK was involved 
and directed Citibank to provide the financing in question." 148  
7.142  As we explain in a separate section of our Report dealing with Korea's claims concerning the 
application of Article 12.7 of the SCM Agreement , we consider that the EC was justified in making its 
determinations with regard to Citibank based on the facts available, given the fact that information 
reasonably considered as necessary was not provided.   We note that Korea argues that Citibank 
should not have been considered as an un-cooperative party in light of its good faith efforts to provide 
the information.  In addition, Ko rea argues that Hynix is not to be blamed for Citibank's failure to 
provide the information either, and that, therefor e, the EC was not allowed to draw any adverse 
inferences from Citibank's failure to provide the requested information.   In other words, Korea argues 
that it was not Hynix's fault that the information was not provided but that this non-provision was due 
to Citibank's internal policies.  At the same time, it argues that it was not Citibank's fault either as 
Hynix did not consent to the disclosure of the in formation and that without such consent Citibank 
would risk legal liability problems under Korean law.  It appears that Korea wants to have its cake and 
eat it at the same time.  In any case, it is clear that necessary information was not provided within a 
reasonable period and the EC was thus entitled to resort to the use of the facts available under 
Article 12.7 of the SCM Agreement .   
7.143   In our view, this non-cooperation by Citibank was that bit of additional evidence that could 
justify a reasonable authority's conclusion that Citiba nk had been directed by Korea to participate as 
an Option 1 bank in the October 2001 Restructur ing Programme.  As we did when discussing the 
Syndicated Loan, we wish to em phasise that we do not believe that the non-cooperation, in the 
absence of any additional supporting evidence, as such  would be sufficient to reach the conclusion of 
government direction.  Article 12.7 of the SCM Agreement allows an authority to make 
determinations on the basis of the facts  available, not on the basis of mere assumptions or inferences.  
We do not consider that Article 12.7 allows an aut hority to automatically reach a conclusion which is 
negative for the un-cooperative party in the ab sence of additional facts, simply because the 
information was not provided.  We do not consider th at Article 12.7 can be interpreted in this punitive 
manner.  However, if there are, as in this case, certain facts on the record which point in a certain 
direction, then it is not unreasonable of an investigati ng authority to read these facts in the light of the 
non-cooperation by the interested party concerned.  To deny the authority, when faced with such 
blatant non-cooperation, the right to take this un- cooperative behaviour into account as an element of 
relevance in assessing the facts before it would in e ffect make the "stick" of Article 12.7 meaningless.  
It would, in our view, mean that an investiga ting authority, which lacks any significant evidence 
gathering powers, is deprived of the limited possib ility of inducing interested parties to provide the 
information necessary to make preliminary and final determinations.     
7.144  In sum, the complete refusal by Citibank to provide any meaningful and verifiable 
information requested by the authority, combined  with the close relationship between Korea and 
Citibank, as well as Citibank's role as Hynix's princi pal financial advisor and the doubtful commercial 
                                                      
148 Final Determination, para. 133. WT/DS299/R 
Page 48  
 
reasonableness of participating in the October 2001 R estructuring Programme justify, in our view, the 
reasonable conclusion by the EC that Citibank w as directed by Korea to participate in the 
October 2001 Restructuring Programme.   
7.145  We therefore conclude that the EC determ ination of a financial contribution by the 
government through Citibank was consis tent with Article 1.1(a) of the SCM Agreement . 
Conclusion 
7.146  For the reasons set forth above, we thus find that  the EC finding of the existence of a financial 
contribution by the government of Korea by the participation in the October 2001 Restructuring Programme of the KDB, Woori Bank, Chohung Bank,  KEB, NACF and Citibank is consistent with 
Article 1.1(a) of the SCM Agreement .    
2. Claims regarding the EC's determinations of the existence and amount of benefit  
(a) Korea 
7.147  Korea argues that the EC's finding and measure ment of "benefit" was inconsistent with 
Articles 1.1(b) and 14 of the SCM Agreement .  According to Korea, under these provisions, as 
clarified by the Appellate Body in the Canada – Aircraft  and US – Lumber IV  cases, the EC was 
under an obligation in measuring benefit to compare what was received by Hynix with what was 
available on the market.  Instead, the EC ignored  the available market benchmarks, and simply 
considered all loans, loan guarantees, bonds and eq uity as grants, thereby disregarding the specific 
obligations contained in Article 14 of the SCM Agreement with regard to the determination of 
benefit.
149 
7.148  In addition, Korea asserts that the EC did not adequately explain why Korean market 
benchmarks could not be used, nor did it demonstrate why its alternative grant methodology was 
related or connected with prevailing market co nditions in the Korean market, as required by 
Article 14.  Korea is of the view that Article 14 of the SCM Agreement clearly establishes a 
requirement to examine benefit by using the privat e market in the country under investigation as a 
benchmark.  According to Korea, if this is not po ssible, the authority should provide a justification for 
departing from this benchmark and must demonstrate that the alternative benchmark chosen is related 
to the prevailing market conditions in the country of investigation.150  
7.149  Korea further argues that in th e case of (1) the Syndicated Loan , (2) the KEIC Guarantee, and 
(3) the May 2001 Restructuring Programme, the change of position of the EC from "no benefit" in the 
Preliminary Determination to "benefit" in the Final Determination, and this without any explanation, 
confirms that the EC strove to achieve a pre-orda ined outcome from this investigation and provides 
the context in which Korea invites the Panel to c onsider the EC's benefit analysis.  According to 
Korea, the argument offered by the EC concerning "new information" about the Economic Ministers' 
meeting151 and the presence of government officials at a meeting between the creditors152 may affect 
the conclusions on financial contribution and entrustmen t, but it is unrelated to the question of benefit. 
                                                      
149 Korea First Written Submission, para. 572.  Korea asserts that the EC treated all of the various 
financial instruments as grants, as it simply assumed, without any positive evidence to support this assumption, 
that the banks involved in the restructuring process were not counting on seeing their money back.  It thus ignored the reality of the instrument s used which required the payment of interests and failed to examine the 
conditions in light of the market benchmarks required by Article 14 of the SCM Agreement . 
150 Korea finds support for its argument in the report of the Appellate Body in the US – Lumber IV  case 
dealing with Article 14(d) of the SCM Agreement .  
151 In so far as it concerns the Syndicated Loan and the KEIC Guarantee Programme. 
152 Where the May 2001 Restructuring Programme is concerned.  WT/DS299/R 
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Syndicated Loan 
7.150  Korea argues that the EC improperly treated the amount of the loans in excess of the waived 
lending limit as grants.  Such loans carried interest  payment requirements and the loans extended by 
the KEB, KFB and the KDB should therefore, accordi ng to Korea, have been compared to the loans 
granted by seven other banks involved in the pr ogramme which were not alleged to have been 
directed or entrusted to grant such loans.  Ko rea submits that the loans extended by these banks 
provided an adequate market benchmark for the determination of benefit.  
KEIC Guarantee 
7.151  Korea takes issue with the EC finding that, under this programme, no "adequate premium" 
was required which, according to the EC, turned what it considered to be a loan guarantee into a grant.  
According to Korea, under Article 1. 1(b), and Article 14 in the context of Item (j) of Annex I of the 
SCM Agreement , the EC should have examined the differe nce between the actual fee paid by Hynix 
and the fee that covers the operating costs and loss es of the export insurance programme in order to 
determine the existence of a benefit.  Korea subm its that the EC failed to even examine what an 
adequate premium would have been.  Second, even if the EC was correct in considering the export 
insurance programmes as a loan guarantee, Korea submits that Article 14(c) of the SCM Agreement 
then required the EC to examine the difference be tween the financial alternatives that could be 
obtained with the guarantee and those obtainable wit hout the guarantee.  The EC's general assertion 
that no alternative financing woul d have existed without the guarant ee is economically unsustainable 
as an alternative will always exist, albeit at a high interest rate.  In any case, Hynix did pay a premium 
and the EC's analysis of the KEIC Guarantee programme as a grant is thus flawed. 
KDB Debenture Programme 
7.152  Korea argues that the EC's treatment of the Programme's bonds  as grants  was based on the 
unsubstantiated assumption that the KDB would not r ecover the money invested.  Korea argues that 
the EC thus failed to make a comparison betwee n the KDB interest rate and available market 
benchmarks such as those offered by the Syndicated Loan153 or the GDRs offering, which provided 
clear evidence that it was commercially reasonable to participate in the KDB Debenture Programme.  
In addition, Korea argues that the largest part of  the Hynix bonds were not ultimately purchased by 
the KDB but rather by the creditor banks (20 per cen t) and private investors (70 per cent), for which 
the EC simply assumed that their participation also constituted a grant.   
May 2001 Restructuring Programme 
7.153  Korea takes issue with the treatment of a CBs purchase of KRW 1 trillion as a grant, as the 
CBs carried clear interest obligations and had the potential of being converted into equity.  Korea 
argues that the EC conclusion that it was obvious that  the money invested by the creditors would not 
be recovered is not supported by the facts.154  The success of the GDRs i ssuance disproves the EC's 
point.  According to Korea, the EC should have co mpared the CBs' interest rates with applicable 
market interest rates.  
                                                      
153 Korea submits that this Syndicat ed Loan provides a viable privat e market benchmark as it included 
loans by seven banks not entrusted or directed to provide such loans and as the interest rate charged by the KDB 
programme was actually higher than that of these Syndicated Loan.   
154 Korea refers to (1) th e positive market forecasts  for DRAMs,  (2) priv ate investor confidence 
expressed in the GDRs,  (3) the fact  that the purchase was conditioned on the success of the GDRs,  (4) the 
requirement to hold the m oney in escrow accounts, and (5) the fact that the type of bonds chosen were 
convertible which also showed the expectation of future gains.  WT/DS299/R 
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October 2001 Restructuring Programme 
7.154  Korea is of the view that the EC improperly considered the three measures
155 that together 
formed the October 2001 Restructuring Programme as grants.  The new loans granted, under the 
Programme, were not grants as the EC  concluded.  Korea argues that they were secured by a priority 
collateral on the Hynix factory.  In addition, neutral third party analysis commissioned by the 
creditors156 showed that, by granting new loans, the cr editors substantially in creased their chances of 
recovering at least part of their investments made in previous years.  Neither was it correct to consider the maturity extensions as debt forgiveness measu res, as by extending the maturity the aim of the 
creditors was precisely to increase the likelihood of recovering their money.  Similarly, the debt-to-equity swap was incorrectly considered a debt-fo rgiveness measure as it constituted a normal, albeit 
risky, investment decision by creditors hoping to partic ipate in the expected recovery of the company.  
Korea points out that the prices charged for the swap  were similar to, and even a bit lower than the 
share prices of Hynix on the stock exchange, which im plied that the shares obtained in the swap could 
easily be sold on the stock exchange.  In any case,  Korea submits, it would not make sense to go 
through the pains of engaging in a complex swap if all that was going on was simply a form of debt 
forgiveness.  Option 1 banks could then have elected Options 2 or 3. 
Additional calculation errors 
7.155  Finally, and in case the Panel were to reject Ko rea's claims on the benefit analysis performed, 
Korea argues that the EC made several important erro rs in the actual calculation of benefit.  First, 
Korea asserts that the EC failed to take into acc ount the part of the KDB Debenture Programme bonds 
which were later swapped into CBs in the May 2 001 Restructuring Programme.  Korea argues that, 
similar to the reduction in benefit the EC calculated  when considering that part of the CBs of the 
May 2001 Restructuring Programme were converted into equity in the October 2001 Restructuring 
Programme, the EC should have reduced the part of the benefit from the KDB Debenture Programme 
bonds that was changed into CBs in the May 2001 Restructuring Programme.  By not doing so, Korea 
submits that the EC committed a double-counting error. 
7.156  In addition, Korea asserts, the EC failed to deduc t from the alleged benefit the interest paid by 
Hynix under the KDB Debenture Programme.  Similarl y, Korea argues that the EC did not take into 
account the actual interest payments made to Op tion 1 banks in the October 2001 Restructuring 
Programme, in violation of Article 1.1(b) and 14 of the SCM Agreement .  Finally, Korea is of the 
view that the EC ignored information from the a udited books of Hynix on the actual value of the 
maturities issued under the October 2001 Restructur ing Programme, namely KRW 1.579 trillion, and 
instead  continued to use the incorrect amount of KRW 1.825 trillion.  This is a violation of 
Articles 1.1(b) and 14 of the SCM Agreement.  
(b) EC 
7.157  The EC considers that Article 1 of the SCM Agreement does not provide a definition of 
"benefit".  Neither does Article 14 of the SCM Agreement contain such a definition as this provision 
merely sets forth guidelines  for calculating the amount of a s ubsidy in terms of benefit to the 
recipient.  Article 14 of the SCM Agreement leaves much discretion to the authority in determining the 
method best suited for establishing and calculating the benefit.
157  According to the EC, the general 
                                                      
155 The October 2001 Restructuring Programme consisted of the granting of new loans, the extension of 
the maturity of existing loans, and a debt-to-equity swap.  
156 Korea mentions the Arthur Andersen study, the technology report by Abbie Gregg, and the Monitor 
Group's report.    
157 According to the EC, paragrap h (a) of Article 14 of the SCM Agreement  sets forth a basic rule 
concerning benefit in the case of the provision of equity or risk capital, but, unlike paragraphs (b), (c) and (d), it 
does not contain a precise method for calculating the benef it.  The EC asserts that this absence of any express  WT/DS299/R 
 Page 51 
 
 
guiding principle, as expressed by the Appellate Body in the Canada – Aircraft  case is that the 
benchmark for determin ing benefit is the financing available on the market, and the extent to which 
the recipient is better off than it would have been absent the government contribution.158  In assessing 
the alternative sources of financing available on th e market, the EC considers that this should be 
assessed on an ex ante  basis at the time of the provision of the financing, not when the risk has passed.  
The EC argues that, at a certain point, the risk is such that the market will simply not provide any 
further financing, even when there is less than 100 per cent certainty that no money will be recovered.  
Any so-called "loans" granted by the government in  such circumstances should then not be compared, 
as required by paragraph (b) of Article 14, to othe r comparable loans available on the market, as there 
are none, but instead can be considered as the provision of risk capital, the full amount of which 
constitutes the benefit which may be countervailed.  In such a situation, the EC argues that an 
investigating authority can establish benefit based  on any reasonable method in accordance with the 
general guiding principles of Article 14 of the SCM Agreement . 
7.158  In response to some of the arguments made by  Korea, the EC argues that the authorities are 
not obliged to use a market benchmark if the mark et in question is so distorted by government 
influence that participation by so-called market ac tors is not a sign of viability of the company but 
rather evidence of the success of  government efforts to salvage a company which is "too big to fail".  
According to the EC, to accept Korea's assertion, would allow the public powers to change the very 
benchmark by which commercial ac tivity is to be identified. 
7.159  The EC further rejects the Korean argument th at the benchmark chosen should be related to 
prevailing market conditions in Korea, as there is no such obligation in the applicable paragraphs (a) 
to (c) of Article 14 of the SCM Agreement .  Korean reliance on the US – Lumber  IV case dealing with 
Article 14(d) is irrelevant to the factual situati on at hand, which does not involve the provision of 
goods by the government. 
7.160  Finally, in response to the Korean argument th at the EC failed to consider the investment 
decisions from the perspective of an inside investor  seeking to increase its chances of at least partial 
recovery of at least part of the money invested, th e EC emphasises that it considered this perspective 
and concluded there was little difference in whethe r the commercial reasonability of the financing was 
considered from an inside or outside investor perspe ctive.  More importantly, the EC is of the view 
that, from the point of view of WTO law, this distin ction is irrelevant as the benchmark relates to the 
market in general and not to specific companies al ready in a relationship with the company receiving 
a subsidy.  
7.161  The EC asserts that the fact that the benefit determination changed from the Preliminary  to 
the Final Determination in the case of the Syndicat ed Loan, the KEIC Guarantee, and the May 2001 
Restructuring Programme is irrelevant.  The EC explains that the situation changed between the 
Preliminary and Final Determination due to the di scovery of new facts and evidence showing less 
than full disclosure from the Korean side and demons trating the intervention of the government in the 
market, thereby vitiating the argument that certain market actors were financing Hynix of their own 
free will.  
7.162  The EC considers that Korea failed to demonstrat e that the EC determination of a benefit in 
all five of the programmes found to constitute a fina ncial contribution by the government of Korea to 
Hynix was inconsistent with Articles 1.1 and 14 of the SCM Agreement .  
                                                                                                                                                                     
obligation when it comes to calculating the amount of benefit in a risk scenario indicates that the amount of 
benefit in the provision of equity capital will depe nd on future risk which is difficult to assess.  
158 According to the EC, the more insecure a loan is, the more one moves from the paragraph (b) 
situation concerning loans, to a general risk scenario under paragraph (a) for which the SCM Agreement contains 
no express obligations when it comes to calculating the amount of benefit. WT/DS299/R 
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Syndicated Loan 
7.163  The EC argues that the information on the record  shows that the EC reasonably took the view 
that Hynix had reached the point where, given th e economic environment and the precarious financial 
situation of the company, the market would make no further capital availabl e, absent the intervention 
of the government.  According to the EC, Korea faile d to show that there was any loan available from 
a market undistorted by the government's intervention.
159  Therefore, Korea failed to demonstrate that 
the method adopted for determining benefit by the EC was inconsistent with the general principle 
expressed in Article 14 of the SCM Agreement .   
KEIC Guarantee 
7.164  The EC argues that the record indicates that the creditor banks were only willing to extend 
their loans by USD 600 million due to the KEIC Guarantee which assured payment to the banks in 
case Hynix would go bankrupt.  This, the EC argues, is  evident from the disastrous financial situation 
of Hynix at the time, internal bank documents160, and the fact that some banks had reached their 
prudential limits and needed an FSC waiver to ex tend their loans.  There is, moreover, evidence on 
the record that the KEIC itself only provided the gua rantee due to government intervention, and that it 
was in fact the government that was ultimately unde rwriting the guarantee.  As Hynix would not have 
obtained the credit extension without the guarantee, it was reasonable for the EC to consider the full 
amount of the credit as the benefit provided by the KEIC Guarantee.  
7.165  The EC considers that it was not obliged to conduct an interest rate comparison as there 
would not have been an alternative source of f unding at any interest rate in the absence of  
government intervention.  The EC thus rejects Ko rea's allegations that, unde r Article 14(c), the EC 
should have examined the terms of the loans obtaine d on the basis of the guarantee with the terms of 
loans available without the guarantee,  as no such loans were available.161  The EC also considers the 
reference by Korea to Item (j) of Annex I of the SCM Agreement to be misplaced, as it does not 
concern a long-term guarantee programme but rather an ad hoc guarantee by the government to Hynix 
through the KEIC.  
KDB Debenture Programme 
7.166  With regard to the KDB Debenture Programme , whereby the KDB helped roll-over maturing 
bond obligations and repackaged the debt for investors,  the EC considers that the record again showed 
that Hynix would not have been able to obtain any further financing through the market, and that it 
was thus reasonable of the authority to consider  the full amount of the financing as the benefit 
conferred.  The EC argues that, for all of the reas ons discussed above with regard to these loans, the 
Syndicated Loan is no evidence of the availability  on the market of financing for maturing bonds.162  
Even the government in its questionnaire response i ndicated that only companies rated A+ were able 
to obtain financing, while already by the end of  2000 Hynix was heavily indebted and was given a 
very poor credit rating.163  
                                                      
159 The EC argues that paragraph (b) of Article 14, by referring to the words "commercial" and 
"market", is a clear reference to a market  undistorted by government intervention.  
160 Chohung Bank Questionnaire Response.  ( Exhibit EC-15 ) 
161 According to the EC, Article 14(c) also refers to the underlying transaction, and it was thus not 
improper for the EC to look at the amount of the loan s otherwise not available as  the basis for determining 
benefit. 
162 If the Syndicated Loan is relevant at all, accord ing to the EC, it is because the amount provided 
through the Syndicated Loan was far le ss than requested and needed by Hynix which again shows the reluctance 
of banks to provide financing to Hynix.   
163 The EC argues that, should the Panel consider the terms of the KDB Debenture Programme 
relevant, the EC asserts that Hynix was admitted to the programme with a BBB rating and that it was  WT/DS299/R 
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May 2001 Restructuring Programme 
7.167  The EC notes that, by May 2001, Hynix was heav ily indebted and its situation could not be 
characterized as a temporary cash-crunch.  The EC argues that the alleged success of the GDRs 
issuance has to be seen in light of the distor ted market due to the long-term commitment of the 
government.  The GDRs offering memorandum put particular emphasis on the government's support 
for Hynix in order to lure international investors into investing in Hynix.164  The EC asserts that it 
considered the inside investor perspective, but th at under any circumstances it would not have been 
commercially reasonable to provide further financing to Hynix at that time.165   
October 2001 Restructuring Programme 
7.168  The EC argues that the benefit determinati on for this Programme was based on two main 
grounds: (1)  that Hynix would not have been able to obtain the necessary financing on the market;  
and (2) that, at the time of the financing, it was obvious that the money would not be recovered, therefore justifying the EC consideration of this financing Programme as a grant.  The EC emphasises that the record showed that, throughout the summe r 2001, Hynix's financial situation continued to 
worsen and, by 5 October 2001, its credit rating was SD (selective default).  In addition, Hynix had a 
bad history of servicing debts and its stock price had collapsed immediately after the GDRs issuance 
on 15 June 2001, and there was clearly no proposal of a new GDRs issuance.  The interest rates charged in the October 2001 Restructuring Programme were nevertheless those applied to financially 
sound companies and lower than the rates applied to Hynix in January 2001.  The EC argues that the 
record showed that Hynix's problems were no su rprise and existed even during the so-called boom 
year 2000.  According to the EC, the banks ma de their financing decision without any viability 
assessment of their own.  The two reports relied on, the SSB report and the Monitor Group report, 
were not viability assessments and, in the case of the Monitor Group report, consisted of only 10 pages describing certain technical and market related issues in a general way.  The EC argues that it 
was reasonable of the authority to conclude in  these circumstances that the decision of the six 
Option 1 banks to participate in the October 2001 R estructuring Programme was not the decision  of  
commercially reasonable actors.  With regard to the Arthur Andersen report which allegedly did 
contain a viability study, the EC recalls that only on e page was provided to the investigating authority 
which was clearly insufficient to take this report in to consideration, and that this report had in any 
case not been available to the Option 1 banks  at the time they made their decision.  
7.169  With regard to the fixed priority collateral provided by Hynix, the EC argues that the 
collateral was considered, but that it was irrelevant  as it could never have been sufficient to convince 
the Option 1 banks to give money to a SD rated company, and in fact none of the Option 1 banks 
mentioned the collateral as the reas on for investing.  The EC notes that even Hynix did not consider it 
important during the investigation.  As to Korea' s argument that the bonds could be traded, the EC 
emphasises that, by the time the conve rtible bonds could be converted, i.e., 1 June 2002, their value 
had plummeted from 3,100 in October 2001 to 708.  In any case, it is evident that no reasonable 
person would have actually bought shares of a SD rated company in October 2001, whether they 
could be traded or not.  Finally, the EC points out that for Hynix there was a clear tax advantage in 
                                                                                                                                                                    
 
subsequently downgraded such that, by August 2001, it was disqualified from the programme with a CCC+ 
rating.  Moreover, the EC emphasises that the intere st rate under the KDB Debenture Programme was lower 
than those under the Syndicated Loan, and this in spite of the fact that Hynix never serviced its interest 
obligations under the Syndicated Loan and that interest arrears were turned into equity in the October 2001 
Restructuring Programme.  
164 According to the EC, international investors have a less profound insight into the situation of the 
company than inside investors which should have known the real situation of Hynix better.  Between mid-June 
and 20 June 2001, stock prices plummeted and still the banks purchased Hynix bonds. 
165 The EC also fails to see how the fact that amount s had to be placed on an escrow account are at all 
relevant with regard to the banks' existing debts and that this would clearly not enable them to recover their 
money more easily. WT/DS299/R 
Page 54  
 
having the operation in the form of a debt-to-equity swap  rather than a simple write-off of debt.  A 
simple write-off would put an end to the liabilities but would give rise to an extraordinary – and 
taxable – gain. 
Additional calculation errors 
7.170  The EC also rejects Korea's claim of any errors in the calculation of the benefit.  With regard 
to the KDB Debenture Programme, the EC refers  to the explanation provided in the Final 
Determination.
166  The EC emphasises that Hynix never argued at the time of the investigation that the 
amount allegedly double-counted was included both in the KDB Debenture Programme and in the 
May 2001 Restructuring Programme, and that it never claimed that any interest paid should have been 
deducted.  
7.171  With regard to the October 2001 Restructuring Programme, the EC argues that there is no 
obligation in Article 14 of the SCM Agreement  to take into account any in terest paid once it has been 
determined that no reasonable invest or would have provided the financ ing.  Hynix never claimed such 
deduction of interest during the investigation.  The interest in question was not paid at the time the 
new "loan" was granted in any case, and whether any in terest was actually paid is further irrelevant.  
7.172  With regard to the amount of KRW 1.825 trillion, this amount was provided by the main 
creditor bank of Hynix, the KEB, in Annex 18 of  its questionnaire response, and was communicated 
to Hynix in a letter of 11 July 2003. 
(c) Panel Analysis  
7.173  Korea's claims relate to the existence and amount of a benefit conferred by the alleged 
financial contribution.  We note that Article 1.1 of the SCM Agreement  provides that a subsidy can 
only be deemed to exist if there is a financial contribution by the government which confers a benefit.  
The existence of a financial contribution by the go vernment is thus necessary but not sufficient in 
order to conclude that a subsidy has been provided .  Only when this financial contribution confers a 
benefit will a subsidy be deemed to exist.  The SCM Agreement  does not provide a definition of what 
constitutes a benefit.  In our view, the ordinary meaning of the term "benefit" is that of an 
"advantage", something which leaves the recipient "better off".167  In light of the fact that the notion of 
a "benefit" appears to us to be a relative notion, it becomes important to establish the benchmark for 
determining whether the recipient is better off  thanks to the financial contribution.  Article 14 of the 
SCM Agreement  entitled "Calculation of the Amount of a Su bsidy in Terms of the Benefit to the 
Recipient" provides in our view highly relevant context for interpreting the term "benefit" of 
Article 1.1(b) of the SCM Agreement .  
7.174  Article 14 of the SCM Agreement  reads as follows: 
"[f]or the purpose of Part V, any method used by the investigating authority to 
calculate the benefit to the recipient conf erred pursuant to paragraph 1 of Article 1 
shall be provided for in the national legisl ation or implementing regulations of the 
Member concerned and its application to each  particular case shall be transparent and 
adequately explained.   Furthermore, any such method shall be consistent with the 
following guidelines: 
(a) government provision of equity capital shall not be 
considered as conferring a benefit, unless the investment decision can be regarded as inconsistent with the usual investment practice 
                                                     
 
166 In particular, the EC refers to paragraph 79 of the Final Determination. 
167 The equivalent term used in the French version of the SCM Agreement  is tellingly "avantage".  WT/DS299/R 
 Page 55 
 
 
(including for the provision of risk capital) of private investors in the territory of that Member; 
(b) a loan by a government shall not be considered as 
conferring a benefit, unless there is a difference between the amount that the firm receiving the loan pays on the government 
loan and the amount the firm would pay on a comparable 
commercial loan which the firm could actually obtain on the market.  In this case the benefit shall be the difference between these two amounts; 
(c) a loan guarantee by a government shall not be considered 
as conferring a benefit, unless there is a difference between the 
amount that the firm receiving the guarantee pays on a loan 
guaranteed by the government and the amount that the firm would pay on a comparable commercial loan absent the government guarantee.  In this case the benefit shall be the difference between these two amounts adjusted for any differences in fees; 
(d) the provision of goods or services or purchase of goods by 
a government shall not be considered as conferring a benefit unless the provision is made for less than adequate remuneration, or the purchase is made for more than adequate remuneration.   The adequacy of remuneration sha ll be determined in relation to 
prevailing market conditions for the good or service in question in 
the country of provision or purchase (including price, quality, 
availability, marketability, transpor tation and other conditions of 
purchase or sale)." 
7.175  Article 14 of the SCM Agreement  thus refers on each occasion to the market place as the 
appropriate benchmark for determining the existence of a benefi t to the recipient of the financial 
contribution.  In other words, only in cases wher e the financial contribution provides the recipient 
with an advantage over and above what it could have obtained on the market will the government's 
financial contribution be considered  to have conferred a benefit and will a subsidy thus be deemed to 
exist.  It is clear that the SCM Agreement  provides for a number of disciplines on government 
behaviour when a public or publicly directed or en trusted financial contribution might have a trade 
distorting effect. Without this objective of curtailing trade distortion, it would not make sense to 
impose these disciplines in an intern ational trade agreement.  In our view, if the public or publicly 
directed financial contribution is provided under th e same conditions as a private market player would 
have provided, then there would be no reason to impose any discipline, simply because the financial 
contribution was provided by the government.  In sum,  if the financial contri bution is not provided by 
the government (or directed or entrusted by the govern ment), it is of no concern to us.  If the financial 
contribution is provided (or directed or entruste d) by the government but still does not confer an 
advantage over what was available on the market, there is no need to di scipline such government 
behaviour which lacks a trade distorting potential.  
7.176  We, therefore, agree with this statement of the Appellate Body in the Canada – Aircraft  case 
concerning the tem benefit in Article 1.1 of the SCM Agreement : 
"[w]e also believe that the word "benefit" , as used in Article 1.1(b), implies some 
kind of comparison.  This must be so, for there can be no "benefit" to the recipient 
unless the "financial contribution" makes th e recipient "better off" than it would 
otherwise have been, absent that contribu tion.  In our view, the marketplace provides 
an appropriate basis for comparison in determining whether a "benefit" has been WT/DS299/R 
Page 56  
 
"conferred", because the trade-distorting potential of a "financial contribution" can be identified by determining whether the recipi ent has received a "financial contribution" 
on terms more favourable than those ava ilable to the recipient in the market."
168    
7.177  We note that the parties as well agree on the prin ciple that the market place is the appropriate 
basis for comparison.  However, Korea is arguing:  (1) that the EC failed to use the available market 
benchmark in Korea to assess whether a benefit was conferred on Hynix and this without any 
justification;  and (2) that the EC ignored the real nature of the financial contributions as loans or loan 
guarantees and simply treated all alleged financial c ontributions as grants.  The argument of the EC is, 
in essence, that the record showed that the financial situation of Hynix was such that no reasonable 
private investor would have been willing to provide funds to this company, whether in the form of a 
loan, a loan guarantee or an equity infusion, as it was clear that the chances of ever recovering the 
money invested were minimal.  In sum, the market  would not have provided the financing to Hynix.  
In such a situation, the funding provi ded, in whatever form, is equal to the provision of risk capital for 
which Article 14(a) of the SCM Agreement  does not provide a precise method for calculating benefit.  
It simply states that a benefit is conferred if the investment decision can be regarded as inconsistent 
with the usual investment practice – including for the provision of risk capital – of private investors in 
the territory of that Member.  According to the EC , the record showed that this was the case.  The 
benefit then consisted of the fi nancing which no reasonable investor  would have provided to Hynix, 
and the alleged subsidy programmes were all, irre spective of their terms and conditions, treated as 
grants. 
7.178  In our view, there are two distinct questions  to be addressed.  The first relates to the existence  
of a benefit, the second deals with the calculation of the amount of the benefit.  In other words, a 
finding that the financial contribution was provided on terms more favourable than what the market 
place provided for is, in our view, sufficient to find th at a benefit existed.  Our view is based on our 
interpretation of the term benefit as it appears in Article 1.1 of the SCM Agreement  which determines 
when a subsidy is deemed to exist, read in the context of the SCM Agreement  and Article 14 thereof, 
in particular.  Whether such a finding allows an au thority to consider the full amount of the financial 
contribution as the amount of the benefit and treat it like a grant, is, in our view, a different question 
which relates to the calculation  of the amount of the benefit, rather than its existence.169     
7.179  Both questions are at issue in this case.  Whils t the existence of a benefit under Article 1.1(b) 
is legally and logically distinct from the calculati on of the amount of the benefit under Article 14, we 
will address both of these questions in this section of our Report, and to the extent necessary to 
resolve this dispute, primarily because this was the way in which the EC's findings with regard to each 
of the alleged subsidy programmes, as well as ea ch of the parties, handled these two issues.  
7.180  We consider it best to address these questions in  turn, and to the exte nt necessary to resolve 
the dispute, in the specific context of the EC's fi ndings with regard to each  of the alleged subsidy 
programmes.  We will first discuss the EC's findings w ith respect to the existence of a benefit in each 
of the five programmes.  
(i) Existence of a benefit in the sense of Article 1.1(b) of the SCM Agreement 
Syndicated Loan 
7.181  In its Final Determination, the EC explained that the participation in the Syndicated Loan by 
the three banks examined, the KDB, KEB and KFB conferred a benefit of the amount by which the 
                                                      
 168 Appellate Body report, Canada – Aircraft,  para. 157. 
169 We are of the view, however, that it would not be necessary nor appropriate for us to address these 
questions concerning the calculation  of the amount of benefit, if we were to conclude that the investigating 
authority failed to properly establish the existence  of a benefit in the first place.  WT/DS299/R 
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legal lending limits were exceeded as this is the amount  that Hynix was able to receive only due to the 
FSC lifting of the lending limits.  The EC found that, without the lifting of the limits, these amounts would not have been granted by the banks in ques tion, and considered that there was no evidence of 
an alternative source of simila r financing available to Hynix.
170 
7.182  In a benefit analysis, the question to be answer ed is whether the financial contribution leaves 
the recipient better off than it would otherwise have  been, absent that contribution, in case it had to 
turn to the market to be provided the financial contri bution in the form of, as in this case, a loan.  In 
our view, the EC partly mixed the financial contributi on question with that of benefit to the recipient.  
The fact that a public body like the KDB was only able  to provide the financial contribution due to the 
lending limit waiver received from another public body  reveals the extent to which the government 
was willing to provide a financial contribution to H ynix, but is uninformative as to the question of 
benefit to the recipient.  We also wish to point out  that the question in a subsidy context is whether the 
specifically identified financial contribution confers a benefit on the recipient, such that it constitutes 
a subsidy.  The EC concluded that the financial c ontribution in question was the loan extended by the 
KDB, KEB and KFB in December 2000 to Hynix, not the waiver of the lending limit by another 
public body, the FSC.  The alleged be nefit conferred is thus the benef it conferred by the loan, and not 
the alleged benefit conferred by another government action which was not determined to constitute a 
financial contribution in the sense of Article 1.1(a) of the SCM Agreement .  In other words, the benefit 
analysis is not about the KDB and what it had to do in order to be able to take part in the loan, it is 
about the recipient of the loan Hynix and whether it obtained the loan from the KDB on more advantageous terms than would have  been available on the market.  
7.183  In this respect, we find very relevant the fact  that in total ten banks participated in the 
Syndicated Loan and extended loans on similar terms to Hynix.  Of these banks, the Final Determination discusses the KDB, KEB and KFB, an d leaves unmentioned the seven others.  Among 
the remaining seven banks, a certa in number such as, for exampl e, Citibank, the KorAm Bank and 
Chohung Bank were not considered to be public bodies by the EC in its investigation.  We consider 
that it does not suffice for the EC to simply assert th at the seven other banks were not examined and 
that it may or may not be the case that these banks were  directed to take part in the Syndicated Loan 
to ignore them as possible market benchmarks.  If a number of parties provide the same type of 
financing as the public body, such as in the case of the Syndicated Loan, their participation is an 
obvious aspect of a benefit analysis.
171 
                                                      
170 Final Determination, para. 37, reads as follows:  
"(37) According to Article 5 of the basic Regulation, the amount of countervailable subsidy 
shall be calculated in terms of the benefit confer red to the recipient.  The participation of the 
three banks in the Syndicated Loan confers a benefit to Hynix to the amount by which the 
legal lending limits have been exceeded, since th is is the amount that  Hynix was able to 
receive only due to the lifting of the limits.   Without the lifting of the limits these 
amounts would not have been granted to Hynix by the banks in question.  There was no 
indication that any other source of similar financing was available to Hynix at the time of the measures.  The amounts exceeding the credit limits are therefore considered as subsidies. 
Since these subsidies are ad hoc  measures granted to only one  company, they are specific 
pursuant to Article 3 of the basic Regulation and therefore countervailable.  It is noted, 
however, that the shares of KDB and KEB of th e syndicated loan are already countervailed as 
part of the October 2001 measures.  Therefore, in order to avoid double counting, these measures are not countervailed in the context of the January 2001 syndicated loan.  As regards 
the KFB share of the loan ex ceeding the legal lending limit, the information on the record 
indicates that any benefit resulting from the lifting of the loan limits would be negligible. Therefore, it is not countervailed in this context." (emphasis added) 
171 Again, we emphasise that we do not wish to imply that it is necessarily the end-point of such an 
analysis, as it will need to be determined whether the behaviour of these market players is so distorted by the WT/DS299/R 
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7.184  In our view, this is precisely what Article 14(b) of the SCM Agreement  provides for, in so far 
as it refers to the existence of a benefit in the contex t of a financial contribution in the form of a loan. 
A loan shall not be considered to confer a benef it unless there is a difference between the amount that 
the firm receiving the loan pays on the government loan and the amount the firm would pay on a comparable commercial loan which the firm could actually obtain on the market.  This requires an 
authority to first examine whethe r such a comparable commercial loan could actually be obtained on 
the market by the recipient of the government lo an.  The EC ignored the loans provided by seven 
other banks without examining whether these loans were commercial or whether their provision was 
so influenced by the alleged government interventi on that they did not represent loans that could 
actually be obtained on the market.  
7.185  We consider relevant the fact that, in its Preliminary Determination, the EC examined the 
participation of all ten banks in the Syndicated Loan and found that there actually was no basis "to conclude that the interest rate of the loan and the maturity periods were not in conformity with market 
conditions" and for these reasons, it was c oncluded that "there was no benefit".
172  It appears from the 
Final Determination that the only new information th at was discovered related to the alleged pressure 
exercised by the government on the KEB to particip ate in the loan and the fact that FSC would 
provide a lending limit waiver to enable the KDB,  KEB and KFB to participate in the Syndicated 
Loan.  While this information may have been releva nt to the question of fina ncial contribution and the 
alleged government direction of the KEB and KFB, we fail to see how it could also invalidate the 
market benchmark conclusions the EC had earlier reac hed itself with regard to the other seven banks 
involved in the Syndicated Loan. 
7.186  We therefore find that the EC failed to establis h the existence of a benefit from the financial 
contribution provided by the KDB and KEB as part of the Syndicated Loan in a manner consistent 
with Article 1.1(b) of the SCM Agreement .   
KEIC Guarantee 
7.187  In the  Final Determination173, the EC found that the financial contribution by the KEIC in the 
form of an export credit guarantee conferred a bene fit on Hynix.  The EC concluded that, without the 
                                                                                                                                                                     
government's intervention that they can no longer serv e as the benchmark against which to measure the alleged 
government distortion. 
172 Preliminary Determination, paras. 30-31. 
173 Final Determination, paras. 45-46, read as follows: 
"(45) Thus the guarantee was given by KEIC due to specific GOK direction in pursuing the 
public policy goal of alleviating the difficult financial situation of Hynix for reasons of 
industrial development.  Ther efore, KEIC, despite being a public body, was specifically 
directed by the GOK to carry out a function and follow practices normally vested in the GOK. Consequently, the guarantee is a financial contribution by government within the meaning of 
Articles 2(1)(a)(iv) and (i) of the basic Regulation.  This guarantee conferred a benefit to 
Hynix, since without the guarantee Hynix wa s not able to receive the D/A extension of 
USD 600 million.  At the same time, the GOK's assurance that KEIC would be compensated 
in case of default showed that the premium paid by Hynix could not cover the risk undertaken 
by KEIC to guarantee the D/A extension and,  therefore constituted a non-commercial act.  
The GOK effectively underwrote the risk of failure of payment by Hynix without asking for 
any compensation for it.  According to the in formation on the record, the banks would not 
have granted the D/A facility without the guarantee.  Moreover, there is no information that 
Hynix could have obtained comp arable financing from other sources.  This coverage of 
the guarantee, without any adequate premium  being paid, is ther efore considered to 
have conferred a benefit to Hynix within th e meaning of Article 2(2) of the basic 
Regulation.  In view of the provisions of Article 6(c) of the basic Regulation, since no 
comparable commercial loan could have been obta ined without the guarantee, the coverage of  WT/DS299/R 
 Page 59 
 
 
guarantee, no further financing would have been av ailable for Hynix, and that Hynix never raised 
such a possibility of alternative financing absent the guarantee.  It thus concluded that there existed no 
benchmark for the cost comparison requested by the pa rties and considered the benefit for Hynix to be 
the full amount of the D/A extension of USD 600 million. 
7.188  We recall that the standard for determining the existence of a benefit conferred by a financial 
contribution is whether this financial contribution has left the recipient better off than he would 
otherwise have been, absent the financial contribution by the government.  In this case, the question is 
thus whether the EC correctly concluded that the KEIC Guarantee gave Hynix an advantage 
compared to the situation it would have been in had it been required to go to the market. 
7.189  We consider that the question of the existe nce of a benefit in the case of a government 
guarantee can be examined from more than one angl e, depending on the circumstances.  Based on our 
general conclusion that a benefit in the sense of Article 1.1 of the SCM Agreement  is determined in 
relation to the market place, it appears to us th at one possible approach for examining whether a 
benefit existed would be to compare the guarant ee provided by the government with a comparable 
guarantee provided by the market.  If the government charges less than a market fee for its guarantee 
in light of the specific circumstances of the case, ther e would be a benefit to the recipient.  We note in 
this respect, that none of the parties either before th e investigating authority or before us in the course 
of the panel proceedings has argued that a privat e market operator would have provided an export 
guarantee similar to the one that was provided by the KEIC so that the fees could be compared.  This 
implies that, if one opts to examine benefit by looking at the difference between the government 
providing a financial contribution, and the market doi ng so, then it would be clear that a benefit was 
provided, as no private market operator was even argued to have been willing to provide such a 
guarantee.  In fact, it appears from the evidence before  the investigating authority that even the public 
body – the KEIC itself – was hesitant to provide th e guarantee and needed a governmental assurance.  
Such a government backing was given by the letter of 10 January 2001 signed by the Minister of Finance and Economy informing the KEIC, FSS and KEB of the results of the Economic Ministers' 
meeting of 9 January 2001 by which the government  promised that support would be provided from a 
separate source of funding in case the KEIC would found itself confronted with a shortage of reserve payment capacity as a result of the guarantee.
174   
7.190  If, on the other hand, one examines the question of benefit in light of Article 14(c) of the SCM 
Agreement  concerning loan guarantees, it appears that the examination is to focus on the difference 
between the amount paid on a loan guaranteed by the government, compared to the amount that would 
have to be paid on a comparable commercial loan , absent the government guarantee.  In this case 
                                                                                                                                                                     
the D/A extension is effectively a grant.  The benefit to Hynix and thereby the amount of 
the subsidy is the amount of th e D/A extension, USD 600 million . 
(46) In its comments on the final disclosure the GOK and Hynix argued that KEIC did not 
provide funds to Hynix, only insurance, and that Hynix paid market interest rates to banks for 
the D/A financing.  Therefore, the benefit conferred on Hynix by the measure should have 
been the difference in costs between what Hynix paid for the D/A financing and what it would have paid without the KEIC guarantee.  It is noted that the benefit to Hynix is the whole 
amount of the loans which would not have been granted in whole or in part without the KEIC 
guarantee which was underwritten by the GOK.  There was no indication that an 
alternative financing without guarantee was available to Hynix at the time, and Hynix 
never raised such a possibility.  Therefore th ere is no benchmark for the cost comparison 
requested by the parties.  In addition, Hy nix paid no extra premium for the complete 
underwriting of the full amount of the loans by the GOK.  Under these circumstances, the 
benefit for Hynix is considered to be the full amount of the guarantee underwritten by the 
GOK." (emphasis added) 
174 GOK Document of 10 January 2001 from the Ministry of Finance and Economy to the KEIC, FSS 
and KEB.  ( Exhibit EC–3(e) ) WT/DS299/R 
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there does not seem to have been any evidence on the record, and none has been brought to our 
attention, to contradict the EC's conclusion th at, absent the government guarantee, the banks would 
not have been willing to agree to the D/A extension by  USD 600 million, at all.   Korea considers that 
the amount of benefit should be examined by compar ing the costs/interest paid for the D/A financing 
with the costs/interest that Hynix would have paid  without the KEIC Guarant ee.  We find reasonable, 
however, the conclusion of the EC that:  
"[t]here was no indication that an alte rnative financing without guarantee was 
available to Hynix at the time, and Hynix ne ver raised such a possibility.  Therefore 
there is no benchmark for the cost comparison requested by the parties".
175 
7.191  In addition, Korea argues that Item (j) of Annex I to the SCM Agreement  requires that in a 
government export credit guarantee situation, benef it has to be assessed by examining whether the 
fees paid by the recipient of the guarantee were adequate to cover long-term operating costs and 
losses.  We note that Annex I of the SCM Agreement  sets forth an illustrative list of export subsidies 
and Item (j) of Annex I is thus relevant in determ ining whether a prohibited export subsidy exists, not 
whether a benefit exists.  Item (j) applies a cost -to-government standard rather than a benefit-to-
recipient standard, and as such, the test set forth in  Item (j) is simply irrelevant, in our view, in 
determining whether a benefit  in terms of Article 1.1 of the SCM Agreement  exists. 
7.192  In sum, in so far as the existence of a benefit is concerned, we consider that the EC made a 
reasonable and reasoned conclusion on the basis of the record before it that the KEIC Guarantee 
conferred a benefit on Hynix in a manner c onsistent with Article 1.1(b) of the SCM Agreement .  
7.193  This does not necessarily mean that we agree with the EC's approach when it comes to 
calculating the amount of the subsidy under its gr ant methodology.  We will discuss the question of 
the calculation of the amount of the subsidy an d the EC's grant methodology in a separate section 
following our discussion of the EC's findings in so far as the existence of a benefit is concerned in the 
remaining programmes.  
KDB Debenture Programme 
7.194  The Final Determination sets forth the conclusi ons of the EC concerning the existence of a 
benefit conferred by the KDB Debenture Programme in the following manner:  
"(63) Considering the explanations in rec itals 50 to 62, the KDB programme can be 
seen to have conferred a benefit to Hynix also bearing in mind that no 
comparable financing was available to it in the market .  Hynix was not able to 
finance its maturing bonds through bank lo ans, since it had exhausted its possibilities 
of receiving loans due to its already high exposure in its creditor banks and its weak 
financial situation which did not allow furthe r credit to be granted to it by any other 
bank.  Refinancing of the bonds in the bond market was not possible due to its 
weak credit rating which did not allow the market to accept its maturing bonds , 
as admitted by the GOK in its questionnaire response.  For these reasons, the 
conclusions on the point of existence of benefit and thereby the existence of a 
subsidy, in recital 61 of the provisi onal Regulation are hereby confirmed."176 
(emphasis added) 
7.195  We recall that the KDB Debenture Programme was set-up by the government in response to 
financial instability in Korea caused by the fact that a large amount of bonds issued by a few companies (including Hynix) were due to matu re simultaneously.  Unde r the programme, maturing 
                                                     
 
175 Final Determination, para. 46. 
176 Id., para. 63.  WT/DS299/R 
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debt was to be rolled-over and re-packaged for inv estors.  Participating companies had to pay 20 per 
cent of the due debt, 80 per cent being assumed by the KDB.177 In other words, the purpose of the 
programme was to provide financing for those comp anies for which the market would not be willing 
to provide such financing.  Indeed, as confirme d by the government during the investigation, the 
Korean bond market applied extremely strict cond itions in 2001 and companies with moderate credit 
ratings were not able to refinance their bonds in th e market.  As explained by the government in its 
questionnaire response: 
"[c]ompanies with moderate grade ratings, that previously could have issued bonds, 
were not able to do so.  Since many of the companies were otherwise viable, the KDB programme sought to provide the liquidity dur ing this period.  As a practical matter, 
if companies had a credit rating above A-, they could issue bonds through the normal 
bond market.  If companies had credit ratings  of either BBB+, BBB, BBB-, BB+ or 
BB and otherwise met the eligibility requirem ents they could participate in the KDB 
programme."
178 
7.196  The record shows that, by January 2001, Hynix's credit rating was BB+179, which implies that 
under the government's own admission Hynix would not have been able to issue bonds on the market.  
It is therefore clear to us that the KDB purchase of Hynix bonds as part of the KDB Debenture Programme, provided an advantage to Hynix compared to what it would have been able to obtain on 
the market.  We find further relevant the fact th at none of the parties at any time presented evidence 
that Hynix could have re-financed its bonds in a foreign market, and as the EC noted in its Final Determination, the speculative rating B given to Hyni x by the international rating agency Standard & 
Poor's in January 2001 did not support such a possibility either.
180   
7.197  Korea argues that the successful GDRs offering is  proof of the viability of Hynix and of the 
existence of a market for Hynix bonds.  Korea also re fers to the participation of the creditor banks in 
the refinancing of the 80 per cent of Hynix bonds  purchased by the KDB, and the fact that other 
private investors also purchased bonds through th e CBOs/CLOs programme on the same terms as 
other participating companies.  We note that the sa me arguments were made before the investigating 
authority, which in the Final Determination res ponded to such arguments in the following manner:  
"(56) As regards the GDR issuance, it is  accepted that Hynix raised money in the 
capital market through this instrument in June 2001.  However, by that time 80 per 
cent of its bonds financed via the KDB pr ogramme had already matured and they had 
been taken over by KDB before that da te.  The GDR issuance was therefore not 
helpful as regards these bonds and another wa y had to be found for their financing, 
already as from January 2001.  As such, the GDR issuance is not, therefore, an indication that Hynix would have had access to the capital markets in January 2001.  
Furthermore, without the KDB programme Hynix would already have been bankrupt due to failure to pay these bonds by the time  of the GDR issuance.  It is also noted 
that as explained under recitals 73 to 76 of the provisional Regulation, the Hynix 
stock price collapsed almost immediately after the issuance in June 2001 and the 
investors who bought Hynix stocks suffere d considerable losses.  Therefore its 
                                                     
 
 177 As we explained earlier, 20 per cent of the 80 pe r cent was taken on by the company's creditor 
banks in proportion to their current debt exposure to the company; 70 per cent was re-packaged for sale to 
investors as CBOs and/or CLOs, guaranteed by the KCGF; and 10 per cent was retained by the KDB.  The 
participating company, in this case, Hynix, had to re purchase at least 3 per cent of  any CBOs and 5 per cent of 
any CLOs. 
178 Response of Korea to the EC Questionnaire, p. 37-38.  ( Exhibit GOK–6 ) 
179 Final Determination, para. 51. 
180 Id., para. 52. WT/DS299/R 
Page 62  
 
possibilities to raise money in such a way we re ruled out, in particular considering 
that its total liabilities still reached  KRW 7,2 trillion in July 2001. 
(57) Indeed, the timing of the measures is an important factor.  It needs to be stressed 
that the decision of the investors to buy Hynix GDR in June might have been influenced by the very fact that most of  Hynix's maturing liabilities were abolished by 
the GOK-inspired KDB programme betw een January and June 2001.  The KDB 
programme was well known and attracted a gr eat deal of public comment.  The Hynix 
GDR offering memorandum also refers to the "KRW 2,9 trillion anticipated continued availability under the KDB Progra mme to provide refinancing for maturing 
bonds in 2001".  Consequently, the investors' decision to invest in Hynix in June 2001 
might well have been influenced by the belief that the GOK would continue making 
sure that Hynix did not fail.  This point is referred to also in recital 44 of the 
provisional Regulation.  Therefore, the information on the record indicates that the KDB programme might have influenced the d ecisions of the investors to invest in 
Hynix in June 2001. 
(58) As regards the Hynix argument that its bonds were resold into the CBO/CLO 
programme on the same terms as other partic ipating companies' bonds, it is noted that 
the terms of the existing CBO/CLO progra mme were very different, and were not 
available to Hynix. 
(59) The CBO programme was created in or der to increase the bond financing going 
to relatively small firms with lower cred it ratings.  The programme could not have 
been available to Hynix because of its size.  In addition, Hynix could not have sold 
the same amount of bonds to the progra mme because of the concentration limits, 
which only allowed a maximum of 10 per cent of the pool of bonds backing any CBO/CLO to be from any one company.  It is also noted that KDB bought all Hynix bonds, even those allegedly intended for the CBO programme.  Even after the KDB 
programme ended, KDB still held Hynix bon ds designated for sale to CBO funds.  
KDB also delayed the sale of the bonds into CBO funds and retained control over the 
bonds in the KDB programme even after they were placed in CBO funds, and 
directed their roll-over into new long-term  bonds when Hynix was unable to pay them 
upon maturity.  The Korea Credit Guarant ee Fund ("KCGF") also increased the 
guarantee level on CBOs from 34 per cent to 53 per cent to account for the inclusion 
of the KDB programme.  Consequently, it cannot be claimed that the normal terms 
and conditions of the progra mme were applied to Hynix bonds.  Indeed, they were 
treated very differently. 
(60) The way the KDB programme was carried out is also very different from the 
way comparable transactions would have been  carried out in the market.  According 
to the KDB programme, KDB bought all the maturing bonds, converted them to 
much lower interest rates than that held by the original bonds, placed 20 per cent of them to creditor banks and 70 per cent to CBOs/CLOs.  Moreover, the conditions applied differed significantly from those of the CBO/CLO programme, including the 
application of increased State guarantees.  The bonds were not sold by public offering 
but through private placement to existing creditors.  This does not correspond to 
refinancing of bonds under market terms. 
(61) KDB also argued that the KDB progra mme is not a subsidy since KDB makes its 
decisions on funding and fund utilisation on a commercial basis and is engaged in 
profit-earning business focused on corporate finance.  WT/DS299/R 
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(62) As regards the KDB argument that the KDB programme is not a subsidy due to the nature of the activities of KDB, it is noted that recitals 55 to 59 of the provisional Regulation set out the reasons why the financing provided by KDB constitutes a 
financial contribution by a Government within  the meaning of Article 2(1)(a)(i) of the 
basic Regulation.  Since KDB has not provided any new evidence in its comments 
that would alter the assessment made in the provisional Regulation, the conclusions 
set out in recitals 55 to 59 of the prov isional Regulation are hereby confirmed."
181 
(footnotes omitted)  
7.198  We consider reasonable the explanations provide d by the EC on the basis of the facts on the 
record.  In particular, we wish to underline that we consider that the specific circumstances of the 
GDRs offering, which was concluded on 15 June 2001 (and thus well after the intervention of the 
KDB), and which may have been profoundly influe nced by the intervention of the government 
through the KDB, render the GDRs offering unsuited as evidence of a market that would be equally willing to invest in Hynix as the government  was at the time the KDB purchased the bonds. 
7.199  In our view, the EC has drawn a reasonable and reasoned conclusion, based on the facts 
before it, that the KDB purchase of Hynix bonds under the KDB Debenture Programme conferred a 
benefit to Hynix.  In other words, we find that Ko rea failed to demonstrate that the EC established the 
existence of a benefit conferred to Hynix by  the KDB Debenture Programme in a manner  
inconsistent with Article 1.1(b) of the SCM Agreement , and therefore we reject Korea's claim in this 
respect. 
7.200  Our ruling does not necessarily imply that we agree with the EC calculation of the amount of 
the benefit under its grant methodol ogy, a question that will be discu ssed later in our Report.    
May 2001 Restructuring Programme 
7.201  We recall that, in the earlier section of our Re port concerning the existence of a financial 
contribution, we concluded that the EC failed to est ablish that the private bodies which participated in 
the May 2001 restructuring through a bond purchase of KRW 1 trillion were directed to do so by the 
government.  In the absence of a proper determination of the existence of a financial contribution, the 
principle of judicial economy suggests that it is not necessary for us to discuss the question of benefit conferred by the private creditor bank's behaviour.   
7.202  However, for purposes of implementation and in case of an appeal which would overturn our 
financial contribution determ ination, and thus assuming, arguendo , that the EC properly determined 
that all banks that took part in the May 2001 Restructuring Programme were directed by the 
government to do so, we will now examine whether th e EC was justified on the basis of the record 
evidence  to consider that a benefit was conferred by the purchase of the CBs by the creditor banks in 
May 2001. 
7.203  With regard to the existence of a benefit it see ms that, in this case, the basis for concluding 
that the creditor banks were directed to partic ipate in the May 2001 Restructuring Programme was 
precisely the fact that no reasonable market i nvestor would have purchased Hynix's CBs in May-
June 2001.  If this conclusion is assumed, arguendo , to have been reasonable, it seems difficult to 
conclude otherwise when it comes to the question of benefit.
182 In sum, and assuming, arguendo , that 
                                                      
181 Final Determination, paras. 56-62. 
182 We wish to point out nevertheless that we do not consider that, in each case of government direction 
or entrustment of a private body, a bene fit will necessarily be conferred on th e recipient.  In case the government 
provides a loan, and thus a financial contribution, it may well do this on market terms and thus without conferring a benefit.  Similarly, ev en in a case where a private body has be en directed by the government to 
provide a financial contribution, it may still be the case, albeit a less likely one, that this private body provides 
the financial contribution on market terms, and thus without conferring a benefit.  WT/DS299/R 
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the existence of a financial contribution by  the purchase of CBs in May 2001 was properly 
established, we find that the EC's conclusion that a benefit was thereby conferred was consistent with 
Article 1.1(b) of the SCM Agreement . Our ruling does not necessarily imply that we agree with the EC 
calculation of the amount of the benefit under its gr ant methodology, a question that will be discussed 
later in our Report
 . 
October 2001 Restructuring Programme 
7.204  The investigating authority concluded that the financial contribution provided by the six 
Option 1 banks participating in the October 2001 R estructuring Programme conferred a benefit on 
Hynix as the company was rated "selective default"  at the time and therefore no financing was 
available to it on the commercial markets.183 We will therefore examine whether the EC conclusion 
concerning the existence of a benefit was justified by the facts on the record. 
7.205  We first recall that, with regard to the existence of a benefit, it seems that in this case the basis 
for concluding that the creditor banks were direct ed to participate in the October 2001 Restructuring 
Programme was precisely the fact that no reasonable market investor would have purchased Hynix CBs in May-June 2001, and that, therefore, the only logical explanation for the  participation by the 
six Option 1 banks was that they had been directed by the government, among other means of 
persuasion by using its shareholder power.  In our view, this conclusion was reasonable, and thus it 
seems difficult to conclude otherwise wh en it comes to the question of benefit.
184  In sum, given the 
reasons why we considered the existence of  a financial contribution by the October 2001 
Restructuring Programme to have been properly estab lished, we find that the EC's conclusion that a 
benefit was thereby conferred in a manner was consistent with Article 1.1 of the SCM Agreement . 
7.206  In this respect, it may be worth recalling so me of the evidence on record concerning the 
existing possibilities, or lack thereof, for Hynix to find comparable financing on the market.  It seems 
uncontested that, by October 2001, the financial s ituation of Hynix was disastrous.  Throughout the 
summer 2001, Hynix' s financial situation had wor sened and by 5 October 2001 its credit rating was 
selective default.  In addition, Hynix had a bad hi story of servicing its earlier debts.  Moreover, its 
stock prices had collapsed immediately after the GDRs issuance on 15 June 2001, and there was no 
proposal for a new GDRs issuance.  The record indicates that, between June and September 2001, the 
stock price had fallen by 72 per cent.  When the CFIC decided on the second restructuring package on 31 October 2001, the creditor banks were given thr ee options.  The large majority of the creditor 
banks chose Options 2 and 3, and refused to exte nd further loans to Hynix as did the six Option 1 
banks.  The eight Option 2  banks swapped 28 per cent of their debt to equity, and waived the rest, 
while the Option 3 banks simply received the liquidation value of their loans.  By contrast, the six 
Option 1 banks that participated fully in the October 2001 Restructuring Programme granted new 
loans, extended maturities and agreed to a debt-t o-equity swap.  Of these six Option 1 banks, five 
banks are either public bodies (the KDB), totally (Woori bank) or in large part government owned 
(Chohung Bank (80 per cent) and the KEB (43 per cent)  or have, at least, in part a public policy 
objective (the NACF, in which the government al so took an important equity share in 2001).
185  In our 
                                                      
183 Preliminary Determination, paras. 100-102. 
184 In this respect, we refer to our considerations set forth in footnote 182.   
185 We wish to note that, while we found such government ownership not to be sufficient in and of 
itself to conclude that the government had actually used its shareholding power to direct these banks to provide 
the financing, we do believe that it casts serious doubts over their use as a market benchmark.  This is all the 
more so given the prima facie non-commercial behaviour of these banks at the time of the October 2001 
Restructuring Programme.  We note that, in our view, even if we ha d not accepted as reasonable the EC 
conclusion that all private banks were directed by  the government to participate in the October 2001 
Restructuring Programme, we do not consider that these banks could necessarily have been valid benchmarks for the benefit analysis.  While it is certainly true that Citibank, and its subsidiary SSB, are not government-
owned at all, we consider that the EC sufficiently demonstrated that the close relationship with the government 
and the specific role as financial advisor to Hynix throughout the restructuring make Citibank particularly inapt  WT/DS299/R 
 Page 65 
 
 
view, the EC determination that the six Option 1 banks were directed to provide a financial 
contribution to Hynix was reasonable.  In add ition, by comparison with the choices made by the 
Option 2 and 3 banks, the participation by the Op tion 1 banks could reasona bly be found to have 
conferred a benefit on Hynix.  
7.207  In addition, we consider that the EC conclusi on is supported by the low interest rates of the 
new loans and the maturity extensions.  The new loan for Hynix – a company which we recall was 
rated selective default – was set at 7 per cent while the Syndicated Loan in January 2001, when Hynix 
was still rated BBB+, was 13 per cent.  The maturity  extension of October 2001 led to a decrease of 
the interest rate by 6 per cent, although the whol e reason for the extension was precisely the inability 
to pay off the debt.  As the EC correctly pointed  out, one would reasonably expect a commercial bank 
to have increased the interest rate to reflect the in creased risk of loosing the money invested.  The fact 
that the opposite occurred is highly remarkable.  All this is uncontested.  It is similarly uncontested 
that the participating banks themselves were raising their loan loss provisions.  The record shows that 
Chohung Bank immediately raised its loss reserves af ter participating in the measures to cover 80 per 
cent of the Hynix debt and accounted the whole de bt-to-equity conversion as a loss.  Woori Bank 
referred to public interest considera tions as a reason for participating. 
7.208  The only real argument of Korea in support of the commercial reasonableness of the Option 1 
banks' participation in the October 2001 Restructuri ng Programme is that the banks invested in Hynix 
because they believed the going concern value of H ynix was greater than its liquidation value.  For 
that reason, their decision to provide further financ ing made commercial sense from an inside investor 
perspective.  As the EC points out, the banks  do not seem to have based this conclusion on 
independent assessment studies, as could be expected  given the situation of Hynix.  The reports 
referred to – the SSB report, the Monitor Group Au gust and November reports, or the Abbie Gregg 
report – were not viability assessments on which a decision to further invest in Hynix might 
reasonably be considered to have been based.  As the EC stated, the Monitor Group report, for 
example, consisted of only 10 pages describing certain technical and market related issues in a general 
way.  Only the Arthur Andersen report was a  vi ability study which actually examined the liquidation 
value of Hynix.  It did this, it seems, mainly fo r the purpose of the Option 3 banks which would have 
their loans purchased back at the liquidation value,  as established by Arthur Andersen.  However, as 
we discuss elsewhere in our Report, this Arthur Andersen report was effectively withheld from the 
investigating authority for reasons of confiden tiality.   In our view, it was reasonable for the 
investigating authority to refuse to take this report into consideration as only one page of a more than 
200 page long document had been provided.  Moreove r, it appears that this Arthur Andersen report 
was only finalized in December 2001 and, like the Monitor Group report of November 2001 cannot 
have been the basis for the decision of the banks in October 2001.  In sum, it appears from the record  
that the reports allegedly supporting the insider inv estor argument were either not provided to the 
authorities, or were not informative of  the decision-making process by the Option 1 banks. 
7.209  For all of the above reasons, we consider reasona ble the conclusion of the EC that none of the 
six Option 1 banks involved in the  October 2001 Restructuring Programme acted in a commercially 
reasonable manner.  Neither at the time of the inve stigation, nor before us, has it been argued that 
Hynix could have obtained similar funding in Oct ober 2001 from another source.  As the EC points 
out in the Final Determination:  
"(110) (...) The largest creditor of Hynix at the time of the measures was KDB, which 
held 44 per cent of the total of Hynix loans in December 2001. 
                                                                                                                                                                     
to serve as an appropriate market benchmark for assessing whether the government's financial contribution was 
in line with normal market conditions, or whether it, on the contrary, conferred a benefit to Hynix.  This is 
especially so given the very small participation in Hynix by Citibank whose share of the total Hynix loans in 
October 2001 was 1.3 per cent.  (Preli minary Determination, para. 93)  WT/DS299/R 
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(111) Prior to 1998, Hynix had received loans from French and Japanese banks, including the Bank of Tokyo, Société Géné rale and Credit Lyonnaise.  Since then, 
however, none of these banks has participated in the restructuring of Hynix.  The outstanding loans from foreign banks, including those from Citibank Seoul, accounted for only 5 per cent of the total Hynix loans in 2000 to 2001.  It is noted that 
the assessment of the role of Citibank is explained in recitals 130 to 133. 
(112) The lack of participation of foreign banks suggests that further investment in 
Hynix was not considered to be rational and economically justified.  It is noted that 
the outstanding amount of KRW 37,5 billion of the Syndicated Loan from foreign borrowers granted in 1996 and led by Soci été Générale was declared for default and 
cross default in 2001." (footnotes omitted) 
7.210  The facts and figures used in these paragraphs of  the Final Determination were not contested.  
For all the above reasons, we find that the EC dete rmination concerning the existence of a benefit was 
consistent with Article 1.1(b) of the SCM Agreement .   
(ii) Calculation of the amount of the be nefit – The EC's grant methodology 
7.211  We recall that, in essence, the investigating aut hority found that the r ecord showed that the 
financial situation of Hynix was such that no reaso nable private investor would have been willing to 
provide funds to this company, whether in the form of a loan, a loan guarantee or an equity infusion, 
as it was clear that the chances of ever recovering the money invested were minimal.  In sum, the EC 
considered that the market would not have provided th e financing to Hynix.   In such a situation, the 
funding provided, in whatever form, is equal to th e provision of risk capital for which Article 14(a) of 
the SCM Agreement  does not provide a precise method for calcula ting benefit.  It simply states that a 
benefit is conferred if the investment decision can be regarded as incons istent with the usual 
investment practice – including for the provision of ri sk capital – of private investors in the territory 
of that Member.  According to the EC, the record showed that this was the case.  The benefit then 
consisted of the financing which no reasonable i nvestor would have provided to Hynix, and the 
alleged subsidy programmes were all, irrespective of their terms and conditions, treated as grants. 
7.212  In our view, there is a basic problem with the EC's grant methodology, and that is, simply put 
that a loan, a loan guarantee, a debt-to-equity swap that requires the recipient to repay the money or to 
surrender an ownership share in the company is not  the same as a grant and can not reasonably be 
considered to have conferred the same benefit as the provision of f unds without any such obligation. 
For the recipient, a loan clearly h as a different value than a grant as it involves a debt that is owed to 
someone and will appear as such in a company's bala nce sheet.  It is thus obviously less beneficial for 
a company to be given a loan than it is to be give n a grant.  Similarly, the issuance of new equity, 
directly or through a debt-to-equity swap dilutes th e ownership claims of existing shareholders.  We 
note that, in a benefit analysis, it is the perspective of the recipient that is important, not that of the 
provider of the financial contribution.  In that sen se, we find erroneous the starting point of the EC's 
calculation of the amount of benefit, which focuses on the expectation of the provider of the funds to 
see his money back.  The question of benefit is not about the cost to the provider of the financial 
contribution, it is about the benefit to the recipient.    
7.213  We realize that it may be difficult to  directly apply Article 14 of the SCM Agreement  which 
contains guidelines for the calculation of the subsidy in terms of the amount of the benefit.  In the 
absence of a comparable commercial loan, it may well be difficult to apply for example Article 14(b) 
dealing with loans and referring the investigating authority to a comparable commercial loan that 
could actually be obtained on the market.  Article  14(c) refers to a comparable commercial loan, 
which may well be difficult to fi nd.  In light of these problems  dealing with the prescribed 
methodology for calculating benefit in Article 14 of the SCM Agreement , we consider that an 
investigating authority is entitled to considerable  leeway in adopting a reasonable methodology. As  WT/DS299/R 
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we stated earlier, we do not consider that the EC's grant methodology passes this basic reasonableness 
test.  Any methodology used must, in our view, reflect  the fact that the situation of Hynix is less 
favourable in case it has to repay the money pr ovided, or dilute the ownership of existing 
shareholders, compared to the situation that it c ould keep the money provided in the form of a 
grant.186 
7.214  In light of our findings in this respect, we see no need to address Korea's alternative claims of 
errors – such as the alleged double-counting as discussed in paras. 7.155-7.156, supra  – made by the 
EC in calculating the amount of the subsidy.  
7.215  In sum, and for the above reasons, we find that the EC's calculation of the amount of benefit 
conferred by each of the financial contributions w as inconsistent with Articles 1.1(b) and 14 of the 
SCM Agreement . 
3. Claim regarding the EC's determinations on specificity  
(a) Korea 
7.216  Korea asserts that the EC made a determination of de facto  specificity of the alleged subsidies 
under the KDB Debenture Programme  based on (1) the limited number of users of the subsidies and 
(2) the predominant use of the subsidy progra mmes by Hynix, without providing any positive 
evidence to substantiate such conclusions. 
7.217  Korea argues that the KDB Debenture Programme was not a free ticket and the circumstances 
of each enrolment depended upon the very specific c onsiderations of the company and its creditors 
who could file the application for enrolment of the company.  The more relevant question, and one the 
EC does not provide any insight on, is whether firm s that fulfilled the eligibility criteria and sought 
participation were prevented from doing so.  The EC 's conclusion that the programme was specific 
because of the limited number of users is thus pur ely speculative.  Moreover, Korea asserts, the fact 
that Hynix used up almost 41 per cent of the funds does not necessarily mean that it was the 
predominant user of the alleged subsidies, as such data needs to be  considered in light of the 
importance of the DRAM sector in Korea.187  Finally, Korea argues that the EC failed to take account 
of the extent of diversification of the Korean ec onomy and the length of time the programme had been 
in operation as explicitly required by Article 2.1(c) of the SCM Agreement .  
7.218  In any case, Korea submits, 70 per cent of the KDB bonds were repackaged in the May 2001 
CBOs/CLOs programme, and, as this programme w as not specific, such bonds should have been 
excluded.  Korea argues that the EC's allegation th at the bonds were sold via the CBOs under different 
conditions is simply incorrect and unsupported by evidence.188  
7.219  With regard to the May and October 2001 Restructuring Programmes , Korea argues that the 
EC's specificity analysis is not clearly substantia ted or based on positive evidence and failed to take 
into account the overall context in which these restru cturing efforts took place.  According to Korea, 
all the transactions were executed under the broader fr amework intended to bring creditors together to 
                                                      
186 In our view, the EC must base its calculation of benefit on alternative benchmarks, in Korea or 
elsewhere, and such an alternative methodology could, fo r example, include the investment practices related to 
"junk bonds" and "vulture funds". 
187 Korea asserts that the six companies involved in the KDB Debenture Programme were different in 
size, different in industry, and different in terms of their financial circumstances, and that these differences 
constitute the qualitative distinctions by which any qu antitative measure of specificity must be tempered.  
188 According to Korea, the 10 per cent concentration limit did apply to bonds sold by Hynix via the 
CBOs/CLOs programme, there was no delay in the sale of  the bonds by the KDB, an d there is no evidence that 
the guarantee level associated with the CBOs/CLOs programme was increased due to the inclusion of Hynix in 
the KDB Debenture Programme. WT/DS299/R 
Page 68  
 
work out debt of troubled but viable companies, in a manner recommended by the IMF and based on the so-called "London approach".  To find specificity  in this context, Korea submits, is like saying 
that a country's bankruptcy laws are company specific.  
7.220  In sum, Korea submits that the EC violated Articles 1.2 and 2 of the SCM Agreement because 
the EC made an erroneous finding of de facto  specificity with respect to the KDB Debenture 
Programme and failed to clearly substantiate, on the basis of positive evid ence, the existence of 
specificity with respect to the May and October 2001 Restructuring Programmes.
189 
(b) EC 
7.221  With regard to the KDB Debenture Programme , the EC argues that there was ample reason to 
believe that it was in fact specific, as only six co mpanies made use of the Programme and, of these 
few, Hynix was the dominant user.  The EC asserts that the authority considered all the factors 
mentioned in Article 2.1 of the SCM Agreement  and took into account the exte nt of diversification of 
the Korean economy and the length of time the Progra mme had been in operation.  The EC considers 
that the specificity of the measures is to be examined by looking at the scope of the measures vis-à-vis  
the beneficiaries.  In addition, the EC argues that  the number of eligible companies is not relevant, 
what matters is the limited actual use by the companies of the Programme.  
7.222  With regard to the May and October 2001 Restructuring Programmes , the EC emphasises that 
Korea admits that the transactions were unique, an d that it is therefore disingenuous to argue that 
these Programmes are equivalent to the normal applic ation of generally applicable bankruptcy laws. 
(c) Panel Analysis 
7.223  The EC concluded that the KDB Debenture Programme  constituted a de facto  specific 
subsidy to Hynix based on the limited use of the programme by a small number of companies – six 
out of a potential of more than 200 eligible comp anies – and the disproportionate use of the funds 
under the programme by Hynix – which used up to  41 per cent of the total funds under this 
programme.  In the Final Determination, the EC found as follows: 
"(65) As explained under recitals 62 to 64 of the provisional Regulation, it was 
concluded that, whilst the KDB programme was not specific in law under 
Article 3(2)(a) of the basic Regulation, it was nevertheless de facto specific under Article 3(2)(c) of the basic Regulation, si nce three of the four criteria of that 
provision were fulfilled: the use of the programme by a limited number of companies, predominant use by certain companies and the granting of disproportionately large 
amounts of subsidy to certain companies.  Since specificity in law was not claimed, 
further analysis of the terms and conditi ons of the programme is not relevant.  
However, the number of firms potentially eligible under such criteria is relevant.  
Regarding de facto specificity, it is concl uded that the programme was only used by 
six companies, four of which belonged to Hyundai Group, and that Hynix used 41 per 
cent of the funds of the programme.  It is noted that the information on the record 
indicates that more than 200 companies in  Korea would have fulfilled the selection 
criteria of the programme.  Against th e background of this group of potential 
recipients, the large proportion of Hyundai Group of companies in the participants 
and the predominant use by Hynix of the total funding of the programme clearly fulfils the specificity criteria under Article 3(2)(c) of the basic Regulation."  
                                                     
 
189 Korea also submits that the EC acted inco nsistently with Articles 1.2 and 2 because, inter alia, the 
EC disregarded the fact that many Korean companies underwent debt restructuring similar to that undergone by 
Hynix, and, therefore, the EC did not establish that all of the alleged subsidies were specific on the basis of 
positive evidence.  (Korea First Written Submission, para. 676).  WT/DS299/R 
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7.224  We understand Korea's argument with  regard to the KDB Debentur e Programme to be that it 
does not suffice in order to find specific ity in the sense of Article 2 of the SCM Agreement  to simply 
note that the programmes were only used by a lim ited number of companies if, for example, the 
eligibility criteria are broad enough and the restrict ed use of the programme depends on the extent of 
the commitments companies are willing to make ra ther than on any government behaviour.    
7.225  Article 1.2 of the SCM Agreement provides that a subsidy is only countervailable if "such a 
subsidy is specific in accordance with the provisions of Article 2".  Article 2 of the SCM Agreement  
provides, in relevant part, as follows: 
2.1 In order to determine whether a s ubsidy, as defined in paragraph 1 of 
Article 1, is specific to an enterprise or industry or group of enterprises or industries 
(referred to in this Agreement as "certain en terprises") within the jurisdiction of the 
granting authority, the following principles shall apply: 
(a) Where the granting authority, or the legislation pursuant to 
which the granting authority opera tes, explicitly limits access to a 
subsidy to certain enterprises, su ch subsidy shall be specific. 
(b) Where the granting authority, or the legislation pursuant to 
which the granting authority operates,  establishes objective criteria or 
conditions2 governing the eligibility for, and the amount of, a 
subsidy, specificity shall not exist, provided that the eligibility is automatic and that such criteria and conditions are strictly adhered to.  The criteria or conditions must be clearly spelled out in law, regulation, or other official document, so as to be capable of 
verification
. 
(c) If, notwithstanding any appearance of non-specificity 
resulting from the application of the principles laid down in 
subparagraphs (a) and (b), there are reasons to believe that the 
subsidy may in fact be specific, other factors may be considered.  
Such factors are:  use of a subsidy programme by a limited number of 
certain enterprises, predominant use by certain enterprises, the 
granting of disproportionately large amounts of subsidy to certain enterprises, and the manner in which discretion has been exercised by the granting authority in the decision to grant a subsidy.
3 In applying 
this  subparagraph, account sha ll be taken of the extent of 
diversification of economic activiti es within the jurisdiction of the 
granting authority, as well as of the length of time during which the 
subsidy programme has been in operation. 
(...) 
2.4 Any determination of specificity under the provisions of this Article shall be 
clearly substantiated on the basis of positive evidence. 
2 Objective criteria or conditions, as used herein , mean criteria or conditions which are neutral, 
which do not favour certain enterprises over others, and which are economic in nature and horizontal in application, such as numb er of employees or size of enterprise. WT/DS299/R 
Page 70  
 
3 In this regard, in particular, information on the frequency with which applications for a 
subsidy are refused or approved and the reason s for such decisions shall be considered. 
(emphasis added)  
7.226  We are of the view that an authority when it has reasons to believe that the subsidy is de facto  
specific in the sense of Article 2.1(c) of the SCM Agreement  may consider such other factors as the 
use of a subsidy programme by a limited number of  certain enterprises, predominant use by certain 
enterprises, the granting of disproportionately large amounts of subsidy to certain enterprises, and the 
manner in which discretion has been exercised by the granting authority in the decision to grant a 
subsidy.  The EC determined that (1) the subsid y programme was used by a very limited number of 
companies, as only six out of an eligible two hundr ed companies used the programme; (2) that it was 
predominantly used by the Hyundai group companies among which Hynix190; and (3) that a 
disproportionate 41 per cent of the total subsidy amount of KRW 2.9 trillion was granted to Hynix.  
These figures are uncontested and clearly constitute "positive evidence".191  In addition, the EC 
pointed out that, after the participants to the programmes had been announced, there was a lot of 
criticism within Korea from companies in similarly di fficult situations complaining about the lack of 
transparency and  the eligibility criteria.  These cr iticisms indicate that the EC also considered the 
manner in which discretion was exercised in  admitting companies to the KDB Debenture 
Programme.192  
7.227  In sum, the EC's conclusion is based on the di sproportionate use of the Programme's funds for 
Hynix, which led it to the reasonable conclusion that the KDB Debenture Programme, as applied, 
constituted a de facto  specific subsidy to Hynix.   
7.228  We do not consider that the fact that the bonds, once purchased by the KDB, were 
subsequently sold via the CBOs/CLOs programme h as any bearing on the specificity analysis.  The 
subsidy that is countervailed consis ts of the financial contribution through the purchase of a bond and 
thus the granting of a loan by the KDB – a public body  – to Hynix.  The fact that the KDB later resells 
the bonds via the CBOs/CLOs programmes, together w ith bonds of other participating companies, is 
not relevant in this respect.   
7.229  As to Korea's argument that the EC failed to take account of the econom ic diversification of 
the Korean economy and the length of time the progra mme has been in place, we consider that Korea 
has failed to provide any supporting evidence to this effect.  In our view, the record does not indicate 
that the parties ever raised the i ssue that the disproportionate use of the Programme's funds for Hynix 
was somehow to be explained by the lack of dive rsification of the Korean economy or the length of 
time the programme had been in operation.  We th erefore do not find it unreasonable that the EC did 
not include in the Final Determination any e xplicit statement regarding these matters.   
7.230  In our view, having considered all four factors mentioned in Article 2.1 of the SCM 
Agreement  for de facto  specificity, and having reasonably conclu ded that under all four factors the 
KDB Debenture Programme was de facto  specific for Hynix, we consider that the EC determination 
of specificity with regard to the KDB Debentur e Programme was consistent with Article 1.2 and 
Article 2.1 of the SCM Agreement .  
7.231  With respect to the May and October 2001 Restructuring Programmes , we fail to see the 
relevance of Korea's arguments, as the EC determin ation did not relate to the CRA or the CRPA as 
such, but rather to the specific restructuring oper ations undertaken under this general framework.  The 
                                                      
190 79 per cent of the total expenditure under the programme went to Hyundai group companies.  
(Preliminary Determination, para. 64)  
191 We agree with the Appellate Body's view concerning the term "positive evidence", as set forth in its 
report in the US – Hot-Rolled Steel  case.  (See para. 7.272, infra ) 
192 Final Determination, para. 69.  WT/DS299/R 
 Page 71 
 
 
EC never made any findings with respect to the CRA or the CRPA as such, but its determination 
related to the unique bail-out opera tion for Hynix.  These restructuring operations were not simply the 
application of a generally available support pr ogramme.  Rather, the CRA and the CRPA provide 
merely a procedural framework for restructuring and do not th emselves involve any financial 
contributions.  What is relevant is that th e EC found that, under the May and October 2001 
Restructuring Programmes, and taking into acc ount our earlier findings concerning financial 
contribution and benefit, a specific restructuring exercise was undertaken for Hynix .  Hynix received 
financial contributions whic h were specifically given to Hynix  as the banks granted new loans or 
rolled-over debt and swapped debt-to-equity of Hynix .  In our view, and given the arguments made by 
Korea, the EC determinations of specificity  with regard to the specific contributions to Hynix  in the 
May and October 2001 Restructuring Programmes are consistent with the Articles 1.2 and 2 of the 
SCM Agreement .193 
7.232  We therefore find that the EC did not act in a manner inconsistent with Articles 1.2 and 2 of 
the SCM Agreement  and reject Korea's claims with respect to specificity.  
4. Claim regarding Articles 19.4 of the SCM Agreement  and VI:3 of the GATT 1994   
(a) Korea 
7.233  Korea submits that the EC violated Article 19.4 of the SCM Agreement and Article VI:3 of 
the GATT 1994 because of the EC 's failure to measure the benefit in  accordance with the principles of 
Article 14 of the SCM Agreement , and its failure to utilize Hynix 's consolidated turnover in the 
denominator of its margin calculation.  Accordi ng to Korea, the EC confuses the scope of the 
investigation with the question which product and which companies benefit from the alleged 
subsidies, which is the relevant question for the calculation of the subsidy amount.  As the alleged 
subsidies were not specifically given to the produc tion of DRAMs, Korea argues that the denominator 
to be used should not only be the unconsolidated sales of Hynix, the DRAMs producing mother company, but also include all of its consolidated subsidiaries, as they all benefited from the alleged 
subsidies.  This failure inevitably led to a duty be ing imposed in excess of the subsidy found to exist, 
in violation of Article 19.4 of the SCM Agreement .  
(b) EC 
7.234  The EC argues that, as the countervail proceedings covered imports of DRAMs from Korea, 
the relevant denominator consisted of the sales of the Korean DRAMs producer found to have 
received subsidies.  The EC explains that the i nvestigating authority allocated such subsidies over 
time and distinguished between the export subsidi es which were allocated over Hynix's exports and 
the untied subsidies which were allocated over Hynix total sales.  According to the EC, all of Hynix 
subsidiaries are separate legal entities with separate accounting.  There is no reason to assume that 
such subsidiaries benefited from the programmes.  The EC asserts that, while the results of the 
subsidiaries affect the parent company, the opposite is clearly not necessarily the case.  The EC argues 
that the clear assumption in the SCM Agreement is that the recipient of the subsidy, in this case Hynix, 
is also the legal person benefiting from the subsidy.  As the scope of the investigation was limited to 
DRAMs from Korea, the EC concludes that it was only normal not to include the sales of non examined subsidiaries. 
                                                     
 
193 We note that our ruling deals with the arguments made by Korea in respect of "specificity" and has 
to be read in light of our earlier findings with regard  to the financial contribution and benefit determinations 
made by the EC with resp ect to these programmes.  WT/DS299/R 
Page 72  
 
(c) Panel Analysis 
7.235  In light of our earlier findings concerning the flaws in the determination of the existence and 
amount of a subsidy, we consider that it would be neither necessary nor appropriate for us to make 
any findings on the claims concerning the calculation of a subsidy we find was not properly established by the EC.  We, therefore, do not make any ruling in respect of this claim.    
5. Claim regarding the EC's application of "facts available" 
(a) Korea 
7.236  Korea argues that on four occasions the EC resort ed to the use of facts available in a manner 
inconsistent with Article 12.7 of the SCM Agreement .  Korea submits that the EC ignored relevant 
information duly submitted and drew  adverse inferences from an alleged failure to cooperate in a 
manner which can only be considered as punitive.  In particular, Korea rejects the EC's use of facts 
available in two cases of alleged failure to cooperat e by Korea with regard to the Economic Ministers' 
meetings (of 28 November 2000 and 9 January 2001) and the attendan ce of an FSS official at the 
creditors meeting of 10 March 2001.  In addition, Ko rea argues that the EC act ed in a manner which is 
inconsistent with Article 12.7 of the SCM Agreement  in the case of Hynix's alleged refusal to allow 
Citibank to cooperate and in respect of Hynix's alle ged failure to provide th e Arthur Andersen report 
which formed the basis for the banks to particip ate in the October 2001 Restructuring Programme.  
7.237  With regard to the Korea's failure to provide information concerning the Economic Ministers' 
meetings and the attendance of the FSS official, Ko rea explains that this was simply due to a 
misunderstanding which was a consequence of the very general and vague nature of the EC's 
questions during the investigation.  Korea submits that  it replied to all the questions to the best of its 
abilities, explaining that it had not been invol ved in negotiating or coordinating the Hynix 
restructuring process.  In addition, Korea asserts that , when notified of the EC's specific inquiry about 
the Economic Ministers' meetings  and related documents, Korea pr omptly submitted its comments in 
its 30 May 2003 submission explaining, in detail, th e nature of the meetings, the situation surrounding 
the meetings held in late 2000 and early 2001, an d the reasons why releva nt information was not 
included in the questionnaire response or examined during verification.  Korea asserts that if the 
information and explanation promptly provided by Korea was deemed to have been somehow 
unsatisfactory or deficient, the EC should have requested Korea to provide further information and 
explanation.  In the view of Korea, this  is exactly the two-way communication the WTO 
jurisprudence requires.  Korea thus takes issue with the EC using the misunderstanding over the 
information with respect to the Economic Ministers' meetings and the attendance by an official of the 
FSS of a creditors' meeting as an excuse to ignore th e information submitted.  In the view of Korea, 
this form of punishment has absolutely no basis in the SCM Agreement .  In sum, Korea argues that the 
EC's resort to the use of facts available under Article 12.7 of the SCM Agreement  was unjustified and 
its application disproportionate  to the alleged non-cooperation.
194 
7.238  With respect to the two cases of alleged failure to cooperate by Hynix, Korea submits that the 
EC refused to use information that was provided wi thin a reasonable period of time, thereby acting in 
a manner which is inconsistent  with Article 12.7 of the SCM Agreement .  First, with regard to the 
Arthur Andersen report, Korea takes issue with th e EC's contention that Hynix refused to provide a 
copy of the report prepared by this consulting fi rm, which was highly relevant to the question of 
alleged direction by Korea, as it demonstrated the commercial reasonableness of the investment 
                                                      
194 In this respect, Korea argues that Article 12.7 of the SCM Agreement  differs from its counterpart in 
the AD Agreement , as it relates to interested Members as well as interested private parties.  In addition, the 
absence of an Annex II to the AD Agreement in the SCM Agreement , according to Korea, supports its view that 
investigating authorities should be more careful when applying the facts available vis-à-vis interested Members' 
governments.    WT/DS299/R 
 Page 73 
 
 
decisions of the creditor banks.  Korea asserts that  initially Hynix had submitted a copy of the report 
but that, at a later stage, it asked the EC to remove it from the file, for reasons of confidentiality due to 
the contractual relationship between Hynix and the consultant firm that authored the report.   
However, Korea asserts that Hynix invited the EC  to consult the report in the course of the 
verification visit.  Moreover, at a later stage in  the investigation, and responding to a question from 
the EC, Hynix enclosed a translation of the relevant page of the report establishing the liquidation and 
going concern value of Hynix.  Korea states that Hynix made a number of references to the report at 
different stages of the investigation.  Korea is of th e view that the EC was not justified in completely 
disregarding the report and its conclusions.  More over, the EC applied facts available and drew 
adverse inferences from the alleged failure to  provide the report in a manner which was 
disproportionate and punitive.   
7.239  Secondly, with regard to Citibank's allege d non-cooperation, Korea argues that the EC's 
finding that Hynix prevented Citibank from coopera ting with the investigation thereby "seriously 
impeding" the investigation is not correct.  Korea asserts that Citibank duly replied to the original 
questionnaire.  Although Citibank was not able to provi de certain information requested by the EC in 
its deficiency letter,  Korea asserts that Citibank con tinued to try to cooperate.  In particular, Korea 
refers to the submission of an affidavit in Ma y 2003 setting out Citibank' s reasons for lending to 
Hynix.  Korea asserts that Hyni x and Citibank explained the reasons  why the latter could not disclose 
certain information requested by the EC in its de ficiency letter.  Korea asserts that there is no 
evidence on the record that Hynix requested or instru cted Citibank to refuse cooperation with the EC's 
investigation.  Finally, Korea takes issue with th e EC's conclusion that Citibank's lack of cooperation 
could be taken as an indication that it had participat ed in debt restructuring at the direction of the 
government of Korea.  
(b) EC 
7.240  The EC submits that Article 12.7 of the SCM Agreement  allows an investigating authority to 
use the facts available in case necessary information is not provided with a reasonable period of time 
or in case interested parties refuse access to such necessary information or significantly impede the 
investigation.  The EC is of the view that, in the four instances referred to by Korea, the investigating 
authority was entitled to use the facts available a nd did not use these in a punitive manner.  The EC 
considers that Article 12.7 of the SCM Agreement  would not be of much use if it would not entitle an 
authority to take the non-coopera tion into account when weighing the evidence.  The EC asserts that 
the essential point of a provision like Article 12.7 is, and can only be, the possibility of drawing 
adverse inferences.195  
7.241  With regard to the Economic Ministers' meeti ngs and the meeting that was attended by an 
FSS official, the EC asserts that the facts conc erning these meetings are actually not contested by 
Korea.196  The EC considers that the documents whic h revealed these facts were not provided by 
either Korea, or any of the interested Korean par ties, in spite of the fact that they were obviously 
relevant and had clearly been requested by the inve stigating authority.  This non-provision of such 
information legitimately cast a shadow over the conduct  of the parties being investigated and it means 
that the investigating authority h as some flexibility when it comes to assessing the facts available to it.  
Since the information ultimately pr ovided was used by th e authority, the EC is of the view that 
Article 12.7 of the SCM Agreement  is actually irrelevant to the way the EC used this information, 
which is purely a question of weighing the evidence.  The EC takes issue with Korea's assertion that it 
did not "reasonably believe" that the fact of the ministerial meeting, the subject matter of the 
Ministers' discussions, and the various outcomes and associated documents might be considered germane to the investigation.  
                                                     
 
195 EC First Written Submission, para. 197. 
196 Id., paras. 206 and 217. WT/DS299/R 
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7.242  Regarding the Arthur Andersen report, the EC asserts that neither Korea nor Hynix ever 
provided the investigating authority with a copy of  the report.  A sixteen page summary in Korean 
which was first submitted was later wi thdrawn for confidentiality reasons.
197 In the end, what was 
provided in response to a deficiency letter, was one page of the report which sets forth the conclusions 
on the average pay-back ratios in case Hynix is treated as a going concern and in case Hynix is 
liquidated.  Such a one page excerpt of the report is clearly insufficient in order to be able to make an 
informed decision about the implications of the report, as it does not enable the authority to analyze how the authors of the report arrived at the final figures and whether their assessment was correct and 
justified.  The EC also takes issue with Korea's argument that the EC never indicated any concern or 
problem about the report, as it was clear from the Pre liminary Determination that the authority had not 
taken account of the report or its alleged findings.  In any case, the EC notes that the importance of 
the report should not be overestimated as it was onl y finalized in December 2001 and could thus not 
have been the basis for the creditors' deci sion in October 2001 regarding the October 2001 
Restructuring Programme. 
7.243  Finally, with respect to Citibank, the EC asser ts that Hynix's refusal to give consent to 
Citibank to supply the requested information and doc uments to the investigating authority constituted 
a clear failure to provide necessary information an d significantly impeded the investigation.  The 
investigating authority was, therefore, entitled under Article 12.7 of the SCM Agreement  to base its 
determination with regard to Citibank on the facts av ailable, which included, in so far as relevant, the 
evidence submitted by Citibank in the form of an affi davit.  The EC asserts that it is undisputed that 
the reason for Citibank's non-cooperation was Hynix's refusal to give its consent, and that the 
authority was justified in taking this refusal into account when reviewing and weighing all 
information concerning Citibank. 
(c) Panel Analysis 
7.244  Korea's claims concern the use of facts ava ilable by an investigating authority under 
Article 12.7 of the SCM Agreement , which provides as follows: 
[i]n cases in which any interested Member  or interested party refuses access to, or 
otherwise does not provide, necessary info rmation within a reasonable period or 
significantly impedes the investigation, preliminary and final determinations, 
affirmative or negative, may be made on the basis of the facts available. 
7.245  Article 12.7 thus allows an authority to ma ke determinations on the basis of the facts 
available in case certain necessary information is not  provided within a reasonable period, or if access 
to such information is refused, or in case an inte rested party or interested Member significantly 
impedes the investigation.  Article 12.7 thus enabl es an authority to continue with the investigation 
and make determinations based on the facts that are available in case the information necessary to 
make such determinations is not provided by the inte rested parties, or, for example, verification of the 
accuracy of the information submitted is not allowed by an interested party, thereby significantly 
impeding the investigation.  In other words, Ar ticle 12.7 identifies the circumstances in which 
investigating authorities may overcome a lack of inform ation, in the response of the interested parties, 
by using "facts" which are otherwise "available" to the investigating authority.
198  
                                                      
197 The EC notes that Hynix did submit a copy of the report to US Department of Commerce in a 
parallel investigation carried out against DRAMs from Korea,  in spite of Hynix's explanation to the EC that, due 
the contractual relationship in force between Hynix and the author of the report, Hynix was not allowed to copy 
in full or in part the report. 
198 We note that the Appellate Body was also of  this view, when examining Article 6.8 of the AD 
Agreement dealing with facts available in the context of anti- dumping investigations.  (Appellate Body report, 
US – Hot-Rolled Steel , para. 77)   WT/DS299/R 
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7.246  Korea argues that, on four occasions, the EC resort ed to the use of facts available in a manner 
inconsistent with Article 12.7 of the SCM Agreement .  We examine each of Korea's claims in turn. 
(i) Economic Ministers' meetings / Attendance by an FSS official at a creditors' meeting 
7.247  We recall that, following the Preliminary Dete rmination, the EC discovered, through press 
reports, a couple of documents of Korea and letters  reporting the results of meetings of the Economic 
Ministers that took place on 28 November 2000 a nd 9 January 2001 which relate to Hynix's 
restructuring process.  In addition, it was discovere d that a high ranking FSS official attended an 
important meeting of the Creditors  Council on 10 March 2001.  Korea recognizes the veracity of these 
documents and confirmed the presence of this public official at that meeting.   
7.248  The EC relied on these documents when making its determination of the existence of a 
financial contribution by the government, in particul ar in respect of the Syndicated Loan and the 
KEIC Guarantee, as well as the May 2001 Restructur ing Programme.  The EC also considered that the 
fact that the letters of Korea, and the public offi cial's presence at the meeting, were not disclosed by 
Korea, when requested, allowed the authority to use other sources of information as well, such as 
press reports.   
7.249  We do not understand Korea to be arguing th at the EC should not have relied on these 
documents or should have used othe r information that it provided instead.  Rather, Korea appears to 
be arguing that the EC gave undue  weight to the documents and th at its reading of these documents 
was improperly coloured by the alleged failure of Korea to provide these documents itself.  That, in 
our view, is not a matter of relevance to the use of Article 12.7 of the SCM Agreement  which deals 
with a situation in which information is not prov ided, or cannot be used and other secondary source 
information is used instead.  The weighing of the in formation and the evidence before it, is part of the 
discretionary authority of the investigating authorit y.  Under our standard of review, we will examine 
whether the investigating authority came to reasonabl e conclusions on the basis of all of the evidence 
properly before it.  There is no rule in the SCM Agreement  that stops the investigating authority from 
taking into account information from all sources, incl uding press reports.  In this particular case, we 
do not consider that the EC should have necessaril y accepted at face value the interpretation of the 
letters and explanation of the course of events offere d by Korea.  Whether, in the end, the EC had a 
sufficient basis for making a determination of the ex istence of a financial contribution in the case of 
the Syndicated Loan, the KEIC Gu arantee and the May 2001 Restructuring Programme is a question 
which can only be answered by looking at all the evidence before the authority.  We conducted this 
review earlier in our Report.   
7.250  In any case, and even if one would want to examine the facts in the light of Article 12.7 of the 
SCM Agreement , we are of the view that it was not unreasonable of the EC to reach the conclusion 
that necessary information had been requested but no t provided by Korea.  In the questionnaire that 
was sent to Korea, the EC requested the following: 
"[e]xplain the role of government or public officials in negotiating or co-ordinating 
this [Syndicated Loan] process, including deta ils of their participation in relevant 
meetings and the nature of their invol vement with Hynix and/or the banks 
concerned."199 
7.251  And with regard to the KEIC Guaran tee, the following question was asked: 
                                                      
199 Response of Korea to the EC questionnaire, question 1, p. 30.  ( Exhibit GOK-6 )  For a complete 
list of questions posed by the EC in this respect see EC response to question 58 of the Panel, paras. 143-154.   WT/DS299/R 
Page 76  
 
"[g]ive details of the involvement of govern ment or public officials in this process 
[KEIC Guarantee] including details of thei r participation in relevant meetings."
200  
7.252  In the response by Korea, no mention was made of the Economic Minister s' meetings or the 
letters that were sent to the KEB and KEIC followi ng those meetings.  Similarly, with regard to the 
May 2001 Restructuring Programme, the EC asked the following: 
"[p]lease describe the involvement of gove rnment or public officials in the above 
process, including their participation in rele vant meetings, and explain what functions 
and powers they had in decisions."201 
7.253  In response to this question, Korea replied  
"complying with the relevant statutes, no g overnment or public officials attended the 
relevant meetings or were involved in the above process."202  
7.254  In our view, the EC reasonably concluded that  its questions were specific enough to have 
informed Korea that it was to provide information concerning any meetings of the kind documented in 
the letters relating to the 28 November 2000 and the 9 January 2001 meeti ngs.  As is acknowledged 
by Korea, the ministers of three ministries dealing with economic matters met to discuss, inter alia , 
ways for "alleviating the cash crunch of Hyunday Electronics [Hynix]".203  We do not find 
unreasonable the EC's conclusion that Korea was suffi ciently informed that these were precisely the 
kind of documents that the EC was asking about.  Si milarly, with regard to the presence of the FSS 
official, we consider that the question of the EC  made it clear that any presence of a government or 
public official at the Creditors Council meeti ng of 10 March 2001, in which further Hynix 
restructuring was discussed, was to be reported in an swer to the EC's questions.  The fact that the FSS 
official in question was the vice-chairman, and th at there were subsequent contacts between the 
FSS/FSC and the creditor banks, are further support fo r the EC's conclusion that Korea's answer was 
not a simple misunderstanding or a minor oversight, but  rather a deliberate, less than full, disclosure 
by Korea. 
7.255  The information contained in the discovered doc uments and the fact that a high ranking FSS 
official was present at a meeting of the Creditors ' Council is obviously rele vant to establishing the 
existence of a financial contribution by the govern ment and the question of government entrustment 
or direction of private bodies in particular.  We ther efore conclude that, in so far as this is a question 
of the use of facts available, the EC was not acti ng in a manner inconsistent with Article 12.7 of the 
SCM Agreement  by considering that necessary information had not been provided and by resorting to 
certain information from secondary sources such as press reports as part of its s ubsidy determination.  
(ii) The Arthur Andersen report 
7.256  With regard to the Arthur Andersen report, the EC concluded the following in the Final 
Determination: 
"KEB, Woori Bank, CHB, NACF and Citibank Se oul all argued that they participated 
in the October 2001 package since they wanted  to maximise their recovery rate for 
the loans already granted to Hynix.  They  considered that the value of Hynix as a 
going concern was higher than the immediat e liquidation value.  They argued that 
                                                      
200 Response of Korea to the EC questionnaire, p. 35.  ( Exhibit GOK-6 ) 
201 Id., p. 46.  
202 Ibid. 
203 Document of 28 November 2000, Results of Discussions at the Economic Ministers' Meeting. 
(Exhibit EC-3 )  WT/DS299/R 
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their participation in the October 2001 package was determined on the basis of their credit evaluation of Hynix, supported by anal ysis from outside consultants.  It should 
be noted, however, that Hynix has refused  to provide a copy of the analysis 
determining the liquidation value on the basi s that it was confidential.  Consequently, 
it has not been possible to assess its merits and, therefore, final findings in this regard 
have been determined in accordance wi th Article 28 of the basic Regulation."
204 
7.257  Korea argues that the Arthur Andersen report was evidence of the commercial reasonableness 
of the creditor banks' decision to participate in  the October 2001 Restructuring Programme, as it 
allegedly demonstrated that the going concern valu e of Hynix was higher than its liquidation value. 
The EC did not take this report into account for a number of reasons, the mo st important one being 
that it had not been provided to the investigating authority.  
7.258  It appears that a sixteen page executive summar y of the report in Korean was attached to 
Hynix's questionnaire response, but that one week la ter Hynix requested the EC to remove the report 
from the record as "the contractual relationship in force between Hynix and the author of the report 
attached to the injury submission as Annex 17 does not allow Hynix to copy in full or in part the 
report".205 Hynix added that the EC could, nevertheless, have access to the report at the time of the 
verification visit. Following a deficiency letter from the EC on 8 November 2002 in which the EC 
asked for the Arthur Andersen report to be provided, Hynix enclosed in its reply of 21 November 2002, a translation of one page of the report setting forth the conclusions on the average 
pay-back ratios in case Hynix is treated as a going concern and in case Hynix is liquidated.  The EC 
never verified the report as it considered it was unde r no obligation to do so as the report had not been 
properly provided in the first place.  
7.259  We are of the view that the EC was justified in considering that Hynix failed to provide the 
necessary information by providing only one page of  a report of more than two hundred pages.  It 
appears that Hynix itself considered the report to be relevant and necessary; otherwise, it would not 
have submitted the report in the first place.  Hynix then withdrew the report without sufficient 
justification. As the investigating authority point ed out in a letter to Hynix, if there was any 
confidentiality concern, this could be taken care of through the normal confidentiality procedures.  
Hynix never even asked for the report to be treated in  a confidential manner.  Neither is there anything 
on the record, and no argument has been made before us, that Hynix ever tried to obtain the approval 
of Arthur Andersen to submit the report, if it considered it needed such approval.
206  
7.260  Korea argues that Hynix was under the impression that, by submitting the one page 
conclusion of the report, the EC was satisfied.  Ko rea argues that, by not informing Hynix that it 
would not be able to rely on the report unless the fu ll report was submitted, the EC failed to respect 
the "two-way" communication that is essential to a proper application of Article 12.7 of the SCM 
Agreement .  First of all, we consider that the EC re quested the information, and after the report had 
been removed from the record at the request of Hy nix, sent a deficiency letter to Hynix again asking 
for the report to be submitted.  Even assuming that such a basic due process requirement of informing 
a party concerned that certain information is cons idered not to have been properly provided to the 
authority is inherent in a proper application of Article 12.7 of the SCM Agreement , we consider that 
the EC complied with its procedural obligation.  It requested the information to be provided on two 
                                                      
204 Final Determination, para. 136. 
205 Hynix's  letter to the European Commission Regarding the Monitor Group and Arthur Andersen 
reports (26 September 2002).  ( Exhibit GOK-28 ) 
206 In fact, we note that Hynix's argument that the contractual relationship between the consultant and 
Hynix prevented the latter from submitting the report in full or in part, seems to be contradicted by the facts.  In 
the end, part of the report (one page) was submitted to  the EC, in apparent breach of the alleged contractual 
obligations of Hynix.  Moreover, in a parallel investigation by the United States, Hynix submitted a larger 
excerpt from the report to the US Department of Commerce, apparently because it was told by its American 
advisors that the US would never accept a me re one page excerpt as sufficient.    WT/DS299/R 
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occasions and recalled that any confidentiality concerns  could be taken care of through its confidential 
information procedures.  In the absence of any specific procedural requirements in the SCM 
Agreement  with regard to the application of Article 12.7 of the SCM Agreement , we consider that the 
EC was justified in considering that the report w as not provided within a reasonable period and basing 
its determination on the remainder of the facts available.   
7.261  We therefore reject Korea's claim that by disregarding the Arthur Andersen report the EC 
acted in a manner inconsistent with Article 12.7 of the SCM Agreement . 
(iii) Citibank 
7.262  We recall that Citibank was Hynix's financial advi sor at the time of the 2001 restructuring.  
As a non-government owned bank, Citibank's role, particularly in the October 2001 Restructuring 
Programme was considered important in determin ing the commercial reasonableness of the creditor 
banks in participating in the restructuring process.  
7.263  In the Final Determination, the EC  reached the following conclusions: 
"(131) In terms of its role as a lender in this  investigation it should be noted that the 
non-cooperation of Citibank prevented any re liable information being obtained on the 
precise functions and practices of Citibank in  relation to the financial package given 
to Hynix.  Thus, Citibank's assertions th at it was not acting under GOK direction 
could not be verified via a proper res ponse to a questionnaire and a subsequent 
verification visit.  The same applies to the lending practices of Citibank.  It should also be noted that the failure of Citibank to cooperate significantly impeded the investigation, not just in terms of identif ying Citibank's precise functions in relation 
to its role as a lender, but also in respect to  its role as the financial adviser to Hynix. 
Due to the non-cooperation the true stat us of Citibank as regards Hynix and the 
nature and intensity of its  overall relationship to the GOK remain unknown.  The 
importance of cooperation and ve rification visits is demonstrated by the fact that as 
regards some of the other banks involved  in the case, it was proper cooperation and 
verification that was instrumental in allo wing definitive conclusions to be drawn as 
regards the relations between them, Hynix a nd the GOK.  What the investigation has, 
however, shown, due to information given by  other parties, is that Citibank was a 
central figure in discussions between the GOK, Hynix and other parties involved in this case.  Indeed, Hynix stated that Citiba nk should not cooperate in the investigation 
because "such disclosure may divulge informa tion relating to Hynix's cost, finance or 
accounting".  It is recalled that Hynix w as majority-owned by the GOK via the banks 
at the time of this intervention. 
(132) In these circumstances, the final findi ngs had to be based on the facts available 
with regard to whether Citibank as a le nder acted under GOK direction and whether 
the benefit to Hynix equated to the full financial contribution made by Citibank to 
Hynix.  In this respect, it is uncontested that unlike the other participants in these 
measures, Citibank's first intervention as a creditor bank of Hynix was in January 2001 when the financial situation of Hynix was already sufficiently bad to 
deter any other new bank from getting financia lly involved.  Citibank's own rating for 
Hynix in October 2001 was D "doubtful".  Nevertheless, Citibank provided financing 
to Hynix.  Citibank was requested to expl ain their general lending policy and whether 
it was normal to provide financing to doubtfu l companies.  As already explained, 
Citibank did not provide any details which would have e xplained their motivation in 
participating in the measures investigated.  WT/DS299/R 
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(133) As for the GOK direction, informati on on the record indicates that there were 
considerable links between the GOK, Hynix and Citibank.  For the GOK and 
Citibank these went beyond the loans investig ated.  Such links can be interpreted in 
two ways.  Firstly, they can be interprete d as indicating that Citibank may well have 
had commercial reasons for providing financi ng to Hynix, or as alleged by one of the 
parties, they could be interpreted as pl acing Citibank in a vulnerable position with 
regards to direction by the GOK.  Due to the non-cooperation it was not possible to establish whether Citibank acted on coercion or  whether this was in accordance with 
their normal business practice.  In this respect, it is recalled that the reason for non-cooperation was to prevent access to Hynix's cost, finance and accounting data.  In 
the absence of any other explanation, this  can reasonably be taken as an indication 
that this data in Citibank's possession contai n information revealing that there were 
no commercial reasons to provide the financ ing in question, and that the financing 
was provided due to GOK direction.  This reason is also the one suggested in the 
complaint.  In addition, as explained in  recital 94 of the provisional Regulation, 
Citibank has had an unusually close and symbiotic relationship with the GOK since 
1967, when it was authorised to operate in Korea.  This close relationship between 
the GOK and Citibank is witnessed in the ro le played by Citibank in assisting the 
GOK to extricate itself from the Korean fina ncial crisis of 1997.  Citibank led and 
successfully completed Korea's bank debt restructuring for a total of USD 21,75 billion in 1998.  Moreover, Citibank helped the GOK and government-related 
institutions to access capital markets dur ing the Korean financial crisis by 
successfully sponsoring a USD 4 billion global bond offering.  All these facts confirm 
that Citibank has a very close relationship to  the GOK.  On the b asis of these facts, 
and of the refusal of Citibank to grant access  to the information in its possession, and 
failing any other verifiable evidence being av ailable, the conclusion to be drawn in 
accordance with Article 28(6) of the basic Regulation is that the GOK was involved 
and directed Citibank to provide the financing in question."   
7.264  We note that it seems undisputed that Citibank did not provide certain information requested 
by the EC in its follow-up questions of 8 November 2002.
207 It appears that the reason for this was the 
fact that, under Korean law, banks operating in Korea are prohibited from disclosing to third parties 
any information concerning banking relationships with other companies except with the prior written 
consent of those companies.  Citibank requested Hynix to give its consent to disclosing the 
information the EC was requesting.  Hynix consider ed that such information was highly confidential 
and that Citibank's reply may divulge informati on relating to Hynix's cost, finance or accounting.208 
Hynix thus refused to provide such consent with out examining first Citibank's files, something 
Citibank refused to accept as it would have vi olated long-standing Citibank policy prohibiting 
disclosure of such internal analysis to the customer.209 The record shows that, in a letter dated 
26 November 2002, the EC reminded Citibank of th e possibility of submitting the information in a 
confidential manner such that the information woul d receive proper protection. Citibank replied that 
this would not solve its legal liability problem unde r Korean law.  Further written exchange between 
the EC and Citibank of 29 Novemb er and 2 December 2002 merely repeated these same points.   
While Korea argues that Citibank "invited the EC for a verification visit"210, it appears that all that 
was offered by Citibank was to meet with an EC o fficial during the official's verification visit to 
Korea.211 
                                                      
207 Hynix's Comments of 4 July 2003.  ( Exhibit GOK-37 ) 
208 Hynix's letter to Citibank in annex to Hynix's Comments of 4 July 2003, referred to in note 207, 
supra .  
209 Citibank's Affidavit, para. 6.  ( Exhibit GOK-15 )  
210 Korea First Written Submission, para. 388. 
211 Citibank Affidavit, para. 6, referred to in note 209, supra . WT/DS299/R 
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7.265   Korea does not contest that the information re quested was necessary information, nor that it 
was not provided to the investigating authority.  Ko rea's argument is that Citibank did provide some 
information in an affidavit of 14 May 2003 and that  the EC should have based its decision on this 
information, rather than on information obtaine d from other sources.  In our view, the EC was 
justified in making its determinations  on the basis of the facts availabl e given the fact that information 
reasonably considered as necessary was not provided.  The fact that an affidavit was submitted which 
contains certain general information that could be verified by the investigating authority does not alter 
that conclusion.  We do not consider that the affi davit can be considered to have replaced the actual 
data and information requested.  Especi ally, in light of the fact that an authority is to satisfy itself as to 
the accuracy of the information submitted, we do no t consider that the EC should have accepted at 
face value the response of Citibank contained in the affidavit.   
7.266  We note that Korea argues that Citibank shou ld not have been considered as an un-
cooperative party in light of its good faith efforts to  provide the information.  In addition, Korea 
argues that Hynix is not to be blamed for Citibank's failure to provide the information either.  As we 
stated earlier, Korea argues that it was not Hynix' s fault that the information was not provided, but 
that this non-provision was due to Citibank's internal policies.  At the same ti me, Korea argues that it 
was not Citibank's fault either as Hynix did not cons ent to the disclosure of the information and that 
without such consent Citibank would risk legal liabili ty problems under Korean law.  Whomever is to 
blame, it is clear that  necessary information was not  provided within a reasonable period.  There is no 
dispute that the EC clearly request ed this information and informed  Citibank of the consequences of 
non-cooperation.  Neither Citibank nor Hynix for that  matter ever made any serious attempt at finding 
a solution to the alleged problem that they had with providing the information.  We thus conclude that 
the EC was entitled to resort to the use of the facts available under Article 12.7 of the SCM 
Agreement .  On the other hand, whether the investig ating authority made reasonable conclusions 
based on the facts before it and assigned the appropria te weight to the information provided, is a 
matter we deal with as part of our substantive review of the measures taken.   
7.267  In sum, we reject Korea's claim that the EC acted in a manner inconsistent with Article 12.7 
of the SCM Agreement  by relying on the facts available with regard to Citibank. 
C. C
LAIMS CONCERNING THE EC'S INJURY AND CAUSALITY DETERMINATIONS  
1. Claim concerning Article 15.1 of the SCM Agreement  
(a) Korea 
7.268  Korea submits that the EC acted inc onsistently with Article 15.1 of the SCM Agreement 
because , inter alia , the EC determinations on injury and causation were not based on positive 
evidence and an objective assessment of the effects of  the allegedly subsidized imports.  Korea is of 
the view that Article 15.1 of the SCM Agreement is a fundamental and overarching provision such that 
all the obligations expressed in Articles 15.2-15.5 of the SCM Agreement  have to be read in the light 
of the requirement to base the determination on positive evidence and to conduct an objective 
examination.  Korea asserts that this implies that  the evidence be "affirmativ e, objective, verifiable, 
and unbiased" and that the injury investigation process be "unbiased".212  Korea argues that the EC's 
injury determination is inconsiste nt with the obligations found in Articles 15.2, 15.4 and 15.5 of the 
SCM Agreement and that each of these specific inconsiste ncies is necessarily an inconsistency under 
Article 15.1 of the SCM Agreement .   
7.269  In the view of Korea, any assessment of whether an investigating authority acted 
inconsistently with, for example, Article 15.2 of the SCM Agreement necessarily requires an 
                                                      
212 Korea First Written Submission, para. 75.  Korea refers to Appellate Body report, US – Hot-Rolled 
Steel , paras. 192-193.  WT/DS299/R 
 Page 81 
 
 
examination of whether the conclusions reached by  the investigating authority under Article 15.2 of 
the SCM Agreement  meet the positive evidence and objective examination requirements of 
Article 15.1 of the SCM Agreement.  However, Korea adds, even if the Panel does not agree with this 
interpretation of the inter-relationship between Ar ticle 15.1 and the rest of Article 15 of the SCM 
Agreement , the Panel must still assess whether Article 15.1 itself imposes such an obligation, and 
whether the EC actions in this case meet that independent obligation under Article 15.1 of the SCM 
Agreement .213 
(b) EC 
7.270  The EC agrees with Korea that Article 15.1 of the SCM Agreement  contains both an 
overarching obligation that informs the rest of Ar ticle 15 and an independent obligation of its own 
right.  The EC considers that the in vestigating authority did not act inconsistently with the obligations 
contained in Article 15 of the SCM Agreement .  The EC asserts that its injury determination was 
based on positive evidence and involv ed an objective examination.  
(c) Panel Analysis 
7.271  Article 15.1 of the SCM Agreement reads as follows: 
[a] determination of injury for purposes of Article VI of GATT 1994  shall be based on 
positive evidence and involve an objective examination of both (a) the volume of the 
subsidized imports and the effect of the s ubsidized imports on prices in the domestic 
market for like products and (b) the consequent impact of these imports on the 
domestic producers of such products. (footnote omitted) 
7.272  Accordingly, an investigating authority must ensu re that its determinati on of injury, and more 
specifically, its findings under Articles 15.2, 15.4, and 15.5 of the SCM Agreement , are made on the 
basis of "positive evidence" and involve an "objective examination."  In this regard, we note that the 
Appellate Body has interprete d "positive evidence" as follows: 
"[t]he term "positive evidence" relates, in our view, to the quality of the evidence that 
authorities may rely upon in making a determin ation.  The word "positive" means, to 
us, that the evidence must be of an affirma tive, objective and verifiable character, and 
that it must be credible."214 
7.273  We also note that the Appellate Body h as defined an "objective examination": 
"[t]he term "objective examination" aims at a different aspect of the investigating 
authorities’ determination.  While the te rm "positive evidence" focuses on the facts 
underpinning and justifying the injury determination, the term "objective 
examination" is concerned with the i nvestigative process itself.  The word 
"examination" relates, in our view, to th e way in which the evidence is gathered, 
inquired into and, subsequently, evaluated;  that is, it relates to the conduct of the 
investigation generally.  The word "objective", which qualifies the word 
"examination", indicates essentially that the "examination" process must conform to 
the dictates of the basic principles of good faith and fundamental fairness."215  
(footnote omitted) 
                                                      
213 Korea Second Written Submission, paras. 53-54. 
214 Appellate Body report, US – Hot-Rolled Steel , para. 192. 
215  Id., para. 193. WT/DS299/R 
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7.274  The Appellate Body summed up the requirement to conduct an "objective examination" as 
follows: 
"...an "objective examination" requires that the domestic industry, and the effects of 
[subsidized] imports be investigated in an unbiased manner, without favouring the 
interests of any interested party, or group of interested parties, in the investigation.  
The duty of the investigating authorities to conduct an "objective examination" 
recognizes that the determination will be influenced by the objectivity, or any lack thereof, of the investigative process."
216  
7.275  We also note that the Appellate Body in Thailand – H-Beams  confirmed the fundamental 
nature of a provision analogous to Article 15.1 a nd its importance as a guiding principle underlying all 
aspects of an injury determination.  Thus, in respect of Article 3.1 of the AD Agreement , the Appellate 
Body stated: 
"Article 3 as a whole deals with obligations of Members with respect to the 
determination of injury.  Article 3.1 is an overarching provision that sets forth a 
Member’s fundamental, substantive obligation in this respect.  Article 3.1 informs the 
more detailed obligations in succeeding pa ragraphs.  These obligations concern the 
determination of the volume of dumped imports, and their effect on prices 
(Article 3.2), investigations of imports fro m more than one country (Article 3.3), the 
impact of dumped imports on the domestic industry (Article 3.4), causality between 
dumped imports and injury (Article 3.5) , the assessment of the domestic production 
of the like product (Article 3.6), and the determ ination of the threat of material injury 
(Articles 3.7 and 3.8).  The focus of Article 3 is thus on substantive obligations that a 
Member must fulfil in making an injury determination."217 (emphasis in original) 
7.276  Like the parties, we are also of the view that Article 15.1 of the SCM Agreement is an 
overarching provision which informs the more detaile d obligations set forth in the remainder of 
Article 15 of the SCM Agreement .  This implies that we can only r each a conclusion that the authority 
acted in a manner that is consistent  with the specific obligations of, inter alia , Articles 15.2, 15.4 and 
15.5 of the SCM Agreement if it based its determination of in jury on positive evidence and conducted 
an objective examination of the various injury elem ents as required by these more specific provisions.  
On the question of whether we will separately ex amine the question of consistency of the same 
measures with Article 15.1, we will not do so because Korea did not advance any arguments that raised a prima facie  case of violation by the EC of Article 15. 1 on its own.  Rather, Korea's arguments 
were invariably focussed on the specific obligatio ns of Articles 15.2, 15.4 and 15.5 of the SCM 
Agreement , and any arguments that it raised in rela tion Article 15.1 were not of a substantive 
nature.
218  
                                                      
216 Ibid. 
217 Appellate Body report, Thailand – H-Beams , para.  106. 
218 This is not to say that we consider that Article 15.1 of the SCM Agreement does not impose any 
independent obligations in its own right.  Indeed, we ag ree with Korea that, if an investigating authority lacks 
positive evidence and has not examined the evidence before it objectively, then the investigating authority 
would have acted inconsistently with Article 15.1, regardless of any conclu sions that might be reached about the 
other – more specific – obligations under Article 15.  In  this case, however, we were not presented with any 
prima facie arguments that this had occurred.  In addition, we are also inclined to believe that it is more 
appropriate for a panel to start its analysis by examin ing the consistency of a measure with the more specific 
obligation read in light of the general obligation, rather than the other way around.  WT/DS299/R 
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2. Claim concerning the EC's determination regarding the volume of the subsidized 
imports 
(a) Korea 
7.277  Korea asserts that the EC analysis of the allege d increase in imports of DRAMs is flawed and 
gives a distorted picture of the actual situation.  According to Korea, the EC's finding of a significant 
increase in Hynix imports was not based on an objective examination of positive evidence and is 
therefore inconsistent with Articles 15.1 and 15.2 of the SCM Agreement . 
7.278  First, Korea argues that Article 15.2 of the SCM Agreement requires an investigating authority 
to determine that there has been a significant increase of subsidized  imports.  According to Korea, the 
EC examined whether imports from Korea as a whole  increased, instead of focusing on subsidized 
imports alone, as required by Article 15.2 of the SCM Agreement .  Korea is of the view that, although 
the EC determination provides some discussion on imports from Hynix alone, the focus is on imports from Korea as a whole – including imports from Samsung which were found not to have been subsidized – and its determin ation is thus inconsistent  with Article 15.2 of the SCM Agreement .  
7.279  Second, Korea argues that the EC failed to ta ke into account the merger that took place in 
1999 between Hyundai Electronics Industries ("HEI") and LG Semiconductors ("LGS"), which later 
led to the formation of a new company called Hynix.   Korea asserts that the EC should have joined 
the volume of imports of HEI and LGS for the first year and a half of the injury POI (1998–July 1999) 
in its examination of the volume of imports from Hynix.  By considering Hynix to be the successor 
only of HEI and by thus ignoring the volume of impor ts and the market share held by LGS prior to the 
merger in 1999, the EC conducted a result-oriented an alysis as it was inevitable that the volume of 
imports of Hynix at the end of the injury POI was going to be higher than the volume of imports of 
just one of the two companies that constituted Hynix pr ior to the merger, at the beginning of the injury 
POI.  According to Korea, had the EC combined th e data for the two companies (HEI and LGS) prior 
to the merger, it would have found that market share had actually decreased during the injury POI.    
7.280  Korea rejects the reasons invoked by the EC for ignoring the effect of the merger.  According 
to Korea, the petitioners mentioned the merger a nd so did Hynix in its first submission to the 
investigating authority as well as during the in jury presentation prior to the Preliminary 
Determination.  According to Korea, the EC as a reasonable investigating authority should have 
further inquired about the relevance of this merger  and should have requested more ample data, if 
such was necessary.  Korea is of the view that the EC is improperly hiding behind the fact that none of 
the interested parties provided sales data for LGS for 1998–1999, since the EC never asked for such 
information to be submitted.
219 
7.281  Korea also rejects the EC argument that th e merger with LGS was no more than a new 
acquisition by HEI increasing its capacity with no retroactive effect.  To view the merger as a simple investment by Hynix ignores market reality as th e obvious effect of the merger was that LGS' 
previous presence in the EC market disappeared a nd its sales were incorporated into Hynix's sales 
figures.  In addition Korea argues, the EC itself in investigating the existence of a subsidy for Hynix, 
considered the merger as obviously relevant as it took  into account the inheritance of the LGS debt by 
Hynix and countervailed all the loans granted to LGS.
220  According to Korea, if the EC desired to 
countervail the LGS loans before the merger, as it did in its Final Determination, it should also have 
properly considered the full effect of the HEI–LGS merger in its injury analysis.   
                                                      
219 Korea thus refutes the EC assertion that the combined data for LGS and HEI constituted "new 
information" which could not be accepted for the Fi nal Determination as it was submitted only after the 
Preliminary Determination and well af ter the verifications took place. 
220 Korea also considers that the EC was acting in contradiction with its own treatment in the 
Preliminary Determination of Micron's acquisiti on of a competitor, Texas Instruments.    WT/DS299/R 
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7.282  Third, Korea is of the view that the EC failed to  put the volume data in its proper context, as 
required to determine the "significance" of the alle ged increase.  Korea asserts that volume data of 
DRAMs imports measured in megabits will always incr ease, given the nature of the industry and the 
product.  Consequently, Korea argues that the EC should have focused on the market share of Hynix 
which, if properly calculated by taking into account  the merger between HEI and LGS, showed that 
Hynix was losing market share throughout the POI,  as the increase in EC consumption was much 
higher than the increase in imports by Hynix.
221  Korea submits that, by ignoring this important 
context in which to assess the significance of the alleged increase in imports, the EC failed to make an objective determination based on positive evidence. 
(b) EC 
7.283  The EC argues that Article 15.2 of the SCM Agreement requires an investigating authority 
only to consider  whether there has been a significant increase  in subsidized imports and provides that 
such increase may be considered in absolute or relative terms.  The EC asserts that the authority fully 
complied with this requirement by finding that imports of DRAMs from Hynix increased significantly, both in absolute and in relative te rms.  The EC rejects Korea's arguments to the 
contrary. 
7.284  First, the EC argues that its determination is based on a separate examination regarding 
volume, price and market share of subsidized  imports, i.e., imports from Hynix , but that imports from 
Korea as a whole were also examined due to the sc ope of the investigation into imports of DRAMs 
from Korea.  The simultaneous examination of the exis tence of a subsidy and of injury implied that it 
became clear only during the investigation that not all imports from Korea could be considered to 
have been subsidized.  
7.285  Second, the EC considers that it did not act inconsistently with Article 15.2 of the SCM 
Agreement by not adding the volume of imports and the mark et share held by LGS prior to its merger 
with HEI in July 1999 to the 1998 – 2001 data for Hynix.  The EC is of the view that the acquisition 
of LGS increased Hynix's production for the future bu t did not have any retroactive effect.  The EC 
considers that the merger is comparable to the purchase of assets from a former competitor in order to 
increase a firm's capacity.  Moreover, in the absence  of any information conc erning subsidization of 
LGS, which no longer existed at the time the subsidi es were provided, it would have been incorrect to 
consider such imports from LGS during 1998–1999 as s ubsidized imports.  The EC does not consider 
that there is any inconsistency in the fact that the investigating authority in the subsidy analysis added 
LGS' debts to those of Hynix, as this is in line with its approach that the purchase of the company 
increased production capacity for the future but also implied that its debts for the future increased.
222  
7.286  In any case, and alternatively, if the Panel were  to find that the EC's treatment of the LGS 
merger was inconsistent with Article 15.2 of the SCM Agreement , the EC argues that Hynix failed to 
supply the necessary data concerning LGS sales for the years 1998 and 1999 in a proper and timely 
fashion.  The EC asserts that only at the 19 May 2003 meeting of the investigating authority with 
Hynix was it clearly stated by Hynix that the da ta it had provided in the questionnaire response did 
not include LGS data.  In its 27 May 2003 letter, Hy nix provided only summarized data for LGS.  The 
                                                      
221 Korea asserts that EC consumption increased by 316 per cent during the injury POI, while imports 
from HEI and LGS, which together formed Hynix, increased  by only 155 per cent, inevitably leading to a loss in 
market share by Hynix.  (Korea First Written Submission, para. 126)  
222 The EC rejects the allegation that its treatment of  Hynix was different from its approach concerning 
the take-over of Texas Instruments by a European producer, as it did not include the volume or market share 
data of the period before the acquisition to the data for the purchasing company either.  The EC also rejects the Korean argument concerning the alleged inconsistency be tween the subsidy and the injury analysis, as the 
inheritance of the debts from LGS played no role in calculating the amount of the subsidy, nor in the injury 
analysis.    WT/DS299/R 
 Page 85 
 
 
data provided four months after verification visits  took place and in summarized form were therefore 
not verifiable and thus could not be used.  
7.287  Third, the EC asserts that the investigati ng authority found a "significant" increase in 
subsidized imports, as indicated in the Preliminary and Final Determinations.  The EC asserts that the 
various import figures were carefully analysed a nd explained, and their significance in the overall 
assessment of injury were discussed at length.  
7.288  In sum, the EC is of the view that Korea has failed to demonstrate that the EC determination 
concerning the increased volume of subsidized impor ts of DRAMs from Korea was inconsistent with 
Articles 15.1 and 15.2 of the SCM Agreement . 
(c) Panel Analysis 
7.289  Korea claims that the EC's determination rega rding the volume of imports was not consistent 
with Articles 15.1 and 15.2 of the SCM Agreement .  Article 15.1 has already been cited in para. 7.271, 
supra .  Article 15.2 reads in relevant part as follows: 
[w]ith regard to the volume of the subsid ized imports, the investigating authorities 
shall consider  whether there has been a significant increase in subsidized imports, 
either in absolute terms or relative to  production or consumption in the importing 
Member.  (...) No one or several of th ese factors can necessarily give decisive 
guidance. (emphasis added) 
7.290  We have set forth our understanding of the oblig ations imposed by Article 15.1 in paragraphs 
7.272-7.276, supra .  Article 15.2 of the SCM Agreement elaborates on this requirement and sets forth 
the specific obligation with regard to the volume of subsidized imports.  Article 15.2 requires an 
investigating authority to consider whether there h as been a significant increase in subsidized imports.  
It is clear to us that this specific obligation has to be read in light of the general requirement of 
Article 15.1 of the SCM Agreement ;  hence, the investigating authority's consideration of the volume 
of subsidized imports should be  objective and based on positive evidence.  Finally, we note that 
Article 15.2 is part of the overall injury and cau sation analysis set forth in Article 15 of the SCM 
Agreement .  The consideration of the volume of subsid ized imports under Article 15.2 is not alone 
determinative in an injury determination.  Rather, it forms part of the overall assessment of injury to 
the domestic industry and is conducted so as to provide  guidance to the investigating authority in the 
context of this assessment of injury and causation.223 
7.291  We wish to emphasise that our task is not to perform a de novo  review of the information and 
evidence before the investigating authority, nor to substitute our judgment for that of the EC 
investigating authority.  Rather, we examine the evidence on which the investigating authority based 
its determination and review wh ether the determination made was the result of an objective 
determination based on positive evidence.  With th e above in mind, we now examine the various 
aspects of Korea's claim. 
(i) Was the consideration based on data regarding subsidized imports? 
7.292  Korea argues that the EC based its determin ation of a significant increase in subsidized 
imports on data of both subsidized  and non-subsidized imports from Korea as a whole in a manner 
inconsistent with Article 15.2 of the SCM Agreement .  According to Korea, by including data from 
Samsung (the Korean producer found not to have been subsidized), the EC failed to conduct an 
objective examination of volume of subsidized imports from Hynix as required by Articles 15.1 and 
15.2 of the SCM Agreement .    
                                                      
223 In the same vein, Panel report, EC – Tube or Pipe Fittings , para. 7.278. WT/DS299/R 
Page 86  
 
7.293  We note that the Final Determination provid es the following discussion of the volume of 
subsidized imports in absolute terms:  
"(176)  The volume of imports from Korea as described in recital 118 of the 
provisional Regulation was established on the basis of the aggregation of duly 
verified import data provide d by Samsung and Hynix in their respective questionnaire 
responses.  The volume of imports from Korea thus established increased by 331 per 
cent during the period under consideration.  It is confirmed that imports from Hynix 
increased faster, i.e. by 361 per cent during the period under consideration. 
(177)  Even if import data of LG Semicon Co., Ltd for 1998 and 1999 as provided ad 
hoc by Hynix and the GOK, and which coul d not be verified, were taken into 
account, they should be added to the volume  of imports from Korea and not to the 
volume of imports from Hynix.  The volume  of imports from Korea would then have 
increased by 219 per cent during the period under consideration." 
 
7.294  In our view, the EC's examination of the volume of imports in absolute  terms, thus covered 
both subsidized Hynix imports and non-subsidized Samsung imports.  Similarly, when examining the 
volume of imports in relative terms, the EC exam ined data concerning both Hynix imports alone and 
Hynix imports together with Samsung imports.  As the following excerpt from the Final Determination clearly shows, the focus of the EC was on imports from Hynix:   
"(183)  Hynix, supported by the GOK, claimed that contrary to the upward trend of 
its market share as described in recital 124 of the provisional Regulation its market 
share decreased during the period under consid eration.  This claim is not warranted 
since the market share figures provided by Hynix to justify its claim were initially based on the total sales of its subsidiaries  in the Community of the product concerned 
to unrelated customers in the Community during the period under consideration and 
not on the volume of its imports of DRAMs produced in Korea.  After it was clarified 
to Hynix that its market share as described in recital 124 of the provisional Regulation was calculated on the basis of dul y verified import data which it had itself 
reported in its questionnaire response, Hyni x indicated that in establishing the trend 
of its market share during the period unde r consideration, imports from LG Semicon 
Co., Ltd that occurred before the date of the merger of this company with Hyundai 
Electronics Industries Co., Ltd should have been included in its import data.  Hynix 
and the GOK provided certain ad hoc data in this respect. 
(184)  For the reasons set out in recital 175 this claim is rejected and the provisional 
findings concerning market shares as described in recital 124 of the provisional Regulation are confirmed. 
(185)  Even if import data of LG Semicon Co., Ltd for 1998 and 1999 as provided ad 
hoc by Hynix and the GOK, and which coul d not be verified, were taken into 
account, they should be added to the market share of imports from Korea and not to Imports 1998 1999 2000 2001 [POI] 
Index Korea 
of which: 
Index Samsung 
Index Hynix 
Index LG Semicon 
(data not verified) 100 
 
100 
100 
100 128 
 
110 
194 
90 185 
 
181 
372 
0 319 
 
414 
461 
0  WT/DS299/R 
 Page 87 
 
 
the market share of imports from Hynix.  The market share of imports from Korea would then have decreased by 21 per cent during the period under consideration." 
 
7.295  In the Preliminary Determination as well, Hynix imports and imports from Korea as a whole 
are discussed side-by-side, with a particular focus on Hynix:  
"(124) Korea increased its market share over the period considered.  There was a 
significant drop in the Korean market shar e between 1998 and 1999, but the market 
share was more than recovered by the end of the [POI], when the Korean market 
share was almost 7 per cent more than the 1998 level.  In the case of Hynix, its market share rose faster, i.e. by 20 per cent over the period.  It is also reasonable to 
assume that the Hynix market share, in terms of Mbit, was somewhat constrained by 
its relative delay in moving from production of 64 Mbit to the 128 Mbit DRAMs."
224 
Market shares 1998 1999 2000 2001 (IP) 
Index Korea 
 100 80 91 107 
Index Hynix 100 111 136 120 
 
7.296  After having considered and examined these da ta, the EC draws the following conclusions 
regarding the volume of the subsidised imports in paragraph 191 of its  Final Determination: 
"[a]s set out in recitals 176 and 177 [of the Final Determination], subsidised imports 
from Hynix increased during the period under consideration even at a higher pace than the Community consumption.  Over th e same period, the development of their 
market share followed the same trend, i.e.  increased (see recitals 184 and 185 [of the 
Final Determination]) and reached a very subs tantial level during the [POI].  Even if 
the alleged volume of imports from LG Semic on Co., Ltd was to be added to that of 
Hynix for the years 1998 and 1999, such an imports trend towards the [POI] would still be increasing (increase of 155 per cent between 1998 and the [POI])."  
7.297  In our view, the EC's findings with regard to the volume of subsidized imports are based on, 
and relate only, to the volume of imports from Hynix.   In other words, the EC thus drew conclusions 
with regard to subsidized Hynix imports, after an examination which included data concerning both 
Hynix and the other Korean producer Samsung, which were discussed both separately and in combination.  In sum, the determination concerni ng the volume effects clearly focussed on imports 
                                                     
 
 224 In addition to the above, we also  point to the following statemen t contained in para. 115 of the 
Preliminary Determination:  
"[g]iven that for one exporting producer (Sam sung) the subsidy provisionally established is de 
minimis , certain injury indicators have been analysed with regard to the other exporting 
producer only (Hynix).  As far as imports from Korea are concerned, the injury and causal link analysis focused on those from Hynix.  This  is due to the fact that there are only two 
Korean exporters, i.e. Hynix and Samsung, with more or less similar export shares and that 
only Hynix's exports were heavily subsidised." Market shares 1998 1999 2000 2001 (IP) 
Index Korea 
of which: 
Index Samsung 
Index Hynix Index LG Semicon 
(data not verified) 100 
 
100 
100 100 73 
 
63 
111 
52 68 
 
65 
136 
0 79 
 
100 
120 
0 WT/DS299/R 
Page 88  
 
from Hynix and its conclusions are based on data for Hynix.  We therefore reject Korea's assertion that "the discussion [in the EC's Determina tion] focuses on imports from all of Korea."
225   
7.298  It is certainly correct that, in the sections d ealing with the consideration of the volume of 
imports on absolute terms a nd relative to consumption226, there are references not only to the volume 
of imports of DRAMs exported or produced by Hyni x, but also to Korea as a whole.  The EC does not 
deny that data for Korea include impor ts from Samsung, a company for which a de minimis margin of 
subsidization was found.227  This is explained by the fact that that the investigation was initiated 
against Korea and not against Hynix only.  Therefore,  we do not find that the mere fact of referring to 
the development of imports from Korea as a whole ne cessarily implies that the EC should be found to 
have acted inconsistently with Article 15.2.  What matters, in our view, is the use made by the EC of 
those data.  In the case before us , we are persuaded that the consid eration required by Article 15.2, i.e. 
whether there has been a significan t increase in subsidized imports, was made by the EC based on 
data regarding Hynix alone.     
(ii) Should data on imports of DRAMs produced or exported by LGS have been combined with 
that of Hynix for the purpose of carrying out the consideration required under Article 15.2? 
7.299  The undisputed facts are that Hynix and LG Se miconductors ("LGS") were two of the Korean 
producers/exporters of DRAMs at the beginning of the injury POI, i.e. 1998.  On 7 July 1999, 
Hyundai Electronics Industries ("HEI") purchased LGS from LG Electronics.  Hence, LG Electronics ceased from that moment to be a producer/exporte r of DRAMs.  LGS was then renamed Hyundai 
Micro Electronics ("HME").  On 13 October 1999,  HME merged with HEI.  This company was 
renamed Hynix on 29 March 2001.  The issue before us regards the treatment of LGS' imports of 
DRAMs between 1 January 1998 and 7 July 1999 for the purpose of Article 15.2's volume 
consideration. 
7.300  Hynix, supported by Korea, argued during the course of the investigation that the EC should 
combine imports of LGS with Hynix's, for th e purpose of undertaking the consideration under 
Article 15.2.  The EC viewed the acquisition of LG S as a new investment made by HEI, without any 
retroactive effects on its position on the market, for the reasons set out in pa ragraph 175 of its Final 
Determination.
228  In essence, the EC rejected Hynix's clai m because LGS was a separate legal entity 
                                                      
225 See, inter alia , Korea First Written Submission, paras. 92, 95 and 97. 
226 See excerpts cited in paras. 7.293 and 7.294, supra .  
227 The EC does not dispute the fact that, when undertaking the consideration set forth in Article 15.2 of 
the SCM Agreement , imports from those "exporters for which no subsidy margin above de minimis  was found 
may not be considered to form part of the "subsidized imports"."  We note that this is in line with the view expressed by panels and the Appellate Body when examining the provision parallel to Article 15.2 of the SCM 
Agreement  in the AD Agreement – Article 3.2 thereof.  (See, for example, Panel report, EC – Bed Linen , 
para. 6.138,  and Appellate Body report, EC – Bed Linen (Article 21.5 – India) , para. 113)  
228 Relevant paras. of the EC's Final Determination read as follows: 
"(174)  Hynix, supported by the GOK, also argued that, in establishing the trend of its imports 
into the Community over the period under consideration, the imports of the product concerned into the Community from LG Semicon Co., Ltd that occurred before the date of the merger of 
this company with Hyundai Electronics Industries Co., Ltd (Hynix since 29 March 2001) 
should have been included in its import data.  Hynix and the GOK provided certain ad hoc 
data in this respect, i.e. two figures concerning imports in Mbits from LG Semicon Co., Ltd in 
1998 and 1999.  Otherwise, it was claimed that imports form Hynix should be considered for injury purposes only following the date of its  merger with LG Semicon Co., Ltd in 1999. 
(175)  However, LG Semicon Co., Ltd was a dis tinct legal entity before Hyundai Electronics 
Industries Co., Ltd acquired it from LG El ectronics Inc. and its related companies on 
7 July 1999.  After the acquisition, LG Semicon Co., Ltd was renamed Hyundai Micro 
Electronics Co., Ltd and this company merged with Hyundai Electronics Industries Co., Ltd 
on 13 October 1999.  The acquisition of LG Semicon Co., Ltd was therefore a new investment  WT/DS299/R 
 Page 89 
 
 
from Hynix during the time when Hynix claims that the volume of imports of both companies should 
be combined, i.e., between 1 January 1998 and 7 July 1999.  Korea argues before us that the EC's 
treatment is purely legalistic and defies economic logi c.  In the view of Korea, the EC should have 
looked at all the imports from the production facilities  that were under Hynix's control in 2001, even 
if they were not under Hynix's control in the earlier years. 
7.301  Article 15.2 of the SCM Agreement sets forth no specific rules concerning the treatment of 
imports from companies which merged in the course of the period of investigation, thereby forming 
the company found to have been subsidized.  In li ght of our standard of review, the question under 
Article 15.2 of the SCM Agreement is whether the EC reached a reasonable conclusion that, in 
determining the volume of imports from Hynix, it could ignore the amount of imports from LGS that 
entered the EC prior to LGS' merger with HEI.    
7.302  In our view, Korea failed to establish that the EC's treatment of the merger as part of its 
overall volume analysis of subsidized imports was un reasonable or inconsistent with its obligation to 
conduct an objective examination based on positive ev idence.  The EC considered that HEI was the 
predecessor of Hynix, the company found to have b een subsidized.  It examined import volume data 
from HEI for a period of three years, from 1998–2001.  During that period it considered that HEI had 
increased its production capacity by purchasing LGS but that this acquisition did not have any retroactive effects on HEI's position on the market.  We do not find this to be unreasonable.  Actually, 
from the record, we conclude that Hynix itself consid ered this an appropriate way of dealing with the 
merger as it did not include any LGS data in its questionnaire response.
229  We consider it important 
to recall in this respect that the term "subsidized imports" in Article 15.2 of the SCM Agreement , in 
our view, refers to imports from a source found to ha ve been subsidized.  In other words, it is not 
about an increase in the total volume of imports from Korea into the EC, it is about imports from a 
particular source.  In this case, the EC determined that during the year 2001 HEI/Hynix received subsidies from Korea.  In its injury analysis, the EC thus examined the volume of imports from this 
source as part of its consideration of whether the im ports from this source had increased significantly.  
The EC decided to examine import data from HE I/Hynix sales during a period of three years, 
including the year in which it was determined that the subsidies had been provided to HEI/Hynix.  The EC noted that, in the course of the second year of the injury POI, HEI acquired additional 
production facilities through the purchase of LGS.  In this light, we do not find that it was 
unreasonable of the EC to conclude that imports  of DRAMs from LGS during 1998 and 1999 did not 
have to be added to, or combined with, those made by Hynix (or its predecessor, HEI) during those 
two years for the purposes of considering whether th ere had been a significant increase of subsidized 
imports either in absolute terms or relativ e to consumption or production in the EC.
230  
                                                                                                                                                                     
for Hyundai Electronics Industries Co., Ltd with out any retroactive effects on its position on 
the market.  In other words, Hyundai Electron ics Industries Co., Ltd,  predecessor of Hynix, 
which was the only company found to have benefited from subsidies, increased its production 
capacity.  Furthermore, no party, including Hynix, has reported any imports from LG Semicon 
Co., Ltd for 1998 and 1999 in its questionnaire response or any other submission and as such were not verified by the Commission.  LG Semicon Co., Ltd data cannot constitute part of 
Hynix's subsidised imports.  For the reasons set out above, the claim made by Hynix and the 
GOK is rejected." 
 
229 As Hynix itself acknowledged in a submission to the EC, no such LGS data were provided because 
"[i]n 1998 and until 13 October 1999, Hynix Semiconducto r Inc. (formerly Hyundai Electronic Industries) and 
LG Semicon were two legally distinct entities".  (Hynix Letter to EC dated 27 May 2003 ( Exhibit GOK-35 )) 
230 We note that, in any case, the text of Article 15.2 of the SCM Agreement  requires that the volume of 
subsidized imports need to be considered but does not requ ire a particular finding in this respect.  Nor is it so 
that in the absence of a significant increase in the volume of subsidized imports, these imports could not be 
found to be causing injury.  (In support of our view, see Appellate Body report, EC – Tube or Pipe Fittings , 
para. 111, note 114).  Article 15.2 of the SCM Agreement is part of the overall injury analysis.    WT/DS299/R 
Page 90  
 
7.303  In terms of economic causation, it may well be true that the subsidies in question had no 
effect on the measured change in the volume of im ports.  Consider the following scenario.  Firms A 
and B each export 100 units to the EC in years 2000 a nd 2001.  Firm A is subsidized to the extent of 
USD 100 million in 2001, and in a totally separate transaction acquires Firm B in 2001.  Firm A does 
not alter its exports on account of the subsidies.  Fi rm A's acquisition of Firm B was not facilitated by 
the subsidies.  However, following the EC's me thodology, Firm A's exports increase from 100 in 2000 
to 200 in 2001.  In this scenario, the increase in im ports bears no relation to the subsidies.  However, 
Article 15.2 of the SCM Agreement imposes no obligation on the investigating authority to distinguish 
a false association between increased imports and s ubsidies – as illustrated on our own scenario – and 
a true association which would, for example, be the case if Firm's A acquisition of Firm B was 
financed by the subsidies.  The distinction between true and false associations is, in our view, to be 
made in the context of Article 15.5, not in the cont ext of Article 15.2.  If Members wish to impose the 
additional – and heavy – analytic burden on investig ating authorities of distinguishing between true 
and false associations in the context of Article 15.2, they can do so by amending the Article 15 SCM 
Agreement .  This is not, however, a matter for the Panel to decide by interpretation.   
7.304  While not particularly relevant to the question before us, we find that there is no lack of 
consistency between the EC's treatment of the LGS– HEI/Hynix merger question in the subsidy part of 
the investigation compared with the injury part.  As  the EC points out, the Final Determination merely 
states an uncontested fact, i.e. that the acquisition of Hynix incr eased Hynix's debt.  We do not see 
how this is inconsistent with its treatment of the merger in the injury context, as in both cases, the EC 
acknowledges the future effects of the merger, an increase in production capacity but also an 
inheritance of of debt.  It appears that Hynix's i nheritance of LGS' debts did not play a role in the 
determination of the amount of subsidization.
231   
7.305  In any event, we note that even after rejecti ng Korea's contentions regarding the need to add 
LGS' import volumes to those of HEI/Hynix, the EC did calculate the combined volume of these two exporters/producers and considered whether there w as a significant increase of subsidized imports.  
Based on this, it is stated in the Final Determina tion that there had been a 155 per cent increase of 
subsidized imports, in absolute  terms, during the injury POI.
232  This figure is not disputed by Korea.  
(iii) Does the EC determination properly conclude t hat the increase was "significant" in terms of 
Article 15.2? 
7.306  Korea argues that the EC failed to place the volume data in the proper DRAMs context in 
order to assess the significance of the alleged increas e in imports, thereby violating Articles 15.1 and 
15.2 of the SCM Agreement .  We note that Korea's argument  concerning the alleged failure to 
properly consider the volume data to show a significant increase is based on two premises.  The first is that it does not make sense to consider an absolu te increase in imports in megabits, since due to the 
inherent characteristics of the DRAMs market, import s in absolute megabit terms will always be on 
the rise.  Rather the relevant parameter for exam ining the significance of any increase is the increase 
in relative terms, and market share in particular .  Secondly, when examining the relevant market 
share, the EC failed to explain how, in light of a decreasing Hynix market share, it could reasonably have concluded that there was a significa nt increase in the volume of Hynix imports. 
7.307  We note that the latter argument of a decreasing market share is based on Korea's 
understanding of the role of the merger between LG S and HEI/Hynix.  Indeed, the EC examined the 
                                                     
 
231 Concerning the alleged inconsistent treatment of the mergers of HEI/LGS, on the one hand, and 
Micron/Texas Instruments, on the other, we agree with th e EC that in both cases the investigating authority took 
account of the respective acquisition once it had occurred; and, in both cases, the investigating authority did not 
add the acquired company's volume and market share relating to the period prior to the acquisition to the 
acquirer's volume and market share. 
232 See para. 191 of the EC's Final Determination.  WT/DS299/R 
 Page 91 
 
 
market share and found that Hynix's market share actually increased.  In light of our earlier finding that the EC's approach of the merger was not unreasonable, and in light of the wide latitude 
Article 15.2 permits for investigating authorities, we conclude that Korea's argument must fail.  Even 
assuming, arguendo , that given the specific characteristics of the DRAMs market it would not be 
reasonable from an economic perspective of an inv estigating authority to reach conclusions about a 
significant increase based on an in crease in absolute terms, the language of Article 15.2 confers 
considerable latitude on an inves tigating authority.  Article 15.2 allo ws an investigating authority to 
consider a significant increase, either in absolute te rms or relative to production or consumption.  And 
Article 15.2 goes on to state that no one or several of the factors considered can necessarily give decisive guidance.  It is up to WTO Members, if they so choose, by amending the SCM Agreement  to 
narrow this provision.  It is not a matter for the Panel to circumscribe the investigating authority.  
Moreover, in this case, the record shows that the EC evaluated the volume of Hynix imports both in 
absolute and relative terms and concluded that, in both cases, imports increased, by 361 per cent and 
20 per cent, respectively.  We consider that th ese increases, as calculated under the EC's methodology, 
can reasonably be considered to have been signi ficant.  The ordinary meaning of "significant" 
encompasses "important", "notable", "major", as well as "consequential",
233 which all suggest 
something that is more than just a nominal or marginal movement.  In our view, the increases 
identified by the EC's methodology (361 per cent and 20 per cent, respectively) can be categorised as 
"important", "notable", "consequential" and, most importantly, "significant".   
7.308  In so concluding, we have taken into account the uncontested fact that Hynix's imports, as 
properly determined by the investig ating authority, increased in abso lute terms at a higher pace than 
domestic EC consumption.234  We also deemed the fact that Hynix's market share increased over the 
injury POI, as found by the investigating authority,  to be relevant in de termining that the volume 
increase was significant.235  Finally, in our view, the fact  that the DRAMs market is highly 
transparent, and thus susceptible to rapid transmi ssion of price shocks, a finding not contested by 
Korea, constitutes a factor that also pleads to the significance of the increases determined by the 
investigating authority, both in absolute te rms and relative to consumption in the EC.  
(d) Conclusion 
7.309  In sum, we find that Korea failed to establish th at the EC acted in a manner inconsistent with 
Article 15.2 of the SCM Agreement,  read in light of Article 15.1 of the SCM Agreement,  when 
considering the volume effects of subsidized imports. 
3. Claim regarding the EC's determination concerning the effect of the subsidized imports 
on prices 
(a) Korea 
7.310  Korea argues that the EC acted inconsistently with Article 15.2 of the SCM Agreement by 
improperly assessing the significance of the price effects of Hynix imports.  According to Korea, Articles 15.1 and 15.2 contain specific obligations on an  investigating authority to find that the price 
effects found to exist were significant and to expl ain why it considers this to be the case.  Korea 
submits that the EC determination which simply f ound price undercutting failed to comply with this 
requirement.  
7.311  According to Korea, the EC finding that Hynix affected the market prices for DRAMs in the 
EC (1) defies economic logic; (2) defies the EC's own logic as expressed in the Preliminary Determination; (3) was based on an inappropriate pr ice comparison analysis; (4) ignored the evidence 
                                                     
 
233 The New Shorter Oxford English Dictionary, Third Edition, p. 2861. 
234 Final Determination, para. 191, referring back to its findings in paras. 172 and 177 thereof.   
235 Id., para. 191, referring back to its finding in para. 185 thereof. WT/DS299/R 
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concerning other factors that were affecting DRAM s prices; and (5) was not based on the most recent 
data available.  In sum, according to Korea, no reasonable investigati ng authority would have 
concluded on the basis of the facts on record that  the alleged price effects of Hynix imports were 
significant. 
7.312  First, Korea argues that economic logic provides that if it is price competition which 
determines market share in the DRAMs industry, and considering that the data show that Hynix was 
losing market share, any price undercutting found ca nnot have been "significant"; otherwise, Hynix 
would not be losing market share.  Moreover, accord ing to Korea, it is highly unlikely that a middle-
cost producer like Hynix would have been able to lead prices down in a "bust" period like the year 
2001 where low-cost producers are normally determin ing prices.  In any case, Korea argues, the 
global nature of DRAMs pricing argues against the conclusion that one supp lier would be able to 
determine prices in one particular market. 
7.313  Secondly, Korea argues that the EC itself acknowle dged in its Preliminary Determination that 
it is difficult to establish a price leader in the i ndustry, a finding which corresponds with the evidence 
that Hynix was losing market share, in contrast to  what would happen to a price leader in a price 
competitive market. 
7.314  Thirdly, although Korea recognizes that Article 15.2 does not prescribe any particular 
methodology to assess price undercutting, it asserts th at Article 15 imposes obligations that must be 
met with regards to the assessment of the price effect s.  In particular, Korea asserts that Article 15.1 
requires an "objective examination"  with respect to price effects.   Any methodology that skews the 
analysis to favour one side fails to meet this obligation.  Korea argues that the EC's factual 
determination of pric e undercutting by Hynix was based on a flawed price comparison which 
compared average monthly prices of Hynix with individual daily prices for EC producers.  Two other comparisons performed by the EC, including its customary methodology of making a comparison based on weighted averages, did not lead to a positi ve finding on price underc utting by Hynix.  Korea 
argues that such a distorted and result-oriented analys is is not an objective examination.  Korea is of 
the view that by deviating from its usual methodol ogy, the EC had an obligation to justify its 
approach.  
7.315  Fourthly, Korea submits that the EC ignored abundant evidence on the record that factors 
other than Hynix prices were affecting DRAMs prices.  Korea argues that Article 15.2 of the SCM 
Agreement does not permit an investigating authority to  consider the alleged undercutting in the 
abstract, and argues that the EC should have tried to distinguish between price declines due to the 
inherent nature of the DRAMs market and declines cau sed by subsidized imports.  Korea asserts that 
the declining market share of Hynix, as well as th e serious drop by 77 per cent in prices worldwide in 
2001 due to the cyclical nature of the DRAMs industr y, are important factors which should have been 
included in the EC's analysis of the significance of the price effects of Hynix imports.             
7.316  Finally, Korea argues that Article 15.2 of the SCM Agreement requires that a pricing analysis 
include the most recent period prior to initiation.
236  The EC did not consider pricing data for the first 
half of 2002, which, especially in light of the fact  that 2001 was generally considered to be the worst 
year for the industry in decades, to be suspici ous and does not correspond with the requirement to 
conduct an objective examinati on based on positive evidence. 
                                                      
236 Korea argues that the language used in Article 15.2 of the SCM Agreement  ("has been") clearly 
suggests a focus on the most recent past.  Korea al so refers to a recommendation by the WTO Committee on 
Anti-Dumping Practices adopted in the context of  a similar obligation in Article 3.2 of the AD Agreement , as 
well as the views expressed by the US – Line Pipe  panel which, in the safeguards context, found that an 
investigation should cover the recent past.    WT/DS299/R 
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(b) EC 
7.317  The EC argues that Article 15.2 of the SCM Agreement merely requires an authority to 
"consider" whether there has been a significan t price undercutting, price depression or price 
suppression.  The final sentence of Article 15.2 of the SCM Agreement  moreover clearly states that no 
one factor provides final decisive guidance.  In  light of the broad latitude envisaged for an 
investigating authority in Article 15.2 of the SCM Agreement , the EC asserts that Korea fails to 
demonstrate that the EC determination of signi ficant price undercutting by imports from Hynix was 
inconsistent with paragraphs 1 and 2 of Article 15 of the SCM Agreement .  The EC rejects all five of 
Korea's arguments in this respect. 
7.318  Regarding Korea's argument of economic logic, th e EC asserts that it is not for the Panel to 
address Korea's abstract elaborations on economic theory and recalls that the issue before the 
investigating authority at the time of the investig ation was whether or not Hynix's prices undercut or 
depressed or prevented price increases vis-à-vis  domestic prices.  In any event, the EC disagrees with 
Korea's premise, i.e. that Hynix's market share decreased during the injury POI.  In addition, the EC 
does not agree that a company with a declining mark et share cannot be engaged in price undercutting.  
In addition, the EC does not agree that the capacity, whether limited or not, for individual companies 
to influence market prices means that individual companies cannot be  the source of subsidized, price 
undercutting, imports. 
7.319  Second, the EC considers that it is irrele vant for the purpose of Article 15.2 of the SCM 
Agreement  that Hynix was not a price leader, as there is no  need to be a price leader for a company to 
be able to engage in price undercutting. 
7.320  Third, the EC takes issue with Korea's presentati on of the EC's analysis of the existence of 
price undercutting.  The EC underlines that it did ta ke into account the characteristics of the DRAMs 
market: first, that competition takes place largely on pr ice; second, that there is great price flexibility; 
and third, that there is great price transparency.  The EC argues that it did not try out those three 
methodologies and simply pick the one that showed  price undercutting.  The EC explains that the 
third methodology, based on daily data was applied at  the explicit request of Hynix and in fact, once 
the non-comparable transactions are eliminated, confirmed the price undercutting found through the 
second methodology, comparing weighted average prices of Hynix to individual transactions on a monthly basis.  The EC emphasises that the SCM Agreement does not prescribe a particular 
methodology, and that the methodol ogy chosen by the EC was reas onable and objective.  The EC 
refers to its Final Determination wh ich explains in detail why, in light of the particular characteristics 
of the DRAMs market, it was decided not to use a weighted-average to wei ghted-average comparison 
in this case. 
7.321  Fourth, the EC considers that its determina tion of significant undercutting was justified in 
light of the circumstances of the case.  It further rejects Korea's arguments concerning other factors driving prices down as a question of causation, irre levant to the actual price undercutting examined 
under Article 15.2 of the SCM Agreement .  Nor does the EC consider the arguments concerning 
absence of market leadership or the cost-neutral pricing practice in the industry to be relevant factors 
in this examination. 
7.322  Fifth, the EC considers that the choice of the injury POI was not unreasonable, and there were 
no objective reasons why a different in jury POI should have been chosen.237  Therefore, and in the 
absence of any clear obligations in th is respect in Article 15.2 of the SCM Agreement , the EC is of the 
view that Korea failed to demonstrate that by havi ng the POI for the injury analysis ending at the 
                                                      
237 The EC explains that its internal regulations require the simultaneous investigation of subsidy and 
injury and require that a subsidy analysis be based on  the data for the most recent completed accounting year, 
which in this case was year 2001.  The EC notes that Korea did not challenge this EC regulation.   WT/DS299/R 
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same time as the POI for the subsidy analysis, the EC  acted inconsistently with  paragraphs 1 and 2 of 
Article 15 of the SCM Agreement . 
238 
(c) Panel Analysis 
7.323  Korea claims that the EC did not comply with  its obligations under paragraphs 1 and 2 of 
Article 15 of the SCM Agreement  when the investigating authority  assessed the price effects of the 
subsidized imports.   
7.324  The relevant provisions are paragraph 1, which is cited in para. 7.271, supra , of this Report 
and paragraph 2 of Article 15, which in relevant part reads as follows: 
[w]ith regard to the effect of the subs idized imports on prices, the investigating 
authorities shall consider whether there has been a significant price undercutting by 
the subsidized imports as compared with the price of a like product of the importing 
Member, or whether the effect of such imports is otherwise to depress prices to a significant degree or to prevent price increases, which otherwise would have 
occurred, to a significant degree.  No one or several of these factors can necessarily 
give decisive guidance.  
7.325  Article 15.2 of the SCM Agreement  provides that, with regard to the examination of price 
effects of the subsidized imports, an investigating au thority is to consider whether there has been (1) a 
significant price undercutting by the subsidized impor ts as compared with the price of a like product 
of the importing Member, or whether the effect of such imports is (2) otherwise to depress prices to a significant degree or (3) to prevent price increas es, which otherwise would have occurred, to a 
significant degree.  In any event, no one or several of these factors can necessarily give decisive 
guidance.  As we explained earlier, we consider th at Article 15.2 has to be read in light of the 
overarching requirement set forth in Article 15.1 of conducting an objective examination based on 
positive evidence.
239   
7.326  With the above in mind, we shall proceed with the various arguments of Korea in support of 
its claim.  
(i) Impossibility to reconcile market dynamics with the EC's conclusion t hat Hynix's imports had 
an effect on domestic prices 
7.327  Korea asserts that it defies economic logic to conclude that Hynix's imports had an effect on 
domestic prices given the fact that it was losing mark et share.  Korea argues that bearing in mind the 
situation of the EC DRAMs market and the fact that Hynix was a mid-cost producer, the EC's 
determination that Hynix was responsible for the decline in prices in 2001 could not be correct.  
Korea contends that an objective investigating aut hority would, in light of the above considerations, 
have "viewed skeptically" other evidence sugges ting Hynix's price undercutting was significant. 
7.328  We are of the view that the EC examined the price undercutting by Hynix and reached certain 
conclusions which as a matter of fact are not contested  by Korea.  Korea's argument is rather that the 
price undercutting was purely coincidental, as an expo rter who is losing market share, according to 
                                                      
238 The EC rejects Korea's reliance on a non-bi nding recommendation of the WTO Committee on Anti-
Dumping Practices which relates to the obligations contained in the AD Agreement , not the SCM Agreement .  
Neither does the EC consider relevant the reliance on Appellate Body reports in the context of the Safeguards 
Agreement , with its different requirements for imposition of a measure compared to the SCM Agreement , and its 
different language.  The EC emphasises that, while the Safeguards Agreement refers to increased imports in the 
present tense (" being imported "), the SCM Agreement uses the present perfect (" has been"  a significant price 
undercutting). 
239 See our discussion of Article 15.1, in paras. 7.272-7.276, supra , of this Report.   WT/DS299/R 
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Korea's economic logic, can never be the cause of such price effects.  In our view, Article 15.2 of the 
SCM Agreement requires an investigating authority to cons ider whether there has been any significant 
price undercutting by the subsidized imports.  Article  15.2 does not require an investigating authority 
to establish what caused the price undercutting.240  Again, Article 15.2 confers wide latitude on the 
investigating authority.  A scenario can certainly be constructed in which a subsidized company is 
both losing market share and causes price undercutting.241  Moreover, we note that the EC found that 
Hynix's market share actually increased.  For all these reasons, we conclude that the EC did not act in 
an unreasonable manner when it established significant price undercutting.   
(ii) Absence of a "price leader" in the DRAMs market  
7.329  Korea asserts that the EC's finding that there is no price leader in the DRAMs market calls 
into serious doubt the EC's determination th at Hynix's price undercutting was significant. 
7.330  In our view, there is nothing in the text of Article 15.2 of the SCM Agreement precluding an 
investigating authority from concluding that the pric e undercutting is significant in the absence of a 
concurrent finding that the producer/exporter in qu estion is a price leader.  Nor do we agree with 
Korea's point from an economic point of view.  Leaving aside the question of what is exactly meant 
by price leadership and how one should determine such price leadership, we fail to see why only a 
price leader could be engaged in price undercutting,  thereby driving prices down.  Indeed, we agree 
with the EC that precisely in a situation where ther e is no one price leader, all competitors on such a 
highly price sensitive market as th e DRAMs market may cause prices to go down.  In our view, even 
from an economic point of view Korea's argument ther efore fails, as we do not consider that a finding 
of no-price leader would somehow be inconsistent  with a finding of significant price undercutting.  
(iii) Whether the EC's methodology complied with the requirements in paragraphs 1 and 2 of 
Article 15 
7.331  While acknowledging that Article 15.2 does not  impose any particular methodology to 
consider whether there has been a significan t price undercutting, price suppression or price 
depression, Korea asserts that the particular methodolo gy used by the EC made it more likely to find 
price undercutting.  For this reason, Korea asserts that the methodology used by the EC was "biased 
and therefore does not represent an "objective examin ation" of whether there is "significant" price 
undercutting."242 
7.332  The relevant paragraphs of the EC's  Final Determination read as follows: 
"(179)  With regard to the provisional fi ndings on price undercutting as described in 
recital 122 of the provisional Regulation,  Hynix and the GOK claimed that the 
reference to the fact that price undercu tting took place for some transactions is 
irrelevant since price undercutting, in acco rdance with usual practice, is determined 
on a weighted average basis.  Hynix further argued that in order to conclude whether 
its prices undercut a number of specific tran sactions of the [domestic] industry, either 
a transaction-by-transaction comparison shoul d be made or a daily comparison taking 
also into account, where possible, the time within the day. 
                                                      
240 This does not mean that the considerations raised  by Korea can be disregarded by the investigating 
authority.  In our view, if there are other producers/exporters which are selling at prices lower than Hynix's, 
because the way the market operates, thei r cost structures, or any other reason , then the injurious effects of these 
factors should not be attributed to the subsidized imports from Hynix.  Thus, this information is highly relevant 
to a proper causality assessment under Article 15.5 of the SCM Agreement . 
241 For example, distressed Firm A may temporarily se ll its goods at bargain prices to raise cash and 
pay off creditors.  Later, Firm A may return to its no rmal price structure.  Firm  A's distress sales may well 
undercut market prices for a time, but over the course  of a year, Firm A's market share could still fall.  
242 Korea response to question 38 of the Panel. WT/DS299/R 
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(180)  However, there is no provision in the basic Regulation which stipulates that 
price undercutting should be calculated on a weighted average or any other specific 
basis.  According to Article 8(3) of th e basic Regulation it should be considered, 
when assessing the effect of subsidised imports on prices, whether price undercutting has been "significant".  It does not set out  any requirement relating to the calculation 
of the margin of undercutting, nor does it provide for a particular methodology to be 
followed in this respect.  Moreover, accord ing to the same Article, price undercutting 
is not alone determinative in an injury de termination, rather it forms part of the 
overall assessment of injury to the [dom estic] industry and is conducted so as to 
provide guidance in the context of th e assessment of injury and causation. 
(181)  Furthermore, it is noted that th e DRAM market is very transparent and 
characterised by substantial price competition.  Indeed fixed costs are very high.  Suppliers need to develop sufficient economies of scale and strive to maintain market 
shares.  Price undercutting will occur in speci fic competitive situations with specific 
customers.  But, if one supplier offers  a price to a Community customer that 
undercuts the price of a DRAM sold by a Community producer, competitive pressure 
quickly eliminates such undercutting.  Thus, in such markets, big customers can force 
competing suppliers to meet any lower price offering.  It is therefore difficult to establish price undercutting over a given peri od.  Such price depressing situations 
prevented the Community producers from increasing prices, something which would otherwise have occurred. 
(182)  Nevertheless, the Commission established significant price undercutting 
ranging from 12 per cent to 32 per cent for the different DRAM densities on a substantial portion (41 per cent) of th e Community producers transactions, 
representing 32 per cent of their sales value.  In order to eliminate the effect of the 
sharp drop in prices during the [POI], the calculation was based on the monthly 
average Hynix prices to independent customers by product type.  Even if the daily 
average Hynix prices (by product type) were used, and taking account of the fact that the number of comparable transactions woul d be substantially reduced (by 38 per 
cent), there would be significant undercutting within the range set out above on 29 per cent of the total Community producers transactions.  It is also noted that irrespective of whether the monthly or daily  average of Hynix prices was used in the 
calculation, the proportion of the Community producers undercut transactions in 
relation to the total comparable transac tions remained the same, i.e. around 47 per 
cent.  (...) In the absence of further comments on price undercutting, the provisional findings as set out in recitals 119 to 1 23 of the provisional Regulation are hereby 
confirmed."
243 
                                                      
243 A cross-reference is made to the relevant para graphs of the EC's Preliminary Determination: 
"(120)  For the determination of price undercutting, the Commission analysed price data in the 
[POI].  The relevant sales prices of the [domestic] industry are prices to the first unrelated 
customer after deduction of discounts and rebates,  i.e. net prices.  During the [POI], all sales 
of Korean imports were made via related companies.  Therefore, the relevant sales prices 
compared are net resale prices to the first independent customer in the Community after 
deduction of discounts and rebates. 
(121)  Different product families of the produc t concerned could be defined for comparison 
purposes based on the following criteria: product type (i.e. dies, components, modules), density, quality, DRAM type, performance (speed) and packaging. 
(122)  The [domestic] industry's sales prices and the resale prices of Korean imports of the 
like product were compared at the same level of  trade, namely independent users within the  WT/DS299/R 
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7.333  The record shows that the EC examined th e question of price undercutting using three 
different methodologies.  Under the first methodology , the weighted average Community price was 
compared to the weighted average Hynix price, by product type .  As a result of this methodology, on 
an overall basis , i.e. taking into account all product types, no price undercutting was found.244  Under 
the second methodology,  the calculation was based on the monthly average Hynix prices to 
independent customers by product type, as explained in para. 182 of the Final Determination.  Those 
monthly averages were compared to the domestic industry's individual transactions, by product type .  
As a result of the application of this methodolog y, a price undercutting of 16.2 per cent was found.245  
Under the third methodology , the EC compared the daily average Hynix prices with individual 
transaction prices of the Community producers, by product type .  Using this methodology, it is stated 
in para. 182 of the EC's Final De termination that "there would be  significant undercutting within the 
range set out above on 29 per cent of the total Community producers transactions.".246,247  I t  i s  
therefore clear from the EC's Final Determinat ion that the EC established significant price 
undercutting under two of the three methodologies.  
7.334  In our view, Article 15.2 of the SCM Agreement does not set forth any particular methodology 
for examining price undercutting, as long as the methodology chosen is reasonable and objective.248  
In our view, Korea has not been able to establish the contrary.  We find no basis for Korea's assertion 
that the EC kept trying alternative methodologies until it found one that showed some undercutting.  
The EC clearly explained why it considered that a weighted-average to weighted-average comparison 
was inappropriate in this context.249  It then explained that, in order to eliminate the effect of the sharp 
drop in prices during the injury POI, the calcula tion was to be based on the monthly average Hynix 
prices to independent customers by product type.  As Hynix and Korea claimed that prices should be 
compared on a daily average basis, the EC also cal culated the margin based on Hynix's daily average 
prices.  The EC concluded that:  
"irrespective of whether the monthly or daily  average of Hynix prices was used in the 
calculation, the proportion of the [domestic] producers undercut transactions in 
                                                                                                                                                                     
Community market, and for the same time period on the basis of weighted average prices per 
product family.  On this basis, it was found that price undercutting on an overall weighted 
average basis was not taking place.  However, price undercutting was fo und to be taking place 
on a substantial proportion of tr ansactions, namely 41 per cent of the transactions representing 
32 per cent of the value of Hynix sales.  This price undercutting, expressed as a percentage of 
the [domestic] industry's pric es, averaged 16.2 per cent. 
(123)  It was also found in the case of Hynix that this undercutting was predominantly taking 
place on sales of the higher density DRAMs (t he 128 Mbit and 256 Mbit DRAMs).  These are 
the technologically more advan ced DRAMs the comparatively hi gher sales returns of which 
are used to finance the next generation products." 
 244 EC's Preliminary Determination, para. 122. 
245 The last sentence of para. 122 of the EC's Prel iminary Determination asserts that "[t]his price 
undercutting, expressed as a percentage of the [domestic] industry's prices, averaged 16.2 per cent."  The EC 
also disclosed the price undercutting for the different DRAMs densities.  Th is ranged from 12 per cent to 32 per 
cent, as stated in para. 182 of the EC's Final Determination. 
246  Thus, we disagree with Korea's argument that, under the third methodology, no price undercutting 
was found.   
247 The actual ranges calculated for each product type by the EC under the third methodology are found 
in a table provided to Hynix.  ( Exhibit EC-31 ) 
248 We consider that Article 15.2 of the SCM Agreement does not limit the number of methodologies 
used in analyzing the price effects of subsidized imports.  We do not find anything in this provision that would 
preclude an investigating authority from considering different methodologies in order to determine which is the 
most appropriate one in view of the facts of a given case, as long as the overall injury determination involves an objective examination in accordance with  Article 15.1.  In our view, in cer tain circumstances, it would might be 
problematic to consider whether there is a significant price undercutting under just one methodology.  
249 EC's Final Determination, para. 181.  WT/DS299/R 
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relation to the total comparable transac tions remained the same, i.e. around 47 per 
cent."
250 
7.335  We thus consider there is no basis in the f acts on the record to accept Korea's assertion that 
the EC strove to find a pre-ordained outcome.  Paragraph 181 of the EC 's Final Determination 
contains the reasons why the EC considers that, in  this particular case, the first methodology was not 
appropriate to examine the effects of subsidized im ports on domestic prices.  In this regard, we note 
that the EC took into account the dynamics of th e DRAMs market (transparency; substantial price 
competition; high fixed costs; need to develop econom ies of scale; etc.).  Because of these dynamics 
the EC found that "if one supplier offers a price to  a Community customer that undercuts the price of 
a DRAM sold by a Community producer, competitiv e pressure quickly eliminates such undercutting.  
Thus, in such markets, big customers can force comp eting suppliers to meet any lower price offering.  
It is therefore difficult to establish price underc utting over a given period. "  We do not understand 
Korea to dispute these facts;  Ko rea simply asserts that "this rationale is unpersuasive" because the 
features identified by the EC apply to all suppliers, and are not unique to Hynix.251  We do not share 
the view of Korea that an unbiased and objective investigating authority would have only moved 
away from the first to the second or the third met hodologies where the facts justifying that decision 
were unique to Hynix.  We do not find any basis for such a position in the SCM Agreement .  Having 
carefully examined the reasons set forth in para. 181 of the Final Determination,  we consider that the 
explanation given by the EC is reasonable.   
7.336  We do not consider that Korea has been able  to demonstrate why the EC's choice of 
methodology was inherently biased and therefore w ould not represent an "objective examination" of 
whether there is "significant" price undercutting.252  Korea argues that a transaction-to-transaction  
comparison should have been made, or a daily comp arison taking also into account the time within the 
day.  In our view, while such methodologies could al so have been used under Article 15.2, this does 
not imply that the other methodology on which the EC  based itself is necessarily biased.  It appears to 
us that every methodology has its strengths and wea knesses, but that, in the absence of any prescribed 
methodology in the SCM Agreement , as long as the methodology used is not unreasonable, the Panel 
cannot find against it.  The shortcomings of the me thodology of the EC are a consequence of the use 
of averages, but the transaction-to-transaction me thodology preferred by Korea will also inevitably 
lead to certain transactions being included while othe rs are not.  In sum, in the absence of any specific 
requirements in the SCM Agreement , and given the reasonable explanation provided by the EC for its 
choice of methodology, we consider that the EC did not act in a manner inconsistent with Article 15.2 
of the SCM Agreement when establishing significant price undercutting.  
(iv) Other factors that affect DRAMs prices 
7.337  Korea asserts that it was known to the EC that there were a number of factors which affected 
DRAMs prices.  These included (1) the general economic downturn and decrease in demand, which 
caused an "inventory burn"; (2) excess capacity; and (3) imports from other suppliers.  Information on 
these factors was on the record.  Ho wever, the EC failed to take them into account.  In so doing, 
Korea asserts that EC's price undercutting analysis  did not involve an objective examination and the 
EC's conclusion was not based on positive evidence. 
7.338  In our view, Article 15.2 of the SCM Agreement does not, as such, require an investigating 
authority to establish a causal link between the subsidized imports and the domestic prices which 
would require it to examine all other factors affecting domestic prices at the same time.  Again, if 
Members wish to impose a heavier burden on inves tigating authorities, they can do so by amending 
                                                      
250 Id., para. 182.  
251 Korea First Written Submission, para. 159. 
252 Korea has presented certain numerical examples to show that this is the cas e.  (See, for instance, 
Korea First Written Submission, para. 156 or First Oral Statement (Opening), para. 27)  WT/DS299/R 
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the SCM Agreement .  As written, Article 15.2 focuses on the effect of the subsidized imports on 
prices.  The EC examined the effect of the subs idized imports on domestic prices and thus, in our 
view, complied with Article 15.2.  We note that Article 15.5 of the SCM Agreement , on the other 
hand, does require that the effects found, including those with regard to price, must be put in context by examining all other known factors affecting the i ndustry at the same time.  In our view, Korea's 
arguments are thus properly part of the question of ca usation, an issue discussed later in our Report.   
7.339  In light of the above, we dismiss Korea's argument that, in not taking the above factors into 
account when examining the effect of the subsid ized imports on domestic prices, the EC acted 
inconsistently with Article 15.2 of the SCM Agreement  read in light of Article 15.1 of the SCM 
Agreement . 
(v) Refusal to extend the injury POI 
7.340  We recall that Korea argues that Article 15.2 of the SCM Agreement requires that a pricing 
analysis include the most recent period prior to initia tion.  Korea asserts that the EC did not consider 
pricing data for the first half of 2002, which, especi ally in light of the fact that 2001 was generally 
considered to be the worst year for the industry in  decades, is suspicious and does not correspond with 
the requirement to conduct an objective examination based on positive evidence.  
7.341  In our view, there simply is no basis for r eading such a requirement into the text of 
Articles 15.1 or 15.2 of the SCM Agreement .  Article 15.2 does not contain any express obligations 
with regard to the period of data collection.  While  an argument could certainly be made that the data 
on which the injury analysis is based should be suffici ently recent in order for this data to be relevant 
and probative such as to constitute  positive evidence of injury caused  by subsidized imports, we do 
not consider that it was unreasonable or not objectiv e of the EC to refuse to extend the period of 
investigation for injury purposes beyond the period u sed to establish subsidization in this case.  The 
EC gathered data which covered three years, incl uding the last full year for accounting purposes prior 
to the initiation, and its analysis was ther efore clearly based on the recent past.   
7.342  As contextual support for its argument, Korea asser ts that the interpretation given by panels to 
provisions in the Safeguards Agreement  and the recommendation of the WTO Committee on Anti-
Dumping Practices focus on the most recent period.   This, Korea asserts, constitutes contextual 
support for its argument.  We disagree.  As the EC has noted, the WTO Committee on Subsidies and 
Countervailing Measures has not adopted a parallel recommendation.  Moreover, we seriously doubt 
that the Recommendation Concerning the Periods of Data Collection for Anti-Dumping 
Investigations
253 would support Korea's case.  That Recommendation states, inter alia , that the period 
of data collection for dumping investigations norma lly should be twelve months, and in any case no 
less than six months, ending as close to the date of initiation as is practicable ; and that the period of 
data collection for injury investigations normally should be at least three years.  It also states that "[i]n 
establishing the specific periods of data collection in a particular investigation, investigating 
authorities may, if possible, consider practices of firms from which data will be sought concerning 
financial reporting and the effect th is may have on the availability of accounting data."  The EC stated 
that the most recent accounting year for Hynix was the year 2001.  Korea has not challenged this.  
Bearing this in mind, we do not consider it unr easonable for the investigating authority to have 
established December 2001 as the end of the period of collection of data for the purposes of the injury 
and subsidization investigations.   
7.343  As for Korea's reference to certain findings of panels and the Appellate Body in the 
safeguards context, we do not consider them relevant to our examination. In this regard, we note that 
the wording in the Safeguards Agreement , particularly in Articles 2.1 and 4.2(b) is significantly 
different from that to be found in Article 15.2 of the SCM Agreement .  Leaving aside the question of 
                                                      
253 G/ADP/6, adopted 5 May 2000 by the WTO Committee on Anti-Dumping Practices.  WT/DS299/R 
Page 100  
 
whether those reports actually support the Korean ar gument, something we very much doubt, we wish 
to note that safeguard measures are emergency measures which explains the particular emphasis on the relevance of the recent past by panels and the Appellate Body interpreting those provisions of the 
Safeguards Agreement .  
7.344  In sum, we do not find that the EC has act ed inconsistently with Article 15.2 of the SCM 
Agreement by rejecting Hynix's request that the EC extend its analysis of the effect of subsidized 
imports on prices to the first half of 2002, i.e., beyond the injury and subsidy POI selected by the 
investigating authority.    
(d) Conclusion 
7.345  For these reasons, we do not find that the EC h as acted inconsistently with its obligation 
under Article 15.2 of the SCM Agreement,  read in light of Article 15.1 of the  SCM Agreement,  with 
respect to its examination of the impact of the subsidized imports on the domestic prices. 
4. Claim regarding the EC's determination on  the condition of the domestic industry 
(a) Korea 
7.346  Korea asserts that the EC's evaluation of th e condition of the domestic industry was not 
consistent with paras. 1 and 4 of Article 15 of the SCM Agreement .   
7.347  First, Korea argues that the economic downturn/business cycle is the single most important 
factor in the DRAMs market.  Ko rea asserts that this industry has endured a continuing history of 
"boom/bust" cycles.  Korea asserts that between 2000 and 2001 this industry had gone from the top of 
the boom period, to the trough of the bust.  In sp ite of all the evidence and comments submitted by 
Hynix during the investigation, Korea asserts that, nowhere in its determinations did the EC address 
this downturn alone, or as a context in understanding the factors enumerated in Article 15.4.  While 
acknowledging that the EC had examined the economi c downturn in its non-attr ibution determination 
under Article 15.5, Korea asserts that Article 15.4 cont ains a separate obligation to examine this factor 
as a "relevant economic factor".   
7.348  Second, Korea argues that some findings made by the EC in the context of its injury 
determination are inconsistent with certain statem ents made by an important EC producer, Infineon, 
relating to its cash flows, ability to invest in new equipment and technology, ability to sell at prices 
sufficient to cover costs, market  shares and future prospects.
254  In the view of Korea, the EC failed to 
consider the domestic EC industry's own choice of  factors that describe success in the EC DRAMs 
market and the domestic producers' own description of the state of the industry.    
7.349  Third, Korea asserts that the EC failed to ex amine one of the factors listed in Article 15.4, 
"wages". Korea recalls that established WTO ju risprudence regarding Article 3.4 of the AD 
Agreement – a provision which is substantially identical to Article 15.4 of the SCM Agreement – 
requires that each of the factors and indices listed therein must be evaluated by an investigating authority.  In addition, Korea is of the view that  another factor, "export performance" of the domestic 
industry, should have been considered by the aut hority as a relevant economic factor having a bearing 
on the state of the domestic industry, even though it is not explicitly listed in Article 15.4.  Korea 
asserts that the fact that the EC evaluated this factor when carrying out the Article 15.5 causation 
                                                     
 
254 Korea First Written Submission, para. 194.  Some of these statements were made by the Infineon's 
CEO, one of the two EC producers th at cooperated in the investigation, in a November 2002 investor 
conference.  Others were included  in Infineon's 2002 SEC Form 20-F.  WT/DS299/R 
 Page 101 
 
 
determination is irrelevant to assess the EC's complia nce with Article 15.4, as a separate obligation to 
evaluate "export performance" as a relevant  factor exists under this provision.255   
7.350  Fourth, Korea argues that only three out of 13  factors examined showed a negative trend 
during the injury POI: average sales price, cash fl ow and capacity utilization.  Korea asserts that the 
EC acted inconsistently with paragraphs 4 and 1 of Article 15 because it did not explain adequately 
why just 3 of 13 factors should compel its conc lusion that the domestic industry was suffering 
material injury. 
(b) EC 
7.351  The EC rejects all of Korea's arguments and asserts that its injury analysis was consistent with 
Articles 15.4 and 15.1 of the SCM Agreement .  With respect to Korea's arguments concerning the 
failure to examine the "boom/bust" cycle and the economic downturn, the EC argues that it examined 
this factor as part of its causation analysis.  Th e EC considers that it was therefore not necessary to 
examine this factor as part of its assessment of th e condition of the domestic industry as well.  Hence, 
this question falls under the Article 15.5 of the SCM Agreement , rather than Article 15.4.   
7.352  The EC asserts that the statements of Infine on's CEO were made outside the injury POI, i.e., 
in 2002.  According to the EC, those statements we re not suited to demonstrate a contradiction with 
an injury determination that covered the period 1998-2001.  In any case, the EC submits, financial 
advertisement statements aimed at potential investors are of limited value for the assessment of the real state of a business. 
7.353  The EC asserts that it examined all relevant factors having a bearing on the state of the 
industry as required by Article 15.4 of the SCM Agreement .  The EC argues that it considered 
"output" or "production" in its Preliminary Determin ation, and that those findings were confirmed in 
the Final Determination.  The EC further asserts that Article 15.4 does not require an investigating 
authority to examine "export sales" when examining th e state of the domestic industry.  In accordance 
with the SCM Agreement,  the EC asserts that it examined "export sales" when it considered the 
influence of other factors, under Article 15.5.  With  regard to the "wages" factor, the EC argues that 
(1) the questionnaire responses from the domestic i ndustry contained information on wages and that 
(2) the investigating authority examined that info rmation and concluded that the "wages" factor was 
irrelevant for the injury assessment  in the present case.  The EC ac knowledges that the "wages" factor 
was not discussed in the Preliminary and Final Determ inations.  The EC gives four explanations for 
the non-inclusion of "wages" in those determinations.  First, wages were a minor factor for the cost of 
production of DRAMs.  Second, the wages in the Co mmunity were stable throughout the injury POI 
due to the stability pact preceding the introduction of the Euro.  Third, the injury findings would have 
remained identical, irrespective of the development of  wages.  Finally, during the whole investigation, 
neither the Government of Korea nor Hynix had raised  the issue of "wages".  In the view of the EC, 
Korea must prove  that the EC failed to examine  or evaluate  a relevant factor.  According to the EC, 
Korea has not done so. 
7.354  On the issue of the overall evaluation of the s ituation of the domestic industry, the EC argues 
that Article 15.4 imposes an obligation on Members to examine  and evaluate  all the relevant 
economic factors and indices, but indicates at the same time that no one or several of those factors necessarily gives decisive guidance.  Regarding the substance of the injury determination, the EC 
submits that for each factor the EC included availabl e relevant data in the determination, and in each 
case the EC included an analysis or assessment in relation to such data.  The EC then drew overall 
conclusions.  The EC disagrees with Korea's asser tion that it only found negative indicators for 3 
factors.  The EC asserts that it also determined  and took into account 3 ot her negative or partially 
                                                      
255 Korea asserts that there was information on the file pointing to a positive development of the 
domestic industry's export performance. WT/DS299/R 
Page 102  
 
negative factors (losses in 2001; the magnitude of the subsidy amount and the volume of subsidized 
imports).  In sum, the EC considers that its dete rmination of material injury was based on a proper 
overall examination and evaluation of all relevant factors having a bearing on the state of the industry. 
(c) Panel Analysis 
7.355  This claim concerns the consistency of the EC's injury analysis with Articles 15.1 and 15.4 of 
the SCM Agreement .  The latter provision read as follows:
256  
[t]he examination of the impact of the subsidized imports on the domestic industry 
shall include an evaluation of all rele vant economic factors and indices having a 
bearing on the state of the industry, including actual and potential decline in output, sales, market share, profits, productivity, return on  investments, or utilization of 
capacity;  factors affecting domestic prices;   actual and potential negative effects on 
cash flow, inventories, employment, wages, growth, ability to raise capital or investments and, in the case of agricultu re, whether there has been an increased 
burden on government support programmes.  This list is not exhaustive, nor can one 
or several of these factors necessarily give decisive guidance. 
7.356  In light of the overarching obligation set forth in Article 15.1 of the SCM Agreement , we 
consider that Article 15.4 thus requires an objective examination and evaluation of all relevant factors 
having a bearing on the state of the industry, based on positive evidence.  Article 15.4 of the SCM 
Agreement lists a number of these factors which are to be included in such an examination.  We agree 
with the view expressed by the Appellate Body, when  interpreting an almost identical provision in the 
AD Agreement , that the factors listed are deemed to be relevant in every investigation and must 
always be evaluated by the investigating authoriti es.  However, the obligation of evaluation imposed 
by Article 15.4 is not confined to the listed fact ors, but extends to all relevant economic factors.
257  
7.357  With the above remarks in mind, we shall ex amine whether the EC properly evaluated all 
relevant factors, as mandated by Article 15.4, an d whether the EC conducted an objective examination 
based on positive evidence of the impact of the impo rts on the domestic industry, consistently with 
Articles 15.1 and 15.4 of the SCM Agreement .  Korea puts forth several main arguments in support of 
these allegations.  One set of arguments relate to the proposition that, in the view of Korea, the EC 
should have evaluated a number of factors – th e economic downturn, the domestic industry's export 
performance and wages – when examining the state of  the domestic industry.  Second, Korea points to 
some inconsistent statements made  by one of the two EC producers and the EC's findings in respect of 
the state of the domestic industry.  Finally, Korea takes issue with the EC's overall assessment of the 
state of the domestic industry. 
(i) Evaluation of certain economic factors: Economic downturn/Business cycle, Export 
performance and Wages 
7.358  Korea argues that one factor which is e xplicitly mentioned in Article 15.4 of the SCM 
Agreement – "wages" – was not examined.  Moreover, Korea argues that "export performance" and 
the "boom/bust" cycle are two factors which are not explicitly listed in Article 15.4 but are clearly 
relevant factors having a bearing on the state of the domestic industry which should therefore have 
been examined by the EC as part of the injury analysis under Article 15.4.  
                                                      
256 Article 15.1 is already cited in para. 7.271, supra . 
257 See, Appellate Body reports, Thailand – H-Beams and US – Hot-Rolled Steel , paras. 128 and 194, 
respectively.  WT/DS299/R 
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Wages 
7.359  Article 15.4 requires a mandatory evaluation of all individual factors listed in that Article, 
including "wages".258  The EC agrees with this and argues th at the investigating authority examined 
information on wages and concluded th at this factor was irrelevant for the injury assessment in this 
case, which explains why the "wages" factor is  not discussed in the Preliminary and Final 
Determinations.259  In response to a question from the Pane l, the EC states that "[n]aturally, the 
investigating authority would have gone through an d considered all of the factors listed in the SCM 
Agreement .  However, there is no record of those considerations with regard to wages."260  
7.360  We consider that, in the context of trade remedies investigations, which are subject to 
multilateral rules and multilateral review, a Member is placed in a difficult position in rebutting a 
prima facie  case that an evaluation of a given factor has not taken place if it is unable to direct the 
attention of a Panel to some contemporaneous written  record of that process.  In the particular case 
before us,  if – as acknowledged by the EC – there is  no such written record of how the "wages" factor 
has been interpreted or appreciated by the in vestigating authority during the course of the 
investigation, there is no basis in our view on which the EC can now rebut a prima facie  case that its 
"evaluation" of that factor under Article 15.4 did not take place at all.  In addition, and bearing in 
mind the standard of review set forth in Article 11 of the DSU261,  without a written record of the 
analytical process undertaken by the investigating authority to evaluate "wages", we cannot examine 
whether an adequate and reasoned explanation has been provided of how the facts support the injury 
determination made by the EC a nd, consequently, whether that de termination was consistent with 
Article 15.4.  Without that written record, we would be forced to embark on post hoc  speculation 
about the thought process by which the investigating au thority arrived at its ultimate conclusions.  We 
consider that the standard of review in Article 11 of the DSU  prevents us from embarking upon this 
exercise.   
7.361  The EC has argued that this factor was actually i rrelevant in this case.  In the absence of any 
similar indication in the record, we have to consider this to be an ex post rationalisation.  The fact that 
the exporter or Korea had not commented on this matte r at the time of investigation is not legally 
relevant in light of the clear obligation imposed on the investigating authority by Article 15.4 to examine and evaluate this factor. 
262   
7.362  In light of the above, we conclude that the EC  acted inconsistently with Article 15.4 of the 
SCM Agreement  in not evaluating the "wages" factor when  examining the impact of the subsidized 
imports on the state of the domestic industry.263  We would also note that the EC's omission in this 
instance is somewhat surprising because this is not the first occasion in which an EC injury 
determination has been reviewed by a WTO panel, based on similar grounds.264  The EC should have 
therefore been aware when it examined the state of  the domestic industry that it had to evaluate all 
relevant economic factors and indices bearing on the state of the domestic industry,  including any 
                                                      
258 However, we are of the view that, in a given case, certain factors may be more relevant than others.  
The weight to be attributed to any given fact or may therefore vary from case to case.  
259 EC First Written Submission, para. 146. 
260 EC response to question 86 of the Panel. 
261 For a discussion of the standard of review applicable, see para. 7.4, supra .  
262 Neither does the fact that an argument was not raised in the context of the underlying investigation 
by the exporter concerned or the authorities of the exporting Member preclude a party from being able to raise it at a later stage in a WTO panel proceeding.  This  was also the view held by the Panel in the Argentina – Poultry 
case.  (Panel report, Argentina – Poultry , para. 7.146 and note 123)  
263 In reaching this conclusion, we note that neither  has the EC argued that analysis of "wages" is 
implicit in the analysis of other factors listed in Article  15.4, nor do we have any indication of record that that 
was the case. 
264 See, inter alia , Panel report, EC – Bed Linen , para. 6.153 et seq . WT/DS299/R 
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actual or potential decline in wages and that evidence of  that evaluation should be  part of the record in 
order to allow for a meaningful review of its determination. 
Other factors 
7.363  With regard to Korea's arguments in respect of  other factors that should have been examined 
by the EC as part of its injury analysis, we note that neither economic downturn/business cycle nor 
export performance are factors which are expressly listed in Article 15.4 of the SCM Agreement .   We 
consider that this provision imposes a clear obligation on authorities to examine all relevant economic 
factors and indices  having a bearing on the state of the domestic industry.  Whether an economic 
factor is relevant depends, inter alia , on the nature of the industry being investigated.  In our view, 
and different from the situation addressed earlier in wh ich a factor expressly listed in Article 15.4 is 
not evaluated, it will be for the complaining party to  demonstrate two things: (1) that a certain factor 
which was relevant in assessing the impact of the subsidized imports on the state of the domestic 
industry was not examined; and (2) that the question of  evaluation was raised during the investigation.   
7.364  In our view, the factors listed in Article 15.4 clar ify that what is required under this provision 
is that the investigating authority examines and eval uates those factors and indices that provide it with 
a full and objective picture of the state of the domes tic industry.  Together with the results from the 
analysis performed under Article 15.2 of the volume a nd price effects of the subsidized imports, this 
may lead the investigating authority to a conclusion  of material injury.  Forces that may have caused 
certain negative or positive developmen ts are to be considered by the investigating authority as part of 
its causation analysis, in respect of which Article 15.5 of the SCM Agreement contains specific 
rules.
265 
7.365  In our view, the economic downturn in the market ("boom/bust cycle") and the export 
performance of an industry are precisely the kind of causal factors that will need to be addressed by an investigating authority when establishing whether the subsidized imports caused the injurious state 
of the domestic industry.  The record clearly show s that the EC examined and evaluated the economic 
downturn and the export performance as part of its causation analysis
266 and we will examine whether 
                                                      
 265 We find support for our reading in the report of the panel in Egypt – Steel Rebar  (paras. 7.62-7.64) 
dealing with the similar provision in the anti-dumping context, Article 3.4 of the AD Agreement , which stated 
that: 
"the term "having a bearing on" can mean relevant to  or having to do with  the state of the 
industry, and this meaning is consistent with the fact that many of the factors listed in 
Article 3.4 are descriptors or indicators of the state of the industry, rather than being factors 
having an effect  thereon.  For example, sales levels, prof its, output, etc. are not in themselves 
causes  of an industry's condition.  They are, rath er, among the factual indicators by which that 
condition can be judged and assessed as injured or not.  Put another way, taken as a whole, these factors are more in the nature of effects  than causes .   
This reading of "having a bearing on" finds contextual support in the wording of the last group 
of factors in Article 3.4, namely "actual and potential negative effects on  cash flow, 
inventories, …" (emphasis added).  Further contextual support is found in the cross-reference 
to Article 3.4 contained in the first sentence of Article 3.5:  "… the effects  of dumping as set 
forth in paragraph[] 4 [of Article 3]".    
We note in addition that if Turkey were correct that the full causation analysis, including non-
attribution, were required by Article 3.4, this  would effectively render  redundant Article 3.5, 
which explicitly addresses causation, including non-attribution.  Such an outcome would not 
be in keeping with the relevant principles of international treaty law interpretation, or with 
consistent practice in WTO dispute settlement."  (Panel report, Egypt – Steel Rebar , 
paras. 7.62-7.64)  
In the same vein, Panel report, EC – Tube or Pipe Fittings , paras. 7.335 and 7.344. 
266 EC's Final Determination, paras. 193 and 195.  WT/DS299/R 
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it did so in a manner which is cons istent with Article 15.5 of the SCM Agreement when discussing 
Korea's claims under that provision.  We do not consider that the EC was somehow required to 
include an additional, separate discussion or evalua tion of these factors in its injury analysis under 
Article 15.4.267     
7.366  In view of the above, we therefore find that the EC has acted consistently with its obligations 
under paragraphs 1 and 4 of Article 15 of the SCM Agreement  in not evaluating the economic 
downturn/business cycle and the export performance of the domestic industry when examining the 
state of the domestic industry.  
(ii) Infineon statements 
7.367  Korea argues that contradictory statements were made by the CEO of Infineon, one of the two 
EC producers that cooperated in the investigation,  in a November 2002 investor conference and in 
Infineon's 2002 SEC Form 20-F.  These statements alle gedly contradicted some of the findings of the 
investigating authority concerning the state of the domestic industry.  
7.368  It is not disputed by Korea that the investig ating authority made its  findings based on data 
received from the domestic industry.  Korea does not ch allenge the correctness of those data, which as 
stated in the EC's determinations were duly verifi ed by the investigating authority, but merely points 
to some alleged inconsistencies between statements  made by the CEO of Infineon, one of the two 
domestic producers, in the context of the countervail investigation with other statements made before 
the financial community on matters relating to some  of the factors listed in Article 15.4.  Leaving 
aside the question of whether the statements were rele vant or not to the injury period of investigation, 
we consider that a distinction must be made  between positive evidence, on the one hand, and 
unverified statements made in a context unrelated to the investigation, on the other.268  We recall that 
Article 15.1 requires that an injury de termination be based on positive evidence, i.e., evidence of an 
affirmative, objective and verifiable character.  Kore a has not argued that any of the data gathered by 
the EC were not credible or not objective.  Given th e fact that the accuracy of the data on which the 
EC based itself to make its determination is not cont ested, we fail to see how statements made by one 
of the two domestic producers for the financial co mmunity should have been preferred over such 
objective, verifiable and verified data.  For these reasons, we reject Korea's argument.    
(iii) Overall assessment of the state of the domestic industry   
7.369  Korea asserts that the EC failed to properly evaluate all the injury factors examined as 
required by Article 15.4 of the SCM Agreement .  In particular, Korea argues that the EC failed to 
adequately explain why just three out of 13 factors examined, i.e., average sales price, cash flow and 
capacity utilization, should compel its conclusion that the domestic injury was suffering material 
injury.  According to Korea, this shortcoming ev idences a lack of objective examination.  The EC 
asserts that it made its assessment on the basis of an  overall evaluation of all relevant factors having a 
bearing on the state of the industry, and points in pa rticular to three additional negative or partially 
negative factors (losses in 2001; the magnitude of the subsidy amount, and the volume of subsidized 
imports). 
                                                      
267 In its First Written Submission, Korea asserted that the EC had failed to examine output.  This 
argument, however, was not included in its subsequent submissions.  In any event, even if Korea had maintained 
its argument, we would have rejected it.  It is clear to us that the EC evaluated the "output" factor, or as the EC 
refers to it, "production".  The evaluation of this factor can be found in para. 126, and its related table, of the Preliminary Determination.  In addition, we note that, in its response to question 87 of the Panel, the EC 
confirmed that the "production" figure reported therein was inclusive of production for domestic and export 
markets.  (See also EC's response to question 42 of the Panel)    
268 We recall that Article 12.5 requires investigating authorities to satisfy themselves as to the accuracy 
of the information supplied by interested parties.  We consider that this provision does not allow those 
authorities to make their determinations on the basis of bare assertions made by interested parties. WT/DS299/R 
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7.370  We recall that Article 15.4 lists a number of f actors which must be examined in all cases in 
order to examine the impact of subsidized imports  on the state of the domestic industry.  It also 
emphasises that no one or several of these factors can necessarily give decisive guidance.  From the Final Determination, we conclude that the EC  first examined and ev aluated various factors 
individually,
269 before making an overall assessment of th e state of the industry on the basis of the 
data gathered:  
"(187)  Following the publication of the provisional Regulation, Hynix and the GOK 
claimed that most of the injury indicators show that the situation of the [domestic] 
industry is improving.  Therefore, no materi al injury could have been suffered by the 
[domestic] industry. 
(188)  However, no arguments which could a lter the conclusions as set out in recitals 
139 to 141 of the provisional Regulation were made.  In accordance with the provisions of Article 8(5) of the basic Re gulation, these conclusions were based on 
the evaluation of all relevant economic factors and indices having a bearing on the state of the [domestic] industry.  The details are set out in recitals 125 to 138 of the 
provisional Regulation and they have not been challenged.  Though the position of 
the [domestic] industry improved in cer tain respects during the period under 
consideration because of the growing market for DRAMs, this was more than offset 
by the very substantial injury caused by  the drastic drop in sales prices and the 
consequent heavy losses suffered by the Co mmunity producers during the [POI].  
These losses had a negative effect on their retu rn on investments and their cash flow.  
Consequently, taking into account all the fact ors, the conclusions reached in recitals 
139 to 141 of the provisional Regulation that the [domestic] industry has suffered material injury within the meaning of Ar ticle 8 of the basic Regulation are hereby 
confirmed." 
7.371  Paragraphs 139 to 141 of the Pre liminary Determination, which ar e incorporated by reference, 
read as follows: 
"(139)  Due to technological developments in the DRAM industry, demand in Mbit 
terms, has risen each year as the user industry changed over to higher density 
DRAMs to increase system performance.  This growth of demand in Mbit terms explains why, during the period considered  the [domestic] industry benefited from the 
favourable evolution of the Community c onsumption of the product concerned in 
terms of sales volume and market share.  In addition, it increased its market share.  
However, almost half the increase was the result of one Community producer replacing its share of imports from the United States, prior to 1998, with actual Community production thereafter. 
(140)  In addition, the apparently highe r increase of the market share of the 
Community industry can be explained to a certain extent by the fact that the sales 
volume measured in Mbits reflects the gene rally more advanced technological stage 
of the Community industry as compared with th at of Korean exporters.  That is, the 
[domestic] industry moved more swiftl y from production of 64 Mbit DRAMs to 
production of 128 Mbit DRAMs than at least one of the their Korean counterparts.  This results in a considerable leap in  capacity, and thereafter sales (which are 
measured in Mbits), given that each unit produ ced and sold is twice the previous size 
in terms of Mbits. 
                                                     
 
269 Paragraphs 187-188 of the EC's Final Determination incorporating by reference paras. 125-141 of 
the Preliminary Determination.   WT/DS299/R 
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(141)  The sales prices of the [domestic] i ndustry, however, fell dramatically between 
the year 2000 and the [POI], i.e. by 77 pe r cent and this fall had immediate and very 
serious consequences for the [domestic] industry.  The impact of the massive fall in prices during the [POI] was quickly reflected in negative effects on cash flow, profitability and return on investment of the [domestic] industry and hence the ability 
to raise capital.  The effect on profitability was huge since during the [POI], every 
unit was sold with heavy losses which on av erage amounted to 96 per cent.  Although 
investments of the [domestic] industry as well as productivity and employment grew 
in absolute terms during the period consider ed, the levels fell well short of what is 
normal for this industry to remain competitive, to maintain the state of art facilities, to 
continue with a high level of investment s on research and development and to keep 
abreast with leading-edge technology." 
7.372  In our view, the EC examined and evaluated a ll factors both individually and in an overall 
context.  In our view, the EC did not consider each factor in isolation, as Korea is claiming.  While acknowledging certain positive developm ents, we are of the view that the EC provided an adequate 
explanation as to how the facts supported the de termination made.  We consider that the EC 
conducted an overall evaluation of the data in cont ext.  The EC acknowledged, for example, that 
investments of the domestic industry as well as produc tivity and employment grew in absolute terms 
during the period considered, but explained that it consid ered that the levels fell well short of what is 
normal for this industry to remain competitive, to main tain the state of art facilities, to continue with a 
high level of investments on research and developm ent and to keep abreast with leading-edge 
technology.  It is therefore clear to us that the assessment of the state of the domestic industry, and the 
conclusion that it was materially injured, did not just rest on the negative development of the three 
factors mentioned by Korea, but took into account other factors such as the negative  effects on cash 
flow, profitability and return on investment  and hence, the ability to raise capital.
270  In sum, we are of 
the view that the record does not support Korea's cl aim that the EC examined the various factors only 
in isolation.  We therefore reject Korea's claim in this respect.271  
7.373    In light of the above, we consider that Korea failed to demonstrate that an unbiased and 
objective investigating authority, based on the info rmation that was before the EC at the time of 
determination, could not have re ached a conclusion that the domestic  industry was suffering material 
injury.  For the foregoing reasons, we reject Korea's claim. 
(d) Conclusion 
7.374  In sum, we find that the EC acted inconsistently with Article 15.4 of the SCM Agreement  in 
not evaluating the "wages" factor.  For the remain der, we reject Korea's arguments that the EC 
evaluation of the state of the domestic industry was inconsistent with Article 15.4 of the SCM 
Agreement . 
                                                      
270 It seems that the difference between the EC and Ko rea's analyses is that, while Korea makes a static 
end-point-to-end-point comparison, comparing data for 1998 to data for 2001 (with the exception of cash flow, 
for which the investigating authority only had data for 2000 and 2001), the EC took into account the intervening changes in circumstances and conditions which the DRAMs industry faced during the injury POI.  We consider 
that a proper evaluation of the impact of the subsidized imports on the domestic industry is dynamic in nature 
and should take account of changes in the market that determine the current state of the industry. 
271 We do not understand Korea to be arguing that no reasonable investigating authority could have 
reached the conclusion of material injury  that the EC reached, but merely th at the EC evaluated these factors in 
isolation.  There is, therefore, no need for us to examine the EC's overall analysis in further detail.  WT/DS299/R 
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5. Claim regarding the EC's causation determination 
(a) Korea 
7.375  Korea argues that the EC failed to comply with  the two important obligations set forth in 
Article 15.5 of the SCM Agreement .  First, Korea submits that the EC failed to establish the existence 
of a causal link between the investigated imports a nd any material injury to the domestic industry.  
Second, Korea argues that the EC failed to ensure that injury caused by other factors was not being 
attributed to the investigated imports. 
(i) Causation determination 
7.376  Korea contends that Members seeking to impose countervailing duties must demonstrate, in 
accordance with Article 15.5, an explicit "causal re lationship" between the subsidized imports and any 
material injury suffered by the do mestic industry.  Korea argues that  the first and second sentence of 
Article 15.5 serve to connect the examination requ ired under Article 15.2 with respect to import 
trends, including volume and price effects, and the examination under Article 15.4, with respect to 
indicia of domestic industry performance.  A correla tion should be established between import trends 
on the one hand, and industry performance on the other,  if a "causal relationship" is to be proved.  
Korea asserts that, althou gh the presence of a correlation may not be dispositive as there may be other 
more significant factors that are causing material  injury, the absence of a positive correlation between 
the subsidized imports and material injury strongl y suggests that the subsidized imports are not the 
cause of the material injury.
272  
7.377  Korea asserts that evidence before the EC de monstrated that there was no correlation between 
the trends in Hynix imports and either the domestic  industry's market share or the domestic industry's 
financial performance.  Thus, with respect to mark et shares, data show that Hynix was losing market 
share while Micron and Infineon – the complainants – gained market share.  As far as profitability is 
concerned, data show that, after the "boom" year  of 2000, Micron and Infineon faced increased losses 
even as Hynix suffered eroding market share.      
(ii) Non-attribution/Examination of "any known factors other than the subsidized imports"  
7.378  Korea asserts that in order to act consistently with Article 15.5, it is insufficient to establish a 
mere correlation between subsidized imports and inju ry.  Article 15.5 also requires an investigating 
authority not to impute to subsidized imports any inju ry caused by other factors.  Korea asserts that an 
investigating authority must "separate" and "distingu ish" the injurious effects of factors other than 
subsidized imports to ensure they are not  attributed to the subsidized imports.273  Korea recalls that the 
Appellate Body in US – Line Pipe  stated that an investigating author ity must also "establish explicitly, 
through a reasoned and adequate explanation, that  injury caused by factors other than increased 
imports is not attributed to increased imports."  Moreover, as with all the provisions of Article 15, 
Korea recalls that the non-attribution analysis mu st also be based on positive evidence and on an 
objective examination, as required under Article 15.1.  Korea considers that the EC failed to comply 
                                                      
272 In support of its understanding, Korea refers  to the Appellate Body's determination in US – Line 
Pipe, interpreting the causal relationship requirement under Article 4.2(b) of the Safeguards Agreement .  Korea 
also refers to the Argentina – Footwear  (EC)  Panel report, which in a finding endorsed by the Appellate Body 
stated that: "[w]hile (...) a coinciden ce [between an increase in imports with a decline in the relevant injury 
factors] by itself cannot prove causation (…), its absence would create se rious doubts as to the existence of a 
causal link, and would require a very compelling analysis of why causation is still present." (emphasis in 
original)  
273 Korea cites in support various findings made by the Appellate Body examining claims under 
Articles 4.2(b) and 3.5 of the Safeguards and Anti-Dumping Agreements , respectively.  (Appellate Body reports 
in US – Wheat Gluten , US – Lamb , US – Line Pipe , and US – Hot-Rolled Steel , and Panel report in US – Steel 
Safeguards )  WT/DS299/R 
 Page 109 
 
 
with this non-attribution requirement with respect  to a number of factors which the EC acknowledged 
were also contributing to the injury found to exist. 
Treatment of the drop in demand 
7.379  Korea asserts that the EC improperly dismissed  the effects of the unprecedented drop in the 
underlying demand for computer and telecom equipment and the fact that 2001 was the worst year in 
decades for these industries and the DRAMs industry. 
7.380  Korea asserts that the demand for DRAMs is a de rived demand; that is, it is based solely on 
the downstream demand for products that u se DRAMs, such as personal computers and 
telecommunications equipment.  Factors affec ting the demand for these downstream products thus 
affect demand for DRAMs.  In support of its alle gations, Korea submits a table regarding the DRAMs 
demand growth.274  The data in that table shows that ra te of growth in DRAMs consumption during 
2001 had fallen from its historical average.  Over  the 1995-1999 period, the average growth rate had 
been 80 per cent annually.  In 2001, however, this  rate had dropped sharply to only 49 per cent.  
Korea explains that the primary reason for the drop in demand growth for DRAMs was the 
unprecedented drop in demand for the major users of DRAMs.  The evidence before the EC 
demonstrated that 2001 was the first year in history in which the level of demand for PCs was actually 
negative.  Korea asserts that even the domestic i ndustry admitted the deleterious effects of weaker 
demand on its operations.  Korea notes that the EC c oncluded in para. 193 of its Final Determination 
that "the general economic downtur n of the PC and telecommunicati on markets in 2001 may have had 
some downward effect on prices."  However, Korea asserts the EC never explained what  that  
"downward effect" was, or how that "downward effect" differed from the impact of the subsidized 
imports.     
"Inventory burn" 
7.381  Korea asserts that, in the DRAMs market, slow  demand leads to "inventory burn" which in 
turn affects market prices in a negative way.  Ko rea argues that the EC's position, that there was no 
basis to assume the existence of an "inventory burn"  – as no company would build up stocks when the 
prices were high and release stock when prices are lo w – is completely at odds with the dynamics of 
the DRAMs market.  Korea asserts that there was c onsiderable evidence on the record regarding the 
effects of an "inventory burn" which was ignored by the EC. 
Changes in relative capacity 
7.382  Korea argues that the EC failed to properly ta ke into account the role played by capacity 
increases of companies other than Hynix.  Korea asser ts that the evidence before the EC demonstrated 
that Hynix played a relatively trivial role in capacity expansions that occurred during the period 
examined, while other suppliers – most notably, Mi cron, Infineon, and Samsung – had been the most 
aggressive in expanding total DRAMs output.  Korea contends that this evidence was ignored by the 
investigating authority in its analysis of othe r known factors that affected the condition of the 
domestic industry during the period examined.  Korea su bmits that this failure demonstrates that the 
EC did not comply with the requirements of Article 15.5, namely that an investigating authority 
separate and distinguish injury caused by other fact ors so as not to attribute that injury to the 
subsidized imports.     
The volume of unsubsidized imports/Samsung's imports 
7.383  Korea asserts that the EC failed to properly take into account the adverse effects of the 
increasing volume of imports from other suppliers.  Ko rea asserts that Hynix's market share decreased 
                                                      
274 Korea First Written Submission, para. 235. WT/DS299/R 
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while the market share of other imports increased su bstantially and was larger than Hynix's.  Korea 
submitted a table that compiled information on mark et share provided in Infineon's application, 
which, Korea asserts, demonstrates that non-subsidi zed import market share was 58 per cent in 2001, 
against a 15 per cent market share held by Hynix.  Korea asserts that the relative market shares mean 
that other imports had at least three times the competitive impact as Hynix's. 
7.384  Korea argues that this table also showed th at suppliers from Chinese Taipei dramatically 
increased their share of the EC market.  Korea s ubmits that a logical hypothesis is that, for a 
commodity product, the primary means by which su pplies from Chinese Taipei achieved such market 
share gains was by offering prices below the competitors .  In spite of this evidence, Korea asserts that 
the EC did not conduct any analysis of suppliers from Chinese Taipei.   
7.385  Korea submits that the EC's statement that Sa msung's imports have also increased, but at a 
lower pace than Hynix's imports, is not supported by  the evidence.  Accordi ng to Korea, the data 
demonstrates that Samsung increased its market share;  whereas Hynix lost market share.  Indeed, at 
the same time that Hynix was losing 6.2 percenta ge points of market share, Samsung was gaining 2 
percentage points of market share.  In addition, Korea asserts that the EC's finding that Samsung's 
prices were on average higher than those of Hynix is irrelevant to the issue of the price impact of 
other imports.  A proper analysis would have comp ared Samsung's prices to those of the domestic 
producers.  Korea asserts that it is entirely possibl e that Samsung's prices could be higher than Hynix's 
prices but lower than the prices offered by domestic producers.  If so, then Samsung's prices might 
have depressed prices or prevented price increas es.  And, if true, since Samsung's volume was so 
much larger than Hynix's, Samsung's shipments might well have had a much larger adverse impact on 
prices than Hynix's. 
(b) EC 
7.386  The EC asserts that the investigating author ity complied fully with  Article 15.5 of the SCM 
Agreement when establishing the existence of a causal link between the subsidized imports and 
material injury to the domestic industry.  The EC  submits that the investigating authority first 
established that there was a causal link between the subsidy granted by Korea to Hynix and material 
injury to the domestic industry.  Next, the investig ating authority separated and distinguished each of 
the other potential factors that might have contribut ed to causing the material  injury experienced by 
the domestic industry, and in each case considered that the causal link between the subsidized imports 
and the material injury had not b een broken.  The investigating aut hority addressed in detail all "other 
known factors", including those raised by Hynix – that is, the general/cyc lical economic downturn 
during the investigation period, non-subject impor ts and capacity increases.  The investigating 
authority found that these factors may have caused in jury, however, not to an extent that would break 
the causal link between the subsidized imports and the injury caused by th e subsidized imports.  
(i) Causation determination 
7.387  The EC asserts that the premise of Korea's allegations in respect of the EC's causation 
analysis is incorrect, since the investigating au thority properly established – on the basis of an 
approach that correctly and reasonably assessed Hyni x's acquisition of LGS's in 1999 – that Hynix's 
market share increased during the in jury POI.  Korea's elaborations on a causation analysis, based on 
the addition of LGS's import figures to Hynix's figur es, are therefore entirely hypothetical.  In any 
event, the EC contends that the "correlations" that  Korea asserts exist (market share of the domestic 
industry versus  market share of Hynix and market share of Hynix versus  profitability of Infineon) 
would not have any particular value for the causati on analysis, since the investigating authority needs 
to "look at the whole picture".  Market share, or  the volume of subsidized imports, is only one piece 
of the overall picture.  The EC concludes that  Korea's graphs are misleading, and their one-
dimensional approach is incapable of establishing any inconsistency with the SCM Agreement .   WT/DS299/R 
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7.388  The EC rejects Korea's argument based on the im portance to be attached to the correlation of 
the volume and price effects and the injury factors.  The EC is of the view that Korea's argument is 
based on a number of panel and Appellate Body repor ts in the safeguards context, in which increased 
imports play an entirely different role as a cond ition for the imposition of a measure.  The EC points 
out that in a countervailing duty context, the volume a nd price effects of imports are merely factors to 
be considered and taken into account when making an overall assessment of injury and causation.  In 
any case, the EC notes that during the injury POI,  Hynix's imports increased by 155 per cent in 
absolute terms, even when accepting, arguendo , the Korean argument with regard to the treatment of 
the merger between HEI and LGS in 1999.  
(ii) Non-attribution/Examination of "any known factors other than the subsidized imports"  
7.389  The EC asserts that th e investigating authority properly separated and distinguished the 
relevant other factors that were affecting the domes tic industry at the same ti me as the subject imports 
and thus ensured that injury caused by such other f actors was not attributed to the subsidized imports, 
as required by Article 15.5 of the SCM Agreement .  
Treatment of the drop in demand  
7.390  The EC asserts that the investigating author ity recognized the potential for some downward 
price effect in 2001 caused by a general economi c downturn of the PC and telecommunications 
markets.  The impact was held to be limited howev er, in comparison to the impact of the subsidized 
imports.  Moreover, the EC asserts that, while ma rket growth slowed, it remained around 59 per cent 
measured in megabits.  The investigating authorit y found that the impact of economic conditions on 
prices, and thus on the state of the domestic industr y in 2001, was modest in comparison to the sharp 
and sudden price decline triggered by the market's  reaction to the billions of dollars of support 
provided to Hynix the same year. 
"Inventory burn" 
7.391  The EC asserts that the investigating authorit y found that this argument was unsupported by 
any factual evidence and was, in any even t, rebutted by distributor testimony.  
Changes in relative capacity 
7.392  The EC asserts first that Korea's reference to re lative increases is irrelevant to the question of 
who caused overcapacity.  Overcapacity concerns th e relationship between total capacity and total 
consumption.  In this respect, the EC notes that  the domestic industry's capacity did not even cover 
the EC's consumption during the injury POI wh ile Hynix's production accounts for 17 per cent of 
worldwide production and its capacity was higher than  both the domestic industry's capacity use and 
the overall EC's consumption. As the capacity of  the domestic industry was insufficient to meet 
domestic consumption, it is clear that no self-inflicted injury due to overcapacity can be attributed to 
the domestic industry, as Hynix had alleged at the time of the investigation.  The EC asserts that the 
investigating authority acknowledged that structur al, worldwide overcapacity was present throughout 
the injury POI, but also determin ed that overcapacity was due in substantial part to the subsidies 
granted by Korea to Hynix.  As to the impact of overcapacity on prices, the EC recognizes that global 
capacity conditions affect pricing for DRAMs.  Ho wever, the EC observes that global capacity was 
surplus to demand at different times, and not just th e period considered.  Unprecedented price declines 
in 2001 cannot, therefore, be explained simply by overcapacity. 
The volume of unsubsidized imports/Samsung's imports 
7.393  The EC explains that the authority consid ered separately the volume of imports from 
Samsung, and the volume of imports from all other s ources.  Regarding the latter, the EC asserts that WT/DS299/R 
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the investigation showed that Hynix imports in creased each year (361 per cent overall) from 1998 to 
2001 (and by 24 per cent from 2000 to 2001), and that the Hynix import market share in 2001 was 20 per cent higher than in 1998.  By contrast, DRAMs imports from other countries declined by 4.2 per cent from 2000 to 2001;  and their EC market share fell from 41 per cent to 20 per cent during 1998-2001, and fell from 31.4 per cent in 2000 to 20 per cent in 2001.  Given these trends, the EC 
concludes that any injury caused by non-subject imports could not be – and was not – attributed to 
Hynix imports. 
7.394  The EC contends that the investigation showed  that Samsung's imports, although significant, 
increased at a lower rate than Hynix imports, and slower than the increase in domestic consumption. 
Furthermore, it was found that Samsung's prices were on average higher than those of Hynix.  
Therefore, the investigating authority concluded,  although Samsung's imports may have caused some 
injury to the domestic industry, that effect was not strong enough to break the causal link between 
Hynix's subsidized imports and the material injury suffered by the domestic industry.  
(c) Panel Analysis 
7.395  Korea claims that the EC acted inconsistently with paragraphs 1 and 5 of Article 15 of the 
SCM Agreement  when it concluded that Hynix's imports  caused material injury to the domestic 
industry.  Korea argues that the EC failed to sh ow that a causal relationship existed between 
subsidized imports and any material  injury suffered by the domestic industry, and that the EC failed to 
properly separate and distinguish the injurious effects of certain other factors from the injurious effects of the subsidized imports.   
7.396  Article 15.5 of the SCM Agreement provides as follows:
275 
[i]t must be demonstrated that the subsidized imports are, through the effects of 
subsidies,  causing injury w ithin the meaning of this Agreement.  The demonstration 
of a causal relationship between the subsidized  imports and the injury to the domestic 
industry shall be based on an examination of all relevant evidence before the authorities.  The authorities shall also ex amine any known factors other than the 
subsidized imports which at the same time  are injuring the domestic industry, and the 
injuries caused by these other factors must not be attributed to the subsidized imports. 
(footnote omitted) 
7.397  Article 15.5 imposes two basic obligations on investigating authorities.  First, it requires a 
demonstration that the subsidized imports are, through the effects of subsidies as set forth in 
Articles 15.2 and 15.4, causing injury within the meaning of the SCM Agreement .  This demonstration 
must be based on an examination of all relevant ev idence before the investigating authority.  Second, 
it mandates investigating authorities to examine any known factors other than the subsidized imports 
which at the same time are injuring the domestic in dustry, and requires that the injuries caused by 
these other factors not be attributed to the subsid ized imports.  Each of these obligations will be 
examined more in detail when we examine Korea's claims and arguments.  
                                                     
 
275 Article 15.1 is already quoted in para. 7.271, supra .  We recall that the Appellate Body has found in 
the anti-dumping context that Article 3.1 sets forth an ov erarching obligation that cove rs all of Article 3 of the 
AD Agreement , the provision parallel to Article 15 of the SCM Agreement .  Our analysis of Article 15.5 of the 
SCM Agreement  is thus based on our understanding that a causation analysis can only be consistent with 
Article 15.5 of the SCM Agreement  if it involved an objective examination based on positive evidence.   WT/DS299/R 
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(i) Whether the EC properly demonstrated the existence of a causal relationship between 
subsidized imports and injury   
7.398  Korea argues that evidence before the EC de monstrated that there was no correlation or 
coincidence between the trends in Hynix imports an d either the domestic industry's market share or 
the domestic industry's financial performance.  Ko rea relies on the following panel finding, confirmed 
by the Appellate Body, in Argentina – Footwear (EC) :  "[w]hile (...) a coincidence [between the 
increase in imports with a decline in the re levant injury factors] by itself cannot prove  causation (...), 
its absence would create serious doubts as to the ex istence of a causal link, and would require a very 
compelling analysis of why causation is still present."276 (emphasis in original)  The EC asserts that 
Korea's assumption that Hynix's market share in  the EC declines hinges on the assumption that the 
investigating authority was wrong in not adding the volume of imports of LGS to Hynix's.  According 
to the EC, this argument should be dismissed.  Moreover, the EC argues that the investigating 
authority must look at the "overall picture", including the increase in absolute volume of Hynix imports alone, rather than to the discr ete correlations proposed by Korea.  
7.399  We note that the Argentina – Footwear (EC)  case concerned the causation standard under 
Article 4.2(b) of the Safeguards Agreement .  While the parties have made additional arguments 
concerning the relevance of findings by various panels and the Appellate  Body in respect of safeguard 
cases to disputes involving countervailing duties, we do not consider it necessary to resolve this 
issue.
277  This is because, in any event, Korea has fa iled to establish that there was an absence of 
coincidence between absolute import volume and the injury to the domestic industry, whatever might 
be said about the relative volume and market share. 
7.400  Korea argues that there was no correlation between a rising market share of subsidized 
imports and a falling market share and profitability of domestic producers.  Korea asserts that the market share of subsidized imports was decreasing at  the same time that (1) the market share of the 
domestic industry was increasing and (2) profitability of Infineon was decreasing.
278   
7.401  We note that, in its tables showing correlati ons between Hynix's market share and the EC 
producers' market share, on the one hand, and between Hynix's market share and Infineon's 
profitability, on the other279, Korea used information from the a pplication rather than information 
relied on by the investigating au thority in its determinations.280  In our view, correlations could have 
been prepared based on data whic h the investigating authority had determined to be accurate for the 
                                                      
276 Appellate Body report, Argentina – Footwear (EC) , paras. 144-145, referring to Panel report, 
Argentina –Footwear (EC) , para. 8.238. 
277 We note that while a finding of increased impor ts is a necessary condition for the imposition of a 
safeguard measure,  this appears not to be the case for countervail investigations since Article 15.2 of the SCM 
Agreement  provides that "[n]o one or several of these [vol ume and price effect] factors can necessarily give 
decisive guidance."  This provision suggests that a co untervailing measure may be imposed even in the absence 
of a significant increase in the volume of subsidized imports, provided the requisite price effects exist.  This 
seems to be the interpretation of the Appellate Body, in the anti-dumping context.  (Appellate Body report, EC – 
Tube or Pipe Fittings , para. 111, note 114.)  We concur with the opinion expressed by the panel in the parallel 
challenge against the US countervailing measures on Kor ean DRAMs (DS296) that, since there is no need to 
demonstrate some measure of increased  imports in all cases, it follows that there is no generalized requirement 
to establish a temporal correlati on between increased imports and injury in the context of a countervail 
investigation.  (Panel report, US – Countervailing duty on DRAMs , para. 7.320, note 283.)  This interpretation 
appears consistent with the quoted language on "decisive guidance".  The absence of a temporal correlation 
certainly raises a flag, but it is not an absolute barrier to a finding of injury. 
278 This assertion reflects the development of market share and profitability between years 2000 and 
2001, not the whole of the injury POI, which we recall runs from January 1998 to December 2001. 
279 Korea First Written Submission, tables in paras. 214 and 217. 
280 Id., para. 214, note 178 – concerning developments of the domestic industry's market share vs. 
Hynix's market share – and para. 216, note 179 (page 17 of Exhibit GOK-31-(b) ) – on Hynix's market share vs. 
profitability of Infineon. WT/DS299/R 
Page 114  
 
purposes of making its Final Determination.  This da ta was available to Korea, at least in indexed 
form.  For this reason alone, we consider that we could dismiss Korea's argument.  However, even if, 
arguendo , Korea had used that data from the EC's Final Determination – or, for that matter, from the 
application – we would also have rejected it b ecause those data would show a decrease in Hynix's 
market share only if LGS's data had been combined with Hynix/HEI's prior to their merger.  We have 
examined this argument in section VII.C.2(c), supra , and rejected it, in the context of the Article 15.2 
claim, for the reasons set out in paras. 7.299-7.305, supra .  Nevertheless, suppose, arguendo , that 
Korea is correct in asserting that LGS's import data  should have been combined with Hynix's import 
data for the purposes of Article 15. 5 "[demonstrating] that the subsidized imports are, through the 
effects of subsidies, causing injury within th e meaning of this Agreement."  In para. 7.303, supra , we 
illustrated a scenario in which a false association ma y be created between rising imports of a merged 
firm – by comparison with pre-merger imports of the surviving merger partner – and subsidies given 
solely to the surviving merger pa rtner.  But that is not the scenar io of the LGS/HEI merger, for the 
simple reason that the combined imports of LGS an d HEI/Hynix, before and after the merger, rose in 
absolute volume during the injury POI.  Korea's ar gument could only prevail if we were persuaded 
that absolute volume increases must be ignored in  the DRAMs context.  For the reasons set out in 
para. 7.328, supra , we accept the EC's argument that th e absolute volume increases alone could 
undercut prices.  Hence, we are of the view that Korea's arguments, read in the most favourable light, must be rejected.   
7.402  Aside from the line of argument that we have  rejected, Korea has not identified how, under 
the facts of the case, as analysed by the investigating authority, the EC's determination that the 
subsidized imports were, through the effects of subsidies, causing injury to the domestic DRAMs 
industry should be found to be in consistent with Article 15.5.   
7.403  Therefore, we reject claim that the EC failed to properly demonstrate the requisite causal link 
between subsidized imports and injury  suffered by the domestic industry. 
(ii) Whether the EC's causation analysis satisfies the non-attribution requirement 
7.404  The second part of Korea's claim is whether the EC's causation analysis satisfies (1) the non-
attribution requirement set forth in Article 15.5 the SCM Agreement  and (2) the overarching principle 
set forth in Article 15.1, i.e., that a determination under Article 15 must be based on an objective 
evaluation of positive evidence.  We  recall that Article 15.5 of the SCM Agreement requires an 
investigating authority to ensure that injury caused  by any known factors, other than the subsidized 
imports, which at the same time are injuring the dom estic industry, must not be attributed to the 
subsidized imports.  We note that a parallel obligation in the AD Agreement has been interpreted by 
panels and the Appellate Body to require an inv estigating authority to sep arate and distinguish the 
injury caused by such other known factors.
281  In light of the identical wording and role of the non-
                                                      
 281 In the EC – Tube and Pipe Fittings  case, the Appellate Body summarized its interpretation of the 
non-attribution requirement as follows:  
"[Article 3.5] obligates investigating authorities in their causality determinations not to 
attribute to dumped imports the injurious effects of other causal factors, so as to ensure that 
dumped imports are, in fact, "causing injury" to the domestic industry.  In  US – Hot-Rolled 
Steel  we described the non-attribution obligation as follows: 
… In order that investigating authorities,  applying Article 3.5, are able to 
ensure that the injurious effects of the other known factors are not 
"attributed" to dumped imports, they must appropriately assess the injurious 
effects of those other factors.  Logica lly, such an assessment must involve 
separating and distinguishing the injurious effects of the other factors from the injurious effects of the dumped imports .  If the injurious effects of the 
dumped imports are not appropriately separated and distinguished from the 
injurious effects of the other factors, the authorities will be unable to  WT/DS299/R 
 Page 115 
 
 
attribution requirement in the SCM Agreement , we are of the view that Article 15.5 contains a similar 
requirement to separate and distin guish the injury caused by factors other than subsidized imports.  
We note that the parties are in agreement with respect  to the legal standard that applies, but differ in 
view as to the question whether the EC complied w ith this standard in its DRAMs investigation. 
7.405  It is clear that Article 15.5 does not impose any particular methodology when conducting the 
causation analysis set forth therein, provided that an investigating authority does not attribute the 
injuries of other causal factors to subsidized impor ts.  The Appellate Body has not provided guidance 
as to how an investigating authority should examine other known factors in order to make sure that 
the non-attribution requirement is fulfilled.  In our view, it does not suffice for an investigating 
authority merely to "check the box".  An investiga ting authority must do more than simply list other 
known factors, and then dismiss their role with ba re qualitative assertions, such as "the factor did not 
contribute in any significant way to the injury", or "the factor did not break the causal link between subsidized imports and material injury."  In our view, an investigating authority must make a better 
effort to quantify the impact of other known factors,  relative to subsidized imports, preferably using 
elementary economic constructs or models.  At the very least, the non-attribution language of 
Article 15.5 requires from an investigating author ity a satisfactory explanation of the nature and 
extent  of the injurious effects of the other factors, as distinguished from the injurious effects of the 
subsidized imports.
282 
                                                                                                                                                                     
conclude that the injury they ascribe to dumped imports is actually caused by 
those imports, rather than by the other f actors.  Thus, in the absence of such 
separation and distinction of the different  injurious effects, the investigating 
authorities would have no rational basis to conclude that the dumped imports 
are indeed causing the injury which, under the  Anti-Dumping Agreement , 
justifies the imposition of anti-dumping duties. (emphasis added) 
… 
… [I]n order to comply with the non-attribution language in [Article 3.5], 
investigating authorities must  make an appropriate assessment of the injury caused to the domestic industry by the other known factors, and they must 
separate and distinguish the injurious effects of the dumped imports from the 
injurious effects of those other factors.  This requires a satisfactory 
explanation of the nature and extent of the injurious effects of the other 
factors, as distinguished from the injurious effects of the dumped imports . 
(emphasis added)  
Non-attribution therefore requires separation and distinguishing of the effects of other causal 
factors from those of the dumped imports so that injuries caused by the dumped imports and 
those caused by other factors are not "lumped together" and made "indistinguishable".   
We underscored in  US – Hot-Rolled Steel , however, that the  Anti-Dumping Agreement  does 
not prescribe the methodology  by which an investigating authority must avoid attributing the 
injuries of other causal factors to dumped imports:  
We emphasize that the particular methods and approaches by which WTO 
Members choose to carry out the process of separating and distinguishing the 
injurious effects of dumped imports from the injurious effects of the other 
known causal factors are not prescribed by the  Anti-Dumping Agreement .  
What the Agreement requires is simply that the obligations in Article 3.5 be respected when a determination of injury is made. 
Thus, provided that an investigating authority does not attribute the injuries of other causal 
factors to dumped imports, it is  free to choose the methodology  it will use in examining the 
"causal relationship" between dumped imports and injury." (footnotes omitted)  (Appellate 
Body report, EC – Tube or Pipe Fittings , paras. 188-189) 
282 Appellate Body report, US – Hot-Rolled Steel , para. 226. WT/DS299/R 
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7.406  In its determination, the EC identified certain fact ors, other than subsidized imports, that were 
potentially causing injury to the domestic industry including: the general economic downturn during the injury POI; imports of the product concerned from countries other than Korea; export activity of 
the domestic industry; overcapacity; stocks and Sams ung's imports.  With respect to each of these 
factors individually, the EC conducted a separate  examination and found that "whilst the economic 
downturn may have had some downward effect on pr ices, it can be assumed that, with consumption 
rising, this effect was not substantial.";
283  that "imports from other countries than Korea have not 
contributed in any significant way to the injury suffered by the [domestic] industry";284  that "given 
the lower volume of exports in relation to the volu me of sales in the Community during the [POI], the 
injury suffered by the [domestic] industry cannot be attributed to its exports.";285  and that "though 
Samsung imports may have caused some injury to the Community industry, this was not sufficient to 
break the causal link between Hynix's subsidised im ports and the material injury suffered by the 
Community industry."286  In addition, the EC rejected Korea's arguments that "any injury suffered by 
the [domestic] industry during the [POI] was self-inflic ted by its investments made during the period 
under consideration"287 and that "another reason for the dec lining prices of DRAMs during the [POI] 
was a significant "inventory burn"".288 
7.407  Having considered each of the above factors separately, the EC arrived in its Final 
Determination at the fo llowing overall conclusion: 
"(202) Factors other than the subsidised imports originating in Korea, such as other 
imports, the general economic downturn, the export activity of the [domestic] 
industry and the pre-existing overcapacity in  the market, may well have contributed 
to the injury suffered by the [domestic] i ndustry during the [POI].  However, their 
injurious effect, both individually and collectively, was considered of some importance but insufficient to undermine the ma terial injury attributable to subsidised 
imports. 
(....) 
(205) .... In view of the analysis, which has properly distinguished and separated the 
effects of all known factors on the situation of the [domestic] industry from the injurious effects of the subsidised imports,  it is hereby concluded that these other 
factors are not such as to break the causal  link between subsidisation and injury.  
Accordingly, it is concluded that these im ports have caused material injury to the 
[domestic] industry within the meaning of Article 8(6) of the basic Regulation." 
7.408  In sum, the injurious effect of the factors othe r than subsidized imports that were examined, 
both individually and collectively, was considered of some importance but insufficient to undermine 
the material injury attributable to subsidised impor ts.  In other words, the EC concluded that these 
other factors were not such as to break the causal link between subsidisation and injury, but did not 
present any thorough qualitative analysis of the nature  and extent of these effects.  Neither did it 
provide any quantitative analysis whatsoever of th e relative importance of subsidized imports and 
other factors. 
7.409  Korea argues that the EC failed to comply with its obligation to separate and distinguish 
injury caused by certain other factors so as not to attribute that injury to the subsidized imports.  
                                                     
 
283 EC's Final Determination, para. 193, read in conjunction with Preliminary Determination, para. 150. 
284 Id., para. 194, read in conjunction with Preliminary Determination, para. 151. 
285 Id., para. 195, read in conjunction with Pr eliminary Determination, para. 152.  
286 EC's Final Determination, para. 200. 
287 Id., paras. 196-197. 
288 Id., paras. 198-199.  WT/DS299/R 
 Page 117 
 
 
Korea also argues that the EC did not go beyond stating conclusions in its determination.  Korea asserts that no reasoning and factual basis supporting that reasoning can, in Korea's view, be found in 
that determination. 
7.410  Bearing the above in mind, we shall examine whether the EC properly separated and 
distinguished the injurious effects of each of these  other factors from the injury caused by alleged 
subsidized imports.       
Economic downturn in the market  
7.411  Korea argues that the EC failed to properly ex amine and distinguish th e injury caused by the 
economic downturn in the market and the decline in demand.  
7.412  In the Final Determination, the EC addressed the decline in demand as a intervening causal 
factor in the following manner: 
"(193)  Hynix and the GOK argued that the Commission did not take into account 
the impact of the cyclicality of the DR AM market.  They further argued that 
worldwide demand for DRAMs grew in 2001 only by 59 per cent whilst the average year on year rate was 75 per cent.  It is noted that these alleged worldwide growth 
rates are highly subjective and contradict ot her information available on the record.  
As set out in recital 150 of the provisional Regulation, it is recognised that the general 
economic downturn of the PC and telecomm unication markets in 2001 may have had 
some downward effect on prices.  However, it was found that DRAM consumption in the Community continued its upward trend throughout the period under consideration.  The increased consumption in terms of Mbits during the [POI] 
stemmed to a large degree from the intr oduction of Microsoft XP, which has much 
higher Mbit requirements than previous sy stems, and increased sales of "upgrade" 
products generated by the low prices.  In  fact, the consumption in Mbits in the 
Community increased almost  at the same rate between the year 1999 and the good 
year 2000 (57 per cent) as compared to the increase between the good year 2000 and 
the bad year 2001 - the [POI] (51 per cent).  It is therefore concluded that, whilst the 
economic downturn may have had some dow nward effect on prices, it can be 
assumed that, with consumption rising, this effect was not substantial." 
7.413  In sum, the EC recognised that the ge neral economic downturn of the PC and 
telecommunication markets in 2001 may ha ve had some downward effect on prices.
289  In spite of 
this, and based on its analysis of  the development of consumption in megabits in the EC between 
1999-2001, the EC concluded that whilst the general economic downturn of the PC and 
telecommunication markets in 2001 may have had some downward effect on prices, it could be 
assumed that, with consumption rising, the inju rious effect of the economic downturn was not 
substantial.  By way of conclusion the EC st ates that the economic downturn may well have 
contributed to the injury suffered by the domestic industry during the POI through its impact on 
prices.290  The record is devoid of even elementary quantitative analysis of the importance of the 
economic downturn, or a thorough qualitative analys is of the nature and extent of this factor. 
7.414  The question before us is whether the effects of  this factor were separated and distinguished 
so that injuries caused by the subsidized imports  and those caused by the economic downturn were 
not lumped together and made indistinguishable.  In  our view, a satisfactory explanation of the nature 
                                                      
289 The basis for this conclusion is not stated in the EC's Final Determination.   
290 We recall that the development of prices constitutes one of the main factors on which the EC based 
its finding of material injury.  The central role of the development of sales prices can, inter alia , be seen in 
paras. 188, 192 and 205 of the EC's Final Determination. WT/DS299/R 
Page 118  
 
and extent of the injurious effects of the factor "decline in demand", as distinguished from the injurious effects of the subsidized imports, is required.  We note that, after acknowledging that the 
economic downturn may well have contributed to the in jury suffered by the domestic industry, the EC 
turns to the examination of the development of c onsumption in the EC.  While the developments in 
domestic consumption may be a relevant factor to take into consideration, we fail to see to what 
extent the EC's analysis of domestic consumption is sufficient for separating and distinguishing the 
injurious effects of the economic downturn, which the EC acknowledged existed, and the injurious 
effects of the subsidized imports.  The EC ac knowledged that the downturn in the market had a 
negative effect on prices but failed to examine the ex tent of this negative effe ct.  Since we do not find 
either in the EC's Final Determination or elsewhere  on the record before us a satisfactory explanation 
of the nature and extent of the injurious effects of the economic downturn, as distinguished from the 
injurious effects of the subsidized imports, we concl ude that the EC has acted inconsistently with its 
obligation under Article 15.5 of the SCM Agreement not to attribute to subsidized imports injury 
caused by other factors.  
"Inventory burn" 
7.415  With regard to the allege d "inventory burn", which Korea argues always accompanies a 
decline in demand in the DRAMs market, the releva nt EC's findings are cont ained in paragraphs 198-
199 of its Final Determination: 
"[f]ollowing the imposition of provisional measures, Hynix also argued that another 
reason for the declining prices of DR AMs during the [POI] was a significant 
"inventory burn".  It was argued that during the "near record year" 2000 when DRAM 
prices increased significantly, many cust omers (e.g. distributors) built up their 
DRAM inventory because users feared shorta ges.  During the [POI], when it became 
clear that the collapse of the PC and telecommunications markets would depress demand, these inventories were disposed of quickly and further exacerbated the already declining prices. 
However, first of all this argument is not supported by any factual evidence.  
Secondly, it is based on a wrong premise: during the [POI] DRAMs consumption continued to increase in the Community.  Finally, it is not plausible: no company will build up stocks when the prices are high,  in particular when a product like DRAMs 
has a short life cycle; on the contrary they may build up stocks when the prices are low.  In this respect, it is recalled that the stocks of the [domestic] industry as a 
percentage of production in Mbits dec lined during the good year 2000 as well as 
during the bad [POI].  This has been conf irmed by the sole cooperating distributor 
which stated in its response to the questionnaire that "at present manufacturers move to just-in-time ordering".  The same distri butor indicated during a hearing that its 
DRAMs stocks are renewed four times a month.  Therefore, no link can be made in 
this regard between stocks and prices, and accordingly, this argument has to be 
rejected." 
7.416  The above paragraphs show clearly that the EC pursued this matter with relevant interested 
parties and that evidence obtained in the course of the investigation from the sole cooperating 
distributor did not support Hynix's contention that there was a significant "inventory burn" during 2001.  Korea asserts that "there was considerable  evidence on the record th at the EC refused to 
address" and which pointed to a significant "inventory burn".
291  We have examined the documents 
referred to by Korea, which contain st atements referring to "inventory burn".292  However, these 
                                                      
291 Korea response to question 89 of the Panel, para. 56 and note 23. 
292 We have examined the documents referred to in note 23 to para. 56 of Korea's response to 
question 89 of the Panel.  WT/DS299/R 
 Page 119 
 
 
statements lacked any factual support and, since Kor ea has not pointed to any other evidence of record 
in support thereof, we are of the view that it was reasonable of the investiga ting authority to conclude, 
based on evidence from the sole cooperating distri butor, that there was no factual basis supporting 
Korea's argument that the "inventory burn" contributed to the injury suffered by the domestic industry.  
7.417  In light of the above, we reject Korea's argumen t that the EC failed to take into account the 
"inventory burn" when analyzing other factors affecting the domestic industry. 
Overcapacity  
7.418  Korea argues that the EC failed to properly take into account the injury caused by excess 
capacity.  In paras. 196-197 of the EC's Final Dete rmination, the following analysis of overcapacity as 
a possible cause of injury is provided:  
"[f]ollowing the imposition of provisional measures, Hynix and the GOK claimed 
that any injury suffered by the [domestic] industry during the [POI] was self-inflicted 
by its investments made during the period under consideration.  They further claimed that these investments have largely contribut ed to the overcapacity during the [POI]. 
 
As set out in recital 153 of the provisional  Regulation, the worldwide DRAMs market 
still suffered during the [POI] from structural overcapacity resulting from the expectations of the late 1990s that the mark et would continue its rapid growth.  This 
overcapacity can be said to have contributed to the severity of the current downturn from which this industry is suffering.  However, it is noted that the capacity of the 
[domestic] industry in Mbit terms did not reach the consumption in the Community 
during the [POI].  Furthermore, it is gene rally recognised that the DRAMs industry 
constantly needs a high level of invest ment, in particular in research and 
development, to keep abreast with leading-edge technology.  The investments of the [domestic] industry during the period under consideration can therefore be viewed as 
reasonable and were undertaken in order to  maintain its competitiveness in a growing 
market.  In this respect, it is noted that both Korean producers made significant investments during the period under consideration.  In fact, the worldwide investments of the [domestic] industry were less than half the investments of the two 
Korean producers during that period.  It is therefore reasonable to assume that any overcapacity was not created by the [domes tic] industry alone.  On the contrary, it 
was the Korean industry which has main ly contributed to such overcapacity 
worldwide.  It is also reasonable to assume that, had the Korean government not intervened with the subsidi es, the situation in both the Community and worldwide as 
regards overcapacity would not have been so pronounced."
293 
                                                      
293 The EC also refers us to its finding in para. 153  of the Preliminary Determ ination.  This reads as 
follows: 
"[t]he worldwide DRAM market still suffers from  structural over-capacity resulting from the 
expectations of the late 1990s that the market would continue its rapid growth.  This over-
capacity can be said to have contributed to the severity of the current downturn from which 
this industry is suffering.  As is the case with a ll downturns, it is reasonable to assume that this 
one had downward effect on prices.  However, it is also reasonable to assume, that had the 
Korean government not intervened with the s ubsidies, the situation in both Community and 
worldwide as regards overcapacity would not have been so pronounced.  It should be noted that during the [POI], Hynix was the third biggest DRAM producer in the world (around 
17 per cent of world production) after Samsung and Micron.  Furthermore, the over-capacity 
existed, albeit to varying degrees, throughout the period considered, but only during the [POI] WT/DS299/R 
Page 120  
 
7.419  We also find the following finding in paragraph 204 of the EC's Final Determination to be 
relevant: 
"[a]s far as overcapacity is concerned, th is worldwide situation existed during a 
number of years including the period unde r consideration.  Therefore, this 
overcapacity cannot be considered alone as the cause of the very significant sudden 
drop in prices that led to the injury suffere d by the [domestic] industry.  Furthermore, 
subsidised imports are themselves a substantial cause of oversupply." 
7.420  In sum, the EC examined the factor "over capacity", both at the Preliminary and Final 
Determinations, and acknowl edged, through its examination of the EC and international markets, that 
overcapacity indeed existed.  The EC determined  that "[t]his overcapacity can be said to have 
contributed to the severity of the current downturn fr om which this industry is suffering."  From these 
statements, among others, we infer that overcapacity was considered by the EC  to have caused injury 
to the domestic industry.  The question before us is  again whether the effects of this factor were 
separated and distinguished so that injuries cause d by the subsidized imports and those caused by 
"overcapacity" were not lumped together and made indistinguishable.  We recall that a satisfactory 
explanation of the nature and extent of the in jurious effects of the factor "overcapacity", as 
distinguished from the injurious effects of the subsidi zed imports, is required.  But, again, the record 
is devoid of even elementary quantitative analysis , or a more thorough qualitative analysis of the 
nature and extent of the injury caused by this factor.   
7.421  We have carefully examined the EC's determina tions and we have not been able to find in 
them any indication that the investigating authority separated and distinguished the injurious effects of 
overcapacity from the injurious effects of the subsid ized imports, let alone a satisfactory explanation 
of the nature and extent of the injurious effects of  the factor "overcapacity", as distinguished from the 
injurious effects of the subsidized imports.  Af ter acknowledging the existence of overcapacity, the 
EC's discussion in para. 197 turns to an examinatio n of the domestic industry's investment decisions 
and subsequently to determine who created the over capacity worldwide.  In our view, who is to be 
blamed for the overcapacity does not answer the ques tion of the effect this factor may have had on 
driving prices down and on its role as a cause of the injury found to exist.  While this discussion might 
be relevant to one aspect of the argument – i.e., whether the domestic producers themselves are to 
blame for the injurious state of the domestic industr y due to erroneous capacity decisions – it fails to 
address the crucial question of separating and distinguis hing the effects of this factor, irrespective of 
who is to blame for the overcapacity.  We thus do not find an indication that the effects of this factor 
were separated and distinguished from the injuri ous effects of the subsidized imports.     
7.422  For the foregoing reasons, we conclude that  the EC failed to provide a satisfactory 
explanation of the nature and extent of the injurious  effects of overcapacity as a factor causing injury. 
We therefore conclude that the EC has acted inc onsistently with its obligation under Article 15.5 of 
the SCM Agreement not to attribute to subsidized imports injuries caused by other factors.   
Other (non-subsidized) imports  
7.423  Korea argues that the EC failed to properly sep arate and distinguish the injurious effects of 
imports from other suppliers, both non-subsidized Korean imports and imports from other sources, 
particularly Chinese Taipei.  Paragraph 194 of the Final Determination discusses the effects of 
imported DRAMs from countries other than Korea in the following manner: 
"[f]ollowing the imposition of provisional  measures, no comments were received 
concerning other imports.  However, followi ng final disclosure Hynix argued that, in 
                                                                                                                                                                    
 
did prices suddenly drop very sharply.  Hence,  it is considered that the overcapacity as such 
did not significantly contribute to injury."  WT/DS299/R 
 Page 121 
 
 
accordance with data in the complaint, imports from other countries than Korea (mainly Taiwan) and imports from Samsung have increased more than Hynix's 
imports, in particular  between 2000 and the [POI], and t hus any injury suffered by the 
[domestic] industry could not have been caused  by Hynix's imports.  With regard to 
Samsung's imports see recital 200.  With regard to imports from all other countries 
(including Taiwan), the investigation found that in Mbit terms they decreased 
between 2000 and the [POI] by 4.2 per cent.  In fact, their market share decreased from 31.4 per cent in 2000 to 20 per cent durin g the [POI].  During the same period 
Hynix's subsidised imports in Mbit terms in creased by 24 per cent.  Therefore, the 
argument is considered groundless and the findings set out in recital 151 of the 
provisional Regulation that imports from other countries than Korea have not 
contributed in any significant way to the injury suffered by the [domestic] industry are hereby confirmed."
294 
7.424  We start our examination addressing Korea's comment regarding the development of market 
shares and the alleged competitive effect of other im ports.  Both Korea and the EC appear to agree 
that the relevant analysis, for the purpose of sep arating and distinguishing other imports, should be 
conducted in terms of market shares (or, what comes to the same thing, absolu te increase in megabits 
terms from one foreign supplier relative to anot her foreign supplier or relative to domestic 
consumption).  That agreed, it becomes critical whether LGS imports are added to Hynix imports 
during the injury POI.  When the two are added, th e Hynix market share of imports decreases.  When 
they are not, the Hynix market share of imports in creases.  Thus, Korea asserts that the "non-subject 
import market share was 58 per cent in 2001, against a 15 per cent market share held by Hynix."  By 
contrast, the EC's Final Determination reports a decrease of the market share of imports from countries other than Korea, from 31.4 per cent in 2000 to 20 per cent during the POI.
295   
7.425  Regarding Korea's argument that Hynix's market  share decreased, we recall that we have 
rejected this argument, for the reasons set forth in paras. 7.299-7.305, supra .  If, arguendo , Korea's 
argument about LGS imports is accepted, that would reinforce the conclusion we reach in 
paragraph 7.436, infra , regarding the inconsistency of the EC's analysis with respect to its obligation 
under Article 15.5.  In addition, we note that th ere is a significant discrepancy between the data on 
imports from other suppliers submitted by the EC and Ko rea.  There appear to be two reasons for this 
discrepancy.  First, while Korea's argument is based on data from the application, the EC's 
conclusions are based on verified data obtained from the parties during the investigation.  Since there 
is no indication that the data reported in the EC's Final Determination is inaccurate296, and given that 
this is the data on which the investigating authorit y based its determination, our examination must be 
based on the data contained in the EC's determina tion rather than on data from the application.  
Second, Korea seems to include in its "non-subject  import market share" data imports from Samsung, 
the second Korean producer/exporter.  We note th at the EC decided to examine separately the 
injurious effect of imports from Samsung, and imports  from countries other than Korea.  As far as the 
                                                      
 294 Para. 151 of the Preliminary Determination, which is incorporated by reference to para. 194 of the 
Final Determination, reads as follows: 
"[t]he imports of the product concerned from other countries (e.g. United States of America, 
Japan, Taiwan) in market share terms dropped from 41 per cent to 20 per cent during the 
period considered.  This drop of market shar e reflects the fact that some producers closed 
down their operations.  The lost market share of  third countries was to a large extent taken 
over by the Community industry, though as indicated above the move in market share is somewhat exaggerated both by the Mbit measurement and the faster move to more 
sophisticated technology by the [domestic] industry.  There is no evidence that imports from 
countries, other than Korea, contributed in an y significant way to the injury suffered by the 
[domestic] industry."
 
 295 EC's Final Determination, para. 194. 
296 We do not understand Korea to have challenged the accuracy of that information. WT/DS299/R 
Page 122  
 
treatment of Samsung's imports are concerned, we  find that imports from Samsung were examined 
and duly analysed as a separate factor by the EC.    
7.426  The EC determinations jointly examined the impact of imports from Japan, Chinese Taipei 
and the United States.  Korea argues that imports from Chinese Taipei should have been examined 
separately.  Korea's argument is based on the "logi cal hypothesis (...) that for a commodity product the 
primary means by which the supplies from Chinese Taipei achieved such market share gains is by 
offering prices lower than its competitors."  We note that Article 15.5 of the SCM Agreement provides 
that non-subsidized imports may be examined as a causal factor but does not require that non-subsidized imports be considered on a country -per-country basis.  We therefore do not find 
unreasonable the investigating auth ority's treatment of imports fro m Chinese Taipei, in combination 
with those from other countries.  
7.427  The EC determined that the market share of imports from all countries other than Korea was 
approximately the same, in 2001, as Hynix's mark et share (approximately 20 per cent).  Korea does 
not contest this finding.  Based on the similarity of  market shares, the EC concluded that "imports 
from countries other than Korea have not contributed in any significant way to the injury suffered by 
the [domestic] industry."  In our view, this conc lusory assertion, without any quantitative or thorough 
qualitative support, does not suffice to separate and dis tinguish the injury that might have been caused 
by imports from Hynix.  Indeed, a simple-minde d evaluation might say that, if imports from two 
sources are roughly the same proportion of total impor ts, they are equally responsible for injury 
suffered by the domestic industry.  The EC's anal ysis does nothing to refute this simple-minded 
evaluation.  
7.428  With regard to imports from Samsung, the EC made the following statement in paragraph 200 
of its Final Determination:  
"[d]uring the period under consideration, Samsung's imports have also increased but 
at a lower pace than Hynix's imports and in  any event slower than the increase of 
Community consumption.  It was also f ound that during the [POI] Samsung's prices 
were on average higher than those of Hynix.  Furthermore, Samsung's prices 
decreased less than Hynix's prices duri ng the period under consideration.  It was 
therefore concluded that though Samsung imports may have caused some injury to the Community industry, this was not su fficient to break the causal link between 
Hynix's subsidised imports and the mate rial injury suffered by the Community 
industry." 
7.429  While acknowledging that Samsung's imports may have caused some injury to the domestic 
industry, the EC concluded that this was not suffici ent to break the causal link.  The EC reached this 
conclusion by examining the development of 1) the volume of imports of Samsung as compared to 
that of Hynix, and 2) Samsung's prices as compared to Hynix's.   
7.430  Korea asserts that the EC's finding that Samsung' s imports have also increased but at a lower 
pace than Hynix's imports is not supported by ev idence before it.  Korea's argument is based on 
market share developments – rather than the deve lopment of imports in ab solute terms – and again 
presupposes that LGS's import volume data should be co mbined with those of Hynix.  However, we 
recall our conclusion that the EC was not required, for the purposes of its assessment of the development of the volume of imports under Article  15.2, to combine imports from LGS and Hynix.  
Moreover, we recall our conclusion that the EC, cons istent with Article 15.5, could conduct its causal 
analysis on the basis of an increase in absolute vol ume.  Korea did not refute the possibility, under 
Article 15.5, of a causal analysis based on an incr ease in absolute volume from Hynix alone.  For the 
purposes of the non-attribution analysis, however, both the EC and Korea argue in terms of market share (or, what comes to the same thing, abso lute increase in megabits terms from one foreign 
supplier relative to another foreign supplier or rela tive to domestic consumption), which we believe is  WT/DS299/R 
 Page 123 
 
 
the better approach for ensuring non-attribution.  That  said, the non-attribution analysis requires more 
than a simple comparison of levels or changes in market share.   
7.431  The following data are provided in the Fina l Determination regard ing developments in 
imports from Samsung and Hynix: 
 1998 1999 2000 2001  
Imports: 
Samsung 
Hynix  
100 
100  
110 
194  
181 
372  
414 
461 
Market shares: 
Samsung 
Hynix  
100 
100  
63 
111  
65 
136  
100 
120 
Consumption: 100 175 276 416 
 Source: EC's Final Determination, paras. 172, 177 and 185 
7.432  We note that the figures for imports (in absolute terms) and market shares are indexed figures 
in order to preserve confidentiality.  Both sets of fi gures, calculated on the basis of data submitted by 
the exporters in the underlying investigation and not disputed by Korea, show that the volume of 
imports and market share of Hynix increased faster  than Samsung's during the injury POI.  Thus, 
Samsung's imports increased by 314 per cent, while Hynix's did so by 361 per cent (ignoring imports from LGS in 1998 and 1999).   In terms of market share, Samsung's remained stable during the injury 
POI, while Hynix's increased by 20 percentage point s.  Imports from Samsung also increased, in an 
indexed form, at a lower pace than domestic consum ption.  Consequently, the EC's findings that 
"Samsung's imports have also increased but at a lower pace than Hynix's imports and in any event 
slower than the increase of Community consumpti on" are supported by the evidence before the 
investigating authority.
297  However, as we have already stated, the non-attribution analysis must go 
deeper than a simple comparative st atement of changes in market share.   It is not enough to say that 
Samsung's imports have increased more slowly than  Hynix's imports;  therefore, Samsung's imports 
do not break the causal link between Hynix's imports and material injury.   
7.433  Apart from the market share issu e, Korea further asserts that the EC did not conduct a proper 
assessment as it should have compared Samsung's pr ices to those of the domestic producers rather 
than Samsung's prices to those of Hynix.   
7.434  The record reveals no analysis, by the EC, of  the impact of Samsung's prices on the prices 
charged by domestic producers.  We note that, after having compared the pricing and import 
behaviour of Samsung with that of Hynix, the EC  immediately drew the conclusion that, although 
Samsung's imports may have caused some injury to the domestic industry, this was not sufficient to 
break the causal link.  However, there is nothing in  the EC's Determination that would indicate to us 
that the EC assessed and determined the extent of  the injury allegedly caused by Samsung imports.  
Again, the EC analysis lacks a thorough qualita tive analysis or even a rudimentary quantitative 
evaluation.  It is not enough to say that, because firm A's import mark et share grew less than firm B, 
injury that may have been caused by firm A' s imports can be ignored .  However, the Final 
Determination merely contains a statement ac knowledging that Samsung imports may have caused 
some injury, without saying more.  This does not c onstitute in our view a satisfactory explanation of 
the nature and extent of the injurious effects of the other factors, as distinguished from the injurious 
effects of the subsidized imports. 
7.435  In view of the above, we conclude that the EC  failed to provide a satisfactory explanation of 
the nature and extent of the injurious effects of non-subsidized imports from other countries, or from 
Samsung, as distinguished from the injurious effects of  the subsidized imports.  We therefore find that 
                                                      
297 Actual figures regarding exports by Samsung have not been made available to the Panel.  Korea 
only submitted data regarding Hynix and LGS, but not verified data regarding Samsung.  WT/DS299/R 
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the EC's treatment of imports was inconsistent  with its obligation under Article 15.5 of the SCM 
Agreement not to attribute to subsidized imports injuries caused by other factors.
298   
(d) Conclusion 
7.436  In sum, we conclude that the EC has acte d inconsistently with its obligation under 
Article 15.5 not to attribute to subsidized impor ts injuries caused by the economic downturn in the 
market, overcapacity, and other non-subsidized im ports.  For the remainder, we reject Korea's 
arguments and claims under Article 15.5 of the SCM Agreement  with respect to the EC's causation 
analysis.   
7.437  Our determination certainly does not preclude that, based on the facts as submitted by the 
parties on the above "known factors", the EC could properly conclude that a causal relationship exists 
between subsidized imports and the material injury  suffered by the domestic industry, after ensuring 
that the injury caused by other factors is not attrib uted to subsidized imports.  However, the EC must 
make an appropriate assessment of the injury cau sed to the domestic industry by the other known 
factors, and must separate and distinguish the inju rious effects of the subsidized imports from the 
injurious effects of those other factors.  This re quires a satisfactory explanation of the nature and 
extent of the injurious effects of the other f actors, preferably with quantitative analysis, as 
distinguished from the injurious effects of the subsidized imports.  
D. OTHER CLAIMS  
1. Claim regarding the requirement of adequate public notice 
(a) Korea 
7.438  Korea argues that, in its Final Determinati on, the EC failed to provide, as required by 
Article 22.3 of the SCM Agreement,  sufficient detail on issues concerning volume and price effects of 
the subsidised imports, as well as the existence of a causal relationship between the subsidized 
imports and injury to the industry.299 
(b) EC 
7.439  The EC asserts that not all of the information/da ta available in the record of an anti-subsidy 
proceeding has to appear in the published notices.  In  the case at stake, the EC points out that the 
published notices discussed in great detail the facts,  and analysed in detail both the subsidy and the 
injury determinations.  The EC argues that the essen tial question is whether or not Korea and Hynix 
were in a position to understand the determinations made by the investigating authority, and make 
their case accordingly.  In the view of the EC, this is clear from Korea's First Written Submission. 
(c) Panel Analysis 
7.440  We note that Korea's Article 22. 3 claim is dependent on its claims under Articles 15.1, 15.2 
15.4 and 15.5 of the SCM Agreement .  Thus, to the extent that we reject those claims, and in the 
absence of any additional independent arguments by Korea, we consider that Korea's claims 
concerning the procedural requirement to provide  sufficient explanation under Article 22.3 of the 
SCM Agreement  also fail.  With respect to the substantive claims that were upheld, we consider that it 
would not add anything to our finding to make  any ruling on Korea's procedural claims under 
                                                      
298 In reaching this conclusion, we do not mean to  say that the EC should adopt any particular 
methodology in order to carry out the assessment of the injurious effects of Samsung's imports. 
 299 In support of its contention, Korea refers to findings of the Mexico – Corn Syrup  and EC – Tube or 
Pipe Fittings  panels.    WT/DS299/R 
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Article 22.3 in respect of the same aspects of the EC determination.  Since the EC's Final 
Determination is inconsiste nt with paragraphs 4 and 5 of Article  15 in respect of part of the EC's 
injury and non-attribution analysis300, respectively, the adequacy of the EC's public notice in respect 
of the relevant portions of the EC's Final Determin ation is immaterial.  We therefore make no ruling 
with regard to Korea's claim under Article 22.3 of the SCM Agreement . 
2. Claim regarding Articles 10 and 32.1 of the SCM Agreement   
(a) Korea 
7.441  Korea argues that the EC violated Articles 10 and 32.1 of the SCM Agreement because the 
countervail order imposed by the EC against DR AMs from Korea was not in accordance with the 
relevant provisions of the SCM Agreement or the relevant provisions of the GATT 1994 . 
(b) EC 
7.442  In the view of the EC, since the determinati on was entirely consistent with the obligations 
contained in the SCM Agreement , Korea's consequential claim under Articles 10 and 32 must also fail. 
(c) Panel Analysis 
7.443  In light of the finding made above concerning th e inconsistency of the subsidy determination 
with Article 1 of the SCM Agreement , and in the absence of any independent argumentation by Korea 
in this respect, we do not find it necessary for the resolution of the dispute to address this Korean 
claim concerning the inconsistency with Article 10 and 32.1 of the SCM Agreement . 
VIII.  CONCLUSIONS AND RECOMMENDATIONS 
8.1 In the light of our findings above concerni ng the EC' s definitive countervailing measure 
imposed on imports of DRAMs from Korea, we consid er that the EC acted in a manner inconsistent 
with its WTO obligations under: 
(a) Article 1.1(a) of the SCM Agreement  in determining that the May 2001 Restructuring 
Programme constituted a financial contribution by the government; 
(b) Article 1.1(b) of the SCM Agreement in its determination of the existence of a benefit 
in the case of the Syndicated Loan;  
(c) Articles 1.1(b) and 14 of the SCM Agreement  in applying, for the purposes of the 
calculation of the amount of benefit, its grant methodology to all programmes found 
to constitute a subsidy; 
(d) Article 15.4 of the SCM Agreement  by not evaluating the factor "wages" as a relevant 
factor affecting the state of the domestic industry; 
(e) Article 15.5 of the SCM Agreement  by failing to make sure that injury caused by 
certain other factors (in particular, declin e in demand, overcapacity, and other (non-
subsidized) imports) was not attri buted to the subsidized imports. 
                                                      
300 The injury determination is considered to be inco nsistent because the EC did not evaluate one of the 
factors listed in Article 15.4, "wages", as determined by us in para. 7.374, supra , of this Report.  With regard to 
the non-attribution determination, we recall that the EC did not properly and adequately separate and distinguish 
the injurious effects of certain factors other than subsidized imports from the effects caused by those subsidized 
imports.  This determination can be found in para. 7.436, supra . WT/DS299/R 
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8.2 For the reasons set forth in our findings above, we reject Korea's claims that the EC violated:   
(a) Article 1.1(a) of the SCM Agreement  because the EC failed to demonstrate the 
existence of a financial contribution with respect to the Syndicated Loan, the KEIC 
Guarantee, the KDB Debenture Progra mme, and the October 2001 Restructuring 
Programme;  
(b) Articles 1.1(b) of the SCM Agreement  because the EC failed to demonstrate that a 
benefit was conferred on the respondent Hynix by the KEIC Guarantee, the KDB Debenture Programme, the May 2001 R estructuring and the October 2001 
Restructuring Programmes, given availa ble market benchmarks among Hynix's 
creditors, including a foreign bank operating in the Korean market; 
(c) Articles 1.2 and 2 of the SCM Agreement  because the EC made an erroneous finding 
of de facto  specificity, specifically with respect to the KDB Debenture Programme; 
(d) Articles 1.2 and 2 of the SCM Agreement  because the EC disregarded the fact that 
many Korean companies underwent debt restructuring similar to that undergone by Hynix in the May and October 2001 Restruct uring Programmes, and therefore, the 
EC did not establish that the alleged subsidies were specific on the basis of positive 
evidence; 
(e) Article 15.2 of the SCM Agreement  because , the EC determinations improperly 
assessed the significance of the volume effects of Hynix imports; 
(f) Article 15.2 of the SCM Agreement  because the EC determinations improperly 
assessed the significance of the price effects of Hynix imports; 
(g) Article 15.4 of the SCM Agreement  because  the EC failed to consider all factors 
relevant to the overall condition of the domes tic industry, in so far as Korea's claim 
does not relate to the factor "wages"; 
(h) Article 15.5 of the SCM Agreement  because  the EC failed to demonstrate the requisite 
causal link between Hynix imports and injury, while accepting Korea's claim 
concerning the non-attribution aspect of the causation analysis, as stated above; 
(i) Article 12.7 of the SCM Agreement  because the EC did not justify its application of 
"facts available" with respect to its subsidy investigation. 
8.3 Having reached the conclusions set forth above,
301 we apply judicial economy and do not rule 
on Korea's claims that the EC acted in a manner inconsistent with: 
(a) Articles 19.4 of the SCM Agreement  and VI:3 of the GATT 1994  in levying 
countervailing duties in excess of the amount allowed under those provisions; 
(b) Article 15.1 of the SCM Agreement  because  the EC determinations on injury and 
causation were not based on positive eviden ce and an objective assessment of the 
effects of allegedly subsidized imports; 
                                                      
301 For ease of understanding, the Panel's conclusions concerning the EC's subsidy and injury 
determination are summarized in tabular fo rm in Annexes F-2 and F-3 respectively.  WT/DS299/R 
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(c) Article 22.3 of the SCM Agreement  because  the EC 's injury determination did not set 
forth in sufficient detail the EC's findings and conclusions on all material issues of fact and law; 
(d) Articles 10 and 32.1 of the SCM Agreement  because inter alia, the definitive 
countervailing duty order imposed by the EC  against DRAMs from Korea was not in 
accordance with the relevant provisions of the SCM Agreement or the relevant 
provisions of the GATT 1994 . 
8.4 Under Article 3.8 of the DSU , in cases where there is infringement of the obligations assumed 
under a covered agreement, the action is considered prima facie  to constitute a case of nullification or 
impairment of benefits under that agreement.  Accordingly, we concl ude that to the extent the EC has 
acted inconsistently with the provisions of the SCM Agreement , it has nullified or impaired benefits 
accruing to Korea under that Agreement.  
8.5 We note that Korea requests the Panel to reco mmend that the EC terminate the countervailing 
duty order immediately.
302 Article 19.1 of the DSU is explicit concerning the recommendation a panel 
is to make in the event it determines that a me asure is inconsistent w ith a covered agreement: 
[i]t shall recommend that the Member concerned bring the measure into conformity 
with that agreement. (footnotes omitted) 
Article 19.1 goes on to provides that: 
[i]n addition to its recommendations, the pa nel or Appellate Body may suggest ways 
in which the Member concerned c ould implement the recommendations. 
8.6 We thus consider that the la nguage of Article 19.1 of the  DSU  permits us to make suggestions 
regarding implementation of the recommendation that  the measure be brought into conformity with 
the SCM Agreement .  We have found various  violations of the EC's obligations under the SCM 
Agreement , which may necessitate differing responses in order to bring the measure concerned into 
conformity with the EC's obligations under the SCM Agreement .  In our view, the modalities of the 
implementation of our recommendation are, in the first place, for the EC to determine.  In this regard, 
we note Article 21.3 of the DSU , which provides: 
[a]t a DSB meeting held within 30 days af ter the date of adoption of the panel or 
Appellate Body report, the Member concerne d shall inform the DSB of its intentions 
in respect of implementation of the r ecommendations and rulings of the DSB.  
(footnote omitted) 
8.7 We therefore recommend that the Dispute Settlement Body request the EC to bring its 
measure into conformity with its obligations under the SCM Agreement,  and decline to make the 
suggestion requested by Korea. 
 
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302 Korea First Written Submission, para. 676.