WT/DS273/R 
 Page B-1 
 
 
  
 
ANNEX B 
  
EXECUTIVE SUMMARIES OF THE ORAL STATEMENTS  
OF THE PARTIES – FIRST MEETING 
 
 
Contents Page 
Annex B-1 Oral Statement of the European Communities B-2 
Annex B-2 Oral Statement of Korea B-11 
 WT/DS273/R 
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ANNEX B-1 
  
ORAL STATEMENT OF TH E EUROPEAN COMMUNITIES 
 
 
(18 March 2004) 
 
 
I. INTRODUCTION 
 
1. In its oral statement, the EC first responds to a series of procedural and other obstacles that 
Korea is seeking to erect to obstruct the resolution of this case. Thereafter, it comments on a number 
of other issues but leaves a thorough refutation of Ko rea’s many arguments to the rebuttal submission. 
 
II.  KOREA’S ROAD BLOCKS 
 
A.  BURDEN OF PROOF  
2. The EC fully accepts that it has the burden of presenting a prima facie  case.  The EC worked 
on the principle that it is not necessary to state the obvi ous.  Such proof is necessary only to the extent 
that Korea disputes in a substantiated way what we considered to be clear.    3. For example, the EC believes that it is sufficien t to simply state that EC and Korean Liquefied 
Natural Gas carriers (LNGs) compete in the same ma rket.  Indeed, Korea even  accepts that they are a 
product , thus making it otiose for the EC to prove that  Korean LNGs compete with those built by the 
EC in the same market.  As will be explained later, we reject the idea that there is a requirement to 
establish “likeness”; however, once there is a product such as an LNG, LNGs from Members are inevitably “like” each other. They are the same pr oduct. To the extent that Korea now has difficulties 
with other statements of fact, e.g. the definitions of  other ship types, the EC will respond to that more 
fully below and in its rebuttal submissions.   
 4. Moreover, once the complainant has provided a prima facie  case of a claim and the defendant 
seeks to refute it by asserting an additional fact, the onus is on the party asserting that fact to substantiate it.  To illustrate this w ith another example, the EC has provided prima facie  evidence that 
restructuring aids and other subsidies were a contributing cause for the price depression in the LNG 
market.  If Korea wishes to counter that case by asserting further factors that may have caused a fall in 
prices, Korea must provide proof thereof.   5. The EC does not accept that there is any “fru it of the poisonous tree” doctrine whereby it may 
not rely at all (or at least not for the export subs idy claims) on the evidence gathered in the Annex V 
procedure because it was allegedly im properly sought.    As  the Appellate Body clarified in numerous 
cases, there is a duty on both parties to collaborate in the establishment of facts.  This is particularly 
true in cases against subsidies that often involve  complex economic facts that may not be easily 
accessible to the complaining party. Moreover, it s hould be noted that panels may seek information 
from the respondent relating to export subsidies unde r Article 13 of the DSU. The fact-gathering 
procedure foreseen in Annex V of the SCM Agreement  in effect merely advances the provision of 
evidence to before the exchange of submissions by the parties rather than gathering the same 
information from the respondent later in the panel process.   WT/DS273/R 
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 B. EXPORT AND ACTIONABLE SUBSIDY – INSISTENCE ON CURRENT SUBSIDIES 
AND EFFECTS 
 6. There is no rule in the WTO that provides that a violation is forgiven once it is in the past.  
Obligations are drafted in the present tense to expr ess the intention that they should apply all the time 
– in the past, in the pr esent and in the future! 
 7. Of course, it may not always be possible to remedy past violations of WTO obligations.  However, the Panel is not, in these proceedings, requi red by its terms of reference to specify what 
action Korea may have to take to bring itself into conformity with its WTO obligations.  
 
C. PUBLIC BODY AND “ENTRUSTED AND DIRECTED”  8. Nothing in Article 1 of the SCM Agreement  limits the types of evidence that may be used to 
demonstrate that a subsidy, i.e. a transfer of ec onomic resources, can be linked to the government.  
Otherwise, circumvention would be easy.  To the contrary, Article 1 of the SCM Agreement  is based 
on a certain experience with governmental practices  when granting subsidies.  Thus, governments 
often act through public bodies or private bodies that do not formally constitute part of the 
government.  Instead of requiring that each transfer of resources is linked back to the government by a piece of evidence, Article 1 of the SCM Agreement  presumes that money that is handed out by a 
public body, or a private body which is a funding mechanism, can always be linked to the 
government.    
 9. Thus, the purpose of the concepts of “public b ody” and “private body” is to presume a link to 
the government in certain situations and thereby to  avoid circumvention.  Any financial contribution 
granted by a public body is necessarily imputed to th e State.  Similarly, a benefit granted by a funding 
mechanism to which the government contributes is  legally imputed to the government.     
 10. Korea cannot rely on the panel ruling in United States – Export Restraints  in support of its 
view that there must be proof of an explicit ac tion relating to a specific transaction.  That case 
concerned a general government intervention in the ma rket – export restraints for a certain product, as 
opposed to a specific action of a government in a specific situation.   
 
11. The use of the terms “funding mechanism”, “entrus ts” and “directs” in Ar ticle 1.1(a)(1)(iv) of 
the SCM Agreement  indicates that governments may use many different instruments to make a private 
body transfer resources.  These terms are not to be in terpreted narrowly in isol ation from one another.  
They are intended to cover all the many different  means by which governments may influence the 
behaviour of a private body.  Therefore, panels are tasked in accordance with Article 11 of the DSU to 
determine the motivations of the private body for tr ansferring the resources.  If these can be linked to 
governmental action on the basis of all relevant evid ence - even if circumstan tial evidence, including 
secondary sources - this is sufficient.     D. KOREA’S CLAIM THAT EXPORT SUBSIDIES ARE EXEMPTED FROM THE 
DISCIPLINES APPLICABLE TO ACTIONABLE SUBSIDIES 
 12. Articles 3 and 5 of the SCM Agreement  outlaw different forms of governmental behaviour.  
The absolute prohibition of export subsidies in Article 3 of the SCM Agreement  targets any subsidy 
that is export contingent indepe ndently from its actual trade effect.  The obligation not to cause 
adverse effects to the interests of another Me mber through the use of any subsidy (be it export 
contingent or not) requires demonstr ation of certain well-defined trade effects.  Already the Panel in 
Indonesia – Autos  has recognised that cumulative assessment  of different types of subsidies is 
possible.   WT/DS273/R 
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13. Korea’s argument that a double violation would create a double remedy fails.  Assume that Korea implements an adverse Panel finding that KEXIM pre-shipment loans are prohibited subsidies 
by making them also available for sales to domestic  buyers.  In such case, the subsidy would no 
longer be de jure  export contingent.  However, it remains a subsidy benefiting the production of ships 
and continues to contribute to serious prejudice.  Whether a Member has brought all its subsidies in 
compliance with Article 3 and or 5 SCM Agreement  may raise new and difficult questions.  However, 
these are to be addressed in the implementation ph ase and are not relevant to the prior issue of 
establishing violations of WTO law.  III. THE EXPORT SUBSIDY COMPLAINT 
 
A. THE THREE LEVELS OF THE EC COMPLAINT  
1. The individual export subsidy transactions 
 
14. The EC identified in its first written s ubmission over 200 individual cases in which KEXIM 
has provided an export subsidy to the export of a ship.  Korea argues  that only presently existing 
subsidies may be attacked.    15. As discussed above, the EC does not believe that a violation is forgiven once it is in the past.  
The EC is therefore entitled to a finding that th e 200 specifically identified KEXIM export subsidies 
violate the SCM Agreement . 
 
2. The pre-shipment loan and APRG schemes 
 16. However, having these specific export subsid ies removed (or expire) will not solve the 
underlying problem, which is that KEXIM will continue  to grant export subsidies in support of future 
exports of Korean ships.  17. That is why the EC also attacked the subsid ies at a second level – that of the pre-shipment 
loan and APRG schemes . 
 
18. Korea admits that “until March 1998, KEXIM did not take credit risks into account for its 
APRG transactions” and then only gradually developed a credit risk policy.   19. Again, the EC considers that it is entitled to  a finding that the APRG and pre-shipment loan 
schemes have been inconsistent with the SCM Agreement .  Whether or not they still are today is a 
matter for the implementation phase of this proceeding.  
3. The statutory framework  
 
20. Korea’s arguments illustrate the need to address the fundamental causes of export 
subsidisation in Korea and not just the specific export subsidy transactions or schemes – which can 
easily be changed in the future to avoid the def ects found while still providing a subsidy to exports. 
 21. That is why the EC also formulated its export subsidy complaint at a third level – that of the 
rules governing the operation of KEXIM and effec tively instructing and enabling it to subsidise 
exports – the KEXIM Act, the KEXIM Decree and th e KEXIM interest rate guidelines.  The EC has 
shown that KEXIM was set up to promote Korean exports, receives huge capital injections from the 
Korean government, does not have to pay any divi dends to the Korean government, enjoys an 
unlimited State guarantee for its liabilities and defi cits, and is prohibited from competing with  WT/DS273/R 
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 commercial banks.  This inevitably leads to export subsidisation and therefore, according to the EC, 
the contested provisions of the KEXIM Act, the KEXIM Decree and the KEXIM interest rate guidelines are inconsistent with Article 3 of the SCM Agreement . 
 22. Korea’s principal argument in response is to  invoke the so-called “mandatory/discretionary 
doctrine”, relying on the fact that, according to Korea, none of these provisions specifically mandate 
the provision of export subsidies.    23. The Appellate Body has warned against the m echanistic application of this doctrine and has 
also made clear that an analysis of a measure cannot  end with the conclusion that it is in some sense 
“discretionary”.  It is necessary to continue the analysis to see whether the provisions have the 
prohibited effects.    24. One major reason why the mandatory/discretiona ry doctrine cannot be a mechanistic rule is 
that state measures are always, by definition, manda tory in some sense and very often leave some 
element of discretion.  There are always some exceptions possible to any mandatory rule.   
 25. WTO provisions come in many different shap es and sizes.  Some are result-oriented (for 
example, “no less favourable treatment”) while others  are regime-oriented (for example, those relating 
to investigations, transparency and domestic re gimes).  A provision that prohibits Members from 
maintaining schemes or programmes of a certain desc ription is clearly violated if such a programme 
exists, even if it may not be applied.  
 26. As the EC has explained in its first written subm ission, Article 3, and in particular Article 3.2, 
of the SCM Agreement  is designed to prevent the maintenance of export contingent subsidy regimes, 
as well as the grant of individual export subsidies.  
 
27. In any event, the EC does not accept that th e APRG and pre-shipment loan schemes are not 
“mandatory” in any relevant sense.  First of all,  the KEXIM Act, the KEXIM decree and the interest 
rate guidelines are mandatory for KEXIM.  It is “mandated” to use the state resources put at its disposal to carry out the functions attributed to  it in its governing instruments.  These include the 
promotion of exports and the provisi on of financial assistance to expor ters where this is not available 
from private sources – or is not sufficiently availabl e or not available on such beneficial terms.   
 28. Even if it is not stated expressly anywhere that KEXIM must grant loans or guarantees, we do 
not believe that the senior management of KEXIM woul d stay in their jobs for long if they were to 
defy the statutory objectives of KEXIM, and either al low the resources entrusted to it to lie idle, or to 
support imports or domestic commerce.  Indeed, the same would surely also happen if KEXIM were 
to use its state resources in defiance of the injunc tion in Article 24 of the KEXIM Act and compete 
with commercial banks.  29. Accordingly, the EC submits that KEXI M’s statutory framework specifically envisages
 the 
grant of export subsidies – and indeed , for all practical purposes, effectively mandates such action.  It 
is the very purpose of KEXIM to assist exports.   
 B. THE CONSEQUENCES OF A FINDING THAT ARTICLE 3 OF THE SCM AGREEMENT  
DOES NOT APPLY TO “DISCRETIONARY” MEASURES 
 
30. Korea’s position would allow an export-driv en WTO Member to introduce a scheme whereby 
the Minister for export promotion could award any sum he considered necessary to ensure that a 
Korean exporter wins a contract against foreign co mpetition, when he considers this in the national 
interest.  Since the award of the subsidy would not be “mandatory” for the Minister, the scheme WT/DS273/R 
Page B-6  
 
 would not, according to Korea, violate the SCM Agreement .  So WTO Members would be required to 
bring action against each individual subsidy grant on ce it has been made.  And then, they would only 
have a pyrrhic victory.  The scheme itself would not have to be changed, according to Korea, because 
it would still be non-mandatory.  
C. SAFE HAVEN ARGUMENTS 
 31. Pre-shipment loans and APRGs do not fall within  the scope of the first paragraph of item (k) 
(in the case of pre-shipment loans) or items (j ) (in the case of the APRGs) of Annex I to the SCM 
Agreement .  
 
1. Pre-shipment loans 
 
32. Korea attempts to pass off credits to e xporters as export credits within the meaning of 
item (k).  There is a clear and important distinction between these two concepts.  
 
33. An export credit is provided to buyers , not exporters, for a period that extends past the time of 
delivery .  The OECD, for example, defines the notion as follows: 
 
Broadly defined, an export credit is an in surance, guarantee or financing arrangement 
which enables a foreign buyer of export ed goods and/or services to defer payment 
over a period of time. … Export credits may take the form of “supplier credits” 
extended by the exporter or of “buyer cr edits” where the exporter’s bank or other 
financial institution lends to the buyer (or his bank). 
34. Indeed, the fact that export credits may only take the form of ‘supplier credits’ or of ‘buyer 
credits’ as defined above, is “the shared understanding ” of all OECD shipbuilding nations - including 
Korea.  The notion was considered so obvious that at the latest discussions on a revised text of the 
“Sector Understanding on Export Credit for Ships” the parties agreed to drop a specific reference into 
the text.  35. This understanding of the meaning of expor t credits has also been implicit in WTO 
jurisprudence discussing the applicability of item (k) of the Illustrative List. 
 
36. Korea’s pre-shipment loans, by contrast, are production loans granted to manufacturers who 
engage in exporting certain capital goods from Korea independent of any credit granted to the buyer 
(who may be entirely unaware of this loan to the ex porter).  Furthermore, the period of the loan is 
closely tied to the date of delivery (hence “ pre-shipment loans”).  These are not the characteristics of 
export credits, which are loans provided, directly or indirectly, to buyers, extending past the time of 
delivery.  Item (k) is simply not appli cable to Korea’s pre-shipment loans.  
 
2. APRGs 
 
37. Similarly, APRGs are neither export credit guarantees nor, as Korea argues in the alternative, 
guarantee programmes against increases in costs. APRG s are, instead, guarantees of credits to Korea’s 
exporting manufacturers.  38. Export credit guarantees are those provided to a bank or to the exporter to guarantee that the 
foreign buyer will repay the export credit that has been accorded to him. APRGs, by contrast, are 
made available to foreign buyers to ensure the repayment of sums paid in advance of the delivery of a 
capital good, in the event of default by the exporting manufacturer.     WT/DS273/R 
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 39. Korea tries to rely, in the alternative, on a fu rther element of item (j) and to present APRGs as 
a guarantee programme against increases  in the cost of exported products. 
 40. Item (j) is expressed to cover guarantee programmes against increases in the cost of exported 
products.  It is an increase in the cost of the exported product that is to be covered, not the overall 
expenses of the exporter or credit risks taken by the purchaser.   
 41. Korea’s broad interpretation would allow any s ubsidy to the exporter or to exported products 
that is formulated as a “guarantee programme” to be  covered by item (j) since any such subsidy will 
tend to reduce the cost of manufacturing the exported goods for the exporter or of buying the exported 
goods for the purchaser.  
 
IV. THE ACTIONABLE SUBSIDY COMPLAINT 
 
A. SUBSIDIES WITHIN THE MEANING OF ARTICLE 1 OF THE SCM AGREEMENT  
 
1. Financial Contribution  
 
42. The Government of Korea controlled the work-out of Daewoo even at the level of the Corporate Restructuring Agreement .  Through that agreement, domestic banks had essentially waived 
their rights to act fully independently by committi ng to the workout as the solution for bankruptcy and 
subjecting themselves to penalties for breach of the Agreement.  The fact that the Corporate 
Restructuring Agreement  was negotiated and signed within one week shows that this was not done 
voluntarily  by the financial institutions  
 43. The EC provided powerful general evidence w ith respect to how the Korean Government 
influenced the decision-making of private banks in  the form of the Kookmin Bank brochure.  In 
addition, public bodies such as KEXIM, KDB and KAM CO were major or substantial creditors for 
each of the shipyards.  Without their exercise of the voting rights, none of the restructuring measures 
would have obtained the necessary approval.  
2. Benefit Benchmarks 
 
44. Foreign creditors are the only actual market  benchmark.  The only key difference between 
domestic and foreign creditors in this case was that  foreign creditors “behaved independently and in 
their own self interest”. Their behaviour serves as th e starting point to consider whether the discretion 
of the Korean creditors in the wo rk-out proceedings was bound by the governmental interest to rescue 
the companies.   
 45. Korea cannot refute that evidence of subsidisa tion by claiming that the work-out agreed to by 
Korean creditors was based on the results of an evaluation carried out by professional financial advisors (Arthur Andersen), and th eir conclusions that the going concern value of the debtor company 
was greater than the liquidation value, making the debtor company viable. The EC takes issue with 
the Arthur Andersen report on several grounds sh owing that the decision to restructure Daewoo, 
instead of liquidating it, was pre-cooked and that the Arthur Andersen Report is nothing but a rubber 
stamp, and certainly not evidence that creditors acting under market conditions  would have opted for 
the restructuring.  WT/DS273/R 
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 B. SERIOUS PREJUDICE 
 
1. In the same market 
 
46. Unlike the provisions in Articles 6.3(a)-(b) and 6.3(d) of the SCM Agreement , Article 6.3(c) 
does not have any geographic qualification.  In the shipbuilding market, national boundaries have 
hardly any effect on the shipbuilding business, b ecause ships are not “imported” but may be entered 
on the shipping registry of any country and operated from any country in the world.   
 47. The idea that a world market is the relevant market in which to consider price depression was 
already recognised by the GATT Panel in EC – Sugar (Brazil) , under Article XVI:I. of the GATT 
1947.  In any case, even under Korea’s own view, th e Panel would need to consider the complaint of 
the EC, because the world market can  be seen as the sum of the relevant national markets in which the 
products compete.  Article 6.3(c) of the SCM Agreement  does not prevent Members from claiming 
price depression and suppression on several - or  even all - “national” markets.  
 
2. No formal “like product” test 
 
48. The EC takes issue with Korea’s argument that a price suppression or depression claim under Article 6.3(c) of the SCM Agreement  requires a formal “like product” an alysis.  First, the term “like 
product” used in Article 6.3(c) SCM semantically refers only to “undercuttin g”.  All Article 6.3(c) 
requires is that the subsidies have the effect of “price suppression, price depression […] in the same 
market ”.   
 49. Ships are made to the specifications of indi vidual purchasers, and no two ships are ever likely 
to be precisely “like”.  In this respect, the market for ships is very different from that for cars, for 
example, where individual purchasers do not determine the size, shape and design of their vehicles 
themselves.  50. The term “same market” in Article 6.3(c) ha s not yet been defined in dispute settlement.  
Given that the definition of the market must en able the Panel to assess the existence of price 
depression or suppression, the existence of cross-pri ce elasticity should play an important role in 
defining the relevant market.  Korea itself agrees in the context of the discussion of price depression 
that ship prices are, of course, deeply influenced by the interaction of supply and demand.    51. Thus, the market must be determined in a wa y that allows consideration of both the supply 
and demand side.  Korea’s approach of consideri ng only whether, from the perspective of the ship-
owner, products are “like” does not allow a correct understanding of the functioning of the market.  
The relevant market should also be determined from the perspective of the producers, i.e. the 
shipyards.     52. The EC has identified three distinct market s for which price developments have to be 
analysed.  These are the markets for LN Gs, container ships, and product and
 chemical tankers as the 
EC has clearly stated in its first written submission. Korea does not dispute that LNGs are a relevant 
product for which a price and market exists.    53. The contours of the market for container sh ips and product and chemical tankers – like any 
other market – are determined by the behaviour of the participants, buyers on one side and sellers on 
the other.  From the point of view of ship-owners , that is from the demand side perspective, 
distinctions between markets are driven by freig ht market considerations.  Thus, although it is 
practically impossible (or, rather, economically non- sensical) to replace a specialised ship type with  WT/DS273/R 
 Page B-9 
 
 
 another specialised ship type on major trading relati ons (i.e. substitute a container ship for an LNG), 
there is no such clear division within  the categories of specialised ship  types, e.g. container ships. 
 54. Although further distinctions can be made by ship size, there is no strict rule for such 
distinctions, and sub-divisions de pend on who is making them and for what purposes.  Moreover, at 
least on smaller routes, there is overlap and different sizes of ships of one type are generally 
substitutable.  55. From the point of view of a shipbuilder , that is from the supply-side perspective, there is 
even greater potential for substitution between products .  In the eyes of a shipbuilder, a ship is an 
assembly of steel panels, into wh ich is fitted machinery, pipes, cables, accommodation and so on, and 
the ultimate function of the ship is largely irrelevant .  In the eyes of a shipbuilder, a tanker, a dry bulk 
carrier and a container ship are broadly simi lar products, even though the arrangement and 
proportions of the parts that are assembled diffe r in each product.  Whilst shipbuilders seek to 
improve economic efficiency by building similar pr oducts, very few shipyards specialise in a single 
product type.   
 
3. No obligation to quantify 
 
56. There is no obligation to quantify the effect s of subsidies unless a complainant wishes to use 
Article 6.1(a) of the SCM Agreement  in conjunction with Annex IV, whic h is no longer in force.  The 
existence of purely qualitative presump tions in Article 6(1)(b)-(d) of the SCM Agreement  corroborates 
that an adverse effects claim can be made without a quantitative calculation. 
 
4. Actionable subsidy to be de monstrated subsidy by subsidy 
 57. There is no obligation to make a price depression or suppression case on a vessel by vessel 
basis.  Article 6.3(c) refers broadly to the effect of a subsidy on prices on a market.  A price in the market is generally the average of numerous sales of numerous products.  If Korea had its way, the 
reference to price depression or suppression would be redundant since all cases under Article 6.3(c) 
would require proving lost sales with respect to one particular vessel.     
 
5. Additional Serious Prejudice requirement?  
58. The EC considers that under Art. 6.3(c) of the SCM Agreement , a complainant  must show 
that:  
(1) there is price depression or suppression,  
 (2) such price depression or suppression is significant, and  (3) subsidies are a cause of significant price depression or suppression;  
 then  
(4)  ipso facto , the effect of the subsidies is serious prejudice to the interests of the EC 
 59. Subsidies need not be shown to be the ex clusive cause of price depression or suppression.  A 
cause is sufficient.  In fact previous GATT Panel re ports referred to the subs idies as “contributing” or 
“amplifying” cause.  WT/DS273/R 
Page B-10  
 
 60. Korea itself acknowledges that no “such other factors are present” and that overcapacity 
suppresses prices.  The EC demonstrated that the preser vation of the capacity of the restructured yards 
has led to price suppression in the Korean industry in general and in turn in the rest of the world.  
Moreover, the capacity of the three shipyards is substantial.    
61. There is no basis in the text of the Ag reement to require as Korea suggests a separate 
demonstration of “serious prejudice”.  The purpose of Article 6 of the SCM Agreement  is to provide a 
definition of serious prejudice.  Contextually, the st ructure of Article 6 supports the concept that all 
that is required is to show that one of the elements  in Article 6.3 is fulfilled.  Thus, Article 6.1 laid 
down a presumption of prejudice in egregious cases, which could only be rebutted according to 
Article 6.2 by showing that no serious prejudice exis ted as described in sub-paragraph 3.  It follows 
that, whenever one of the elements in Article 6.3 is fulfilled, serious prejudice exists, unless there is a 
case listed in 6.7 whereby serious prejudice “shall not arise”.  62. Korea’s argument that some additional elem ent of injury was required is contrary to 
principles of effective treaty interpretation b ecause it would render the self-standing definition of 
serious prejudice in 6.3(c) redundant.  However, the European Communities would like to highlight 
that its industry is seriously prejudiced by th e price depressing and suppressing effects of Korean 
subsidies to shipbuilding.  WT/DS273/R 
 Page B-11 
 
 
  
ANNEX B-2 
 
 
ORAL STATEMEN T OF KOREA 
 
 
(18 March 2004) 
  
I. INTRODUCTION AND OVERVIEW 
 
1. Korea would like to thank the Panel, the Fac ilitator and the Secretariat for all of their hard 
work on a number of difficult matters.   
 
2. Before going further into the legal and factual questions before the Panel, Korea would like to 
recall some of the broader aspects of the history of th is dispute including the financial crisis that swept 
into Korea from Southeast Asia and how the EC has dealt with its shipbuilding industry for decades.   
 3. The European shipbuilding industry has been the bene ficiary of decades of heavy 
subsidization, particularly direct operating s ubsidies meant to convey a focused and specific 
competitive advantage.  There have also been h ealthy doses of export subsidization which even the 
Commission has had to constrain (but certainly not stop).  Regional subsidies, research and 
development subsidies (including a new programme  to provide R&D subsidies of 25 per cent), 
restructuring subsidies (totally inconsistent with th e EC’s arguments before th is panel) tied aid export 
subsidies, and so forth.  The amount of subsidization provided to the EC shipbuilding industries is 
enormous.  Indeed, it is so enormous that it lends  new meaning to the term “floating currencies”. 
 4. Large amounts of  these subsidies have provide d short-term bandages and kept in business 
small and uneconomical yards that have not had suff icient incentive to grow and learn and expand on 
their own.  In fact, the EC in its Third Re port on World Shipbuilding admitted that overall the 
subsidies, i.e. operating aid, has served to cushio n yards from the full rigors of the market.  The 
Commission in this report further stipulated that state aid needed to be refocused to promote and 
underpin efforts to improve the competitiveness, in particular lagging behind their Far Eastern 
competitors.   
5. In distinct contrast with the EC’s industrial policy of lavish subsidiza tion, Korea faced, quite 
simply, a broad-based financial crisis that threaten ed to destroy the whole Korean financial sector and 
then bring the rest of the economy down with it.  The inflows of capital that had underpinned Korea’s 
economic growth in the past decades was focused on short term borrowing (generally in US dollars) 
that had been liberalized.  The government had retained limitations on medium and long term 
borrowings.  Due to restrictions on foreign borrowing by corporations, most of the borrowing was 
done by banks.  Of course, many aspects of this are quite typical of rapidly developing countries.  
Very few countries have the luxury of being able to  borrow in their own currency.  However, as the 
financial contagion spread out of Southeast Asia, f unds dried up regardless of the underlying health of 
the economy.  Rapid depreciation of the currency exacerbated the liquidity problems.    
6. The result was a classic credit crunch where m oney was not available for rolling over loans.  
Banks, faced with increasing liquidity problems themsel ves, began to call in their loans.  Perfectly 
viable firms were caught in short term insolvency.  In this situation the Government of Korea turned 
to the IMF to obtain funds to re-float the financia l sector.  After some tough negotiations, agreement WT/DS273/R 
Page B-12  
 
 was reached between the Government of Korea an d the IMF and interim funding was provided.  In 
turn, the Korean government used these funds to provide liquidity to the banks.  There were conditions attached to this provision of funds, but they were market reinforcing conditions.  Banks 
needed to reduce their outstanding bad debts.  They needed to meet BIS standards.  They needed to 
ensure that all restructurings and workouts were done pursuant to market principles including 
maximization of returns from their debt. 
 7. In the IMF’s view, Korea implemented this ma rket-based approach with great success.  As 
Korea has pointed out in its First Submission, in responses to the EC Commission’s several requests, 
the IMF specifically made the point that they we re very satisfied that Korea was undertaking this 
painful process based on market principles. Korea is  not arguing that this panel is somehow estopped 
from pursuing its inquiries because of the IMF’s position.   Rather, the point is simply that the IMF’s 
views in this regard are important factual evidence of Korea’s market-based approach to restructuring 
to put in the balance when the Pane l weighs the facts of the case.    
 
8. Regarding the EC’s approach to this dispute,  instead of using its First Submission to set the 
framework of the dispute and to advance all of the facts and proof needed to support its prima facie  
case, the EC took the route of simply dumping thousands of pages of information in the Panel’s lap (information provided by Korea, it must be noted) and asking you to take over proving their case for 
them.  According to the EC, they consider that they  do not need to do anything more than make mere 
assertions.   
 
9. Obviously, the EC’s approach is not consis tent with the jurisprudence of WTO dispute 
settlement and neither is it consistent with the mo st basic tenets of due process required under general 
principles of international law.  With respect  to the Panel’s duties, the Appellate Body in Japan – 
Agricultural Products II  made it very clear in confirming long-st anding jurisprudence.  The panel is to 
use its information gathering authority to help it understand the parties’ arguments, not to make the 
complainant’s case for it.   10. Neither is the burden on Korea in this respect .  Korea is designated by the treaty as being the 
“respondent” in this case.  This means, sensibly e nough, that Korea is obliged to answer the EC’s 
arguments and refute its positions, to respond once the EC has established a prima facie  case based on 
supported arguments and proven facts.   
 11. As Korea noted in its First Submission, th e Annex V process involved serious abuses by the 
EC.  Misleading statements were made by the EC to  the facilitator and the Panel regarding the breadth 
of the product coverage.  Related to that, the Anne x V process was manifestly used in an improper 
manner to support a fishing expedition for facts to support baseless allegations of export subsidies.  
This is irrefutable.  The EC’s conflicting statem ents are contained in the record.  Moreover, the 
“evidence” the EC provided to support its export subsidy claims clearly comes from the Annex V 
process.  To make it worse, the EC then had the presumption to demand adverse inferences under the 
rules of Annex V for claims made under Part II of  the SCM Agreement.  Annex V is by its terms 
meant as a process related to serious prejudice.  It h as never been used by any other Member to try to 
gather evidence for export subsidies nor to claim le gal authority for adverse inferences and it should 
not have been used in such a fashion here.  Th ese are serious matters that the Panel will need to 
address.  12. The two distinct sets of claims by the EC  under Parts II and III of the SCM Agreement with 
respect to the same alleged subsidies present a uni que issue for the Panel because failure to take 
account of this aspect of the case could result in a double-counting of subsidies in a manner that could 
result in inequitable findings and disproportionate  remedies.  Specifically, the EC has submitted 
claims with respect to  the KEXIM programmes under both Parts II and III of the SCM Agreement.   WT/DS273/R 
 Page B-13 
 
 
 These sets of claims raise serious questions about how to evaluate and remedy alleged violations.  The 
overlapping claims of export subsidization and trade effects with respect to the same alleged subsidies 
risks the possibility of finding adverse effects caused by a combination of export and non-export 
subsidies when the non-export subsidies alone would not  have resulted in an affirmative finding.  That 
would be inequitable in a situation where the e xport subsidies would be remedied separately under 
Part II and should not therefore be included in dete rmining whether a second remedy is appropriate.  
That would be double-counting and would be as ina ppropriate in this setting as parallelism problems 
have been found to be in Safeguards cases.  Therefor e, while it is true that multiple claims sometimes 
arise under multiple WTO provisions, no other WTO provisions are like Part III of the SCM Agreement.  Unique circumstances require unique solutions.   
 
II. ALLEGATIONS OF PROHIBITED SUBSIDIES 
 
13. As an initial matter, the EC must establish th at KEXIM bank is a so-called “public body”.  
There is no firm definition in the SCM Agreement of wh at the term “public body” means.  It is a case-
by-case assessment that must be established by a co mplainant to the satisfaction of the Panel.   
 14. The EC points to government ownership of KEXI M.  It is true that KEXIM is majority owned 
by the government.  But it is well established that ow nership alone is insufficient.  The EC also points 
to a public policy purpose for KEXIM.  Yes, the actions of KEXIM are focused on the export sector, 
but privately owned institutions can have sectoral char ters, too.  Many countries are familiar with this 
in their own banking systems.  That does not make such institutions public bodies.  Something more is 
needed.  15. It seems clear that something more is the i ssue of whether or not the entity is fulfilling a 
function that by its nature is “governmental”.  These include regulatory and taxation functions most 
predominantly.  Conversely, entities that function on a commercial basis in their normal activities are 
not considered “governmental”, as indicated in Article I of the GATS.    16. The EC has asserted that the KEXIM Act and the APRG and pre-shipment loan programmes are inconsistent with the requirements of Part II of  the SCM Agreement, “as such”.  In order to get 
there, the EC looks for support in the Appellate Body decision in US – Sunset Review .  However, the 
issue there was whether a non-legally binding me asure could be challenged, not whether a 
discretionary measure could be challenged on an “a s such” basis.  In other words, the issue was a 
preliminary jurisdictional question as to whether th ere was a justiciable matter; it was not a question 
of whether the measure was mandatory or discre tionary.  Certainly there was no hint in the US – 
Sunset Review  case that the Appellate Body intende d to overturn substantial GATT and WTO 
jurisprudence regarding the distinction between  discretionary and mandatory provisions.   
 17. Korea would also like to note that the AP RG and pre-shipment programmes are types of 
lending activities; there is no underlying written rule to challenge.  They are mere practices.  This is 
the sort of question that was before the Appellate Body in US – Sunset Review .  To the question as to 
whether the EC is legally permitted to pursue a claim against these practices, Korea would answer 
yes, provided of course that the EC presents proven facts and arguments to establish a prima facie  
case.  However, to argue that two “programmes” th at are really nothing but types of lending practice 
can be challenged “as such” as establishing the existen ce of prohibited export subsidies, simply makes 
no sense at all.    
18. The KEXIM Act provides authorization for a wi de ranging set of financ ial activities related to 
the export sector.  It also requires KEXIM to act on a commercial basis to maximize returns and, in 
fact, the evidence is that KEXIM has consistently operated at a profit. KEXIM is required to set its 
base rates according to market conditions.  Credit risk  spreads must be taken into account; collateral is WT/DS273/R 
Page B-14  
 
 required accordingly.  KEXIM borrows funds from many sources, generally from international 
markets.  And, contrary to what the EC asserts, KE XIM does in fact compete with other institutions.  
This requirement is clear from a review of the w hole KEXIM Act, not just the snippet cited by the 
EC.  Most importantly, it is quite clear from the facts in the record.       
19. The so-called “market adjustment rate” in the APRG and pre-shipment loan programmes does 
not mandate below-market rates as is asserted by the EC. In fact, the market adjustment rate is not relevant to the setting of the basic rate which is built up  from the cost of funds to determine the 
lending or guarantee rate.  Rather, the market adjust ment rate is a limiting factor on how much of a 
downward  adjustment can be made under the discretion of the lending office.  As is normally the case 
in any banking business, the bank officials in charge  of disbursing loans and guarantees have a certain 
amount of discretion that they can exercise in making fi nal offers in order to bring in business.  This is 
typically based on competitive pressures, the cust omers’ payment history, etc.  The “market 
adjustment rate” is intended to limit the ability of th e bank officials responsible for that portfolio to 
make too large a downward adjustment in setting rates. 
 
20. On the issue of the existence of benefits to  the recipients of the APRG and pre-shipment 
loans,  as complainant, the EC carries the burden of demonstrating that these programmes were applied in a manner more favourable to the recipients  than what was available on the market.  The EC 
has not met its burden.  Indeed, here again, we see only the most cursory analysis of the issue.  The 
EC has offered the APRG rates charged by a coupl e of non-Korean banks several years ago to support 
its allegations.  However, this is  far from establishing a legitimate market benchmark.  These APRGs 
represented a statistically irrelevant sample.  Furt her, APRGs are a highly technical and specialized 
area and the guarantee rates can be influenced by an assessment of the customer’s past performance 
and likely future performance.  This can be very difficult to assess for a bank dabbling in the market 
from afar. In addition, the EC ignores the substantia lly different characteristics of these APRGs.  The 
KEXIM APRGs were always secured by substan tial collateral, including the so-called Yangdo-
Dambo which establishes important security interests on the hull and materials. In contrast, certain foreign supplied APRGs only had a security inte rest in certain bank accounts for a minority of 
coverage of the guarantee.  21. It is also worth noting that the alleged belo w-market APRGs were advanced during the period 
of the Asian financial crisis.  Ho wever, as noted at the outset, this  was a difficult period during which 
funding and guarantees of any sort were difficult to  obtain. The main concern of Korean banks was 
with meeting and maintaining BIS standards and issuing APRGs was adverse to maintaining BIS 
rates.   
22. The selection by the EC of corporate bonds as a benchmark comparison to a pre-shipment 
loan is virtually a random grasp for an argument by the EC.  The corporate bonds the EC refers to 
were of different terms than the programmes the EC compares them to.  These bonds were generally 
for 3 years.  In stark contrast, the pre-shipment loan programmes were for shorter periods of time, 
generally less than 6 months.  The EC does not ma ke any attempt at all to adjust for these term 
differences which is the most basic question in lending  or to determine how the financial crisis impact 
these term differences.  A review of the actual app licable corporate bond rates, as demonstrated in 
Korea’s first submission, shows that in every inst ance, the actual bond rate was considerably lower 
than the EC’s hypothetical rate.  23. Furthermore, the EC also ignores the fact that pre-shipme nt loans always carried other 
assurances.  Generally, security interests were o ffered in the form of Yangdo-Dambo as well as other 
corporate guarantees and security interests of va rious types. The EC co mpares such loans with 
corporate bonds for which collateral was normally not  provided.  The question of security interests 
and guarantees is another major determinant of inter est rate charges.  Of the Korean shipbuilders,  WT/DS273/R 
 Page B-15 
 
 
 Daedong offered collateral for its corporate bonds, but the actual Daedong bond rates were 
considerably lower than the hypothetical suggestions of the EC.    24. Finally, the other major factor that determ ines the rates for programmes such as these is the 
repayment history of the companies in question.  These are narrow, highly technical banking practices 
and because they are related to the performance hi story of the companies and close analyses of the 
market, it is not something readily participated in by banks outside their familiar territories.  This has 
been ignored by the EC. Thus, we can see that th e so-called benchmarks offered by the EC against 
which to determine whether there was a benefit are quite dissimilar with respect to the three most 
important factors influencing interest rates.   
 
25. Korea is confident that the panel will agr ee that the EC has not established its case with 
respect to the issue of alleged export subsidies.  Nonetheless, again in consideration of the necessity 
of providing arguments on all issues, in the alterna tive Korea notes that it is clear that the so-called 
safe harbours provided by items (j) and (k) of Anne x I to the SCM Agreement apply to the APRG and 
pre-shipment loan programmes, respectively.   
 26. With respect to APRGs, Ko rea notes that an export credit guarantee in item (j) refers to 
assistance to the export of a product and does not re fer to who receives the guarantee.  Indeed, the 
phrase “against increases in cost of exported product s” assumes that it can be with respect to the 
exporter rather than the buyer.  Costs are an exporte rs’ concern while prices are the concern of buyers.  
As Korea has demonstrated, the APRG programme has always been profitable; it certainly has 
covered its long-term operating costs.   27. Pre-shipment loans should be considered expor t credits within the meaning of Item (k); again 
there is nothing in the language that identifies who must receive the credit or loan.  Moreover, the pre-
shipment loan programme provided for credit at rates above the KEXIM’s cost of funds. 
 
III. ALLEGATIONS OF ACTIONABLE SUBSIDIES 
 
28. There is no more fact-intensive case under the WTO dispute settlement system than a serious 
prejudice case brought pursuant to Part III of the SC M Agreement.  Here the complainant carries the 
full burden of establishing the equivalent of a CV D administrative record upon which to base the 
decision.  It is a heavy burden indeed.  And it is neither the Panel’s nor Korea’s burden.  Only when 
the EC has satisfied its burden of proof is there an  obligation of Korea as respondent to rebut those 
arguments and dispute the supporting facts. In the pr esent dispute, the EC has not come even vaguely 
close to carrying its burden of proof.  There are ma jor and very basic elements of its case that have 
been left unaddressed.   
 29. The EC’s failures in this regard are manifest  and multiple.  In its First Submission, the EC 
failed to identify the financial contributions it act ually was referring to with respect to the three 
insolvent companies, Daewoo Heavy Industries (DHI),  Halla and Daedong.  In fact, as part of its 
confused presentation, the EC does not even separ ate out the three compan ies from their successors 
and refers to them with compound names separated by slashes.  One of the major reasons for this 
attempt to blur identities is the failure to establish exactly who the EC is claiming received the alleged 
benefits of the restructurings.  Indeed, the EC fa ils to establish that anyone at all had received any 
benefit from anything at all.  
30. With respect to the so-called restructuring subsidies, there was no government direction in 
these cases.  The Korean economy was in danger of goin g into a free fall and it had to call in the IMF.  
As a part of the IMF bailout, restructurings had to be market–based.  In fact, all of the banks involved 
bargained hard in order to maximize their own re turns.  This was required by both financial and WT/DS273/R 
Page B-16  
 
 corporate restructuring schemes and that was the extent of the Korean government’s involvement.  
The EC certainly cannot maintain that a restru cturing scheme requiring banks to act on market 
principles and maximize returns is somehow improper governmental involvement.  31. There were some government-owned banks invol ved in the restructurings.  However, these 
were banks operating purely on commercial terms; there was no governmental function involved in 
their participation.  It also should be noted that each bank is somewhat different even though the EC 
chose to try to lump everything together.  Indeed, it seems the EC wants to lump every entity in the 
whole Korean economy into one great government en tity.  Aside from being a stale and unfortunate 
stereotype, it certainly has no basis in reality in th e present situation nor in the situation that existed 
during the financial crisis.    
 32. The EC simply has offered no evidence that these restructurings did not take place on market 
terms.  Instead, the EC makes the suggestion that  the “market” dictated that these companies be 
terminated and cease to exist.  One needs to be a little careful with the terminology here for 
“liquidation” proceedings often result in the companies emerging simply in another form and 
continuing to carry on the same operations.  Fo r example, International Steel Group, the second 
largest steel manufacturer in the United States, is made up of several bankrupt steel manufacturers that were “liquidated.” It is a fundamental aspect of a market economy that there be some method of 
addressing financially distressed companies short of termination.  Certainly there is no functioning 
market economy in the world that operates without some sort of mechanisms  to restructure such 
companies.  And indeed, even the French authorities proceed with th e restructuring of and financial 
support to the Alstom group with the approval of the European Commission, notwithstanding the doubts expressed by outside auditors, Ernst & Young and Deloitte Touche Tohmatsu, as to the going 
concern value of the group.  Having said that, th ere really is not a single norm against which to 
measure restructurings.  That is th e case even within the EC itself.   
 
33. Korea has established insolvency mechanis ms that commentators consider fair and 
transparent and which contain elements of US-sty le Chapter 11 procedures combined with a more 
German-style civil law approach.  Perhaps, give n the difficulty of establishing a single norm against 
which to measure the Korean cases,  it becomes easier to see why the EC urges the Panel to adopt a 
standard that absolutely no country in the wo rld lives by; namely, termination and exit from the 
market on the part of insolvent companie s.  But that is no standard at all. 
 34. In all three instances in this dispute, the market assessment was that creditors would receive 
higher returns if the assets continued to be u tilized.  Whether the process happened under court 
supervision or pursuant to private agreement as in the so-called “London Approach” makes no 
difference.  For that also is a function of normal mark et factors.  Creditors decide which route to take 
to maximize their returns.  All routes are available; th ey are not limited.  They decide what is best for 
them financially and then pursue that path.    35. Furthermore, in the context of these restruct urings, the EC has even failed to identify a 
“financial contribution”.  The main transfers the EC has identified that could possibly constitute a 
financial contribution are the debt-equity swaps.  However, it is difficult to see how those could be 
financial contributions from the government.  T hose transactions consisted only of creditors 
exchanging one financial instrument (debt) for another of precisely equal value (new equity). 
 36. Finally, the EC also has never identified w ho the alleged beneficiaries are of these supposed 
financial contributions.  In light of the EC’s success in two disputes that focused on this very question 
of identifying current beneficiaries, their silence is  remarkable.  The EC successfully argued that “in 
the case of a change of ownership (including pr ivatization), the investigating member is under  WT/DS273/R 
 Page B-17 
 
 
 obligation to (re)consider the conditions of application of the SCM Agreement.”1  It is remarkable that 
they ignore this, but it is not surprising.  The fact is the EC cannot identify any current beneficiaries of 
the alleged subsidies.  The debts were the responsib ility of the prior equity holders.  But these equity 
holders were virtually wiped out.    
37. In the case of DSME and Samho Heavy Industr y, the new owners were the creditors who 
found the value of their loans seriously impaired a nd were left with salvaging the best returns possible 
out of the insolvent companies.  The new owners simp ly were looking for the best return on their new 
equity.  In the case of STX Shipbuilding Co., Ltd., a non-creditor buyer (STX) bought out substantially all the ownership of the old Daedong and the proceeds of  this buyout were paid out to 
the creditors of Daedong. Presumably, this simple set of facts is why the EC tries to hide the lack of 
current beneficiaries behind the blurring of the id entities of the three compan ies when the EC keeps 
referring to the companies with compound names linked with slashes.  However, that attempt to blur 
the identities only shows that the EC is focusing on the assets, not the legal or natural persons.  But, as 
is also clear from the EC’s successful cases, the A ppellate Body found that “any analysis of whether a 
benefit exists should be on ‘legal or natura l persons’ instead of on productive operations.”
2 
 38. At this point it might be useful to pr ovide a few observations about the individual 
restructurings.  In the case of Daewoo Heavy Indus tries (DHI), it went through a workout based on 
the London approach.  This choice was made by th e creditors following a study and assessment by the 
Korean affiliate of Arthur Andersen.  The Arthur Andersen study showed that the going concern value 
of DHI -- and the shipbuilding group, which later became DSME, in particular – was significantly 
greater than the value if it were liquidated a nd wound up.  This was a totally objective assessment; 
Arthur Andersen had no incentive to choose one path  over another and a lot of pressure to give an 
honest view of the best mean s to maximize creditor returns.
3  Strangely, the EC also argues that the 
Korean creditors got less than they  should have compared to some foreign creditors. It would seem, 
however, that what the creditors got was neither too high nor too low; it was what the market 
determined it to be.  39. Regarding these foreign creditors, it is important  to recall that they were marginal credit 
holders, virtually de minimis .  Moreover, the EC’s basis for assessing the returns is not a complete 
picture.  The foreign creditors largely cashed out their debt.  The domestic creditors stayed involved 
through a debt restructuring which worked out well over a longer period of time.  The foreign 
creditors did also receive some quantities of warrants allowing them to participate to a lesser degree in 
any later gains from the equity markets.  Thus, the small group of foreign credito rs chose to take more 
up front and less in longer term participation than the domestic creditors.  This is perfectly rational 
behaviour given the different situations of the tw o groups.  Moreover there is  simply no evidence that 
these terms were anything other than the result of  hard bargaining by all parties concerned.   
 40. The final settlement came pursuant to a l ong series of creditor meetings.  The first DHI 
workout plan was blocked by some minority debtors, again highlighting the point made above of the power of small, determined groups in such a process.  Further it is worth noting that it is factually 
incorrect to state that KAMCO had a significant in fluence in determining the final settlement since 
KAMCO participated in the DSME debt equity sw ap at a later stage of the procedure after the 
structure and basic terms of the restructuring had already been formulated by the other creditors. 
 
                                                 
1 EC’s second written submission to the Panel in US – Countervailing Measures on Certain 
Products from the EC  at para. 108. 
2 Appellate Body Report in US – Countervailing Measures on Certain Products from the EC  at 
para. 110. 
3 See Arthur Andersen Report page 3 at para. 2 and annex 1 to the Arthur Andersen Report 
which stipulates the purp ose of the assessment. WT/DS273/R 
Page B-18  
 
 41. Halla took a somewhat different route into its  restructuring.  Halla went bankrupt and was 
sent through court-based restructuring under the Co rporate Reorganization Act.  The court-appointed 
receiver drew up a reorganization plan based on the assessment of a financial advisor. This advisor, Rothschilds, assessed that the valu e of the assets as a going concern was higher than the value on 
liquidation and wind-up of the business.  The advisor recommended that the going concern be 
maintained by way of transferring all the assets to  a newly established company.  This course was 
approved by the court and the previous shareholde rs equity was extinguished.  Pursuant to the 
reorganization plan, the Halla assets were transferred to a newly established company, RHHI, and the entity was renamed Samho Heavy Industries. Hyundai was given a contract to manage the business.  Hyundai was also given a call option at the par va lue of new shares. When Hyundai did exercise its 
call option and purchased all the shares of Samho, the par value was greater than the net asset value so 
Hyundai paid the higher par value amount. The new entity now is no longer Samho, but Hyundai 
Samho Heavy Industries, Co., Ltd.  42. Daedong also went through the court-based co rporate reorganization proceeding.  In the case 
of Daedong, the court determined, based on a fina ncial advisor’s valuation report, that the going-
concern value was higher than the liquidation an d wind-up value.  The court extinguished the 
shareholding of the previous controlling sharehol der and reduced the holdings of the remainder by 
80 per cent.  The court then approved Daedong’s appoi ntment of an outside advisor, KPMG, to find a 
buyer for Daedong.  KPMG sent out an Inform ation Memorandum to 13 possible buyers including 
foreign interests.  Six of these were then identif ied as potential investors.  Ultimately, STX was the 
winning bidder.  In later open-market sales, STX reduced its holdings from 97 per cent to 54 per cent 
as of late 2003.    43. The EC also has failed to establish that any of the alleged subsidies were specific to the 
recipients.  Corporate workouts were widely availa ble to any creditors that wished to use them.  
DHI’s creditors used this approach, but so did many others involved in corporate restructurings of all 
sorts of companies in all sorts of sectors.  If that was not considered appropriate by the creditors, then 
court proceedings were also available.  The other two shipyards, Halla and Daedong, availed 
themselves of this process pursuan t to the Corporate Reorganization Act.  And so did thousands of 
other companies, again involved in all sorts of sectors.  
44. As for the tax provisions, the EC does not seem to have fully understood the facts. The EC 
has also failed to show how the tax provisions r esulted in “government reve nue that was otherwise 
due” was forgone or not collected. This makes it pr actically impossible for Korea to specifically 
respond to the EC allegations on these tax issues. Moreover, there was simply nothing specific to 
DSME about the tax provisions in question.  They are quite standard sorts of tax provisions generally 
available in most WTO Members.   
 45. While the lack of evidence of the existence of a subsidy in any of the restructurings is quite 
plain, it is still necessary for Korea to highlight th e failure of the EC to establish serious prejudice or 
causation even if the Panel were to find that subs idies existed.  The most elementary aspect of 
demonstrating serious prejudice and causation is to identify the “like product”.  Without this, nothing 
else can be meaningfully discussed.  It is literall y impossible to review the state of the EC’s 
industry(ies) if they are not defined.  One cannot try to assess the impact of the alleged subsidies unless one knows what like products they are associat ed with and, therefore, can gauge their impact 
on the like product market.  However, the EC has co mpletely failed to identify the “like products”.   
 
46. Rather remarkably, the EC proposed using an analysis like that in GATT Article III to 
establish the like product categories, but then did not provide any such anal yses.  Instead, we had 
constantly shifting proposals for something th e EC identified as the “market”, presumably as 
distinguished from “like products.”   But, even then, no supporting evidence was provided for any of  WT/DS273/R 
 Page B-19 
 
 
 these potential like product categories.  No market studies; no descriptions of the relative physical 
characteristics; no facts regarding end uses or consum er perceptions.  Simply nothing at all.      
 47. The EC does not address the question of what EC  interests have been seriously prejudiced and 
how that might have occurred.  There is no eviden ce supplied about the state of the EC industry or 
“industries”, since we do not know if the EC claims one or several industries.  It seems clear from the 
scheme of Articles 5 and 6 that a showing of adverse effects must satisfy the requirement of a causal link to serious prejudice of specific EC industry(ies) producing the like product(s), but it must also involve something more.  Presumably there was a reas on the term “interests” was chosen rather than 
injury and it clearly implies something more than ju st the alleged damage to specific industry(ies) for 
a Member’s “interests” are necessarily broader than just that.  But, once again, the EC has provided 
no argumentation or evidence whatever.   48. The EC also did not provide any evidence on th e level of the alleged subsidization.  At the 
very end of its submission, the EC offered some numbers which it claims could represent the level of 
subsidization.  These numbers are not broken down by programme; no supporting calculations are 
offered; no evidence is provided regarding how thes e numbers are derived.  Instead we are presented 
with another instance where the EC insists that it reserves its rights to  provide some sort of economic 
study should either Korea or the Panel challenge its unsupported assertions.  Of course, the EC has no 
such right; rather, it had an obligation  to provide supporting evidence and argumentation.   
 
49. Without knowing what the level of the alle ged subsidies are, it is impossible to make a 
causation argument with respect to the issue of se rious prejudice.  Perhaps not surprisingly, the EC 
makes no causation argument at all except to imply that even an apparently infinitesimally small 
effect of subsidization would satisfy the treaty langua ge.  One of the problems here is that the EC has 
collapsed a two-step analysis into one.  The first step is to determine whether the effects of the 
subsidy are to cause, for example, significant price unde rcutting.  Then, in step two, if the effects of 
the subsidy are to do that, Article 6.3 provides th at such price undercutting may be one of several 
factors that may cause serious prejudice to the inter ests of the complaining Member.  Actually, the EC 
is not just collapsing the two steps, it really is ignoring them altogether and trying to make an 
argument that the products have caused serious prej udice regardless of the effects of the subsidies 
themselves and regardless of the strength of the cau sal connection.  Indeed, it is difficult to see what 
relationship the EC’s arguments have  to the treaty language at all. 
 50. It is important to recall that the largest shi pbuilder in Korea by a large margin is Hyundai and 
it is not involved in these allegations.  There are many others as well.  The restructured companies 
make up a minority of production and the panel shou ld not accept allegations from the EC based on 
the practices of the “Korean industry”.  The EC must  differentiate the parts of the Korean industry 
that it is referring to in order to establish the n ecessary causal link.  Vague references to the “Korean 
industry” are totally meaningless without both distin guishing the like products and distinguishing the 
companies.  51. In this regard, it is important to note that  the largest measure of growth in the “Korean 
industry” – whatever that might mean exactly -- occu rred prior to the alleged subsidization.  That is, 
the factors shaping the market are clearly on display during a period in which the EC is not alleging 
subsidization.  Of course, there are other factors at play here as well such as a severe global downturn, the rise of other new competitors, such as China, and the practices of longtime competitors such as 
Japan, but there is this one large anomaly sitting here  at the outset that one must address.  The EC has 
the most heavily subsidized industry pursuant to practices that have extended over decades and the EC 
Commission has acknowledged that these subsidies pr event the EC shipyards from adjusting to the 
market, to take into account changes in cons umer demand, technology and competition.   
 WT/DS273/R 
Page B-20  
 
 52. There is also the question of why the EC narrowed its claims and excluded price undercutting 
and attempted to rely on some undefined market  mechanism that could have caused the price 
suppression and depression that the EC alleges.  The r easons are twofold.  First, the evidence is weak 
with respect to price comparisons and causation base d on the Korean ships.  It is non-existent with 
respect to the effect of the subsidy.  Second, a revi ew of the language of Article 6.5 shows that among 
other elements, it refers to a comparison of the prices of the subsidized and “non-subsidized like 
products” (which, of course, is also reflected in Ar ticle 6.4).  The EC cannot demonstrate that their 
ships are non-subsidized because, in fact, they ar e the most subsidized ships in the world.   
 53. What is absolutely critical here is that the panel not allow the EC to make a case on price 
undercutting but avoid the requirements of Article 6.5.  As a matter of law, the EC cannot be 
permitted to do this.  Thus, at every single step in this process the Panel must press the EC on just 
what the market mechanism is -- to the exclusion  of allegations of price undercutting -- that is 
responsible for the serious prejudice the EC is alleging.     IV. CONCLUSION  
 
54. In conclusion then the Panel is faced with a dispute where the complainant has been unable to 
prove facts or establish the requisite arguments to make a prima facie  case with respect to any claims.  
The EC claims have continued to shrink to avoid ma tters that they cannot prove, but what is left is 
based on conjecture, innuendo and broa d generalizations that read more like a newspaper article than 
submissions sufficient to carry the substantial burde n of proof required of the complainant in this 
dispute.