WT/DS299/R 
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ANNEX C 
  
REBUTTAL SUBMISSIONS OF PARTIES 
  
Contents Page 
Annex C-1 Executive Summary of Korea's Rebuttal Submission C-2 
Annex C-2 Executive Summary of th e European Communities' Rebuttal 
Submission  C-12 
 WT/DS299/R 
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ANNEX C-1 
 
 
EXECUTIVE SUMMARY OF KOREA'S  
REBUTTAL SUBMISSION 
 
 
(4 December 2004) 
 
 
INTRODUCTION 
 
1. Although this case involves a complex and extens ive factual record, at its core this case is 
about assessing the WTO consistency of the actions by the EC authorities.  Korea believes that the EC 
has imposed a punitive countervailing duty that does not comply with EC obligations under the SCM 
Agreement . 
 
I. INJURY ISSUES 
 
A. THE EC MISINTERPRETS ARTICLES 15.1 AND 15.2 OF THE SCM AGREEMENT  AND 
THE STANDARD OF REVIEW 
 2. The EC argues that the only obligation set forth under Articles 15.1 and 15.2 is that the 
national authority "examine" and "consider" the eviden ce.  To the contrary, to satisfy the obligations 
of Article 15.1 and 15.2, the investigating authority mu st demonstrate that its determination is, in fact, 
based on positive evidence  and reflects objective examination .  Moreover, the Panel must be allowed 
to examine whether the evidence on which a determina tion is based is credible.  Verifiable facts are 
not necessarily positive evidence of in jury, and an examination of incomp lete or inadequate facts does 
not make an examination objective.    B. THE EC’S FINDINGS ARE INADEQUATE UNDER BOTH ARTICLES 15.1 AND 15.2 
 
1. The EC’s finding of a significant increase  in imports is not supported by positive 
evidence or objective examination 
 
3. The EC argues that because the EC did not make a specific finding that LGS received subsidies, it could not take into account LGS’ EC shipments during 1998 and 1999.  The EC’s 
proposed justification makes absolutely no sense.  The issue is whether the volume of subsidized 
imports increased over time.  The proper way to analyze the volume of subsidized imports from Hynix over a time period that pre-dates the merger  of Hyundai Electronics and LGS and the existence 
of Hynix is to combine the imports of Hyundai Electronics and LGS in the time period before Hynix.  
Otherwise, there can be no proper "apples-to-apples" comparison.  The EC had LGS data, it just 
declined to undertake an objective analysis. 
 4. The EC also provides no rationale why a finding of an absolute increase in imports would 
constitute positive evidence of a "significant increase"  within the meaning of Article 15.2 when even 
the EC understood that a key characteristic of the DR AM is that the number of bits supplied by all 
producers dramatically increases every year.  What  is important when analzying the volume of 
DRAMs shipments is to exam ine the increased shipments relative to consumption and relative to 
other suppliers.  An absolute increase, by itself, says very little.     WT/DS299/R 
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5. The evidence before the EC demonstrates unequivocally that, when analyzed properly, 
Hynix’ market share did not increase at all , but rather decreased over the period examined.  
Moreover, based on an objective examination, the in crease of value and units was also not significant 
even if the merger effects with LGS were not properl y considered.  Finally, even if the EC’s analysis 
of the volume of subsidized imports somehow complied with Article 15.2, the lack of positive 
evidence and objective examination means that the EC has still violated Article 15.1.   
 
2. The EC’s finding of significant price undercu tting is not supported by positive evidence 
or objective examination 
 
6. The EC found competition in the DRAM mark et takes place largely on price.  Yet, the 
evidence showed that Hynix steadily lost market share in the EC market from 1999 through 2001, the 
years prior to and including the year in which Hyni x allegedly benefited from subsidies.  This steady 
loss of market share cannot be reconciled with  the EC’s own observations regarding price 
undercutting.  Although the EC claims that "it is quite possible for a company to be price 
undercutting, but losing market share for other re asons," it never provides any examples of such 
"other reasons".  More importantly, the EC does not  point to any record evidence that such "other 
reasons" were, in fact, behind Hynix’ decreased mark et share.  Such speculation does not satisfy the 
obligations of Article 15.1 and Article 15.2.  7. The EC defends its flawed price comparison methodology – comparing Hynix’ monthly 
average prices with individual daily prices for Community producers – with a truism that Article 15.2 
does not specify any particular methodology to be us ed to analyze underselling and price effects.  But 
the EC must demonstrate why its approach is correct, and the Panel must determine whether the EC’s conclusion of significant price undercutting is based on positive evidence.    
8. Finally, even if the Panel believes that th e EC somehow complied with Article 15.2 in its 
pricing analysis, it must still assess whether the EC pr icing analysis in this case meets the independent 
obligation under Article 15.1.  For the reasons stat ed above, Korea submits that the EC did not meet 
that obligation.    C. THE EC DID NOT ADEQUATELY CONSIDER THE CONDITION OF THE DOMESTIC 
INDUSTRY 
 9. Article 15.4 of the SCM Agreement  establishes that the national authority must
 examine all  of 
the enumerated injury factors.  But the EC did not  address wages, a specific factor under Article 15.4, 
and it did not make sufficient data available to be able to analyze what a proper analysis of "wages" 
would have produced.  The EC also effectively stat es it does not have to consider statements of its 
own domestic industry that have a direct bearing on the Article 15.4 factors.  Korea finds this position 
problematic, as it provides for no accountability.   10. Contrary to EC claims that the "economic dow nturn" in the DRAM market is "a question of 
causation rather than assessing the condition of th e domestic industry," the DRAM business cycle is 
an overarching consideration that should inform an objective assessment of more discrete economic 
factors.  Yet, nowhere does the EC actually address this cycle alone, or as context in understanding 
other economic factors.  11. Finally, Korea reiterates that the EC has not  explained adequately why just three of 13 
enumerated factors should compel its conclusion that the domestic industry was suffering material 
injury.  While an objective examination of the fact s and a reasoned explanation of the analysis would 
include such consideration, we find nothing in the EC’s  determination to this e nd.  It is inadequate 
under Article 15.4. WT/DS299/R 
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D. THE EC FAILS TO EXPLAIN HOW ITS DETERMINATION SATISFIES THE LEGAL 
REQUIREMENT TO ESTABLISH A CAUSAL RELATIONSHIP AND TO SEPARATE AND DISTINGUISH OTHER FACTORS 
 
1. The EC has failed to show a causal relationship 
 12. The EC injury analysis is premised in larg e part on an erroneous a nd inappropriate finding of 
an absolute increase in subject im ports, with or without including LGS.  Even if this approach 
complies with Article 15.2, this approach does not comply with Article 15.5 read in light of Article 15.1.  And even if Article 15.5 were re ad so narrowly as to permit a finding of causal 
relationship in this situation, the analysis is s till not objective, and would at the very least represent 
another aspect of the EC determination’s th at is inconsistent with Article 15.1. 
 13. The evidence before the EC demonstrated that  there was no correlation between the trends in 
Hynix’s market share and either the domestic i ndustry’s market share or the domestic industry’s 
financial performance.  The EC has therefore no t demonstrated the requisite causal relationship 
required by Article 15.5.  
2. The EC did not properly separate and distinguish causes 
 
14. The EC’s Definitive Regulation  was inconsistent with the requirements of Article 15.5 
because the EC did not separate and distinguish the injurious effects of other factors.  The EC 
erroneously dismissed the role  of the drop in demand for 2001, ignoring compelling evidence by 
every industry observer that the drop in demand, al ong with the accompanying "inventory burn," were 
critical factors for understanding the domestic worl dwide drop in prices in 2001.  The EC ignored 
evidence on changes in relative capacity that conf irmed the dominant role of other suppliers who 
increased their capacity much more than Hynix.  Although the EC tried to address the role of 
unsubsidized imports, it either ignored or distorted the key evidence.   
 15. The standard imposed by Article 15.5 does not allow the EC simply to assert its conclusions.  
The EC was required to explain how it ensured that the injurious effects of the dramatically slowing 
of demand were not included in the assessment of th e injury ascribed to subsidized imports.  Because 
the EC’s determination does not do this, the determ ination is inconsistent with Article 15.5 of the 
SCM Agreement . 
 
II. SUBSIDY ISSUES 
 
A. THE EC’S INTERPRETATION AND APPLICATION OF "FACTS AVAILABLE" IS 
INCONSISTENT WITH ARTICLE 12.7 
 
1. A responding party does not bear the burden and potential consequences of an 
investigating member’s ambiguity 
 
16. The EC believes facts available are warranted in situations where a r esponding Member failed 
to anticipate what the investigating Member consider ed to be "necessary information".  This approach 
is untenable.  The investigating Member must de fine the "necessary information" and adequately 
communicate its expectations to the responding Me mber.  To find otherwise would force a responding 
Member to bear the burden and potential conseque nces of an investigating Member’s ambiguity or 
failure to request what it considers to be "necessary information".   
  WT/DS299/R 
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2. Article 12.7 is a gap filler, not a punitive measure, nor a substitute for the facts on the 
record 
 
17. The EC provides no textual basis for concluding that the purpose of Article 12.7 can only be 
for the purpose of drawing adverse inferences.  I ndeed, the Agreement text supports just the opposite 
conclusion.  In this regard, Annex V of the SCM Agreement  provides important context for the 
interpretation of Article 12.7, cons istent with Article 3.2 of the DS U.  Specifically, paragraph 7 of 
Annex V explicitly contemplates the use of adverse in ferences, but Article 12.7 is silent.  Moreover, 
paragraph 6 of Annex V distinguish es "evidence available" to a Member from the application of 
adverse inferences, which remains the purview of the panel.  It would follow, therefore, that "facts 
available" is also distinct from adve rse inferences, since Article 12 of the SCM Agreement  does not 
otherwise provide for the application of adverse inferences.  
3. The EC does not justify either the applicat ion or extent of application of "facts 
available"  
 18. The EC wrongly applied facts available in a number of instances.  With respect to the 
Economic Ministers’ documents, the EC’s presump tion that the documents prove entrustment or 
direction colours its perspective with respect to whether the Government of  Korea ("GOK") withheld 
these documents.  But a decision to apply facts availa ble should not be driven by the EC’s self-serving 
interpretation of "entrusts or directs". The EC must  consider whether the request for information could 
be interpreted differently.  Even assuming the EC was entitled to apply facts available and adverse 
inferences, the documents should not become an excu se to impugn all financing to Hynix.  Yet that is 
precisely what happened in this case.   19. Similarly, with respect to the 10 March attendance of an FSS official at a Hynix creditor 
council meeting, the EC chose to penalize the GO K based on its own self-interested view of the 
weight to be accorded that attendance in terms of  entrustment or direction, rather than looking 
objectively at the circumstances of its request for info rmation and/or balancing the interests of Korea.  
It should not be the basis for the EC’s application of facts available, particularly in a punitive manner.  
Here again, the EC authorities drew overbroad infere nces, using the attendance as an excuse to attack 
financing completely unrelated to the meeting. 
 
20. The EC also distorts the facts surrounding the Arthur Andersen report.  The EC never indicated that Hynix was not cooperating with respec t to the report, never asked for a more extensive 
excerpt from the report, and never sought to avail itsel f of the opportunity to review the contents of 
the report while at verification.  Only in the Fina l Disclosure Document did the EC raise the issue.  
The EC’s actions were unreasonable, punitive, and in consistent with its oblig ation under Article 12.7 
to rely on "facts," not arbitrary adverse inferences.  21. Finally, the EC misstates the facts with resp ect to Citibank.  It was the EC, not Citibank or 
Hynix, that failed to act in good faith.  Given all the efforts by Citibank to provide requested 
information while remaining in compliance with  its own internal regulations, Citibank cannot 
reasonably be held as non-cooperative.  Again, th e only rationale the EC offers for applying facts 
available in this instance is that Citibank’s assertions could not be verified.  This self-serving 
description of the facts does not begin to detail what  really happened.  The EC’s conduct was neither 
objective nor reasonable.  WT/DS299/R 
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B. ARTICLE 1.1(A)(1)(IV) IMPOSES AFFIRMATIVE LIMITS ON THE SCOPE OF 
"ENTRUSTS OR DIRECTS" 
 
1. The meaning of "entrusts or directs" imposes legal limits 
 
22. The Agreement text is the foundation of ever y Member’s obligations; it is not to be given 
effect only when it suits a Member’s purpose.  Ye t, the EC chooses to ignore the core meaning of 
"entrusts" and "directs" as provided in Article 1.1( a)(1)(iv).  The core meaning of "entrusts" requires 
that there be something to be entrusted.  When a bank makes a loan or forgives a debt that is not 
pursuant to some government programme, there is not hing to be entrusted.  Similarly, the core 
meaning of "directs" is the concept of requiring something, or giving an order.  Any doubts the EC 
attempts to raise through alternative English definitio ns of these terms, can be resolved by referring to 
the French and Spanish texts of the same provision,  both of which use a word that translates into 
English as "order".  
23. The EC tries to downplay the relevance of US-Export Restraints , which provided a careful 
analysis of the "entrusts or directs" standard, by arguing that the panel in that case considered a 
different factual context.  But this effort to distinguish Export Restraints fails on two levels.  First, the 
panel in that case was clearly offering its own readin g of the specific text at issue here.  The factual 
context may have been different, and so the applicati on of the standard to those facts may differ.  But 
the panel first developed its textual interpretation of the meaning of "entrusts or directs".  Second, that 
panel also wisely explained the problems with an ove rbroad reading of "entrusts or directs".  The 
panel noted that "governments intervene in market s in various ways," and distinguished carefully 
between such interventions and actions that by their na ture rise to the level of "entrusts or directs".   
 
2. December 2000 Syndicated Loan 
 
24. The EC claims that the GOK ordered KEB, KFB and KDB to participate in the December 2000 Syndicated Loan.  At the same time, the EC brushes aside the fact that a number of 
other private bodies were also involved that did not require any lending limit waivers.  Their 
participation reflects a choice to lend money to Hynix.  Choice is effectively the antithesis of 
entrustment or direction.  Moreover, nothing in th e EC record reflects a government command or even 
a suggestion that KEB, KDB and KFB lend money to Hynix.  Rather, the means were provided, as 
contemplated under Korean law, for those banks to lend  to Hynix.     
 25. The EC seeks to remedy its argument with th e notion that the FSC conferred a valuable right 
on KEB and KFB through the waivers it granted, not unlike the stumpage rights considered by the 
Appellate Body in US – Softwood Lumber .  But the facts are very different.  The Appellate Body in 
that case found that by granting a right to harvest standing timber (which the government owns), a government provided that standing timber to timber harv esters.  However, it is simply not the same to 
state that by removing a lending restriction on a bank, a government provides a loan.  The government does not
 provide the loan.  Indeed, it never even owne d the funds that comprise the loan.  The bank 
provides the loan .  The loan would only be a financial contribution if the government issued a 
command to the bank to provide the loan.   
 
3. KEIC insurance 
 
26. If the EC intends to treat the KEIC insurance as a grant in the total value of the D/A credit 
line, as opposed to the methodology prescribed in Annex I(j) of the SCM Agreement , the EC must 
demonstrate that Hynix’ creditors were entrusted or  directed to provide the D/A financing.  But the 
EC merely states that the banks provided the financ ing because of the KEIC in surance.  The existence 
of the KEIC insurance does not amount to entrustmen t or direction of the banks.  Nor does it matter 
whether KEIC is a public body.  KEIC provide d insurance, not D/A financing.  The banks  provided 
D/A financing.  At most, the EC has identified some effect , not any evidence of entrustment or  WT/DS299/R 
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direction.  The panel in US-Export Restraints rejected an "effects test" for entrustment or direction, 
and so should this Panel.    
4. KDB programme 
 
27. The EC takes the position that it may counter vail the entire amount of bonds refinanced under 
the KDB as a grant provided by a public body.  This position is illogical in light of the nature of the 
programme, including the burden sharing explicitly c ontemplated by the programme.  The mechanics 
of the programme required KDB to be the initial und erwriter of the refinanced bonds, but many other 
creditors were immediately involved through their own financial commitments and it was understood 
that they would be immediately involved, along with other investors in the CBO/CLO programme.  
Thus, whatever the EC’s position with respect to KDB, given the facts of the programme the EC was 
required to show that these other creditors and invest ors were entrusted or directed by the GOK.  The 
EC did not meet its evidentiary burden.  For these reasons, the EC determination with respect to the 
KDB programme was inconsistent with its  obligations under Article 1.1(a)(1)(iv). 
 
5. The May 2001 restructuring package 
 
28. The EC’s findings with respect to the May r estructuring are premised largely on the alleged 
non-cooperation of the GOK, Hynix and Hynix’s credito rs.  It brushes aside fa irly decisive evidence 
of Hynix’ creditors making rational decisions a nd protecting their decisions through the financing 
they formulated.  In particular, nowhere does the EC mention the GDR when it addresses financial 
contribution and the May 2001 restructuring pack age.  Instead, the EC argues the absence of 
financing, when the GDR provided such financing.    29. The EC’s only real "evidence" of entrustment or  direction is little more than the fact that an 
FSS official’s attendance at a March 2001 meeting of creditors and the fact that the GOK holds 
ownership in some of the banks involved.  But, Kore a does not consider the fact that an FSS official 
attended a meeting of creditors at their request
 to witness prior commitments made by the creditors  to 
be evidence of entrustment or direction.  Likewi se, government ownership is not a substitute for 
entrustment or direction.  The mere fact that th e GOK may own some or all of a particular bank does 
not, itself, demonstrate that the bank was entruste d or directed by the GOK to provide financing to 
Hynix.  For these reasons, the EC has failed to show entrustment or direction of the May restructuring 
package, inconsistent with its ob ligations under Article 1.1(a)(1)(iv). 
 
6. The October 2001 restructuring package 
 
30. With respect to the October 2001 restructur ing, the EC stresses the degree of government 
ownership of the banks.  Again, such evidence simp ly cannot establish entrustment of direction.  The 
EC also turns to other insufficient evidence to establish entrustment or direction.  First, it cites to 
banks taking into account public polic y considerations.  This approach  reflects a flawed understanding 
of the legal standard.  There is nothing unusual about banks taking into account a wide range of 
factors when making a loan.  Second, the EC also a lleges a "pattern of con tinuous involvement," but 
in doing so misstates the facts.  Since entrustment or direction requires some affirmative government 
action, the analysis must focus on specific transactions, not some generalized "involvement".  Third, the EC makes much of the statement by the Korean Deputy Prime Minister, but again misinterprets the evidence.  At most, this statement represents an  effort to influence, and does not provide evidence 
of entrustment or direction.  Finally, the EC then turns to an analysis of evidence for several specific 
banks.  This discussion of "evidence," however, neve r provides any credible basis to find entrustment 
or direction.  For these reasons, the EC’s findings with respect to the October 2001 restructuring are inconsistent with Article 1.1(a)(1)(iv).  WT/DS299/R 
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C. THE EC’S BENEFIT DETERMINATION IS  INCONSISTENT WITH ARTICLE 1.1 AND 
ARTICLE 14 
 
1. The EC’s benefit analysis must fail where it has not shown financial contribution 
 
31. As a legal matter, if the EC ’s findings on financial contribut ion are found inconsistent with 
the SCM Agreement , then the EC findings on benefit must also fail.  A countervailable subsidy 
requires a financial contribution, a benefit conferred, and a benefit that is specific.  Although it may 
be possible to identify a financial contribution in  the absence of benefit or specificity, where a 
financial contribution is not found, it is not possi ble under the construction of the Agreement to find 
either benefit or specificity.   
 
2. The EC advances an incorrect interpretation of the relationship between Articles 1.1 
and 14 
 
32. Korea has properly challenged both the finding and measurement of benefit under 
Articles 1.1(b) and 14 of the SCM Agreement .  The EC claims that no definition of "benefit" exists 
within the SCM Agreement , and that Article 14 is limited to the calculation of the amount of a 
subsidy.  The EC overlooks the fact that "benefit" is itself a definitional term under Article 1.1 and an 
essential part of finding a subsidy.  Thus, read in lig ht of Article 1.1, Article 14 provides very clear 
guidance on what a subsidy is not.  Under Article 1.1,  no subsidy exists if a be nefit is not conferred.  
Paragraphs (a)-(d) of Article 14 each describe specif ic instances where particular conduct "shall not 
be considered as conferring a benefit".  In other words, Article 14 is not just about calculating the 
amount of benefit, but serves an important role in defining whether a subsidy even exists, consistent 
with the requirement provided under Article 1.1.    3. A member’s methodology for calculating bene fit must be consistent with the principles 
set forth in Article 14 
 
33. Article 14 applies very concrete terms focu sed on the "usual" or "prevailing" conduct in the 
market under investigation, or "comparable" conduc t.  With respect to the amount of benefit, 
Article 14(b) and (c), in particular, state that the amount of benefit conferred "shall be the difference" 
in the costs of the instruments compared.  With respect to the provision of goods, Article 14(d) 
requires a comparison of the goods or services provi ded versus the adequate  remuneration for such 
goods or services, which "shall be determined in  relation to prevailing market conditions". 
 34. In US – Softwood Lumber , the Appellate Body found that "the possibility under Article 14(d) 
for investigating authorities to consider a benchm ark other than private prices in the country of 
provision is very limited ".  An authority may do so only when "it has been established that those 
private prices are distorted, because of the predom inant role of the government in the market as a 
provider of the same or similar goods".
  Moreover, having established the issue of market distortion, 
an authority must still validate an alternative benchmark.    
35. The EC claims that the Appellate Body’s holding in US – Softwood Lumber  is distinguished 
by the fact that it only dealt with the language of Ar ticle 14(d), and must be restricted to Article 14(d) 
on that basis.  But such a reading completely ignores the clear preference for primary benchmarks 
(i.e., those present in the market under investigation) found in the other paragraphs of Article 14.  The 
EC cannot read out of the Agreement text words lik e "comparable" and "usual investment practice of 
private investors in the territory".   
  WT/DS299/R 
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4. The EC did not and has not justified its benefit findings with respect to the individual 
transactions at issue in this dispute 
 
(a) Syndicated loan 
 
36. With respect to the Syndicated Loan, the EC failed to benchmark the KFB, KEB and KDB 
loans against the loans of the other seven banks invol ved.  Moreover, it is clear in comparing the EC’s 
provisional and definitive regulation that the EC si mply confused the distinction between financial 
contribution and benefit.  When a provisional assess ment provides an analysis of benefit that 
demonstrates no benefit, and the authority chan ges that determination solely on the basis of 
allegations related to entrustment or direction, ther e is an obvious problem.  Even if KEB, KDB, and 
KFB were actually ordered to participate in th e Syndicated Loan, that fact does not answer the 
question of whether the participation of seven othe r banks can serve as a benchmark.  Thus, the EC 
failed to measure what was received by Hynix and what was available to Hynix on the market, 
inconsistent with its obligations under Articles 1.1(b) and 14(b).   
 
(b) KEIC insurance  37. The EC found that KEIC insurance was an e xport subsidy.  As an export subsidy, that 
insurance would be governed by Annex I of the SCM Agreement , and namely paragraph (j).  The 
measure of benefit as prescribed by paragraph (j) is the difference between the premium paid and the 
premium required to cover the long-term operating costs and losses of the programme.  The EC did 
not measure benefit on that basis.  The EC has also  not responded to a more fundamental calculation 
issue that relates to the nature of D/A financing.  In  short, it is a credit facility allowing for short-term 
financing (typically 90 days) for export transactions.  It never constituted a loan for USD600 million, 
which was the credit ceiling of the facility.  In an y case, the EC has not appropriately measured what 
was received with what was available on the market. 
 (c) KDB programme  38.  The EC goes to great lengths to discred it potential benchmarks for and other evidence 
suggesting the commercial basis of participati on in the KDB programme by Hynix creditors and 
investors.  But the EC does not even attempt to  take on the June 2001 USD 1.25 billion GDR and the 
reality that international investors were willing to  commit significant capital to Hynix, not unlike the 
commitment made by Hynix creditors and inv estors through the KDB programme and related 
CBO/CLO programme.  Ultimately, the EC shoul d not have found that the KDB programme 
constituted a grant in the amount of the bonds refina nced under the programme.  Capital was available 
to Hynix such that benchmarks could have been ut ilized, consistent with the obligation to measure 
what was received against what was available on the market under Articles 1.1(b) and 14.    (d) May 2001 restructuring  39. The EC’s treatment of the May 2001 restructuring suffers from the same fatal flaw as its 
treatment of the syndicated loan, and namely the use of evidence concerning financial contribution as 
a substitute for benefit.  In a proper analysis, The EC should have compared the convertible bond 
interest rates with applicable market interest ra tes, consistent with Articles 1.1(b) and 14 of the SCM 
Agreement  and Canada – Aircraft .   By treating the alleged c onvertible bond purchase benefit as a 
grant and thus failing to conduct the appropriate co mparison of what was received versus what was 
available on the market, the EC failed to meet  its obligations under the Agreement.    
 (e) October 2001 restructuring  40. The EC’s benefit analysis of the October restructuring applies rigid profit maximization 
assumptions without any objective consideration of the underlying facts.  It considered Hynix’ WT/DS299/R 
Page C-10  
 
financial condition in a vacuum without considerin g the DRAM market in which Hynix operated or 
the circumstances surrounding its existing investors.  In sum, the EC did not develop any appropriate 
benchmark for the October restructuring, and instead  improperly assumed a grant.  It justified neither 
action, inconsistent with its ob ligations under Articles 1.1(b) and 14 to measure what was received 
with what was available on the market, as fu rther elaborated by the Appellate Body in US – Softwood 
Lumber.  
 
D. THE EC HAS NOT JUSTIFIED MAINTAINING ITS CALCULATION ERRORS  41. The EC does not justify its calculation errors .  With respect to the KDB programme, the EC 
argues that Hynix never raised the fact that th e EC was effectively double counting benefit from the 
KDB Programme bonds by not deducting those bonds swapped for convertible bonds as part of the 
May 2001 restructuring.  This is incorrect.  The record plainly shows that Hynix specifically warned 
the EC about this error in its 30 June 2003 comment s on the EC’s Final Disclosure.  The EC’s failure 
to correct the error plainly identified by Hynix is inconsistent with Articles 1.1(b) and 14. 
 
42. Another fundamental error in the EC’s appro ach to the KDB programme was its treatment of 
interest-bearing instruments as grants.  The EC now places all the burden on Korea, arguing that 
Hynix never claimed that interest should be de ducted from the KDB debenture calculation.  But 
Hynix’s argument was that the grant methodology shoul d have never been applied in the first place.  
The EC should have at least considered the matter and deducted the interest paid. 
 
43. The EC also refuses to acknowledge the probl ems inherent in its grant methodology when it 
comes to the October 2002 restructuring programme, de termining that loans, with interest terms and 
interest paid, are grants.  Because the EC never took the interest payments into account, it did not 
accurately establish the alleged benefit to Hynix, inconsistent with Article s 1.1(b) and 14 of the SCM 
Agreement .    
 44. The EC’s position on its use of an erroneous va lue with respect to the amount of debt rolled 
over as part of the October 2001 restructuring is pe rhaps its most indefensible argument.  Hynix 
alerted the EC to the error in the total amount bein g used.  The EC’s only apparent defence is that 
Hynix should not have been surprised because it r esponded to Hynix’ comments and informed Hynix 
what value was being used.  That stat ement is not a defence to the error. 
 E. THE EC SPECIFICITY ARGUMENTS ARE INADEQUATE  45. As a legal matter, to the extent that the EC’s findings on financial contribution are found 
inconsistent with the SCM Agreement , then its findings on specificity must also fail.  Even if financial 
contribution is presumed, its specificity findings are inconsistent with Articles 1.2 and 2.    
 46. With respect to the KDB Programme, the EC suggests that it considered all the factors 
outlined in Article 2, but this is not obvi ous in the lone paragraph cited from its Provisional 
Regulation .  For these reasons Korea, reiterates its claim that the EC acted inconsistently with its 
obligations under Article 1.2 and 2 in finding the KDB Programme specific. 
 47. The EC’s arguments in support of its specificity  findings with respect to the May and October 
restructuring packages are so narrow as to render th e specificity requirement virtually meaningless.  
Many companies had debt restructured under the same "work-out" framework used by Hynix and its 
creditors.  The EC ignores these facts.  Its findings  with respect to the transactions involved in the 
May and October restructuring packages are therefor e inconsistent with Articles 1.2 and 2 of the SCM 
Agreement . 
  WT/DS299/R 
 Page C-11 
 
 
F. THE EC’S DETERMINATION IS INCONSISTENT WITH ARTICLES 19.4, 10 AND 32.1 
OF THE SCM AGREEMENT  AND ARTICLE VI:3 OF GATT 1994 
 48. In choosing to use Hynix’ unconsolidat ed sales, the EC confuses the scope of the 
investigation  (DRAMs) with the question of which prod uct and entity benefited from the alleged 
subsidies .  It is not because the EC investigated the DRAMs market that subsidies granted to Hynix 
can automatically be viewed as benefiting only H ynix as a parent entity and only with regard to 
DRAMs.  By taking this approach, the CVD duties imposed by the EC exceed the limits imposed by 
Article 19.4 of the SCM Agreement  and Article VI:3 of GATT 1994. 
 
49. Moreover, every violation of the specific provisions of the SCM Agreement  identified above 
triggers a parallel violation of Articles 10 and 32 .1 once the decision to impose duties was made. 
 
III. CONCLUSION 
 
50. For all of these reasons, we respectfully request  the Panel to make the findings set forth in 
paragraph 676 of Korea’s First Submission.  
 WT/DS299/R 
Page C-12  
 
 
ANNEX C-2 
 
 
EXECUTIVE SUMMARY OF THE EUROPEAN COMMUNITIES' 
REBUTTAL SUBMISSION 
 
 I. FACTS, EVIDENCE, BURDEN OF PROOF 
 1. The EC would like to re-iterate the following points. 
 2. The burden of proof in these Panel proceedings is on Korea.  3. The investigating authority relied on the to tality of the facts and evidence available. 
 
4. The facts are as set out in the regulations, which have been summarised by the EC in its 
pleadings.  5. Hardly any of the facts are contested by Korea.   There is no basis for this Panel to make any 
findings in relation to uncontested facts.  There is no  basis for this Panel to enquire into the evidence 
on which the investigating authority relied in  order to substantiate uncontested facts. 
 6. Where Korea does contest facts, it generally does so on the basis of bare assertions.  It does 
not adduce any evidence to support its assertions.  In this scenario, Kor ea’s assertions must be 
rejected; there is no basis for this Panel to make an y findings in relation to such facts; and there is no 
basis for this Panel to enquire into the evidence on which the inv estigating authority relied when 
establishing such facts.  7. In short, the starting place for this Panel’s considerations is not the evidence relied on by the 
investigating authority, it is the evidence relied on by Korea in these proceedings, if any.  Absent any 
such evidence, Korea has failed to make out any case at all, and that is an end of the matter. 
 
8. If Korea does adduce evidence merely equivale nt to the evidence on which the investigating 
authority relied, this Panel must still find in fa vour of the EC.  To succeed, Korea must adduce 
evidence that establishes a prima facie  case, that is not rebutted by th e record evidence relied on by 
the EC investigating authority. 
 
II. THE WHOLE IS MORE THAN THE SUM OF THE PARTS 
 
9. The views that Korea continues to peddle re flect basic and alarming egregious legal errors. 
The moment has probably come to take a step back fro m the thicket of facts, to reflect on, and to get 
straight, a couple of basic matters. 
 10. Articles 1 and 14 of the SCM Agreement  refer to a subsidy, a financial contribution, a benefit. 
All in the singular.  11. The SCM Agreement  contains no express rule about the investigation period, and the choice 
of the year 2001 in this case, selected because it coinci des with the most recent financial year in Korea 
prior to initiation, is not seriously contested by Korea.   WT/DS299/R 
 Page C-13 
 
 
12. Having decided what the investigation period will be, an investigating authority goes about 
gathering the evidence and facts on the basis of which it will make its determination.  Typically, as in the present case, the investigating authority will gather hundreds or even thousands of facts. 
 13. Having gathered the facts, an investigati ng authority will decide how to structure and 
characterise them.  Nothing in the SCM Agreement  would prevent an investigating authority from 
considering, in the same investigation, more than one subsidy, more than one  financial contribution, 
more than one benefit.  And the investigating authority can, if it wishes, analyse the facts  in this 
compartmentalised  way.  But nothing in the SCM Agreement  obliges an investigating authority to 
proceed in that way.  Articles 1 and 14 are drafte d in the singular.  If an investigating authority 
proceeds on the basis that there is one subsidy,  one financial contribut ion and one benefit, even if 
broken down into different elements , neither a complainant nor a Panel can simply assume that, in 
doing so, the investigating authority acts inconsistently with Articles 1 and 14 of the SCM Agreement . 
There is simply no basis for such an assumption, and to assert that there is a breach of the SCM 
Agreement  solely on that basis would certainly be legally erroneous. 
 
14. In the context of the Anti-Dumping Agreement  (which Korea has agreed may be relevant 
context), the Appellate Body has made it clear, in the EC-Bed Linen  case and other cases, that an 
investigating authority makes a (singular) finding  of dumping in relation to a (singular) product 
concerning a (singular) domestic industry.  
15. What did the investigating authority do in th is case?  Evidently, it broke down the hundreds of 
facts it had gathered during the investigation into a number of elements, in order to facilitate its task. 
In doing this, it examined, on their merits, the fa cts relating to individu al programmes and banks. 
However, at the same time
, the investigating authority repeatedly stated that it based its determination 
on the totality of the evidence and facts available .  The investigating authority made this statement 
with such frequency that it simply cannot be ignored by this Panel.  What does it mean? 
 16. It means that, in effect, the investigating authority also considered the whole picture
.  One big 
picture.  In the singular.  That also explains wh y the EC eventually imposed one countervailing duty – 
not five.  This is why the investigating authority co nsidered that all the fact s and evidence that go, for 
example, to the question of financial contribution we re equally or almost equa lly relevant in relation 
to all the elements of the subsidy -  from the Syndicated Loan through to the October 2001 Rescue 
Package.  This Panel must not allow itself to be mislead by Korea’s attempts, based on certain aspects 
of the mere form of the measure at issue, to d econstruct the investigating authority’s determination 
into something it is not (several legally compartmentalised  determinations).  This Panel must look 
beyond the form of the measure at issue, and judge what the investigating authority actually did – i.e. 
in addition to an examination of the facts relating to individual programmes and banks also an 
examination and reliance on the totality of the facts and evidence available. 
 17. Thus, there is a major legal problem when Ko rea invites this Panel to make its findings by 
considering, for example, whether a certain limite d category of facts and evidence – limited by Korea 
– supports the investigating authority’s determination, vis a vis  one element of the subsidy.  That 
simply does not take into account everything that the investigating authority did .  This Panel 
must consider what the inves tigating authority actually did. 
 18. To put the matter another way.  Korea would have this Panel, without any consideration of 
the relevant legal issues, impose on the facts gath ered by the investigating authority a sort of 
compartmentalised template; to view them from a perspective different from that used by the 
investigating authority; to apply a methodology di fferent from that applied by the investigating 
authority.  In short, Korea invites this Panel to re-do the assessment, based  on Korea’s own methods 
and approaches, different from those used by the EC, without any further explanation.  This Panel is 
not empowered to do that, and it w ould constitute a grave legal error. 
 WT/DS299/R 
Page C-14  
 
19. A threshold legal question
 before this Panel is therefore th is : was the investigating authority 
entitled to rely on the totality of the facts and eviden ce available?  If the answer to this question is yes 
(and the EC is certain that the answer is yes), then  all or almost all of Korea’s claims and arguments 
may be dismissed forthwith, because they simply re late to something quite different from what the 
investigating authority actually did. 
 
20. The first and most obvious point is  : why not?  What provision of the SCM Agreement  obliges 
an investigating authority to proceed otherwise?  Korea cites none because there is none.  In many 
respects, that observation is su fficient to dispose of the case. 
 
21. If, contrary to what an investigating author ity actually did, a complainant in DSU proceedings 
or for that matter a Panel begins  to deconstruct and atomise the totality of the facts and evidence 
available to the investigating authority, where does this process stop?  Especially in a case such as the 
present one, which involves such extraord inary factual detail and complexity. 
 
A. DOWN TO THE LAST WON 
 22. Let us first consider the problem in documentary  or material or substa ntive terms.  Take, for 
example, something like the KEIC Guarantee.  The investigating authority viewed this as one element 
of the subsidy to Hynix.  Korea essentially invites this Panel to assess it as if it were in a separate and 
isolated legal compartment from the other elements of  the subsidy.  Korea even goes further, and tries 
to get the Panel to assess it in relation to each ba nk (although this reflects a basic misunderstanding of 
the analysis conducted by the investigating authorit y).  But why stop there?  Why not deconstruct the 
facts even further and look at every single transaction that benef ited from the KEIC Guarantee in a 
legally isolated compartment?  Then presumably Ko rea would argue that the investigating authority 
was obliged to show GOK direction in relation to  each specific export transaction (no doubt there are 
hundreds or even thousands of them).  Why not down  to each last won?  In deed, to follow Korea’s 
logic would be to raise the evidential thres hold so high as to render circumvention of the SCM 
Agreement  a simple matter.  There is simply no basis in the SCM Agreement  for Korea, or for that 
matter this Panel, to impose its view about what si ngle approach must, in all cases, be the correct one.  
 B. THE TIME IS NOW 
 
23. One may also consider the matter from a tem poral perspective.  Korea assumes that a fact 
more generally associated with an earlier part of the investigation must be considered irrelevant to a 
later part of the investigation.  Why?  What provision of the SCM Agreement  does Korea refer to?   It 
is perfectly possible, for example, that a subsid y is granted at the beginning of the investigation 
period, whilst material injury only emerges towards the end of the investigation period.  Nothing in 
the SCM Agreement  prevents an investigating authority from relating these facts to each other – or 
indeed from finding a causal  link between them.  Why should the situ ation be any different for other 
facts, such as those relating to financial contribution?  24. Under the Anti-Dumping Agreement  (which Korea has agreed may be relevant context), all 
other things being equal, domestic  transactions, on the basis of which normal value is established, 
might be situated towards the beginning of an i nvestigation period, and e xport transactions towards 
the end – there is no problem.  Article 2.4 of the Anti-Dumping Agreement  requires an investigating 
authority to make the comparison “at as nearly as possible the same time” – and the same time for these purposes, absent problems such as a high inflationa ry environment or exchange rate issues, may 
well be the whole year of the investigation period, which for this purpose may be treated as a time 
singularity .  The SCM Agreement
 contains no equivalent provision because there is no such 
comparison under the SCM Agreement  – but the basic point remains the same : having selected its 
investigation period (which is not seriously cont ested by Korea in this case), nothing in the SCM 
Agreement  obliges an investigating authority to make the kind of temporal sub-divisions that Korea 
advocates in this case.  WT/DS299/R 
 Page C-15 
 
 
 25. In this case there were numerous respects in which the various elements of the subsidy 
overlapped with each other, as outlined in some de tail in the regulations and the EC’s first written 
submission, and as otherwise appears from the record.  
C. HERDING 
 26. Similar comments may be made regarding Korea’s attempts to persuade th is Panel to consider 
the situation of each bank in an isolated and compartmentalised way.  That is not what the investigating authority did, and nothing in the SCM Agreement  obliges it to proceed in that way. 
 
27. Does a shepherd and his dog direct a herd of  sheep?  Yes.  Does a shepherd entrust his dog 
with the herding of his sheep?  Yes.  In this case,  the totality of the facts and evidence shows that the 
GOK did everything it could, through legislation and through its behaviour, to keep the banks 
together, as one unit, for as long as possible.  That no doubt explains the kind of threats issued to 
banks like KFB and Koram who had the temerity to atte mpt to step out of line, particular in the early 
stages.  It also no doubt explains why the CFICs we re structured in such a way as to keep all the 
banks in the fold, for as long as possible.  In th ese circumstances, an investigating authority is 
perfectly entitled to base itself on facts and evidence about entrustment or direction of the herd as a whole.  Nothing in the SCM Agreement  obliges an investigating authority to consider the situation in 
relation to each animal in the herd in an ar tificially isolated and compartmentalised way. 
 
28. Indeed, in this respect, the situation is hi ghly reminiscent of the classic cartel situation, in 
which, for example, it is discovered that the sales directors of a dozen competitors met clandestinely 
in a hotel.  They all protest innocence, but written ev idence is found that indicates that more than half 
of them were engaged in price fixing.  There is al so a wealth of incriminating evidence suggesting the 
same was more than likely the case with respect to the others.  It is perfectly reasonable that, on the 
basis of the totality of the facts and evidence av ailable, the remaining companies may also be 
considered to have participated.  D. AND THE GOVERNMENT SAID ROLL-OVER  
29. As the EC has repeatedly explained, in this case the money flowing into Hynix was 
essentially being continuously rolled over from one el ement of the subsidy to another, rather like 
some vast game of pachinko, as summarised in Exhi bit EC-38.  In this respect, the investigating 
authority essentially considered that when Hynix’s liabilities from earlier on in the investigation 
period, which were in fact never serviced, were rolled-over into liabilities towards the end of the 
investigation period, that also constituted good r eason to view the whole picture, and make its 
determination on the basis of the totality of the fact s and evidence available.  That was an entirely 
reasonable manner in which to proceed, and there is no basis for any finding that in conducting its 
analysis in this way the investigating authority fa iled to comply with any obligation contained in the 
SCM Agreement .  
 
E. THIS PANEL HAS NO BASIS TO CONCLUDE THAT THE INVESTIGATING 
AUTHORITY DID NOT ACT OBJECTIVELY 
 30. In the light of these observations, and in the light of the totality of the facts and evidence 
available, also as determined by the lawful operation of Article 12.7 of the SCM Agreement , and the 
resulting inferences, the EC strongly believes that th e investigating authority was fully justified in 
proceeding as it did.  Nothing in Korea’s submission  is capable of supporting the conclusion that, in 
acting as it did, in relation to this threshold issue
, the EC did not act objectively, or acted 
inconsistently with any provision of the SCM Agreement . 
 WT/DS299/R 
Page C-16  
 
III. THE LG SEMICON MERGER 
 
31. Article 15.2 of the SCM Agreement  refers to a “significant increase
 in subsidised imports” 
(either in absolute terms or relative to productio n or consumption in the importing Member).  To 
determine whether or not there is an “increase”, it is necessary to make a comparison  – that is, to 
make at least two measurements, one befo re and one after, and to compare them. 
 32. Evidently, the basic idea behind Article 15.2 of the SCM Agreement  is to consider whether or 
not there is any evidence that the subsidy has had an  impact on the flow of imports from a particular 
source.  That means that an investigating author ity will basically aim to catch a period before the 
period in which the subsidy occurred, and comp are it with the period during which there was 
subsidisation.  In this way it will be able to consider whether or not there is an increase in 
exports/imports coincident with the subsidy.  33. The SCM Agreement  contains no rule about the overall time frame to be used by an 
investigating authority when considering this matter.   In this case the investig ating authority used the 
4 years 1.1.1998 to 31.12.2001, which was perfectly lawful, and which is not seriously contested by 
Korea.  34. The SCM Agreement  also contains no rule about how to divide the time frame up for 
comparison purposes.  In this case the investigati ng authority essentially used annual periods, which 
was perfectly lawful, and which is not seriously contested by Korea. 
 35. Similarly, there is no rule in the SCM Agreement  about the investigation period in respect of 
subsidy.  The investigating authority chose 2001,  which was reasonable and perfectly lawful, and 
which is not seriously contested by Korea. 
 
36. Having established this framework, the inves tigating authority in this case started by 
considering the volume of exports/imports from the subsidised company, Hynix, during 2001, the 
period during which it was determined that there was a subsidy.  It then looked back at imports during 
the preceding 3 years from the same source
. 
 
37. At this point, one may say, for the sake of the discussion, that the investigating authority was, 
at least in theory, faced with a choice about what it would consider “the same source” to be.  One 
option was to look at all the imports during the ear lier three year period that came from the firm 
Hynix (and this is what the investigating authorit y in fact did).  A second option was, according to 
Korea, to look at all the imports from the production facilities  that were under Hynix’s control in 
2001, even if they were not under Hynix’s control in the earlier years.  This choice is, in fact, fairly 
typical of the kinds of choices that investigating authorities have to make in economic law investigations.  38. Korea complains that, because the investiga ting authority chose the first option, it acted 
inconsistently with Article 15.2 of the SCM Agreement .  Why?  What provision of the SCM 
Agreement  imposes any obligation on an investigating auth ority in this respect?  There is simply no 
such obligation in Article 15.2 of the SCM Agreement .  All that provision requires is that an 
investigating authority consider whether or not there has been an increase.  If the drafters had wished 
to impose a particular method, they could easily ha ve done so – but they chose not to.  Korea might, 
in this particular case, assert that, stepping into th e shoes of the investigating authority, it would have 
preferred one method rather than another – and th e Panel might or might not agree – but that is 
entirely beside the point.  This Panel cannot re-do the investigation.  It cannot add to or diminish the 
rights and obligations of the Members as provided for in the SCM Agreement . 
 39. The EC takes the view, in this specific c ontext, that great care should be exercised in 
“piercing the corporate veil” – an enterprise notor iously fraught with difficulty and the potential for  WT/DS299/R 
 Page C-17 
 
 
introducing subjectivity .  In this context the EC preferred the objective  test of looking at the firm 
Hynix and tracing its behaviour back in time.  Article 15.1 of the SCM Agreement requires an 
objective  examination, and the approach chosen by the investigating authority was well suited – 
indeed best suited – to achieving that objective.  
40. The very nature of a subsidy is that, in genera l terms, it is typically given to a firm (such as 
Hynix), not to a production facility.  A subsidy typi cally passes from the control of government to the 
control of the firm (in this case, Hynix), and that is the critical moment (change in control over the 
resource) that really matters.  There is often a legal act (decision or grant or contract) between the government and the firm.  In case of disagreement with the government any litigation would involve 
the firm (Hynix), not the production facility.  This is  so even if the productio n facility has since been 
sold on.  Furthermore, the ultimate fate of the money depends on the decisi ons made by the persons 
then controlling the money, that is, the persons c ontrolling the firm, not the production facility.  Often 
subsidy is a quid pro quo  – the money is only paid over in return  for certain action by the recipient – 
that is, the firm, not the production facility.  Ofte n subsidies are paid to government controlled entities 
– precisely because in that way governments typically  feel more comfortable about their chances of 
controlling the eventual use of the subsidy, throug h control of the management mechanisms of the 
firm.  41. There is nothing artificial or legalistic in focu ssing on the firm in this sense.  Incorporation 
with limited liability is not just a formal legal co ncept.  Limited liability is a corner stone of the 
development of modern business.  The limited liability  company is a centre of imputability in legal 
terms, but also in economic, accounting, business and other ways (political, financial markets).  There 
is a raft of legislation that has been built up around this concept and it cannot be casually dismissed as 
“formalistic”.  
42. A further critical point to take into considera tion is that, in relation to the 3 earlier years, we 
simply do not know whether or not any imports were subsidised.  There is no finding of subsidy.  But 
also there is no finding of no-subsidy.  Actually, if there were subsidies throughout the earlier period, 
that might mean that no increase in export/import vol umes would be found (volume might just have 
been high and steady throughout the period).  The injury investigation period would not have been stretched back far enough.  This is a real risk in  Members where there is good reason to believe that 
subsidy is endemic.  Especially in the case of national champions that the Member has publicly 
indicated will not be allowed to go bust, even if they periodically hit bad times.  
 43. To try to avoid or reduce this risk, the inju ry investigation period in this case was stretched 
back to cover 4 years.  This reflects normal EC practice.  Since, at least according to Korea, 
companies such as Hynix are generally not subsidised  on a continuous basis but only periodically, one 
can be reasonably sure if one goes back far enough to reach a stage in the company’s subsidy cycle 
when it was not being subsidised.  That way, you ge t a fair trend analysis.  Presumably Korea would 
not contest this.  Presumably Korea would not argue that in fact Hynix was subsidised during this entire injury investigation period.  The investigating authority can never be certain that it has attained 
its objective, but it was a reasonable assumption in this case. 
 
44. It is this kind of uncertainty with which an  investigating authority is faced when it has to 
decide whether to follow the firm, or the productio n facilities back in time.  One problem if the 
investigating authority follows the production faciliti es is that this increases the uncertainty – it causes 
the forensic trail of investigation to bifurcate and encompass, at a given moment in time, two entirely 
different and separate and independent centres of imput ability – totally unrelated to each other.  This 
does not help the analysis.  There is no guarantee that the other entity would not itself have been in receipt of subsidies – something that might seriously  distort the trend analysis.  It might well have 
been at a different stage in its subsidy cycle.  In  fact, if recently purchased , there is every chance it 
was in difficulty and thus in receipt of subsidies. 
 WT/DS299/R 
Page C-18  
 
45. Things could get even more needlessly complicat ed if the tree bifurcates more than once – the 
investigating authority could find itself looking at several different production facilities all under 
different and changing control during the relevant period.  Since it is simply impossible to be certain 
about all the circumstances, it is better to stick with the objective
 approach of following the firm 
(Hynix).   
 
46. Furthermore, on the basis of Korea’s appro ach, if, going back in time, one would have to 
follow the “production facilities”, that would mean that  the investigating authority would have to take 
account not only of those purchased, but also those di sposed of or closed.  For example, if Hynix had 
owned a very large production facility in  1999, with lots of imports to the EC, but sold or closed it in 
2000, on Korea’s logic, that production facility would have to be taken out  of the earlier years of the 
calculation.  We don’t hear Korea arguing for that .  In addition, the practical problems of getting 
information from companies that no longer exist an d production facilities that have been sold or 
closed should not be underestimated.  The EC finds  Korea’s approach over-c omplicated, impractical 
and unnecessary and rejects it – as it is entitled to do – nothing in the SCM Agreement  obliges it to do 
otherwise. 
 
IV. INSIDER OUTSIDER 
 
47. The EC has two comments about insider investor theory.  
48. The first comment is that, as outlined in the EC’s first written submission, in the context of 
WTO law, the EC’s position is that insider investor theory is wrong, and in any event nothing in the SCM Agreement  imposed any obligation on the EC investiga ting authority to apply such a theory in 
this case.  In any event, the point is largely acad emic, because however one views the actions of the 
banks, they could not in any circum stances be considered commercial. 
 
49. The second comment is that, by repeatedly asserting that the banks acted on the basis of 
insider investor thinking in this particular case, Korea actually scores a spectacular own goal.  Why?  
Because what the Korean respondents are saying is th at they and Hynix were in a hole, and that all 
they ever did was what was commercially rational to try and get out of that hole.  Leaving aside the 
fact that there was in reality no way back for the banks (huge losses had to be written off, as was 
always entirely predictable), this argument immedi ately begs the follow-up question : how did you get 
in that hole?  One does not, of course, have to look very far to answer that : because of the GOK.  In 
1999 the GOK forced Hynix to merge with the hi ghly indebted LG Semicon.  And the banks’ 
exposure to Hynix in mid-2001 was entirely a fu nction of the GOK financial contributions and 
entrustment and direction via the Syndicated Loan, the KEIC Guarantee and the KDB Debenture 
Programme.  What Korea’s argument therefore de monstrates is that there are profound economic 
links between all the different elements of the s ubsidy assessed by the investigating authority with 
respect to 2001.  In making this argument Korea is therefore effectively pleading for exactly what the 
EC has said all along : the need to consider the tota lity of facts and evidence – which is exactly what 
the investigating authority did in this case.  V. THE PROVISIONAL REGULATION 
 
A. THE PROVISIONAL REGULATION NO LONGER EXISTS  50. The measure at issue is th e Definitive Regulation.  The Panel need only refer to the 
Provisional Regulation insofar as it contains statements of fact, law or analysis that are incorporated 
by reference, specific or general, express or implie d, in the measure at issue, which is the Definitive 
Regulation.  51. The Provisional Regulation no longer exists.  It is no longer in force or effect.  It has expired 
– or been revoked.  And there is no prospect of its re-introduction or renewal.  It has not existed since  WT/DS299/R 
 Page C-19 
 
 
11 August 2003, when the Definitive Regulation w as adopted.  It did not therefore exist on 
23 January 2004, the date on which this Panel was es tablished.  This Panel cannot therefore make any 
findings or recommendations in relation to the Provi sional Regulation.  Thus, all Korea’s claims and 
arguments in respect of the Provisional Regulation mu st be dismissed.  At the very least, this Panel 
need not, and should not, make any recommendations  in relation to the Provisional Regulation. 
 
52. This view is confirmed by Article 3.3 DSU which states that the basic aim of the dispute 
settlement system is “the prompt settlement of si tuations in which a Member considers that any 
benefits accruing to it directly or in directly under the covered agreements are being impaired by 
measures taken by another Member.” (emphasis added).  Any recommendations or rulings by the 
DSB shall therefore “be aimed at achieving a satisfact ory settlement of the matter” (Article 3.4 of the 
DSU) - which cannot be the case if th ere is no matter to settle (i.e. if  the measure does not exist and is 
not being applied).  In the same vein, Article 3.7 of the DSU provides that “before bringing a case a 
Member shall exercise its judgment as to whethe r action under these procedures would be fruitful.  
The aim of the dispute settlement mechanism is  to secure a positive solution to a dispute.” 
 
B. KOREA HAS MADE NO CLAIM PURSUANT TO ARTICLE 17 OF THE SCM 
AGREEMENT 
 53. In any event Korea has made no cl aim pursuant to Article 17 of the SCM Agreement .  Absent 
any such claim, the Provisional Regulation must be  considered consistent with Article 17 of the SCM 
Agreement , and there is therefore no basis for this Panel to find that the Provisional Regulation is 
inconsistent with the SCM Agreement .  This view is confirmed by Article 17.4 of the Anti-Dumping 
Agreement  (which Korea has admitted may be relevant context), according to which provisional 
measures may only be subject to dispute settlement if they are inconsistent with Article 7.1 of the 
Anti-Dumping Agreement (which concerns provisional measures).  For this reason also all Korea’s 
claims and arguments in respect of the Provisional Regulation must be dismissed.