WT/DS273/R 
 Page C-1 
 
 
 
ANNEX C 
 
 
WRITTEN SUBMISSIONS AND  ORAL STATEMENTS 
OF THE THIRD PARTIES 
 
 
Contents Page 
Annex C-1 Executive Summary of the Written Submission of China  C-2 
Annex C-2 Oral Statement of China C-5 
Annex C-3 Executive Summary of the Written Submission of Japan  C-8 
Annex C-4 Oral Statement of Japan C-10 
Annex C-5 Responses of Japan to Questions from the 
European Communities and Korea C-13 
Annex C-6 Written Submission of Norway C-21 
Annex C-7 Oral Statement of Norway C-28 
Annex C-8 Responses of Norway to Questions from the 
  European Communities and Korea C-31 
Annex C-9 Executive Summary of the Written Submission of the 
United States C-33 
Annex C-10 Oral Statement of the United States C-38 
Annex C-11 Responses of the United States to Questions from the Parties 
(First Meeting) C-41 
Annex C-12 Responses of the United States to Questions from the Panel 
(Second Meeting) C-44 
 WT/DS273/R 
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ANNEX C-1 
  
EXECUTIVE SUMMARY OF THE WRITTEN 
SUBMISSION OF CHINA 
 
 
(16 February 2004) 
 
 
1. INTRODUCTION 
 
1.1 In its third party submission, Ch ina focuses on the following key points: 
 
(1) Mandatory/discretionary distinction in the context of Articles 3.1(a) and 3.2 of the 
SCM Agreement ; 
 
(2) Establishment of a benefit; 
 (3) Causation analysis in the context of Article 6.3(c) of the SCM Agreement .  
 
2. NON-MANDATORY LEGISLATION IN THE CONTEXT OF ARTICLE 3 OF THE 
SCM AGREEMENT 
 2.1 On the basis of the Panel report in US – Section 301 , the mandatory/discretionary nature of a 
piece of legislation is not exclusively decisive on whether it can violate a WTO agreement.  Such a determination depends on, most im portantly, the particular obligations imposed by a WTO agreement 
at issue.  The Appellate Body in US – Sunset Review  stated that “the import of the 
‘mandatory/discretionary distinction’ may vary from case to case”. 
 2.2 Panels in previous proceedings have al ready ruled that the mandatory/discretionary 
distinction shall be applied in th e context of Article 3.1(a) of the SCM Agreement , and that in order to 
establish that a piece of legislation, as such, violates Article 3 of the SCM Agreement , such legislation 
must mandate the grant of prohibited subsid ies that are inconsistent with Article 3.  
 
2.3 China is of the view that the mandatory/di scretionary distinction should be applied in the 
context of Articles 3.1(a) and 3.2 of the SCM Agreement , and therefore, non-mandatory legislation 
cannot per se  violate these provisions.  
 
3. ESTABLISHMENT OF A BENEFIT 
 
3.1 It has been ruled by the Panel and upheld by the Appellate Body in Canada – Aircraft  that in 
establishing the existence of a benefit, the focus shou ld be placed on the recipient of a subsidy instead 
of the granting authority.   
 
3.2 China takes note that in establishing a bene fit conferred by the KEXIM legal framework and 
the workout plan of Daewoo-HI/Daewoo-SME resp ectively, the European Communities attaches 
much of its emphasis on the granting authorities at issue and thus fails to comply with the interpretation made by the Appellate Body in Canada - Aircraft .  Therefore, the evidence and 
arguments presented by the European Communities in  its submission do not persuasively prove that 
there is a benefit in each of the instances.   
  WT/DS273/R 
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3.3 In Canada – Aircraft , the Appellate Body interpreted th at a financial contribution will only 
confer a benefit if it is provided on terms that are mo re favourable than those available in the market.  
In China’s view, in the process of conducting such  comparison with commercial terms, all pertinent 
factors that have a bearing on the comparis on must be taken into account properly and 
comprehensively.  China finds suppor ts of its view from Article 14 of the SCM Agreement  and a 
statement by the Panel in Canada – Aircraft .   
 3.4 In China’s view, the European Communities fails  to consider certain pertinent factors when 
assessing whether the KEXIM legal framework and the workout program applied to Daewoo-HI respectively confer a benefit.  In the former inst ance, the European Communities does not take note of 
the underlying reason why other commercial banks do not provide loans or guarantees similar to those 
provided by KEXIM.  In the latter case, the Eu ropean Communities takes the action of foreign 
financial institutions as a benchmar k without regard to factors that may affect the comparability of 
such a “benchmark”.    4. CAUSATION ANALYSIS IN THE CONTEXT OF ARTICLE 6.3(C) OF THE SCM 
AGREEMENT 
 
4.1 China is of the opinion that the phrase “ the effect of the subsidy” in Article 6.3(c) of the SCM 
Agreement  requires that the subsidy, independent from other factors , must have caused significant 
price suppression or depression.  In this resp ect, China shares the same view with Korea.  
 
4.2 China thinks that the European Communities fa ils to correctly consider the implicit meaning 
of Article 15.5 of the SCM Agreement  and the GATT Panel report in US – Norwegian Salmon CVD , 
and such failure leads to no evaluation of “the effect of the subsidy” in isolation of other factors that 
were affecting the price of commercial vessels.   
 
4.3 China is of the view that, in order to est ablish a causal relationship between the subsidy and 
price suppression or depression of the like produc t in the same market, two inter-related causal 
relationships should be estab lished: first, the subsidy causes  the subsidized company to suppress or 
depress the price of its own product; second, such suppressed or depressed product price causes  the 
suppression or depression of the price of like product in the same market.  Establishment of these two 
causal relationships calls for assessment of three fa ctors:(1) the magnitude of the subsidy; (2) the 
effect of the subsidy upon the price of the product supplied by the subsidy recipient; (3) the suppression or depression effect of the price of the r ecipient’s product upon that of the like product in 
the same market.  China thinks these three factors should be collectively and consecutively considered 
in the causation analysis.  
 
4.4 In China’s view, the word “signifi cant” used in Article 6.3(c) of the SCM Agreement  calls for 
quantitative examination in the analysis on causal rela tionship.  It should be shown that the subsidy 
causes significant  price suppression or depression to the recipient’s product price and thereby causes 
significant  price suppression or depression of the like product in the same market.  China considers 
that the requirement of “significant” should be cons idered and satisfied throughout the entire process 
of causation analysis.  
 
4.5 China considers that, the European Comm unities, without presenting any actual figures to 
support its argument of quantitative effect of the subs idy measures at issue, fails to establish that the 
subsidy causes significant  price suppression or depression.  
 5. CONCLUSION  
5.1 In conclusion, China is of the view that, 
 WT/DS273/R 
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(1) Non-mandatory legislation cannot, as such, violate Articles 3.1(a) and 3.2 of the SCM 
Agreement ; 
 (2) When establishing a benefit, focus should be placed on the recipient of the subsidy, 
and proper and comprehensive consideration must be given to all pertinent factors 
that affect the comparison with commercial terms.   
 (3) Article 6.3(c) of the SCM Agreement  requires that in order to find a causal 
relationship between the subsidy and the significant price suppression or depression 
of the like product, it should be established that the subsidy, independent from other 
factors, and through the suppressed or depr essed price of the product of the subsidy 
recipient, causes significant price suppression or depression of the like product in the same market; the term “significant” should be taken into account in the entire process 
of causation analysis.    WT/DS273/R 
 Page C-5 
 
 
ANNEX C-2 
 
 
ORAL STATEMENT OF CHINA 
 
 
(9 March 2004) 
  1. Thank you, Mr. Chairman, and members of the Pa nel.  It is a pleasure to appear before you 
today to present the views of China in this proceeding.   I wish to highlight certain aspects of the issues 
addressed in our written submission.    
I. NON-MANDATORY LEGISLATION IN THE CONTEXT OF ARTICLE 3 OF THE 
SCM AGREEMENT 
 
2. One of the key issues in this dispute is whether non-mandatory legislation can as such violate Article 3 of the SCM Agreement .  In its written submission, China submits that the 
mandatory/discretionary distinction should be app lied in the context of Articles 3.1(a) and 3.2 of the 
SCM Agreement , and therefore, non-mandatory legislation cannot per se  violate these provisions.   
 
3. First, the Panel in US – Section 301  stated that, the mandatory/discretionary nature of a piece 
of legislation is not exclusively decisive on whet her it can violate a WTO agreement.  That Panel 
believed that the most important point under consid eration should be the precise obligations contained 
in the particular WTO provision at issue.  The Appellate Body in US – Sunset Review  also had the 
view that “the import of the ‘mandatory/discre tionary distinction’ may vary from case to case”. 
 
4. Second, WTO precedents show that, in order to  establish that a piece of legislation, as such, 
violates Article 3 of the SCM Agreement , such legislation must mandate the grant of prohibited 
subsidies that are inconsistent with Article 3.  
 
5. Third, China does not agree with the Eur opean Communities that the word “shall” in 
Article 3.1(a) of the SCM Agreement  should be understood as prohibiting non-mandatory legislation 
providing for the grant of export s ubsidy.  The Appellate Body in United States – Section 211  held 
that it cannot be assumed that a WTO member w ill fail to implement its obligations under the WTO 
Agreement in good faith.  Accordingly, it may not be appropriate to assume that KEXIM will act, 
under the legal framework of the KE XIM Act, inconsistently with the SCM Agreement.  In addition, 
China believes that in the case of non-mandatory legi slation where the grant of export subsidy and its 
export contingency may still be pendi ng on the exercise of discretion enjoyed by the government, it is 
not reasonable to come to a conclusion that the legislation per se  constitutes an export subsidy and 
hence should be prohibited.  
 
6. Nor does China agree with the European Comm unities that the term “not maintain” used in 
Article 3.2 of the SCM Agreement  should be interpreted as “preve nt”.  The European Communities 
also submits that the ordinary meaning of “maintai n” is to cause something to continue.  Logically, 
the term “maintain” only points to existing things while “prevent” is used to address something that 
does not exist but may occur in the future.  Therefor e, to interpret “not maintain” as “prevent” would 
expand the obligation imposed by the SCM Agreement  and thus fails to comply with Article 3.2 of the 
DSU.   
 WT/DS273/R 
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II. ESTABLISHMENT OF A BENEFIT 
 
7. The second key issue China would like to addr ess is establishment of a benefit.  In this 
dispute, the European Communities challenges certain Korean measures as constituting export 
subsidy and actionable subsidy.  In demonstrating th e existence of a subsidy, the element of a benefit 
is of great importance.   
 8. In this respect, China firstly submits that, in  establishing the existence of a benefit, the focus 
should be placed on the recipient of a subsidy instead of the granting authority.  This point has been made by the Panel and upheld  by the Appellate Body in Canada – Aircraft . 
 
9. China notices that in establishing a benef it conferred respectively by the KEXIM legal 
framework and the workout plan  of Daewoo-HI/Daewoo-SME, the European Communities attaches 
much of its emphasis on the granting authorities at issue and thus fails to comply with the interpretation made by the Appellate Body in Canada - Aircraft .  For this reason, China thinks that the 
evidence and arguments presented by the Euro pean Communities in its submission do not 
persuasively prove that there is a benefit in each of the instances.    10. Secondly, China believes that, in the pro cess of making comparison between the terms on 
which financial contribution is made to the recipi ent and those available on the market, all pertinent 
factors that have a bearing on the comparis on must be taken into account properly and 
comprehensively. China finds suppor ts of its view from Article 14 of the SCM Agreement  and a 
statement by the Panel in Canada – Aircraft .   
 11. In China’s view, the Europ ean Communities seems to neglect certain pertinent factors when 
assessing whether the KEXIM legal framework or the workout program applied to Daewoo-HI confer 
a benefit.  In the former instance, the European  Communities does not take note of the underlying 
reason why other commercial banks do not provide loans or guarantees similar to those provided by 
KEXIM.  In the latter case, the European Co mmunities takes the action of foreign financial 
institutions as a benchmark without regard to fact ors that may affect the comparability of such a 
“benchmark”.    III. CAUSATION ANALYSIS IN THE CONTEXT OF ARTICLE 6.3(C) OF THE SCM 
AGREEMENT 
 
12. The third key issue China would like to highlig ht is causation analysis in the context of 
Article 6.3(c) of the SCM Agreement .   
 
13. First, China believes that the phrase “ the effect of the subsidy” in Article 6.3(c) of the SCM 
Agreement  requires that the subsidy, independent from other factors , must have caused significant 
price suppression or depression.  In this respect , China shares the same view with Korea.   
 
14. China thinks that the European Communities fails to correctly and properly consider the 
implicit meaning of Article 15.5 of the SCM Agreement  and the GATT Panel report in US – 
Norwegian Salmon CVD , and such failure leads to no evaluation of “the effect of the subsidy” in 
isolation of other factors that were affecting the price of commercial vessels.   
 
15. Second, China also submits that, in orde r to establish a causal relationship between the 
subsidy and price suppression or depression of the li ke product in the same market, two inter-related 
causal relationships should be established: first, the subsidy causes  the subsidized company to 
suppress or depress the price of its own product; second, such suppressed or depressed product price 
causes  the suppression or depression of the price of like product in the same market.  
 
  WT/DS273/R 
 Page C-7 
 
 
16. China thinks that these two in ter-related causal relationships link three factors that should be 
considered in the causation analysis:(1) the magnitude  of the subsidy; (2) the effect of the subsidy 
upon the price of the product supplied by the su bsidy recipient; (3) the suppression or depression 
effect of the price of the recipient’s product upon that of the like product in the same market.  China 
thinks these three factors should be collectivel y and consecutively considered in the causation 
analysis.  
 
17. Third, in China’s view, the word “si gnificant” used in Article 6.3(c) of the SCM Agreement  
calls for quantitative examination in the analysis on causal relationship.  It should be shown that the 
subsidy causes significant  price suppression or depression to the recipient’s product price and thereby 
causes significant  price suppression or depression of the like product in the same market.  China 
thinks that the requirement of “significant” should be considered and satisfied throughout the entire 
process of causation analysis.  In China’s view , the European Communities in its first written 
submission, appears to have not presented any act ual figures to support its argument of quantitative 
effect of the subsidy measures at issue, and thus fails to establish that the subsidy causes significant  
price suppression or depression.  
 
IV. CONCLUSION 
 
18. This concludes my presentation.  Thank you again for this opportunity to express China’s 
views.   
 
 WT/DS273/R 
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ANNEX C-3 
 
 
EXECUTIVE SUMMARY OF THE WRITTEN 
SUBMISSION OF JAPAN 
 
 
(9 February 2004) 
 
 1. Japan makes this third party submission to co mment on certain aspects of this case.  For the 
sake of convenience, this submission uses the same a bbreviations as used in the EC First Submission. 
 
2. First, Japan would like to emphasize that , as the EC argues, the market for commercial 
shipbuilding is generally considered to be a global market.  Shipowners can virtually register their 
vessels in the shipping register of any country, and al so operate them anywhere in the world, not just 
in the country where they are registered.  Nationa l boundaries and laws hardly have any effect on the 
shipbuilding business, and traditional tariff and non-tar iff barriers also have a limited effect.  This 
“global” nature of the shipbuilding market ema sculates the traditional antidumping and countervailing 
duty laws.   
 3. Thus, Japan has great interest in this case as it relates to the question of whether and to what 
extent subsidies in the shipbuilding sector can be  effectively controlled under the WTO Agreement. 
 
4. Second, with respect to the EC’s claims that  certain Korean laws and regulations, and certain 
financial programs by the KEXIM are in violation of the SCM Agreement as such , Japan would like 
to urge this Panel to appropr iately elaborate on the findings of the Appellate Body in US - Sunset 
Review (Japan) on the issue of the mandatory law doctrine and properly determine the extent of the 
applicability of this decisions to this case.  
5. Third, in Japan’s view, the set of facts allege d by the EC indicate that the Korean shipbuilding 
companies were subsidized by financial contribu tions provided by their Korean creditor banks in 
connection with their restructuring plans, tax conces sions granted in relation to the restructuring and 
export credit programs provided by the KEXIM for the shipbuilding companies.  Given the facts 
alleged by the EC, Japan’s position is that KAM CO, KDIC, BOK, KDB, IBK and KEXIM should be 
found to be “public bodies”, as the EC claims.  Thus, financial contribution provided by these 
institutions can be considered as a “subsidy” unde r the SCM Agreement.  Also, Japan’s position is 
that the set of facts alleged by the EC indicates th at the Korean government granted a subsidy to its 
shipbuilding industry by directing or entrusting non-p ublic Korean banks to make contributions to the 
industry.   Japan agrees with the EC that the complaini ng party does not have to show a formal or 
official command by the government in order to prove “direction or entrustment”. 
 6. Furthermore, given the facts alleged by the EC , in particular the fact that the government of 
Korea has a strong control over the creditor banks of the Korean shipbuild ing companies, Japan 
considers plausible the EC argument that financial contributions (e.g. debt and interest forgiveness 
and debt-for-equity swap) that were made by cred itor banks of the Korean shipbuilding companies in 
their restructuring plans have conferred a bene fit to the Korean shipbuilding companies.  
  WT/DS273/R 
 Page C-9 
 
 
 7. Japan considers that it is important whether or not Panel supports the EC argument that the 
scope of the relevant “market” should not be geographically limited under Article 6.3(c) of the SCM 
Agreement.  Furthermore, Japan concerns the EC argument that the market for commercial vessels is 
indeed a global market, as mentioned above, and that “any assessment of price suppression, price depression, or lost sales must be conducted with respect to the world market.”  
 
8. Japan is also aware that despite the in crease in demand, following 2000 the price of 
commercial vessels has been staying low or even fal ling.  It seems to support the EC argument that 
the subsidy provided by the Korean government to its shipbuilding industry has resulted in “serious 
prejudice” to the EC’s interests. 
 
9. Japan’s position is that the Japanese shipbuildi ng industry has been also adversely affected by 
the subsidies at issue.  In addition, Japan would like to point out that during the period from 1997 to 2001, Japanese shipbuilders experienced a number of lo st sales of LNG carriers in competition with 
offers made by Korean shipbuilders at the prices th at were 10 to 27 per cent lower.  During the same 
period, it was reported that Japanese shipbuilders also  lost sales of some container vessels, since the 
prices offered by Korean competitors were 15 to 17 per cent lower.  10. Finally, Japan agrees with the EC’s recognition that overcapacity in global shipbuilding would no longer exist if the Korean government had not subsidized its shipbuilding industry.  Japan 
deems it reasonable to consider that the subsid y granted to the Korean shipbuilding industry, 
combined with the overcapacity maintained as a result of the subsidy, caused price suppression and 
depression in the global shipbuilding market.   11. As stated in the foregoing, Japan supports the EC’s position in regard to its claim that it has 
been seriously prejudiced by the subsidies gr anted to the Korean shipbuilding companies. 
 
 WT/DS273/R 
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 ANNEX C-4 
 
 
ORAL STATEMENT OF JAPAN 
 
 
(9 March 2004) 
  1. Mr. Chairman and distinguished Members of the panel, on behalf of the Government of 
Japan,  I thank you for your attention to this matter.   Japan joined this proceeding as a third party to 
address its substantial trade interest in the matter befo re this Panel.  We would like to focus on four 
points presented by other parties regarding the EC claims on the actionable subsidy provided to the 
Korean shipbuilding industry.  
2. Japan would like to discuss the following four points: 
 
(a) Firstly, Japan will emphasize that the pro ceeding of this dispute should take place, 
taking due account of the nature of the globalized shipbuilding market. 
 (b) Secondly, Japan will demonstrate that Ko rea is erroneously dividing the shipbuilding 
market by overly emphasizing differences in the size of commercial vessels and 
downplaying the fact that the end-uses for those vessels are exactly the same. 
 (c) Thirdly, Japan will demonstrate that the EC is not arguing that debt forgiveness 
provided in bankruptcy proceedings is an  illegal subsidy for bankrupt companies. 
 
(d) Fourthly, Japan will refute Korea’s a pparent claim that th e Japanese shipbuilding 
industry is responsible for the alleged injury to the EC shipbuilding industry. 
 I will now discuss each point in greater detail.  
3. First of all, as stated in its third party submission, Japan emphasizes that the shipbuilding 
market is indeed globalized.  We have to keep this  fact in mind in order to discuss this dispute in a 
proper manner.  The globalized nature of the market renders virtually meaningless to the Members’ right under GATT Article VI of taking antidumpi ng or countervailing duty measures in order to 
protect domestic shipbuilding industries from forei gn competitors’ dumped or subsidized exports.  
Japan urges the Panel to keep this in  mind when examining the EC claims. 
 4. Furthermore, Japan disagrees with Korea’s argument that the Panel should examine whether 
the subsidies at issue are causing “serious prejudi ce” to the EC industry based on national markets 
rather than the single globalized market.  National boundaries and laws hardly have any effect on the 
shipbuilding business.  By ignoring this reality of  the shipbuilding market, no analysis could produce 
a satisfactory result in this dispute.  5. Also, in footnote 272 of its First Submission, Korea refers to an EC paper which argues that 
the Japanese market is isolated.  In  Japan’s view, this statement should simply be disregarded as one 
example of the lingering prejudice about the Japanese ma rket.  More importantly, this is particularly 
untrue because the market is truly globalized.  As  Japan repeatedly stated, national boundaries and 
laws hardly have any effect on the shipbuilding busin ess.  Consequently, there is virtually nothing in 
the market that prevents the effects of a subsidy to a particular country’s shipbuilding industry from  WT/DS273/R 
 Page C-11 
 
 
 expanding its activities worldwide.  Thus, consideri ng the subsidy measures at issue, Japan believes 
that it would be unreasonable to conclude that the subsidy measures have  not produced obvious 
negative effects on the competitors of the Korean shipbuilders which receive actionable subsidies. 
 6. Secondly, Japan submits that Korea is also erroneously dividing the shipbuilding market in 
terms of products.  In the “like product” analysis , Korea overly emphasizes the differences in the size 
of commercial vessels, while illegitimately downplayi ng the significance of the fact that the end-uses 
are exactly the same.  As long as the end-use of  these two products is same, they are normally 
regarded as competing with each other.  Further mo re, it is generally considered in the shipbuilding 
market that a lower-priced offer for a type of vessel  will generate an immediate market effect on the 
market price of any other type of vessel.  Cost f actors are largely common for most types of vessels if 
it’s not for all, and by this point of view, maritime  transport companies usually consider that when a 
shipbuilder offered a lower price for a type of v essel, the shipbuilder can o ffer a lower price for all 
other types of vessel as well.  Following this reasoning, maritime transport companies, then, 
increasingly demand a discount for any type of vessel vis-à-vis all other shipbuilders, and 
consequently, a low price prevails throughout the market for all types of vessels.   
 7. Thirdly, Japan does not see the relevance of Korea’s argument that debt forgiveness provided 
in bankruptcy proceedings must not be found to be an illegal subsidy for bankrupt enterprises.  Our 
understanding is that the EC is not arguing that de bt forgiveness provided by banks to certain Korean 
shipbuilders in their restructuring proceedings per se  impermissibly grants a benefit under the Subsidy 
Agreement.  Rather, Japan understands that the EC’s  argument involves three steps: First, domestic 
banks that were under the control of the Governme nt of Korea provided debt forgiveness to the 
Korean shipbuilding companies on more favourable terms than foreign banks  which were not under 
the control of the Government of Korea; second, su ch foreign banks should be  deemed to behave in 
accordance with market terms; and, as a result, thir d, the debt forgiveness pr ovided by the domestic 
banks granted a “benefit” within the meaning of Ar ticle 1.1(b) of the Subsidy Agreement.  Korea’s 
argument in this regard to this issue misrepresents the EC claim. 
 8. In Japan’s view, this issue also raises ques tions regarding Korea’s rebuttal on the issue of 
specificity.  The statutory framework for corporate restructuring may generally be applicable to any 
enterprise.  In addition to the limited availability  of this framework, however, Japan would like to 
remind the panel of how the EC defines “subsidy” measures.  The issue is whether certain domestic 
banks granted debt forgiveness to the Korean sh ipbuilding producers on more favourable conditions 
than the market terms, pursuant to the direction or entrustment of the Government of Korea.  Again, 
our understanding is that the EC is not cha llenging the corporate restructuring framework per se . 
 
9. Fourthly, Japan would like to point out that  Korea’s First Submission attempts to shift 
responsibility for the alleged injury to the EC shipbu ilding industry on to th e Japanese industry.  This 
claim is another attempt to divert the attention of the Panel from the focus of this case.  Our 
understanding is that the primary issue is not whet her the subsidy to the Korean shipbuilding industry 
caused the price decline for comme rcial vessels from 1997 to 1999, but  whether such subsidy caused 
price suppression after the decline–;and specifically, whether the subsidy caused the market price to 
remain at the declined level from 2000 to 2003 despit e the increase in demand and cost.  We note that 
Korea itself argues that the focus should be on the current situation.  Furthermore, Korea’s claim 
concerning the Japanese industry is unreliable.  Th e complexity of the actual market mechanism 
requires the analysis of many transactions and releva nt factors such as negotiation process, in order to 
conclude which market participant or participants caused a price effect on the market.  Therefore, 
Japan is of the view that the EC’s analysis which refers to many transactions is more plausible than 
Korea’s rebuttal.  Rather, as stated in our third pa rty submission, the Japanese industry has also been 
negatively affected by the aggressive pricing of the Korean shipbuilders.  Also, Japan notes that WT/DS273/R 
Page C-12  
 
 market share does not necessarily determine who is a pr ice leader in the market.  Heavily subsidized 
enterprises can lead price competition, especia lly with a considerable production capacity. 
 10. Thank you, Mr. Chairman and dist inguished Members of the panel. 
  WT/DS273/R 
 Page C-13 
 
 
  
 
ANNEX C-5 
 
 
RESPONSES OF JAPAN TO QUESTIONS FROM THE 
EUROPEAN COMMUNITIES AND KOREA 
 
 
(22 March 2004) 
 
 
Questions by the European Communities 
 
Question 1:  Japan considers in para. 10 of its Third Party Submission that on the basis of the 
facts alleged by the EC, KAMCO, KDIC, BO K, KDB, FFIK and KEXIM should be found 
"public bodies".    In Japan’s view, what fact ors should the Panel consider when determining 
whether an entity is a "public body"? 
 
Answer  
 
1. Japan is of the view that there is no sing le controlling factor; the comprehensive and case-by-
case evaluation of all relevant factors may warrant a proper determination as to whether an institution 
is a “public body” within the meaning of Article 1.1(a)(1) of the Subsidy Agreement.  Relevant 
factors include, but are not limited to, whether and what public policy objective the institution has, whether and to what degree the government has c ontrol over the appointment of management or 
budget, whether and to what degree the government ow ns shares in that institution, and whether and 
to what degree the government has supe rvisory power over operational planning. 
 
Question 2: Japan considers in para. 12 of its Third Party Submission that the facts alleged 
by the EC indicate that the Korean governme nt entrusted and directed non-public Korean 
banks to make contributions to the industr y.   Does Japan therefore also agree that 
circumstantial and secondary evidence is sufficient to proof entrustment and direction on a case 
to case basis? 
 
Answer
 
 
2. First, as stated in paragraph 13 of its third pa rty submission, Japan agrees with the EC that the 
complaining party does not have to show formal or  official command by a government in order to 
prove “direction or entrustment”.  Second, Japan would like to point out that no provision in the 
Subsidy Agreement or the WTO Agreement sets fort h that circumstantial or secondary evidence is 
inadmissible as proof for “direction or entrustment”.   
 
Question 3: In Japan’ view, in the context of  price suppression or depression claims in 
Article 6.3c), what is the geographic scope of th e phrase "in the same mark et"?   Please describe 
the geographic scope of the market for LNGs, product and chemical tankers, and 
containerships. 
 WT/DS273/R 
Page C-14  
 
 Answer  
 3. Japan is of the view that the “same market ” under Article 6.3(c) of the Subsidy Agreement 
should mean, in terms of the shipbuilding business, the single global market for the same type of commercial vessels.  It is widely recognized that the shipbuilding market is globalized.  In our view, 
this recognition is based on the follo wing two characteristics of the market: 
 4. First, shipowners can virtually register thei r vessels in the shipping re gister of any country, 
and also operate them for transporta tion anywhere in the world, not just in the country where they are 
registered.  Thus, geographical elements are of little  significance, in particular, for commercial vessels 
that are operated and, accordingly, compete with one another in the overseas transportation market. 
 5. Second, our observation is that shipowners have  no particular preference in the nationality of 
shipbuilders.  Japanese shipowners may procure vessels from abroad, and Japanese shipbuilders may 
export a number of vessels abroad.  As indicated  in Exhibit JPN-1 attached hereto, Japanese, 
European and Korean shipbuilders have competed one another in the LNG carrier market since the 
mid-1990s, when the Korean shipbuilders newly entered into this market.  For product tankers and container carriers, as indicated in Exhibit JPN-2 also attached hereto, a number of shipbuilders, 
including those from Japan, Europe, Korea, and Ch ina, have been competing one another since the 
beginning of 1990s.  Question 4: Japan considers in para. 18 of its Third Party Submission despite the increase in demand following 2000 the prices of  commercial vessels has been staying low or even falling. 
What evidence does Japan have concerning the pr ice trends in world shipbuilding market? Do 
these trends reflect the demand and supply of vessels? 
 Answer
 
 6. See the chart contained in Exhibit JPN-3, which indicates the relationship between the price 
of commercial vessels, and the aggregate amount of  orderbook.  This chart was prepared by the 
OECD.  
7. This chart shows that the price and the a ggregate amount of orderbook correlated with each 
other until 1996, when Korean sh ipbuilders increased their production capacity on a large scale, thus 
generating overcapacity in the shipbuilding mark et, and further, witnessing a significant price 
decrease.  Since then, no such correlation can be f ound; rather, despite the increase in the aggregate 
orderbook, the price of commercial vessels has been staying low or even decreasing.  Japan is of the 
view that the subsidy provided to some Korean shipbuilders has prevented the market mechanisms 
from dealing with this overcapacity problem by keep ing those companies that were on the verge of 
bankruptcy in business as a result of the aforesai d aggressive capacity increase and resulting price 
decrease.  Those companies would probably have been  forced out of the market in the absence of the 
subsidy at issue.  Question 5: In Japan's view, the Japanese sh ipbuilding industry has been also adversely 
affected by the subsidies at issue. Why couldn't the Japanese shipbuilding industry match the Korean prices for LNGs and Co ntainerships? Did such a situation prevail before 1997? 
 
Answer
 
 
8. As noted in paragraph 18 of  its third party submission, the prices offered by Korean 
competitors were 15 to 17 per cent lower than thos e offered by Japanese shi pbuilders.  These prices  WT/DS273/R 
 Page C-15 
 
 
 were much lower than that the Japanese shipbuilders expected from th e market situation before 1997, 
and thus, they could not keep up with the pricing practices of Korean competitors.  
 
Question 6: Japan in para.16 of its Third Part y Submission supported the EC argument that 
the subsidy provided by the Korean government to  its shipbuilding industry has resulted in 
"serious prejudice" to the EC's interest. Does Japan therefore agree that there were no other 
relevant factors that disturb the causal li nk between the Korean subsidies and the price 
depression and suppression? 
 
Answer  
 
9. See the Answer to EC Question 4.  Japan’s view  is that the subsidy granted to certain Korean 
shipbuilders has maintained the overcapacity in th e shipbuilding market, and thus, is the primary 
cause of the continued low prices despite the demand increase after 2000, i.e. price suppression.  
 WT/DS273/R 
Page C-16  
 
  
 
Exhibit JPN – 1 
 
 
 
  WT/DS273/R 
 Page C-17 
 
 
  
Exhibit JPN – 2 
 
  
 
 
 
 WT/DS273/R 
Page C-18  
 
 Exhibit JPN - 3 
 
  
 
  WT/DS273/R 
 Page C-19 
 
 
 Questions by Korea 
 Question 1: The EC has indicated in the Sixt h Report from the Commission to the Council 
on the situation in world shipbuilding
1 that order intake in Japan comes from domestic demand 
and that “[t]hese orders by Japanese shipowners are almost inaccessible to other shipbuilding 
countries and therefore provide a captive market for Japanese yards”.  
 Did foreign builders participate in bids by Japanese shipowners for the building of 
LNGs or other vessels?  If not, how does this a ffect the definition of the geographical market 
and the causation analysis submitted by the EC in its first submission? 
 
Answer
 
 1. This is simply another example of the lingering prejudice about the Japanese market.  It is erroneous to consider that the Japanese market is a captive market for Japanese yards.  First, nothing 
in Japan prevents foreign shipbuilders from particip ating in bids by Japanese shipowners.  Further, 
there is no trade barrier ( de jure  or de facto ) against imports of commercial vessels in Japan. 
 2. Second, the reality is that Japanese shipowne rs may procure commercial vessels from abroad.  
For example, the data compiled by Clarkson indicates that even referring only to current order stock for Korean shipbuilders, with r espect to LNG carriers, at least Mitsui O.S.K. Lines, Nippon Yusen 
and Kawasaki Kisen have placed several orders in  total; with respect to container ships, Nippon 
Yusen and Kawasaki Kisen have placed more than 10 orders in total.  3. Again, we would like to reiterate that it is widely recognized that the shipbuilding market is 
globalized.  Shipowners can virtually register their v essels in the shipping register of any country, and 
also operate them for transportation anywhere in th e world, not just in the country where they are 
registered.  Thus, the shipbuilding market is not divided geographically.  
Question 2: Japan claims that prices fo r Korean vessels were below prices for Japanese 
vessels (paragraph 18 of Japan’s written submission) but the EC has not made a claim on price undercutting.  What is the relevance then of Japan’s claim? 
 
Answer
 
 4. Japan provided examples of lower priced offers  by Korean shipbuilders in support of the EC 
argument for price depression or suppression caused by subsidies granted to Korean shipbuilders.  
Our understanding is that Korean shipbuilders of fered and continue to offer lower prices than 
Japanese and other competitors, i.e. price undercuttin g, resulting in price depression or suppression in 
the global shipbuilding market.  
Question 3: Can Japan provide the criteria on the basis of which it would propose to 
determine the like product for the vessels subject to this dispute? 
 
Answer
 
 5. Japan’s view is that the type of vessels (e .g. LNG carriers, product tankers and container 
carriers) is a controlling factor in determining th e scope of “like product” for commercial vessels.  
The term “like product”, under GATT Article III or other WTO provisions, has taken into 
                                                 
1 COM(2002)622 final, 13 November 2002, Section 2.2.3, page 8. See also Seventh Report from the 
Commission to the Council on the Situation in World Shipbuilding, COM(2003)232 final, 6 May 2003, 
Section 2.1.1, page 5. WT/DS273/R 
Page C-20  
 
 consideration, on a case-by-case basis, such as (i) pr oduct properties, (ii) end-uses, (iii) consumers’ 
preference, and less importantly, (iv) tariff classifications, of subject products.  As Japan stated at the third party session, it is obvious that the type of vesse ls is closely connected to their end-use; the same 
types of vessels are competing with one another in the overseas transportation market.  Question 4: Does Japan consider that for the purpo se of demonstrating that the effect of the 
subsidy concerned is significant price depression or suppression, the subsidy must be quantified. 
If so, what is the basis for such quantification? 
 
Answer
 
 
6. Indeed, it would be easier to evaluate preci sely whether a subject subsidy has caused price 
depression or suppression, if the amount of the subsidy is quantified.  However, even if it is not 
quantified, Japan believes that it is still possible to find such a causal nexus between a subsidy and 
price depression or suppression.  For example, assume, as the EC claims in this dispute, that certain 
producers would have been forced out of the ma rket in the absence of a subject subsidy, and 
consequently, the lingering overcapacity problem would have ceased to exist.  In this situation, given 
that the market price is also staying low despite the demand increase, it is reasonable to find that the 
demand increase should have elevated the market price in the absence of the subs idy.  In other words, 
the subsidy caused price suppression.  
 
  WT/DS273/R 
 Page C-21 
 
 
  
 
ANNEX C-6 
 
 
WRITTEN SUBMISSION OF NORWAY 
 
 
(9 February 2004) 
 
  
TABLE OF CONTENTS 
 
Page
 
 
A. INTRODUCTION ............................................................................................................. C-2 2 
 
1. Introductory comments................................................................................................... C-22  
 
2. General interpretative issues in Article 1 of the SCM Agreement.............................. C-23 
 
(a) A financial contribution................................................................................................... .. C-23 
(b) A public body .............................................................................................................. ...... C-23 
(c) A benefit is th ereby conferred ........................................................................................... C- 25 
(d) Conclusion................................................................................................................. ........ C-25 
 B. PROHIBITED SUBSIDIES .............................................................................................. C-25  
3. The APRG and the Pre-shipment Loans constitute a subsidy which is  
 “specific” within the meaning of Article 2.3.................................................................. C-25 
 
4. The APRG and the Pre-shipment Loans constitute a subsidy which is   “contingent on export performance” within the meaning of Article 3.1(a)................ C-25 
 
5. Conclusion on prohibited subsidies................................................................................ C-26 
 
C. ACTIONABLE SUBSIDIES............................................................................................. C-26  
1. Same market ................................................................................................................. ... C-26 
 2. “Like product” or oth er product comparison............................................................... C-27 
 
D. CONCLUDING REMARKS............................................................................................. C-27  WT/DS273/R 
Page C-22  
 
 A. INTRODUCTION 
 1. The present case concerns whether the rules set  out in the Kexim Act, Kexim Decree and 
Kexim Interest Rate Guidelines est ablishing the Korean Export Import Bank (hereinafter referred to 
as KEXIM) and the rules concerning some of the programmes implemented by KEXIM violate 
Korea’s obligations under the WTO Agreemen t on Subsidies and Countervailing Measures 
(hereinafter referred to as the SCM Agreement).   2. The case has been brought by the European Communities (hereinafter referred to as the EC), 
which asks the Panel to find that Ko rea has granted subsidies that are inconsistent with its obligations 
under the SCM Agreement, because: 
 
■ Through the KEXIM Act, KEXIM Decree and Interest Rate Guidelines, Korea grants 
prohibited subsidies that are inconsistent w ith Article 3.1 and 3.2 of the SCM Agreement ; 
 
■ Through the establishment and maintenance of Advance Payment Refund Guarantees 
(hereinafter referred to as APRGs) and Pre-shipment Loan Programmes, Korea grants prohibited subsidies that are inconsistent w ith Article 3.1 and 3.2 of the SCM Agreement ; 
 
■ Through individual APRGs and pre-shipment lo ans, Korea grants prohibited subsidies that 
are inconsistent with Article 3. 1 and 3.2 of the SCM Agreement ; 
 
■ By granting subsidies to Daewoo-SME/Daew oo-HI, Samho-HI/Halla-HI, and STX/Daedong 
through (i) workout plans and restructuring plans; (ii) tax concessions to Daewoo-HI/Daewoo-SME; and (iii) KEXIM APRGs a nd pre-shipment loans, Korea has caused 
serious prejudice to the interests of the EC in violation of Articles 5(c) and 6.3(c) of the SCM 
Agreement . 
 3. Norway has systemic interests as regards the interpretation and application of the SCM 
Agreement, and has thus reserved the right to pa rticipate as a third party in the present dispute. 
Norway will not address all the issues that are raised  in the submissions by the two parties to the 
dispute, but will concentrate on certain issues of law and legal interpretation that are of importance to 
Norway. 
 
1. Introductory comments 
 
4. Norway's point of departure is that the ex istence of national guara ntee institutions, and the 
guarantees and loans provided by such ins titutions, do not necessarily constitute a prima facie case of 
prohibited or actionable subsidisation under the SCM Agreement.  Most countries have such 
institutions and arrangements in the field of shipbuilding.    5. However, Norway is of the opinion that the services provided by such institutions should be 
provided on market terms. The price of the servi ces offered should not contain any elements of 
subsidisation. Where the price of the services offere d are not offered on market terms, then there may 
be a prima facie  case of prohibited or actionable subsidisati on provided that the relevant conditions of 
Articles 1 and 2 of the SCM Agreement  are met. Due regard must be given in this respect to the 
qualifications contained in Annex I to the SCM Agreement , paras. “j” and “k”, to the effect that not all 
practices by such institutions are considered prohi bited export subsidies.  In our opinion the rules 
governing the Advance Payment Refund Guarantee (h ereinafter the APRG ) and the Pre-shipment 
Loan programmes (administrated by KEXIM) as set out in the Kexim Act, Kexim Decree and Kexim 
Interest Rate Guidelines would seem to go beyond what is a normal market practice. KEXIM by granting loans under these programmes may thereby have violated the SCM Agreement .  Whether,  WT/DS273/R 
 Page C-23 
 
 
 and to what extent, there is subsidisation in respect of a particular ship or contract will depend on the 
specifics of each case.  
2. General interpretative issues in Article 1 of the SCM Agreement 
 6. The assessment of whether there are actionabl e or prohibited subsidies in the present case 
raises certain issues of interpretation related to Ar ticle 1 of the SCM Agreement.  These are concerned 
in particular with whether KEXIM falls within the definition of a “public body”, whether there is “a 
financial contribution” and whether “a benefit is thereby conferred”. 
 
(a) A financial contribution 
 7. It does not seem to be in dispute that loan s and grants have been provided by KEXIM, and 
that they may constitute “a financial contribution” within the meaning of Article 1.1.(a)(1)(i).  The 
argument put forward by Korea
1 centres around the words “government practice” in Article 1.1(a)(1), 
which is alleged to restrict the scope of tr ansfers that may be considered as a subsidy. 
 8. Norway finds it difficult to follow Korea’s ar gument, since Korea appears to be using the 
term “government practice” to refer to somethi ng different from “public body practice”.  The word 
“government” is defined in Article 1.1(a)(1) as including “public body” throughout the SCM 
Agreement .  Making a distinction based on the argument that “government” in this sub-paragraph 
must mean a reference to certain functions that are normally vested in governments (e.g. regulatory 
powers or taxation) runs counter to  the general definition of “govern ment” in Article 1.1(a)(1), and 
should not be upheld.  (b) A public body 
 
9. The term “public body”, which appears in Article 1.1(a)(1) of the SCM Agreement , is not 
defined in the agreement.   10. However, the General Agreement on Trade in Se rvices (GATS) has two definitions that are of 
interest here.  Firstly, the definition of “measures by Members” (i.e. Member Governments) includes 
central, regional or local governments and author ities, and also “non-governmental bodies in the 
exercise of powers delegated by central, regional or local governments or authorities” (GATS Article I:3(a)(ii)).  Secondly, in paragraph 5(c)  of the Annex on Financial Services to the GATS 
Agreement “public entity” is defined as:  
a government, a central bank or a monetary authority, of a Member or an entity 
owned or controlled by a Member , that is principally engaged in carrying out 
governmental functions or activities for governmental purposes, not including an entity principally engaged in supplying fi nancial services on commercial terms; or a 
private entity, performing functions normally performed by a central bank or monetary authority, when exercising those functions (our underlining). 
11. Furthermore, in Annex 1, pa ragraph 6, of the Agreement on Technical Barriers to Trade, 
central government body is defined as “central gove rnment, its ministries and departments or any 
body subject to the control of the central government in respect of the activity in question ” (our 
underlining).  While Norway certainly recognises that  no definition contains the precise words “public 
body”, and that no transposition can be made directly  from one agreement to another, the definitions 
                                                 
1 First written submission by Korea, para. 161- 165. WT/DS273/R 
Page C-24  
 
 in these agreements appear to be relevant wh en defining “public body” as used in the SCM 
Agreement . 
 12. It would seem from the above that “ownersh ip” by the Government, or “control” by the 
Government in respect of the activity in questi on are necessary ingredients when defining “public 
body”.  However, ownership is not in itself enough, since many state-owned enterprises are not 
considered to be public bodies simply by virtue of their ownership.    13. The second element that may be inferred from th e above, that the “body” (in order to be a 
“public body”) must carry out governmental functi ons or activities for governmental purposes, is 
more difficult to assess.  What is to be cons idered governmental functions or activities for 
governmental purposes is to a large degree dependent on the organisation of the State, and the extent 
to which its political leadership h as decided that certain functions or  services are to be provided by the 
government, directly or indirectly.  There are gr eat divergences between the Members of the WTO in 
this respect.  The statutes of the body, its funding,  and whether the government has guaranteed that 
the body cannot go into liquidation, are all elements  that may indicate that the body in question is a 
“public body”.    14. It should also be noted that “export credit guarantee or insurance programmes” are explicitly 
covered in the “illustrative list of export subsidies” in Annex I to the SCM Agreement .  This is an 
indication that when government-controlled bodies provi de such guarantees or insurance, this will 
normally be considered to be c overed by the subsidy definition. 
 15. Norway submits that the following elements provide convincing evidence to the Panel in its 
assessment that KEXIM must be considered a “public  body” within the meaning of Article 1.1.(a)(1) 
of the Agreement on Safeguards : 
 
• According to Article 1 of the KEXIM Act
  KEXIM’s task is “to promote the sound 
development of national econom y and economic co-operation with a foreign country”.   
 
• In the KEXIM 2002 Annual Report, KEXIM is described as “an official export credit agency 
providing comprehensive export credit and project  finance to support Korean exporters and 
investors” and facilitating “the developmen t of the national economy and enhanc[ing] 
economic co-operation with foreign companies as a financial catalyst”.2   
 
• Since December 2002 KEXIM has been owned by the Government of Korea, the Bank of 
Korea and Korea Development.3  The two latter bodies are government agencies.   
 
• A number of other articles in the KEXIM Act  confirm that KEXIM is a “public body” within 
the meaning of SCM Agreement  Article 1.1.1(a)(1), see in par ticular Article 37 of the Act?, 
“any net loss incurred by the Export-Import bank during any fiscal year shall be covered by 
its reserves.  If the reserves are insufficient to cover the net loss, the Government shall 
provide funds to cover such net loss”.4    
 
• See also KEXIM Act Articles 36(2), 11, 21, 32 and 33, which clearly underline that KEXIM 
is a “public body” within the meaning of Article 1.1(a) of the SCM Agreement.    
 
                                                 
2 See Exhibit EC-14 
3 See KEXIM 2002 Annual Report, p.34 (Exhibit EC-14) 
4 See KEXIM Act (Exhibit EC-10)  WT/DS273/R 
 Page C-25 
 
 
 (c) A benefit is thereby conferred 
 16. Further, Article 1.1(b) of the SCM Agreement requires that a “benefit” has to be conferred. 
The term has not been defined in the SCM Agreemen t, but has been interpreted in WTO jurisprudence
 
in a number of cases.  In  The Panel Report Canada – Aircraft  the term was defined as: 
 
[A] financial contribution will only confer a "benefit", i.e., an advantage, if it is provided on terms that are more advantageous 
than those that would have been 
available to the recipient in the market .5 (our underlining) 
17. The Appellate Body up held this interpretation.6  
 
18. Article 26 of the Kexim Act clearly states that “ Except where inevitable for maintaining the 
international competitiveness to facilitate the export ,… the interest rates, discount rates and fee rates 
applicable to loans, and guarantees extended under pa ragraphs (1) and (2) of Ar ticle 18 shall be so set 
as to cover the operating expenses…” 
 
19. In Norway’s view, the wording of Article  26 implies that the Government of Korea 
(hereinafter GOK) de facto instructs Kexim, to offer lower inter est rates on pre-shipment loans and 
premiums on APRGs than the market rate, if su ch practice is necessary in order to secure export 
contracts for Korean companies.  Thus, the Kexim Act allows for financing “on terms that are more 
advantageous than those that would have been availabl e to the recipient in the market” and may 
thereby confer a “benefit” within th e meaning of Article 1.1 (b) of the  SCM Agreement . 
 20. Norway will not discuss in detail whethe r the terms on which KEXIM programmes, in 
question, are granted are more advantageous than  those that would have been available to the 
recipients in the market.  This is  for the parties to the dispute to argue.  Norway wishes to point out, 
however, that if this is the case, it may t hus constitute a prima facie case of “benefit”. 
 (d) Conclusion  21. Based on the above, Norway subm its that we are faced with a “ financial contribution” by a 
“public body”  that may confer a “ benefit”  and thereby constitute a “subsidy” within the meaning of 
the SCM Agreement Article 1.   
 B. PROHIBITED SUBSIDIES  
3. The APRG and the Pre-shipment Loans constitute a subsidy which is “specific” within 
the meaning of Article 2.3 
 
22. According to Article 2.3. of the SCM Agre ement any subsidy falling under the provisions of 
Article 3 is to be deemed to be specific.  
4. The APRG and the Pre-shipment Loans cons titute a subsidy which is “contingent on 
export performance” within the meaning of Article 3.1(a) 
 
23. According to Article 3.1, for a subsidy to be prohibited it must be con tingent on either export 
performance (a) or the use of domestic goods over im ported goods (b).  The APRG is in our opinion 
contingent on export performance.   
                                                 
5 Panel Report, Canada - Aircraft, para. 9.112., but also Brazil – Aircraft, para 7.24 and US – Lead and 
Bismuth II, para 6.66 
6 AB Report Canada – Aircraft , paras 154, 157. WT/DS273/R 
Page C-26  
 
  
24. The wording of the KEXIM Act  clearly shows that the purpose of the KEXIM programmes is 
to facilitate export.  For example, Article 18 of the Act states that the loans are given “for the promotion of the export of goods”. The wording of the Act leaves no doubt that the programmes represent a subsidy whose goal is to promote the ex port of Korean goods.  The subsidy is contingent 
on export performance and is therefore a prohibited subsidy within the meaning of Article 3.1(a) 
 
5. Conclusion on prohibited subsidies 
 
25. According to the facts presented by the EC  regarding the specific grants (paras 166-182) , 
these grants are provided  on terms that are more advantageous 
than those that would have been 
available to the recipient in the market . Based on these findings, Norway is of the opinion that the 
Panel should find that the specific grants provided under the APRG and the Pre-shipment Loan Programmes are inconsistent with Article 3.1(a) of the SCM Agreement . 
 
C. ACTIONABLE SUBSIDIES 
 26. In its first written submission, part IV D, th e EC demonstrates that Korea granted subsidies, 
as defined by Part I of the SCM Agreement, to  Daewoo-SME/Daewoo-HI, Samho-HI/Halla-HI and 
STX/Daedong, and that those subsidies were specif ic.  The EC further argues that the subsidies 
provided by Korea are actionable subsidies within th e meaning of Articles 5(c) and 6.3(c) of the SCM 
Agreement.   
 27. Norway will in this respect only address ce rtain issues of interpretation arising from 
Article 6.3(c) of the SCM Agreement.    
28. Article 6.3(c) states that:  
 
“the effect of the subsidy is significant price undercutting by the subsidised product 
as compared with the price of a like product
 of another Member in the same market 
or significant price suppression, price depression  or lost sales  in the same market ” 
(our emphasis). 
29. The EC is only claiming the existence of “price suppression” and “price depression”, not 
“price undercutting”.  The question of interpretati on thus only arises as regards the second alternative 
in Article 6.3(c), i.e. “or significant price suppr ession, price depression or lost sales in the same 
market.”  
30. Norway therefore presents the following argumen ts as regards the interpretation of the legal 
definition of (1) the “same market ” as used in Article 6.3(c) in the context of the shipbuilding 
industry, and (2) how price depression or price su ppression is related to a “like product” or other 
comparison between products.  
1. Same market 
 
31. A geographical market, in the ordinary meaning of the word, can refer to a market of any size, 
with national, regional or even global dimensions .  Unlike Article 6.3(a) and 6.3(b), which impose 
geographical limitations on the term  “market” (i.e. national markets), Article 6.3(c) includes no such 
limitation.  If the negotiators had intended to limit th e term market in 6.3(c) to national markets, they 
could have done so by using wording si milar to that in 6.3(a) and 6.3(b). 
  WT/DS273/R 
 Page C-27 
 
 
 32. The term “same market” has not been defined in  jurisprudence.  Norway submits that the term 
“same market” in Article 6.3(c) should not be interpreted narrowly as a Member’s national market, 
but that due regard must be given to the special characteristics of the shipbuilding industry.  33. In the case of commercial vessels, it is widely recognised that the market is global. In its 
comments to the OECD regarding possible measur es used to regulate low-price “dumping” by 
shipbuilders, the Korean Shipbuilders’ Association not ed that: “[t]here is only a single fully integrated 
global market in this sector, wherein shipbuilders co mpete with each other without any restriction on 
market access, purchasers, or movement of vessels.  No meaningful distinction of national markets 
exists in the world shipbuilding industry.” 
7 
 
34. The fact that the market for commercial vessel s is global needs no clarification; ships can sail 
anywhere, be owned by anyone, and be registered anywhere in the world regardless of the nationality 
of the shipowner and his place of business.  This has been the trend for a large number of years, in particular since the 1970s, when there was a rise in  the number of “international ship registers”. 
Shipowners themselves do not operate within geogr aphical boundaries when they order new vessels. 
The only “boundaries” in the shipbuilding world, wh ere there are highly sophisticated shipbuilding 
companies everywhere, is in reality the price.  Subsidies in any form, in this highly competitive 
industry, can have a major impact and steer the market towards a particular country.  35. Based on the above Norway submits that th e only meaningful interpretation of the “same 
market” in this particular context is a global market without any national boundaries.  
 
2. “Like product” or other product comparison 
 
36. Article 6.3(c) makes reference to a “like pr oduct” in respect of “price undercutting”, but does 
not make a direct reference to a “like product” in respect of price suppression, price depression or lost 
sales in the same market.  37. It is clear, however, that price suppression, price depression and lost sales can only occur when the products are competing for the same c ontracts.  “Like product” must therefore be 
understood to refer not only to “price undercutting” in th e first alternative in Article 6.3(c) but also to 
price suppression, price depression and lost sales in th e second alternative.  Furthermore, in respect of 
ships, due regard must be given to the many sub-categories of ships (e.g. Aframax, Panamax, Suezmax) that do not compete with each other.  D. CONCLUDING REMARKS 
 
38. Norway respectfully requests that the Pa nel take the arguments presented above into 
consideration when making its findings and recommendations in this case.  
 
                                                 
7 OECD Council Working Party on Shipbuilding, Industry Hearing on Establishing Normal 
Competitive Conditions in World Shipbuilding, Subm ission by the Korean Shipbuilders’ Association, 
C/WP6(2002)3/ADD1/REV2. WT/DS273/R 
Page C-28  
 
  
ANNEX C-7 
 
 
ORAL STATEMENT OF NORWAY 
 
 
(9 March 2004) 
  Mr. Chairman, 
Distinguished Members of the Panel, 
Ladies and gentlemen,   Introduction
 
 
1. First of all, I would like to thank you for th is opportunity to present the Norwegian view on 
certain aspects of the present case without any refere nce to BCI.  In its third-party submission, 
Norway addressed certain issues of legal interpretati on which we consider to be of crucial importance 
for the settlement of the case.  I will not repeat all these arguments here, but concentrate on certain 
legal aspects of the KEXIM pre-shipment loans .  
 
2. I will start by commenting on whether the lo ans in question can benefit from a safe haven 
based on item (k) of Annex I to the SCM Agreement.  I will continue with the discussion of whether 
these loans can be considered prohibited subsidies  within the meaning of Article 3.1 (a) read in 
conjunction with Article 1 of the Agreement, and in this regard I will limit myself to discussing the 
requirement that a benefit must be conferred.  
 3. I will also comment on the discussion of whether the loans are actionable subsidies
 according 
to Article 5(c) read in conjuncti on with Article 6.3 (c).  In this respect I will limit myself to some 
remarks on the interpretation of the term “same market”  with regard to commercial vessels. 
 
The understanding of Annex I item (k)  
 4. In its first written submission Korea states that  its pre-shipment loans are excluded from the 
ambit of Article 3 of the SCM Agreement as they ar e covered by the exception in item (k) of Annex I 
to the SCM Agreement.
1  
 
5. According to the second paragraph of item (k) the application of an export credit practice 
should not be considered a prohibite d export subsidy if 1) the Member applying the practice is a party 
to an international undertaking on official export cr edits to which at least twelve Members are parties 
and 2) the practice is in conformity with th e provisions of the relevant undertaking.  
 
6. Korea together with more than 12 other Members2 is party to an international undertaking 
under the auspices of the OECD, the “Consensus Agreement” 3, thus fulfilling the first criterion. The 
                                                 
1 See Korea’s first written submission paras. 269-277 
2 The OECD Export Credit Arrang ement currently has 23 participants (counting the EU Member 
States), all of which are WTO Members. 
3 Arrangement on Officially Supported Export Credits of 11 February 2004 TD/PG(2003)24  WT/DS273/R 
 Page C-29 
 
 
 question remains therefore whether the contested lo ans are covered by and “in conformity” with the 
provisions of that Agreement.  
 7. Article 5 of the Consensus Agreement concerni ng the scope of the Agreement clearly states 
that “the Arrangement shall apply to all official s upport provided by or on behalf of a government for 
export of goods and/or services … wh ich have a repayment term of two years or more” . 
 8. In para. 277 (ii) of its first written submission, Korea states th at the pre-shipment loans are 
provided with the usual maturity of 90 -180 days. T hus the loans have a shorter repayment term than 
required and consequently fall outside the scope of the Consensus Agreement.  
 
9. In conclusion, Korea cannot claim a safe have n under the exception in Annex I item (k) for its 
KEXIM pre-shipment loans, which means that the loans must be assessed under the general rule in 
Article 3 of the SCM Agreement on prohibited subsidies.  
Article 1.1 (b) – what constitutes a “benefit”
 
 10. As I have already mentioned, Article 3 refers  to Article 1, which defines the term “subsidy” 
for the purpose of the SCM Agreement. I would now like to discuss what constitutes a “benefit” 
according to Article 1.1 (b). The term “benefit” is  not defined in the SCM Agreement, but has been 
interpreted by panels and the Appellate Body  in a number of cases. According  to Canada-Aircraft
4  
“a benefit is conferred if a financ ial contribution is provided on terms that are more advantageous than 
those that would have been available to the recipient in the market”.  
 11. Article 26 of the Kexim Act states that “Except where inevitable for maintaining the 
international competitiveness to facilitate the export,… the interest  rates, discount rates and fee rates 
applicable to loans and guarantees extended under para graphs (1) and (2) of Article 18 shall be so set 
as to cover the operating expenses…”  12. In Norway’s view, the wording of Article 26 of the KEXIM Act implies that the Government of Korea de facto instructs KEXIM to offer lower inte rest rates on pre-shipment loans
 if such a 
practice is necessary in order to secure export contracts for Korean companies. 
 
13. I will not  assess whether the interest rates provided by KEXIM place the Korean exporters in 
a more advantageous position than if they were to obtain such financing on market terms. However, if 
the Korean exporters enjoy such an adva ntageous position, we are faced with a prima facie  case of 
“benefit”.  
 
The concept of  “same market” in Article 6.3(c)  
 14. I will now turn to the interpretation of the concept “same market” in Article 6.3(c), which 
have a bearing on whether the loans are “actionable s ubsidies” within the meaning of Article 5 (c) of 
the SCM Agreement. 
 
15. In Norway’s opinion Article 6.3(c) provi des two alternative ways to establish serious 
prejudice in the sense of Article 5(c): 1) the effect  of the subsidy is a significant price undercutting 
by 
the subsidised product, as compared with the price of a like product  of another member in the same 
market  or  2) the effect is either a significant price suppression,  price  depression or lost sales  in the 
same market . 
 
                                                 
4 Panel Report , Canada-Aircraft , para. 9.112 and AB Report Canad-Aircraft , paras. 154,157. WT/DS273/R 
Page C-30  
 
 16. It is Norway's understanding that the EC, in the present case, claims that the effect is a 
significant price suppression or depression. However, to decide whether this  is the case, both the 
geographical market and the product market  concerned must be considered. 
 Geographical market
 
 
17. First some comments as regards the geographical market: In the ordinary meaning of the phrase, geographical market can refer to a market of any size, with national, regional or even global 
dimensions.  Unlike Article 6.3(a) and 6.3(b), wh ich impose geographical limitations on the term 
“market” (i.e. national markets), Ar ticle 6.3(c) contains no such limita tion.  If the negotiators of the 
SCM Agreement had intended to limit the term “marke t” in 6.3(c) to national markets, they could 
easily have done so by using wording similar to that in 6.3(a) and 6.3(b).  18. The term “same market” has not been defined by jurisprudence.  No rway believes that the 
extent of the geographical market will vary depe nding on the characteristics of the products in 
question. 
 19. In the case of commercial vessels, it is widely recognised that the market is global. In its 
comments to the OECD regarding possible measur es used to regulate low-price “dumping” by 
shipbuilders, the Korean Shipbuilders’ Association not ed that: “[t]here is only a single fully integrated 
global market in this sector, wherein shipbuilders co mpete with each other without any restriction on 
market access, purchasers, or movement of vessels.  No meaningful distinction of national markets 
exists in the world shipbuilding industry .”  
 20. This was confirmed last week by the OECD  Special Negotiation Group for shipbuilding. The 
participants, including the delegation from Korea, agr eed that there is only one single fully integrated 
market for commercial vessels – that is the global market.  
 21. In this respect, there are several examples of the fact that Norwegian yards compete with 
shipbuilders all over the world, including Korean yards, i.a. regarding contracts  on product and chemical tankers. This supports the idea that, in the field of commercial vessels, there is only one 
meaningful interpretation of the term “same market ” in Article 6.3 (c) and that is a global market. 
 
The product market
 
 22. Finally some remarks on the determination of the “product market”: This  must be defined on 
a case-by-case basis. Norway is of the opinion that one must look to the specifics of the particular 
sector in question – that is the building of commercial vessels. In this sector there is a great potential 
for substitution between products as many yards all over the world are able to build different types of 
ships.   
With this, Norway would like to thank the pa nel for this opportunity to comment on certain 
issues of the case at hand and hopes that they may be helpful. 
 
Thank you for your attention. 
   WT/DS273/R 
 Page C-31 
 
 
  
 
ANNEX C-8 
 
 
RESPONSES OF NORWAY TO QUESTIONS FROM 
THE EUROPEAN COMMUNITIES AND KOREA 
 
 
(22 April 2004) 
  
Questions from the European Communities  
 
Q1: In Norway's view, are the APRGs and PSLs supplied by KEXIM provided on terms more 
favourable than is otherwis e available on the  market? 
 
Reply  
  As a third party,  Norway has not undertaken any assessment of whether the actual interest 
rates provided by KEXIM place Korean exporters in a more advantageous position than if they were 
to obtain such financing in the market.  If however  this is the case, as stated by the European 
Communities, a ”benefit” is conferred. 
 
 Further, as explained both in our written submissi on and our oral statement, Norway is of the 
view that the wording of Article 26 of the KE XIM Act implies that the Government of Korea de facto  
instructs KEXIM to offer lower interest rates on pre- shipment loans than what is otherwise available 
in the market –provided that such practice is necessary in order to secure export contracts for Korean 
shipbuilders.  
 
Q2:  In Norway's view, do price suppression or depres sion claims under Arti cle 6.3(c) of the 
SCM require the complainant to perform a "like product" analysis? 
 
Reply  
 
 As a third party Norway has not undertaken any concrete assessment of the question raised.    
 
Q3: In Norway's view, in the context of pr ice suppression or depression claims in 
Article 6.3(c), what is the geographic scope of the phrase "in the same market"?  Please 
describe the geographic scope of the market for LNGs, product and chemical tankers, and 
containerships. 
 
Reply  
 
 Concerning the geographical scope of ”the same  market” in Article 6.3(c), the Norwegian 
view is that the wording of this provision – unlik e the wording in Article 6.3 (a) and 6.3 (b) which 
imposes geographical limitations on the term ”market”- has no such limitations in it.  We believe that 
the negotiators of the Agreement – left the ge ographical scope to be defined depending on the 
characteristics of the market and product in questi on. In other words, the scope may vary and be 
national, regional or even global de pending on the product concerned.  
 WT/DS273/R 
Page C-32  
 
  The geographic scope of the market for LNGs , product and chemical tankers and container 
ships are global as many yards all over the world ar e able to build these types of ships which operate 
internationally.  This means that a buyer of the commercial vessels concerned may by and large 
address yards all over the world and choose the one ab le to provide the ship according to the required 
specifications at the best price.  
 
Questions from Korea  
 
Q8: In the assessment to determine whether a “public body” exists, No rway proposes to take 
into account whether the body co ncerned must carry out governmental functions or activities 
for governmental purposes.  What does Norway consider to be governmental functions or 
activities for governmental purposes?   
Reply
 
 
 As a third party Norway, as stated in its written submission, limits itself to pointing out that  it 
is difficult to undertake  a general assessment of what constitut es governmental functions or activities 
for governmental purposes as such functions or ac tivities to a large degree are dependent on the 
organization of the state, and the extent to whic h its political leadership has decided that certain 
functions are to be provided by the government, dir ectly or indirectly.  This could vary from one 
Member country to another as there are great di vergences between the Members of the WTO in this 
respect.  
Q9: Does Norway consider that the US market is open, i.e. that all shipbuilders whatever 
their origin can participate in bidding or sa les processes for the comm ercial vessels concerned? 
Does Norway consider that the fact that a national  market is open or closed is relevant for the 
assessment on adverse trade effects and on the definition of geographic market?  
Reply
 
  Norway as a third party, fails to see the need  for – and will refrain from commenting upon 
any specific national market restrictions that may exis t.  However, any such restrictions that may exist 
cannot alter the fact that the overall market for co mmercial vessels in intern ational trade is a global 
and integrated market as explained by Norway in its submission and oral statement.   WT/DS273/R 
 Page C-33 
 
 
  
ANNEX C-9 
 
 
EXECUTIVE SUMMARY OF THE WRITTEN 
SUBMISSION OF THE UNITED STATES 
 
 
(12 February 2004) 
 
 
I. INTRODUCTION 
 1.  Although this dispute raises a host of issues that are of systemic importance to the operation 
of the Agreement on Subsidies and Countervailing Measures  ("SCM Agreement"), properly 
identifying the "like product(s)" is one of the fundamental prerequisites for a prima facie  case of 
serious prejudice under Article 6.3.  If the Panel were  to agree with Korea that the EC has failed to 
properly identify the like product(s), it would be appr opriate for the Panel to deny the EC’s actionable 
subsidy claims on that basis and to refrain from making findings with respect to the other issues raised 
in this dispute.  
II. GENERAL ISSUES 
 2.  The United States questions the accuracy of  the EC’s characterization of the report in Japan - 
Apples , given that the Appellate Body stated in para graph 157 "that the party that asserts a fact is 
responsible for providing proof thereof".  In additio n, if the EC is asserting that Annex V somehow 
removes the burden of proof from the complainant, then the EC would be in error.  Nothing in 
Annex V in particular or the SCM Agreem ent in general supports such an assertion. 
 
3.  If the EC is asserting that a Panel is limite d to the consideration of information gathered 
through the Annex V process, then the EC is in erro r.  Under Article 6.8 of the SCM Agreement,  the 
"record" includes, but is not limited to, info rmation developed through the Annex V process.
1  I n  
addition, a complainant cannot invoke Annex V to support a prohibited subsidy claim under Part II, 
because Annex V does not apply to Part II. 
 4.  The EC erroneously argues that legisla tion that authorizes, but does not mandate, the 
provision of export subsidies is inconsistent "as such " with the SCM Agreement.  It is well established 
under past GATT and WTO dispute settlement practice that legislation of a Member is generally 
inconsistent with that Member’s WT O obligations only if the legislation mandates  action that is 
inconsistent with those obligations or precludes acti on that is consistent with those obligations.  The 
EC reliance on the panel report in the US - Section 301  dispute is misplaced.   Even assuming for 
purposes of argument that the analysis of the panel in that dispute was correct, the EC has failed to 
explain how Article 3 of the SCM Agreement equat es with Article 23 of the DSU – the provision at 
issue in US - Section 301 .  
 
5.  Contrary to the EC’s assertions, the applicati on of the mandatory/discretionary distinction to 
Article 3.2 does not render the word "maintain" meaningless.  Also, the EC’s brief discussion of the 
                                                 
1 The United States is unsure what the EC means when  it refers to "the record".  There is no formal 
"record" for purposes of these dispute settlement proceedi ngs.  Presumably the EC means to refer to all the 
evidence and information provided to, or obtained by, the Panel. WT/DS273/R 
Page C-34  
 
 Appellate Body report in the Japan Sunset  dispute is misleading, because the Appellate Body 
distinguished the question of whether an instru ment is a measure from the separate question of 
whether the instrument, if it is a measure, ma ndates a breach of any WTO obligation under the 
mandatory/discretionary distinction.2 
 III. ISSUES CONCERNING THE IDENTIFICATION AND VALUATION OF SUBSIDIES  
6.  The United States does not take issue with the EC’s conclusion that KEXIM and the other 
five Korean financial institutions analyzed by the EC are "public bodies".  However, the criteria 
considered by the EC should not be regarded as constituting the exclusive  standard for determining 
whether an institution is a "public body" for purpos es of Article 1.1(a)(1).  The United States urges 
the Panel to limits any findings on this issue to the facts of this dispute.  With respect to Korea’s 
arguments concerning the concept of "public bod y," the text of the SCM Agreement provides no 
support for the notion that a public body ceases to be a public body if it carries out a function that is 
also carried out by private bodies. 
 
7.  With respect to the EC’s allegation that th e Korean Government directed private financial 
institutions to provide subsidies to the shipyards, the United States is in general agreement with the 
EC’s analysis of the phrase "entrusts or directs".  Korea asserts that the EC must document an explicit 
and affirmative governmental action delegating res ponsibility for subsidy actions to each of these 
institutions.  Korea has not cited to any language in the SCM Agreement to support its assertion, and 
there is no such language.
3 
 8.  Regarding the existence of a "benefit," there is no basis for a general presumption that a facile 
sorting of banks into "foreign" or "domestic" cate gories is sufficient in every case to establish which 
institutions provide an appropriate "market" benchmark.  This is n ecessarily a fact-specific exercise, 
particularly in a case such as this where there is  an allegation that the government entrusted or 
directed private banks to provide subsidies.  9.  Korea incorrectly asserts that once a creditor bank becomes an owner of a company, the bank 
is no longer capable of making a financial cont ribution to that company, such as through a 
debt-to-equity swap or debt forgiveness.  If the drafters of the SCM Agreement had contemplated 
having ownership of a company operate as an exem ption from subsidies disciplines, they would not 
have listed equity infusions as an example of a form of financial contribution in Article 1.1(a)(1)(i).  
 10.  With respect to Korea’s assertions concer ning the IMF and World Bank, there is nothing in 
the SCM Agreement stating that a prohibited or  actionable subsidy ceases to be prohibited or 
actionable if it has some sort of blessing by th e IMF or the World Bank.  In addition, Korea 
incorrectly asserts that the activities of KEXIM do not  constitute a "government practice" within the 
meaning of Article 1.1(a)(1)(i).  Export prom otion through financial support is a very common 
government function, and pre-shipment loans and APRG’s are precisely the types of transactions 
whereby a government may provide a subsidy to exporters.    
11.  Korea incorrectly asserts that because DS ME performed successfully after its spin-off, 
Daewoo’s creditors necessarily made the correct decisi on and acted in a market-oriented fashion.  In 
evaluating whether a financial contribution conf ers a benefit, one should focus on the economic 
indicators and other information that would have been available to the provider of a financial 
                                                 
2 The United States also requests that if, in the course of this proceeding, the EC should pursue its 
claim under Article 5(a) of the SCM Agreement, the United States and other third parties be given the opportunity to comment on the arguments of  the parties concerning Article 5(a).   
3 The United States also disagrees with Korea’ s assertions that "unofficial" commentary and 
circumstantial evidence may not be used to demonstrate government "entrustment" or "direction".  WT/DS273/R 
 Page C-35 
 
 
 contribution at the time the decision to provide the financial contribution was made.  Korea also 
incorrectly asserts at various places in its submission that the fact that the companies in question went 
through established insolvency pro cedures automatically means that no subsidies could have been 
provided.  IV. ISSUES CONCERNING SERIOUS PREJUDICE 
 
12.  The United States disagrees with Korea’s asser tion that export subsidies cannot be included in 
a serious prejudice case.  Nothing in the text of the SCM Agreement supports this proposition, and 
Article 13(c)(ii) of the Agreement on Agriculture makes clear that prohibited subsidies can be the 
subject of a serious prejudice case.  To the extent that Korea is arguing that an export subsidy cannot 
be simultaneously  the subject of both a prohibited subsidy claim and a serious prejudice claim, the 
United States also disagrees.  Here, too, Korea do es not cite to anything in the text of the SCM 
Agreement to support this proposition.  Instead, it si mply asserts that action under both Articles 4 and 
7 of the SCM Agreement somehow results in some sort of unfair "double-counting".  The presence of 
both prohibited and actionable subsidy claims with respect to the same subsidy, however, may have 
an impact on the findings made by the Panel.  B ecause the Panel is charged with making findings to 
promote the prompt settlement of disputes, the Pane l might want to consider making separate findings 
with respect to the claims of serious prejudice; i.e., one set of findings that applies to all of the 
subsidies found by the Panel to be specific – including the subsidies found by the Panel to be prohibited – and another set of findings that appli es only to the subsidies that the Panel finds are 
specific, but not prohibited. 
 13.  The United States agrees with Korea that " serious prejudice" is a separate requirement that 
must be satisfied.  Thus, a finding that one of the conditions described in subparagraphs (a)-(d) of 
Article 6.3 exists does not necessarily mean that "ser ious prejudice" exists.  This conclusion follows 
from the use of the phrase "may arise in any case wher e one or several of the following apply" in the 
chapeau  to Article 6.3.  The United States does not ag ree with Korea’s assertion that the standard of 
proof for "serious prejudice" is much greater than the standard for "material injury".  The standards 
are different, but it cannot be said that one is necess arily higher than the other, because "prejudice to 
the interests of another Member" and "injury to a domestic industry" are not the same thing.  The United States also disagrees with Korea’s assertion that  in order to demonstrat e serious prejudice, the 
EC must demonstrate the elements set forth in Ar ticles 11 through 15 of the SCM Agreement.  To the 
contrary, the elements that the EC must establish are set forth in Articles 5 and 6.  14.  The EC incorrectly argues that the phrase "in the same market" in Article 6.3(c) of the SCM 
Agreement can refer to the "world ma rket".  In subparagraphs (a)-(c) of  Article 6.3, the drafters likely 
intended "market" to mean national market, and the limiting language in subparagraphs (a) and (b) 
was not intended to distinguish between national markets and a "world market," but instead was 
intended to distinguish between particular nationa l markets.  Interpreting "market," as used in 
Article 6.3(c), to include the world market would render the word "same" in the phrase "the same 
market" ineffective, because the subsidized and non- subsidized products always could be deemed to 
be in the same "world market".  Finally, the EC  never explains its assertion that if the phrase "in the 
same market" does not encompass a "world market," Members would be precluded "from challenging 
subsidies on the many products that are traded in world markets such as aircraft and ships". 
 15.  Referring to the term "meaningf ully affected" that the panel in Indonesia - Autos  employed, 
the EC asserts that the price depression/suppression it alleges is "significant" because EC yards have 
had to close or have lost market share as a result of  Korean subsidies.  In particular, the EC argues 
that over-capacity in the shipbuilding industry has resulted in excessive price competition to obtain 
orders.  Korea takes issue with the EC’s approach .  Although the United States does not agree with all 
of the conclusions drawn by Korea, it does agr ee that the EC ’s approach is incorrect.   WT/DS273/R 
Page C-36  
 
  
16.  Article 6.3(c) requires that "the effect of the subsidy" is "significant price suppression," but 
"significant" is not defined.  The EC argues that  the Panel should follow the standard employed in 
Indonesia - Autos .  In that report, the panel wrote that the word "significant" was included in the text 
on price undercutting "presumably" to ensure that th e text did not capture "margins of undercutting so 
small that they could not meaningfully affect supp liers of the imported product".  It is difficult to 
ascribe much weight to that panel’s finding, howe ver, given that (1) the panel did not conduct a 
textual analysis of the provision, and (2) the pa nel itself explained that it was making an assumption 
about the provision’s meaning.  The panel went on to find, essentially, that a price that is 33.77 per cent lower represents "significant" price undercutting under anyone’s definition. 
 
17.  A textual analysis of Article 6.3(c) would, as always, begin with its ordinary meaning.  The 
ordinary meaning of "significant" is "important, not able; consequential," which suggests that the price 
suppression must reach a level at which it is import ant, notable, and consequential in order to be 
inconsistent with Article 6.3(c).  The United States  further notes that the term "significant" modifies 
"price suppression or depression"; therefore, it is the effect on prices  that must be "significant" and 
not the direct effect on producers  , as the EC argues.  By shifting the analysis to the effect on 
producers, the EC is improperly collapsing the separate requirements of "significant" price 
suppression or depression and "serious prejudice".  18.  The United States has two concerns regarding the arguments made by both the EC and Korea 
with respect to the issue of causation and price depression or suppression. 
 19.  With respect to the EC’s arguments, the EC  appears to assume that the phrase "effect of the 
subsidy" – the phrase used consistently in Article 6.3 – is the same as the term "effects of the 
subsidized imports" – the term used consis tently through Part V of the SCM Agreement.
4  While the 
United States does not necessarily disagree with the EC ’s ultimate conclusion that subsidies need not 
be shown to be the exclusive cause of the effects id entified in Article 6.3, this conclusion cannot be 
based on a supposed similarity in language between Article 6.3 and the provisi ons contained in Part V 
of the SCM Agreement.  In this regard, the United States notes that, under Part V of the SCM 
Agreement, an investigating authority is expected  to assess "the effects" or "the impact of the 
subsidized imports " on domestic prices and th e domestic industry, not the "effect of the subsidy ," 
which is what Article 6 of the SCM Agreement refers to.5 
 
                                                 
4 See, e.g.,  SCM Agreement, Articles 15.1 and 15.2. 
5 Compare  Article 15.1, 15.2, 15.3 and 15.4 of the SCM Agreement with Article 6.3 of the SCM 
Agreement.   Indeed,  Article 15 only refers to the "effect s of the subsidies" – as opposed to the "effects of the 
subsidized imports" – on one occasion, the first sentence of Article 15.5 .  However, even th ere, the Agreement’s 
negotiators added a footnote specifically indicating that the investigating authority was to assess the "effects of 
the subsidies" as set forth in Article 15.5 by performi ng the analysis described in Articles 15.2 and 15.4.  
Article 15.5, fn. 47.  Articles 15.2 and 15.4 both clearly i ndicate that a material injury analysis must focus on the 
"effects" or "impact" of the "subsidized imports" on the industry and its prices, not on the "effects of the 
subsidy" itself.  Id.  WT/DS273/R 
 Page C-37 
 
 
 V. CONCLUSION 
 
20.  The United States thanks the Panel for providi ng an opportunity to comment on the issues 
involved in this proceeding, and hopes th at its comments will prove to be useful.  
 WT/DS273/R 
Page C-38  
 
  
 
ANNEX C-10 
 
 
ORAL STATEMENT OF THE UNITED STATES 
 
 
(9 March 2004) 
  
Introduction 
 
1.  Mr. Chairman, members of the Panel, it is my  privilege to appear before you to present the 
views of the United States in this dispute.  Toda y, I intend to discuss certain issues that were not 
addressed in the US written submission.  These issues are KEXIM financing, and changes in ownership of companies.  KEXIM Financing 
 
2.  Turning first to KEXIM financing, the Un ited States disagrees with Korea’s assertion that 
KEXIM’s Advance Payment Refund Guarantees (APR G) and pre-shipment loans are protected by 
items (j) and (k), respectively, of Annex I to the SCM Agreement.
1 
 
APRG  
 
3.  With respect to the APRG, item (j) of A nnex I covers insurance or guarantee programmes 
pertaining to the following:  (1) export credits; (2) increases in the cost of exported products; and (3) 
exchange risks.  The APRG does not fall within  any of these three categories of programmes. 
 4.  The APRG does not involve the guarantee of an export credit.  Export credit guarantee 
programmes typically consist of a contingent obliga tion by an export credit agency to pay a private 
lender in the event of a default by the foreign buye r.  By contrast, the APRG does not refer to the 
extension of credit.  Instead, the APRG consists of a guarantee of the obligation of the exporter to 
refund the foreign buyer’s cash down payment in the event that the sales transaction is terminated.  
The cash down payment is the element of  an export sales transaction that does not represent the 
extension of credit. 
 5.  In addition, the APRG does not address incr eases in the price of the exported product or 
foreign exchange risk.  Instead, the APRG addresses  only the obligation on the part of the exporter to 
refund the down payment in the event that the sales transaction is terminated.  However, there is no 
suggestion that the guarantee applies only to export  sales contracts that were terminated because of 
the increased cost of the exported product or  because of exchange rate fluctuations. 
 Pre-Shipment Loans
 
 
6.  Turning to the KEXIM pre-shipment loans, th e EC asserts that they are available to Korean 
exporters, manufacturers and raw materials providers.2  However, they do not appear to fall within the 
                                                 
1  Korea Submission, Sections V. 5 and V.6. 
2  EC Submission, para. 155.  WT/DS273/R 
 Page C-39 
 
 
 scope of item (k), because they are neither "export credits" nor "the payment . . . of all or part of the 
costs incurred by exporters or financial institutions in obtaining credits."   
 7.  First, these loans do not come within the d escription of "export credits" on the OECD website 
cited by Korea, which provides that "an export cr edit arises whenever a foreign buyer of exported 
goods and services is allowed to defer payment. "
3  The OECD description mentions two types of 
export credits:  "supplier credits" and "buyer credits."   "Supplier credits" are extended by an exporter 
directly to an overseas buyer.  "Buyer credits" are ex tended by an exporter’s ba nk or another financial 
institution as loans to the buyer (or the buyer’s bank).  Both types of credits are extended to the buyer 
or its bank.  By contrast, the KEXIM pre-shipment loans are extended not to the buyer, but to the 
exporter.  While such credits may be export-contin gent, in that they would not be made by KEXIM 
but for the contemplated export, they are not expor t credits in that they do not finance the actual 
export.  8.  Second, the pre-shipment loans do not appear to involve "the payment . . . of all or part of the 
costs incurred by exporters or financial institutions in obtaining credits."  While the loans are made to 
exporters, there is no indication that they are at all re lated to "costs incurred . . . in obtaining credits."  
 Existence of a "Benefit"
 
 
9.  Before leaving the topic of KEXIM financing, the United States would like to comment on one point made by Norway in its third-party submission.  As the Un ited States understands it, Norway 
argues that Article 26 of the KEXIM Act allows KEXIM to sometimes lend below its cost where 
concerns of "international competitiveness" make it necessary to do so.  According to Norway, this 
proves that KEXIM financing allows for the conferral of a benefit on a de facto  basis.
4  T h e  
implication in this statement, however, is that KEXIM financing does not confer a benefit in the 
non-exceptional situation where Article 26 requi res KEXIM to cover its operating expenses. 
 10.  Assuming we have understood Norway’s ar gument correctly, then the United States must 
disagree with the standard that Norway suggests.  The Appellate Body has in dicated previously that 
"the marketplace provides an appropriate basis for comparison in determining whether a ‘benefit’ has 
been conferred ... ."
5  Actors in the marketplace seek to earn a profit and not merely cover their costs.  
Therefore, even in non-exceptional situations, KE XIM financing confers a benefit because, as a 
general requirement, Article 26 requires KEXIM to lend at cost. 
 
Changes in Ownership  
11.  We now turn briefly to the second topic that we  wish to discuss in this afternoon’s statement.  
At various places in its first submission, Korea argue s that the EC has failed to take into account the 
effects of changes in ownership on the existence and amount of subsidization.
6  With respect to this 
argument, the United States simply notes that th e Appellate Body has found that under certain 
circumstances, the privatization of a government-o wned or -controlled company may have an effect 
on certain types of subsidy benefits that the company had received prior to its privatization.7  
According to the Appellate Body, the precise effe ct depends upon the nature of the privatization 
transaction, and may include the complete extinguishment  of prior subsidies.  However, an analysis of 
                                                 
3  Korea Submission, para. 266 (emphasis added). 
4  Norway Third-Party Submission, paras. 18-19. 
5 Canada - Measures Affecting the Export of Civilian Aircraft , WT/DS70/AB/R, Report of the 
Appellate Body adopted 20 August 1999, para. 157. 
6  See Korea Submission, paras. 27-30 (Introduction), 374-375, 441 and 449. 
7  See United States - Countervailing Measures Concerning Certain Products from the European 
Communities , WT/DS212/AB/R, Report of the Appellate Body adopted 8 January 2003. WT/DS273/R 
Page C-40  
 
 the facts and circumstances of the privatization tr ansaction is critical in determining whether certain 
subsidy benefits have, in fact, been extinguished. 
 
Conclusion 
 12.  Mr. Chairman, that concludes the third-party statement of the United States.  Thank you for 
your attention.    WT/DS273/R 
 Page C-41 
 
 
  
 
ANNEX C-11 
 
 
RESPONSES OF THE UNITED STATES TO QUESTIONS 
FROM THE PARTIES (FIRST MEETING) 
 
 
(22 March 2004) 
  QUESTIONS FROM KOREA 
 
5.   Korea has introduced the IMF’s views as an element of evidence to be weighted by the 
Panel.  Does the US consider the IMF’s views lega lly or factually irrelevant?  If so, on what 
basis? 
 1.  As a general proposition, the views of the IMF might be relevant to the question of whether a 
"financial contribution" exists.  The IMF would be  particularly well-placed to assess the extent of the 
Korean Government’s involvement in the bail-out of troubled Korean firms.  
6.   Regarding the last sentence in Paragraph 10 of its Oral Statement, is the US now 
arguing that "benefit" is determined by cost to government? 
 
2.  No, the United States is not arguing in favor of a cost-to-government standard for determining 
the existence of a "benefit."  To the contrary, as pa ragraphs 9-10 of the US Oral Statement make clear, 
the United States was contesting the apparent s uggestion by Norway that a cost-to-government 
standard should be applied in analyzing subsidies prov ided by KEXIM.  Indeed, in the last sentence of 
paragraph 10, the United States noted that there would be a benefit even in the non-exceptional 
situations where KEXIM was required to lend at cost .  Such an assertion is hardly consistent with a 
cost-to-government standard.  
3.  In order to avoid any confusion on this poi nt, the United States would add that commercial 
lenders do not routinely lend at cost, because they must seek to earn a profit.  For that reason, 
financing at-cost by KEXIM in "non-exceptional" situations almost certainly would result in the 
conferral of a benefit under a "benefit-to-recipient" approach.  The benefit would be even greater in 
those "exceptional" situations wh ere KEXIM lends below its cost. 
  If the determination of "benefit" is based  on a market benchmark, of what legal 
relevance is cost?  
4.  If a market benchmark is used to determine the existence of a benefit, then what should be 
relevant is what a commercial lender charges a borrowe r for financing, not the lender’s costs.  A focus 
on what the lender charges (or wh at the borrower pays) is the essence of the benefit-to-recipient 
approach.  
 Does the US statement in paragraph 10 go to  the issue of "benefit" or "public body"? 
 
5.  The US statement goes to th e issue of "benefit."  It cannot be seriously maintained that 
KEXIM is not a "public body" within the meaning of Article 1.1(a)(1) of the SCM Agreement. WT/DS273/R 
Page C-42  
 
  
7.   In either case, if the actual evidence shows that KEXIM operated at a profit, would this 
change the US view expressed in paragraph 10?  
6.  No.  As noted above in connection with Ques tion 6, the benefit-to-recipient approach must be 
applied to KEXIM financing.  That approach, in turn, requires a comparison of KEXIM financing to a 
market-based benchmark; i.e., comparable comme rcial financing.  Evidence that KEXIM earned a 
profit would be irrelevant to this exercise, be cause it would not prove that KEXIM was charging 
market rates.  
7.  For example, assume that:  (a) 5 per cent is a rate that covers KEXIM’s costs and allows 
KEXIM to earn a profit; (b) 7 per cent is the rate KEXIM charges; and (c) 10 per cent is the market 
rate.  In this scenario, KEXIM would be earni ng a profit, but still would be providing a benefit 
because it would be lending at below-market rates.  QUESTIONS FROM THE EC 
 
1. Does the US believe that a "public body" in the context of Article l.l(a)(l) should only be 
considered a public body when, as Korea contends, it is "acting in an official capacity on behalf 
of the people as a whole"?  
 8.  No.  
 
2.   Does the US believe that in order for a "p rivate body" to be entrusted or directed in the 
context of Article l.1(a)(iv), such a body must receive explicit and affirmative direction from the 
government?  
 
9.  The phrase "explicit and affirmative direction" appears to be based upon dicta  contained in 
the panel report in United States - Measures Treating Export Restraints as Subsidies , WT/DS194/R, 
Report of the Panel adopted 23 August 2001.  Th e phrase cannot be found in the SCM Agreement 
itself.  The United States has never been certa in as to what the panel meant by "explicit and 
affirmative," but to the extent that the phrase is c onsidered to require a direction in the form of a 
written command from the government to a pr ivate body, the United States disagrees. 
 
3.   Does the US believe, as Korea asserts, that it is impossible to distribute a subsidy 
through a creditor that owns a share of the enterprise that is receiving the benefit?  
 10.   No. 
 
4.   Does the US believe that governmental actions undertaken with IMF or World Bank 
approval are exempt from the disciplines of the SCM Agreement?  
11.  No.  
5.   According to the US, when a panel decid es whether a creditor acted according to market 
incentives in the context of a bankruptcy proceedin g, should the panel consider the  subsequent  
performance  of the  enterprise  or  should  it   consider  only the information that was available 
at the time of the bankruptcy proceeding? 
 12.   A panel considering a dispute under Part III of the SCM Agreement (or an investigating 
authority in a countervailing duty proceeding under Part  V) must put itself in the shoes of the creditor  WT/DS273/R 
 Page C-43 
 
 
 at the time of the investment decision.  Because such a creditor would not have knowledge of the 
firm’s future performance, the pa nel/investigating authority should not consider such information. 
 
6.   Could the US elaborate on their own ex perience regarding the GOK direction of credit 
to Korean companies and in particular their views on KEXIM so called market oriented 
behaviour? 
 
13.  With respect to this question, the Unite d States refers the EC to the countervailing 
determinations of the US Department of Commerc e in cases involving products from Korea.  More 
specifically, the Department’s treatment of partic ular Korean subsidy programmes can be found at 
<www.ia.ita.doc.gov/esel/eselframes.html >.  
  WT/DS273/R 
Page C-44  
 
  
ANNEX C-12 
 
 
RESPONSES OF THE UNITED STATES TO QUESTIONS  
FROM THE PANEL (SECOND MEETING) 
 
 
(2 July 2004) 
  
Q: The parties disagree on whether or not APRGs and PSLs constitute export credit 
guarantees and export credits respectively.  Th e EC submits that they do not, whereas Korea 
asserts that they do.  Would your export credit agency treat APRGs as export credit guarantees, 
and PSLs as export credits?  Please explain and provide relevant documentation. 
 
1. The United States thanks the Panel for the opp ortunity to reply to this question.  As 
background for its reply, the United States notes that the Export - Import Bank of the United States 
(Ex-Im) is the principal US export credit agency. 
 Advance Payment Refund Guarantees (APRGs)
 
 2. It is the understanding of the United States that under the APRG programme, the Korean 
Export-Import Bank (KEXIM) issues guarantees to foreign buyers that Korean exporters will refund 
any cash down payments made by the buyers in the ev ent that the sales transaction is terminated prior 
to export.  As explained in paragraph 4 of the Oral Statement of the United States (9 March 2004), 
while the APRG is a guarantee issued in conn ection with a proposed export (and which may, 
therefore, be export-contingent for purposes of Article 3.1(a) of the Agreement on Subsidies and 
Countervailing Measures ), it is not a guarantee of an export credit.   An export credit typically consists 
of a loan to the foreign buyer.  If the loan is extended by the seller or by a private bank, the export 
credit agency may guarantee the le nder against a default by the buyer regarding repayment.  Such a 
transaction would be an export credit guarantee.   3. Section 9 b) of the OECD Arrangement on Officially Supported Export Credits (the 
Arrangement ) provides that “Official support for ... down payments shall only take the form of 
insurance or guarantee against the usual pre-credit risks.”
1  Ex-Im does not consider the APRG to fall 
within this definition.  Ex-Im’s practice with respect to pre-credit risks is to provide cover to the 
insured party (US exporter or lender acting on behalf of the US exporter) against the risks of contract 
cancellation by the foreign buyer, not for  the foreign buyer.  Moreover, Ex-Im is unaware of any other 
export credit agency that offers the type of cover to  the foreign buyer that Korea provides under the 
APRG programme. 
  Pre-Shipment Loans (PSLs)
 
 4. It is the understanding of the United States that under the PSL programme, KEXIM provides 
pre-shipment loans to Korean e xporters.  Pre-shipment loans are not export credits.  Export credits 
typically are loans to foreign buyers.  Although the OECD Arrangement  does not define “export 
credits”, Section 5 (Scope of Application) of the Arrangement  states that: 
                                                 
1  Arrangement on Officially Supported Export Credits, TD/PG(2004)12, 11 June 2004.  WT/DS273/R 
 Page C-45 
 
 
  
The Arrangement shall apply to all official  support provided by or on behalf of a 
government for export of goods and/or servi ces, including financial leases, which 
have a repayment term of two years or more. 
 (a) Official support may be provided in different forms: 
 
  (1) Export credit guarantee or insurance (pure cover),    (2)   Official financing support:  
    -  direct credit/financing or refinancing, or 
    -  interest rate support.    (3)  Any combination of the above. 
 
5. The Arrangement  definition of  “official support” is li mited to support provided “for export” 
of goods and/or services.  This definition would preclude pre-export financing to the exporter , such as 
the PSL programme.  This interpretation is reinfo rced by language on the OECD’s website, “Export 
credits, about”, which states as follows:  
Governments provide official export cred its through Export Credit Agencies (ECAs) 
in support of national exporters competing for overseas sales.  EC As provide credits 
to foreign buyers  either directly or via private financial institutions benefiting from 
their insurance or guarantee cover.  ECAs  can be government institutions or private 
companies operating on behalf of the government.
2 
While the PSL programme involves the extension of cr edits to Korean exporters that may be export 
contingent for purposes of the Agreement on Subsidies and Countervailing Measures , these credits are 
not export credits within the meaning of the OECD Arrangement . 
 6. US Ex-Im Bank has a Working Capital Guar antee Programme, under which Ex-Im offers a 
guarantee to the commercial lender providing export-re lated working capital to the US exporter.  If 
the US exporter defaults on its commercial bank loan, Ex-Im makes payment on the guarantee, and 
seeks collection against the US exporter.  Because the Ex-Im guarantee covers the risk of the US 
exporter, rather than the foreign buyer, Ex-Im does not  consider this programme to be an export credit 
within the meaning of the OECD Arrangement . 
 
                                                 
2 http://www.oecd.org/about/0,2337,en_2649_34169_1_1_1_1_37431,00.html. Visited 30 June 2004 
(emphasis added).