WORLD TRADE  
ORGANIZATION  WT/DS336/R 
13 July 2007 
 (07-2924) 
 Original: English 
  
 
     
 
    
 
 
JAPAN – COUNTERV AILING DUTIES ON 
DYNAMIC RANDOM ACCESS  
MEMORIES FROM KOREA  
  
Report of the Panel 
  
 
 
 
 
 
  WT/DS336/R 
 Page i  
 
 
TABLE OF CONTENTS 
Page  
 
I. INTRODUCTION ................................................................................................................... .1 
II. FACTUAL ASPECTS ..............................................................................................................1  
III. PARTIES' REQUESTS FOR FIND INGS AND RECOMMENDATIONS.........................2  
A. KOREA ............................................................................................................................... ..........2  
B. JAPAN ............................................................................................................................... ...........4  
IV. ARGUMENTS OF THE PARTIES ........................................................................................4  
A. FIRST WRITTEN SUBMISSION OF KOREA ....................................................................................4  
1. Japan's Imposition of Countervailing Duties Was Based on a Fundamentally 
Flawed Assumption.............................................................................................................. .....4 
2. Japan's Investigation Was Procedural ly Flawed and Legally Invalid.................................5  
(a) Failure to Promulgate Bene fit Calculation Methods...................................................................5  
(b) Improper Burden of Proof....................................................................................................... ....6 
(c) Improper Identification of "Interested Parties"...........................................................................6  
3. Japan's Findings of Subsidies to Hynix Were Inconsistent with the 
Requirements of th e SCM Agreement ....................................................................................7  
(a) Improper Finding that Hynix Received Financial Contributions................................................7  
(i) Improper Classification of Transactions that  Did Not Involve Any Transfer of Funds 
as "Direct Transfers of Funds"................................................................................................. ..7 
(ii) Lack of Factual Findings for a Determination that Revenue Otherwise Due Had Been 
Foregone....................................................................................................................... ..............7  
(iii) Improper Finding of "Entrustment or Direction" of Hynix's Private Creditors.........................8  
(b) Improper Finding that Hynix Received a Benefit from the Alleged Financial 
Contributions .................................................................................................................. ............9  
(c) Improper Finding that the Alleged Subsidies Were Specific to Hynix.....................................10  
4. Japan Improperly Imposed Countervailing Duties on Imports that Were Not 
Subsidized ..................................................................................................................... ...........11  
(a) Failure to Consider the Impact of Ch anges in the Ownership of Hynix...................................11  
(b) Improper Imposition of Duties on Imports afte r the Benefit of the Alleged Subsidies 
Had Expired .................................................................................................................... ..........11  
5. Japan's Finding that the Subsidized Imports Were Causing Injury Was 
Inconsistent with the Requirem ents of the SCM Agreement..............................................12  
6. Request for Ruling a nd Recommendation............................................................................12  
B. FIRST WRITTEN SUBMISSION OF JAPAN ....................................................................................12  
1. The Panel's Terms Of Reference ...........................................................................................13  
2. Evidentiary and Procedural Issues........................................................................................13  
(a) Korea Failed to Meet Its Burden of Proof in This Dispute.......................................................13  
(b) The Standard of Review of the Panel .......................................................................................13  WT/DS336/R 
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3.
 The JIA's Factual Findings on The Subsidization of Hynix ...............................................14  
4. Korea's Claims of Errors ....................................................................................................... 15 
(a) The JIA Correctly Based the Final Determin ation on an Objective Assessment of the 
Evidence on the Record and Provided Reasone d and Adequate Explanations Based on 
Probative and Compelling Evidence.........................................................................................15  
(b) Korea Misinterprets the Evidentiary Standard for an Investigation..........................................15  
(c) The JIA Properly Found Financia l Contributions to Hynix......................................................16  
(i) The JIA's Finding of a Transfer of Funds Was Consistent with Article 1.1(a)(1)(i) of 
the SCM Ag reement .............................................................................................................. ....16  
(ii) The JIA Properly Found  the Government of  Korea's Entrustment or Direction to 
Private Creditors .............................................................................................................. ........16  
(d) The JIA Properly Found Benefit...............................................................................................17  
(e) The JIA Properly Found Specificity .........................................................................................18  
(f) Korea's Change-in-Ownership Argument Is Irrelevant to the JIA's Subsidies 
Determination .................................................................................................................. .........19  
(g) The JIA Properly Imposed a Countervailing Duty on Imports Found to Have Been 
Subsidized during the Period of Investigation ..........................................................................19  
(h) Japan's Guidelines Sufficiently Set Forth the Benefit Calculation Methods ............................20  
(i) The JIA's Designation of Certain Financial Institutions as "Interested Parties" Is 
Consistent with the SCM Agreement ........................................................................................20  
(j) The JIA Correctly Considered the E ffects of Subsidies to Injury.............................................21  
(k) Korea's Claim under Article 32.1 of the SCM Agreement is without Merit .............................21  
(l) Korea's Suggestion to the Panel to Specify a Particular Way to Implement a 
Recommendation (If Any) is Unnecessary ...............................................................................21  
5. The Non-Record Evidence And Argument Presented By Korea Are Not 
Appropriately Before The Panel............................................................................................21  
(a) Korea's Submission of Non-Record  Evidence Should Be Rejected .........................................21  
(b) Korea's Claims Based on Evidence and Argum ents, Which  the Government of Korea 
and Other Interested Parties Chose Not to Submit in the Investigation, Should Be Rejected ....................................................................................................................... .............22
 
C. FIRST ORAL STATEMENTS OF KOREA .......................................................................................22  
1. Opening Statement of Korea at th e First Meeting of the Panel..........................................22  
(a) Procedural Flaws In The JIA's Determination ..........................................................................22  
(i) Use of Improper Benefit Calculation Methods .........................................................................22  
(ii) Improper Burden of Proof ....................................................................................................... .23 
(b) Determination of Fina ncial Contribution..................................................................................23  
(i) Direct Transfer of Funds and Forgone Revenue ......................................................................23  
(ii) Entrustment or  Direction ....................................................................................................... ...24 
(c) Benefit........................................................................................................................ ...............25  
(d) Allocation Period and Imposition Period..................................................................................25   WT/DS336/R 
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(e) Injury Causation............................................................................................................... .........26  
2. Closing Statement of Korea at the First Meeting of the Panel ...........................................26  
D. FIRST ORAL STATEMENTS OF JAPAN ........................................................................................27  
1. Opening Statement of Japan at the First meeting of the Panel ..........................................27  
(a) Standard of Review and Evidentiary Standard .........................................................................27  
(i) The Requirements under th e WTO Agreements ........................................................................27  
(ii) The Actual Investigation and De termination by the JIA...........................................................28  
- Hynix's Financial Situation:  On the Verge of Collapse .................................................................. 28  
- The Policy and Actions of The Government of Ko rea to Save Hynix Since the "Big Deal"........... 28  
(iii) The Facts Found in the Investigation and the Evidentiary Standard for Entrustment 
or Direction................................................................................................................... ............30  
(iv) Non-Record Evidence and Arguments ......................................................................................31  
(v) Conclusion ..................................................................................................................... ...........31  
(b) Other Errors In Korea' s Claims................................................................................................ 31 
(i) Benefit ........................................................................................................................ ...............31  
(ii) Determination of the Amount of Subsidy ..................................................................................32  
2. Closing Statement of Japan at the First Meeting of the Panel............................................32  
E. SECOND WRITTEN SUBMISSION OF KOREA ..............................................................................34  
1. Japan's Imposition of Countervailing Duties was based on a Fundamentally 
Flawed Assumption.............................................................................................................. ...34 
2. Japan's Investigation Was Procedural ly Flawed and Legally Invalid...............................35  
(a) Failure to Promulgate Bene fit Calculation Methods.................................................................35  
(b) Improper Reliance on Assumptions and Reversal of Burden of Proof.....................................35  
(c) Improper Identification of "Interested Parties".........................................................................37  
3. Improper Finding that Hynix Received Financial Contributions ......................................37  
(a) Improper Classification of Transactions that  Did Not Involve Any Transfer of Funds 
as "Direct Transfers of Funds"................................................................................................. .37 
(b) Improper Finding of "Entrustment or Direction" of Hynix's Private Creditors ........................38  
4. Improper Finding that Hynix Received a Benefit from the Alleged Financial 
Contributions .................................................................................................................. ........38  
5. Improper Finding that the Alleged Subsidies Were Specific to Hynix ..............................39  
6. Improperly Failure to Consider the Impa ct of Changes in the Ownership of 
Hynix.......................................................................................................................... ..............39  
7. Improper Imposition of Duties on Imports after the Benefit of the Alleged 
Subsidies ha d Expired .......................................................................................................... ..40 
8. Japan's Finding that the Subsidized Imports Were Causing Injury Was 
Inconsistent with the Requirem ents of the SCM Agreement..............................................41  
9. Failure to Comply with the Substantive and Procedural Requirements of the 
SCM Agreement.................................................................................................................. ....42  WT/DS336/R 
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F.
 SECOND WRITTEN SUBMISSION OF JAPAN ................................................................................42  
1. Standard of Review and Burden of Proof.............................................................................42  
(a) Standard of Review............................................................................................................. ......42  
(b) Burden of Proof ................................................................................................................ ........43  
2. Korea's Claims of Error........................................................................................................ .43 
(a) Japan's Guidelines............................................................................................................. ........43  
(i) The Limited Scope of Korea's Claim.........................................................................................43  
(ii) The JIA's Benefit Calculation Methodology Was Provided for in Japan's Law .......................43  
(b) The Record Evidence............................................................................................................ ....44  
(c) Designation of Certain Financial In stitution as "Interested Parties".........................................45  
(d) Financial Contribution ......................................................................................................... .....45  
(i) The JIA Correctly Found a Transfer of "Funds" ......................................................................45  
(ii) The JIA Correctly Determined that the Priv ate Creditors Were Entrusted or Directed ..........45  
- The Government of Korea's intent............................................................................................... .... 45 
- Lack of investors and the lack of suffi cient analysis by pa rticipating banks ................................... 46  
- Korea's Specific Arguments on the JIA's Assessment of the Lack of Investors Willing to 
Participate in the Bailout Pr ograms ............................................................................................ ..... 46  
- Korea's Specific Arguments concerning the L ack of Analysis by Participating Banks................... 47  
(e) The Determination of Benefit ................................................................................................... 47 
(i) Introduction and Overview of Japan's Argument .....................................................................47  
(ii) Rebuttal to Korea's Arguments .................................................................................................4 8 
(f) Imposition of a Countervailing Duty on Impor ts Found to Have Been Subsidized 
during the Period of Investigation............................................................................................. 49 
(i) The Limited Nature of Korea's Claim.......................................................................................49  
(ii) The Determination was Fully Cons istent with Article 19.4 ......................................................50  
(iii) The Determination was Fully Cons istent with Article 21.1 ......................................................50  
(iv) Article VI of the GATT 1994, and the Pr ovisions of the SCM Agreement Provide 
Incontrovertible Textual Suppor t for Japan's Position.............................................................50  
(v) Korea Wrongly Assumes that the Investiga ting Authority "Fully Allocated" the 
Subsidies to the 2001-2005 Period ...........................................................................................50  
(vi) Korea's Claim Disregards Relevant Findings by the Appellate Body ......................................51  
(g) Effects of Subsidies in Injury Determination............................................................................51  
(i) Causal Link between the Subs idized Imports and Injury..........................................................51  
(ii) The JIA Correctly Found that Hynix's Exports Were through the Effects of Subsidies 
Causing Injury to the Domestic Industry ..................................................................................51  
G. SECOND ORAL STATEMENTS OF KOREA ...................................................................................52  
1. Opening Statement of  Korea at the Second Meeting of the Panel.....................................52  
(a) Introduction................................................................................................................... ............52   WT/DS336/R 
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(b) The Panel's Task in this Proceeding..........................................................................................52  
(i) The Interpretation of the Relevant Agreements ........................................................................52  
(ii) The Requirement of a Prima Facie Case..................................................................................52  
(iii) Evidentiary Requirements under the SCM Agreement .............................................................53  
(c) The Benefit De termination ...................................................................................................... .54 
(i) The Appropriate Benchmark.....................................................................................................5 4 
(ii) The Evidence Concerning Hynix's Goi ng-Concern and Liquidation Values............................54  
(iii) Participation of Non-Entrus ted or-Directed Creditors ............................................................55  
(d) Imposition of Duties Beyond the Amortization Period ............................................................55  
(e) Causation of Injury "Through the Effects of Subsidies"...........................................................56  
(f) Conclusion ..................................................................................................................... ...........56  
2. Closing Statement of Korea at the Second Meeting of the Panel .......................................56  
H. SECOND ORAL STATEMENTS BY JAPAN ...................................................................................58  
1. Opening Statement of Japan at the Second Meeting of the Panel......................................58  
(a) Korea's Economic Theories Arguments are Irrelevant .............................................................58  
(b) Japan's Provision of Methods is Consistent with Article 14.....................................................58  
(c) The "Assumptions" Alleged by Korea......................................................................................58  
(i) The First Category of an "Assumption" Alle ged by Korea is Based on an Incorrect 
Understanding of the JIA's Determination ...............................................................................58  
(ii) The Second Category of an "Assumption" Alleged by Korea Is in Fact a Factual Finding Based on the Ev idence on the Record .........................................................................59
 
(iii) The Third Category of an "Assumption" Alle ged by Korea is Based on an Incorrect 
Understanding of the JIA's Fi ndings and the Evidence............................................................59  
(iv) The Fourth Category of an "Assumption" Alleged by Korea Is in Fact a Factual 
Finding Based on the Evidence on the Record ........................................................................59  
(d) Positive Evidence and Standard of Review ..............................................................................59  
(i) Korea's Erroneous Application of a "Positive Evidence" Standard .........................................59  
(ii) Non-Record Evidence Should Not Be Examined ......................................................................59  
(e) Interested Parties............................................................................................................. ..........59  
(i) Korea's Argument on the Scope of Int erested Parties Is Without Merit ...................................59  
(ii) Korea's "Adverse Facts Available" Argument Is Without Merit...............................................60  
(f) Revenue Foregone/Trans fer of Funds.......................................................................................60  
(i) Korea's Interpretation of "Transfer of Funds" Is Erroneous....................................................60  
(ii) The Extension of Maturity of Lo ans and Debt-to-Equity Swap ................................................60  
(g) Financial Contribution ......................................................................................................... .....60  
(i) The "Syllogism" Korea Asserts Is an Erroneous Understanding..............................................60  
(ii) The Decisions of Woori Bank and Chohung Bank....................................................................60  
(iii) The JIA's Finding on Government Intent Was Reasonable ......................................................60  WT/DS336/R 
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(iv)
 Prime Minister's Decree No. 408 Does No t Prohibit Government Intervention ......................60  
(h) Benefit........................................................................................................................ ...............60  
(i) Korea's Argument that Hynix's Debts Were Worthless Is Without Merit .................................60  
(ii) Korea's Going-Concern Value Ar gument Is Without Merit......................................................60  
(i) Specificity .................................................................................................................... .............62  
(j) Change in Ownership............................................................................................................ ....62  
(k) Allocation of Subsidies........................................................................................................ .....62  
(l) Injury Determination........................................................................................................... ......62  
2. Closing Statement of Japan at the Second Meeting of the Panel........................................63  
(a) Introduction................................................................................................................... ............63  
(b) Korea's Erroneous Understanding of its own Obligation to Establish a Prima Facie  
Case........................................................................................................................... ................63  
(c) Submission of an "Argument" in a Panel..................................................................................63  
(d) Korea's Argument on the Interpretation of th e Extension of the Maturity of Loans and 
the Debt-To-Equity Swap has no Merit ....................................................................................64  
(e) Korea's Argument on Individual Banks' Analys is was based on an Isolated Portion of 
Evidence and Failed to Address other Relevant Evidence........................................................64  
(f) Korea Now Admits that Deutsche Bank Pr epared the Report in its Capacity as 
Financial Advisor to Hynix..................................................................................................... ..64 
(g) The Deutsche Bank Report is not Immune from Review .........................................................65  
(h) Korea's Alleged Scope of Entrustment or Direction Based on its own Economic 
Theory is Contrary to the Scope under the SCM Agreement ....................................................65  
(i) The JIA's Investigation Sufficiently Covered Hynix's Representative Financial 
Institutions ................................................................................................................... .............66  
(j) Korea's Interpretation of EC Regulations is  Incorrect;  EC's Regulations in fact 
Support Japan's View........................................................................................................... .....66  
(k) Korea's Interpretation of "Found to Exist" is out of Context of the SCM Agreement ...............66  
(l) Conclusion ..................................................................................................................... ...........67  
V. ARGUMENTS OF THE THIRD PARTIES ........................................................................67  
A. THIRD PARTY WRITTEN SUBMISSION OF CHINA ......................................................................67  
1. Introduction................................................................................................................... ..........67  
2. Effects of Past Subsidies over the Primary Market Benchmark ........................................67  
3. Imposition Period v.s. Allocation Period ..............................................................................68  
4. Conclusion ..................................................................................................................... ..........70  
B. THIRD PARTY ORAL STATEMENT OF CHINA ...............................................................................70  
1. Effects Of Past Subsidies Over The Primary Market Benchmark.....................................70  
2. Imposition Period v.s. Allocation Period ..............................................................................71  
C. THIRD PARTY WRITTEN SUBMISSION OF THE EUROPEAN COMMUNITIES ..................................72  
1. Article 6.2 of  the DSU ......................................................................................................... ....73   WT/DS336/R 
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2. Burden of Proof and Standard of Review.............................................................................73  
3. Interested Parties ............................................................................................................. .......74  
4. Financial Contribution ......................................................................................................... ..74 
5. Benefit ........................................................................................................................ ..............75  
6. Specificity.................................................................................................................... .............75  
7. Imposition of countervailing duties.......................................................................................76  
8. Causation ...................................................................................................................... ...........76  
D. THIRD PARTY ORAL STATEMENT OF THE EUROPEAN COMMUNITIES .....................................77  
1. Article 6.2 of  the DSU ......................................................................................................... ....77  
2. The market benchmark for determining the existence and amount of a benefit is 
the market of the granting member, provided that it has not itself been distorted 
by government subsidies........................................................................................................ .78 
3. The market benchmark for determining th e existence and amount of benefit is 
that of an outside not an inside investor ...............................................................................78  
4. Distinction between the existence of a subsidy and the grant of a subsidy........................79  
5. Point at which a subsidy may be deemed to exist within the meaning of 
Article 1.1 of the SCM Agreement ........................................................................................80  
6. The relevance of the change of ownership case law does not depend on privatisation.................................................................................................................. ...........80
 
E. THIRD PARTY WRITTEN SUBMISSION OF THE UNITED STATES ................................................80  
1. Procedural Issues .............................................................................................................. ......80  
2. Burden of Proof, Standard of Review, and Evidence ..........................................................81  
3. Subsidy Determination .......................................................................................................... .81 
4. Injury Determination........................................................................................................... ...84 
F. THIRD PARTY ORAL STATEMENT OF THE UNITED STATES ......................................................84  
1. Preliminary Ruling Requests .................................................................................................84  
2. Burden of Proof, Standard of Review, and Evidentiary Standards...................................85  
3. Rejection of Private Benchmarks ..........................................................................................86  
4. The Chapeau of Article 14 .....................................................................................................8 7 
5. Injury Determination........................................................................................................... ...87 
VI. INTERIM REVIEW...............................................................................................................88  
A. COMMENTS BY KOREA ...............................................................................................................88  
B. COMMENTS BY JAPAN ................................................................................................................89  
VII. FINDINGS....................................................................................................................... ........91  
A. REQUESTS FOR PRELIMINARY RULINGS ...................................................................................91  
1. Japan's 5 September Request ................................................................................................93  
(a) Item 9 ......................................................................................................................... ...............93  
(b) Item 10 ........................................................................................................................ ..............94  WT/DS336/R 
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(c)
 Item 15 ........................................................................................................................ ..............94  
2. Japan's Additional Request ...................................................................................................95  
(a) Items 3, 4 and 9............................................................................................................... ..........95  
(b) Item 5 ......................................................................................................................... ...............96  
(c) Item 6 ......................................................................................................................... ...............97  
(d) Item 7 ......................................................................................................................... ...............97  
(e) Item 12 ........................................................................................................................ ..............97  
(f) Item 13 ........................................................................................................................ ..............98  
3. Conclusion ..................................................................................................................... ..........98  
B. GENERAL ISSUES .......................................................................................................................98  
1. Standard of Review............................................................................................................. ....98  
2. Burden of Proof................................................................................................................ .......99  
3. Treaty Interpretation.......................................................................................................... ..100  
C. ALLEGED REVERSAL OF THE BURDEN OF PROOF ...................................................................101  
D. THE JIA' S DETERMINATION OF ENTRUSTMENT OR DIRECTION OF CERTAIN PRIVATE 
BODIES ............................................................................................................................... .....101  
1. Introduction................................................................................................................... ........101  
2. The Claim ...................................................................................................................... ........102  
3. Applicable Provisions .......................................................................................................... .102 
4. The JIA's Determination......................................................................................................10 3 
5. Main Arguments of Korea ...................................................................................................104  
6. Main Arguments of Japan....................................................................................................104  
7. Evaluation by the Panel........................................................................................................ 105 
(a) Legal, Interpretational, and Evidentiary Issues.......................................................................105  
(i) General Considerations......................................................................................................... .105 
(ii) In the Creditors' Own Interests...............................................................................................1 07 
(iii) Direct / Circumstantial Evidence............................................................................................108  
(iv) Probative and Compelling Evidence ......................................................................................109  
(v) Positive Ev idence.............................................................................................................. ......110  
(b) The Alleged Presumption That No Rational Creditor Would Have Entered Into The 
Restructuring Transactions, In View Of Hy nix's Poor, And Deteriorating, Financial 
Condition ...................................................................................................................... ..........111  
(i) Arguments of Korea ............................................................................................................. ...111  
(ii) Arguments of Japan ............................................................................................................. ...112  
(iii) Evaluation by the Panel........................................................................................................ ..113  
(c) The Government of Korea's Alleged Intent To "Keep Hynix Alive" .....................................114  
(i) The JIA's findings............................................................................................................. .......114   WT/DS336/R 
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(ii) Arguments of Korea ............................................................................................................. ...115  
(iii) Arguments of Japan ............................................................................................................. ...116  
(iv) Evaluation of the Panel........................................................................................................ ...116  
(d) Commercial reasonableness:  the JIA's analys is of the internal examinations of the 
restructurings by the Four Creditors .......................................................................................120  
(i) Main Arguments of Korea.......................................................................................................1 20 
(ii) Main Arguments of Japan.......................................................................................................1 21 
(iii) Evaluation by the Panel........................................................................................................ ..122  
(e) The Participation of Other Creditors In The Same Transactions And On the Same 
Terms .......................................................................................................................... ............148  
(i) Main Arguments of Korea.......................................................................................................1 48 
(ii) Main Arguments of Japan.......................................................................................................1 48 
(iii) Evaluation by the Panel........................................................................................................ ..148  
(f) Conclusion ..................................................................................................................... .........149  
E. THE JIA 'S DETERMINATION OF BENEFIT ...................................................................................150  
1. Introduction................................................................................................................... ........150  
2. Applicable provisions.......................................................................................................... ..151  
3. Main Arguments of Korea ...................................................................................................151  
4. The relevance of the evidence relied on by the JIA ...........................................................152  
(a) Arguments of Korea............................................................................................................. ...152  
(b) Arguments of Japan ............................................................................................................. ...153  
(c) Evaluation by the Panel ........................................................................................................ ..153  
5. Commercial Reasonableness:  Whether The Restructurings Made Hynix "Better 
Off" ........................................................................................................................... .............155  
(a) Arguments of Korea............................................................................................................. ...155  
(b) Arguments of Japan ............................................................................................................. ...155  
(c) Evaluation by the Panel ........................................................................................................ ..155  
6. The Use of Hynix's Non-Entrusted or Dire cted Creditors as Market Benchmarks .......156  
(a) The "non-commercial nature" of the be haviour of the Other Creditors..................................157  
(b) Prior Subsidies ................................................................................................................ ........158  
(c) Conclusion ..................................................................................................................... .........160  
7. Calculation of the Amount of Benefit..................................................................................161  
(a) Main Arguments of Korea ......................................................................................................16 1 
(b) Main Arguments  of Japan.......................................................................................................1 61 
(c) Evaluation by the Panel ........................................................................................................ ..162  
8. Conclusion ..................................................................................................................... ........165  
F. ARTICLE 14 CHAPEAU / BENEFIT CALCULATION METHOD ....................................................166  WT/DS336/R 
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1.
 Main Arguments of the Parties............................................................................................166  
2. Is This an "As Such" Claim?...............................................................................................167  
3. Were the Methods Used by the JIA Provided For in Japan's Guidelines? .....................167  
G. ALLOCATION / CONTINUED EXISTENCE OF BENEFIT ..............................................................170  
1. Main Arguments of Korea ...................................................................................................170  
2. Main Arguments of Japan....................................................................................................171  
3. Evaluation by the Panel........................................................................................................ 172 
4. Conclusion ..................................................................................................................... ........175  
H. SPECIFICITY .............................................................................................................................17 6 
1. Main Arguments of Korea ...................................................................................................176  
2. Main Arguments of Japan....................................................................................................177  
3. Findings of the JIA ............................................................................................................ ...177  
4. Evaluation by the Panel........................................................................................................ 177 
I. INTERESTED PARTIES ..............................................................................................................179  
1. Arguments ...................................................................................................................... .......179  
(a) Korea.......................................................................................................................... .............179  
(b) Japan .......................................................................................................................... .............180  
2. Evaluation by the Panel........................................................................................................ 180 
J. CAUSATION OF INJURY ...........................................................................................................185  
1. Arguments ...................................................................................................................... .......185  
(a) Korea.......................................................................................................................... .............185  
(b) Japan .......................................................................................................................... .............186  
2. Evaluation by the Panel........................................................................................................ 187 
K. DIRECT TRANSFER OF FUNDS .................................................................................................193  
1. Arguments ...................................................................................................................... .......193  
(a) Korea.......................................................................................................................... .............193  
(b) Japan .......................................................................................................................... .............195  
2. Evaluation by the Panel........................................................................................................ 196 
L. CHANGE IN OWNERSHIP ..........................................................................................................199  
1. Claim.......................................................................................................................... ............199  
2. Arguments ...................................................................................................................... .......199  
(a) Korea.......................................................................................................................... .............199  
(b) Japan .......................................................................................................................... .............200  
3. Evaluation by the Panel........................................................................................................ 200 
M. ARTICLE 32.1 ..........................................................................................................................2 01 
1. Claim.......................................................................................................................... ............201   WT/DS336/R 
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2. Applicable provision ........................................................................................................... ..201  
3. Arguments ...................................................................................................................... .......201  
(a) Korea.......................................................................................................................... .............201  
(b) Japan .......................................................................................................................... .............202  
4. Evaluation by the Panel........................................................................................................ 202 
VIII.  CONCLUSIONS AND RECOMMENDATION ................................................................202  WT/DS336/R 
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TABLE OF WTO CASES CITED IN THIS REPORT 
 
Short Title  Full Case Title and Citation  
Brazil – Aircraft
  Appellate Body Report, Brazil – Export Financing Programme for 
Aircraft , WT/DS46/AB/R, adopted 20 August 1999, DSR 1999:III, 1161 
Brazil – Desiccated 
Coconut  Appellate Body Report, Brazil – Measures Affec ting Desiccated Coconut , 
WT/DS22/AB/R, adopted 20 March 1997, DSR 1997:I, 167. 
Canada – Aircraft  Appellate Body Report, Canada – Measures Affecting the Export of 
Civilian Aircraft , WT/DS70/AB/R, adopted 20 August 1999, 
DSR 1999:III, 1377 
Canada – Autos  Appellate Body Report, Canada – Certain Measures Affecting the 
Automotive Industry , WT/DS139/AB/R, WT/D S142/AB/R, adopted 
19 June 2000, DSR 2000:VI, 2985 
Canada – Wheat Exports 
and Grain Imports Panel Report, Canada – Measures Relating to Exports of Wheat and 
Treatment of Imported Grain , WT/DS276/R, adopted 27 September 2004, 
upheld by Appellate Body Repo rt, WT/DS276/AB/R, DSR 2004:VI, 2817 
Chile – Price Band System  Appellate Body Report, Chile – Price Band System and Safeguard 
Measures Relating to Certain Agricultural Products , WT/DS207/AB/R, 
adopted 23 October 2002, DSR 2002:VIII, 3045 
EC – Bed Linen  Appellate Body Report, European Communities – Anti-Dumping Duties 
on Imports of Cotton-Type Bed Linen from India , WT/DS141/AB/R, 
adopted 12 March 2001, DSR 2001:V, 2049 
EC – Countervailing 
Measures on DRAM Chips  Panel Report, European Communities – Countervailing Measures on 
Dynamic Random Access Memory Chips from Korea , WT/DS299/R, 
adopted 3 August 2005. 
EC – Hormones  Appellate Body Report, EC Measures Concer ning Meat and Meat 
Products (Hormones) , WT/DS26/AB/R, WT/DS48/AB/R, adopted 
13 February 1998, DSR 1998:I, 135 
EC – Tube or Pipe Fittings  Panel Report, European Communities – Anti-Dumping Duties on 
Malleable Cast Iron Tube or Pipe Fittings from Brazil , WT/DS219/R, 
adopted 18 August 2003, modified by Appellate Body Report, 
WT/DS219/AB/R, DSR 2003:VII, 2701. 
Egypt – Steel Rebar Panel Report, Egypt – Definitive Anti-Dumpi ng Measures on Steel Rebar 
from Turkey , WT/DS211/R, adopted 1 Oc tober 2002, DSR 2002:VII, 
2667 
Korea – Commercial 
Vessels  Panel Report, Korea – Measures Affecting Trade in Commercial 
Vessels , WT/DS273/R, adopted 11 April 2005. 
Korea – Dairy  Appellate Body Report, Korea – Definitive Safeguard Measure on 
Imports of Certai n Dairy Products , WT/DS98/AB/R, adopted 
12 January 2000, DSR 2000:I, 3. 
Mexico – Anti-Dumping 
Measures on Rice  Appellate Body Report, Mexico – Definitive Anti-Dumping Measures on 
Beef and Rice, Complaint with Respect to Rice , WT/DS295/AB/R, 
adopted 20 December 2005. 
Mexico – Anti-Dumping 
Measures on Rice  Panel Report, Mexico – Definitive Anti-Dumping Measures on Beef and 
Rice, Complaint with Respect to Rice , WT/DS295/R, adopted 20 
December 2005, modified by Appellate Body Report, WT/DS295/AB/R.  WT/DS336/R 
 Page xiii  
 
 
Thailand – H-Beams  Appellate Body Report, Thailand – Anti-Dumping Duties on Angles, 
Shapes and Sections of Iron or Non- Alloy Steel and H-Beams from 
Poland , WT/DS122/AB/R, adopted 5 Ap ril 2001, DSR 2001:VII, 2701. 
Thailand – H-Beams  Panel Report, Thailand – Anti-Dumping Duties on Angles, Shapes and 
Sections 
 of Iron or Non-Alloy Steel and H-Beams from Poland , WT/DS122/R, 
adopted 5 April 2001, as modified  by Appellate Body Report, 
WT/DS122/AB/R, DSR 2001:VII, 2741 
US – Carbon Steel  Appellate Body Report, United States – Counterva iling Duties on Certain 
Corrosion-Resistant Carbon Stee l Flat Products from Germany , 
WT/DS213/AB/R and Corr.1, adopt ed 19 December 2002, DSR 2002:IX, 
3779. 
US – Countervailing Duty 
Investigation on DRAMS  Appellate Body Report, United States – Countervailing Duty 
Investigation on Dynamic Random Access Memory Semiconductors 
(DRAMS) from Korea , WT/DS296/AB/R, adopted 20 July 2005. 
US – Countervailing 
Measures on Certain EC Products  Appellate Body Report, United States – Countervailing Measures 
Concerning Certain Products from the European Communities , 
WT/DS212/AB/R, adopted 8 January 2003, DSR 2003:I, 5. 
US – Export Restraints  Panel Report, United States – Measures Treating Exports Restraints as 
Subsidies , WT/DS194/R and Corr.2, adopted 23 August 2001, DSR 
2001:XI, 5767. 
US – FSC
  Appellate Body Report, United States – Tax Treatment for "Foreign Sales 
Corporations" , WT/DS108/AB/R, adopted 20 March 2000, DSR 2000:III, 
1619 
US – Gambling Appellate Body Report, United States – Measures Affecting the Cross-
Border Supply of Gambling and Betting Services , WT/DS285/AB/R, 
adopted 20 April 2005 
US – Hot-Rolled Steel  Appellate Body Report, United States – Anti-Dumping Measures on 
Certain Hot-Rolled St eel Products from Japan , WT/DS184/AB/R, 
adopted 23 August 2001, DSR 2001:X, 4697. 
US – Lamb  Appellate Body Report, United States – Safeguard Measures on Imports 
of Fresh, Chilled or Frozen Lamb  Meat from New Zealand and Australia , 
WT/DS177/AB/R, WT/DS178/AB /R, adopted 16 May 2001, 
DSR 2001:IX, 4051 
US – Lead and Bismuth II  Panel Report, United States – Imposition of Countervailing Duties on 
Certain Hot-Rolled Lead and Bismut h Carbon Steel Products Originating 
in the United Kingdom , WT/DS138/R and Corr.2, adopted 7 June 2000, 
upheld by Appellate Body  Report, WT/DS138/AB/R, 
DSR 2000:VI, 2623. 
US – Norwegian 
Salmon CVD  GATT Panel Report, Imposition of Countervailing Duties on Imports of 
Fresh and Chilled Atlantic Salmon from Norway , SCM/153, adopted 
28 April 1994, BISD 41S/576. 
US – Oil Country Tubular 
Goods Sunset Reviews  Appellate Body Report, United States – Sunset Re views of Anti-Dumping 
Measures on Oil Country T ubular Goods from Argentina , 
WT/DS268/AB/R, adopted 17 Decem ber 2004, DSR 2004:VII, 3257. 
US – Softwood Lumber IV  Appellate Body Report, United States – Final Countervailing Duty 
Determination with Respect to Certain Softwood Lumber from Canada , 
WT/DS257/AB/R, adopted 17 February 2004, DSR 2004:II, 571. WT/DS336/R 
Page xiv  
 
US – Softwood Lumber VI  Panel Report, United States – Investigation of the International Trade 
Commission in Softwood Lumber from Canada , WT/DS277/R, adopted 
26 April 2004, DSR 2004:VI, 2485. 
US – Softwood Lumber VI 
(Article 21.5 – Canada)  Appellate Body Report, United States – Investiga tion of the International 
Trade Commission in Softwood Lumber from Canada, Recourse to 
Article 21.5 of the DSU by Canada , WT/DS277/AB/RW, adopted 
9 May 2006. 
US – Steel Safeguards Appellate Body Report, United States – Definiti ve Safeguard Measures 
on Imports of Certain Steel Products , WT/DS248/AB/R, 
WT/DS249/AB/R, WT/DS251/ AB/R, WT/DS252/AB/R, 
WT/DS253/AB/R, WT/DS254/ AB/R, WT/DS258/AB/R, 
WT/DS259/AB/R, adopted 10 December 2003, DSR 2003:VII, 3117. 
US – Upland Cotton  Panel Report, United States – Subsidies on Upland Cotton , WT/DS267/R, 
and Corr.1, adopted 21 March 2005, mo dified by Appellate Body Report, 
WT/DS267/AB/R. 
US – Wool Shirts 
and Blouses Appellate Body Report, United States – Measure Affecting Imports of 
Woven Wool Shirts and Blouses from India,  WT/DS33/AB/R and Corr.1, 
adopted 23 May 1997, DSR 1997:I, 323. 
 
 
GATT DISPUTE SETTLEMENT AND WORKING PARTY 
REPORTS CITED IN THIS REPORT 
 
Short Title  Full Case Title and Citation  
US – Norwegian 
Salmon CVD  GATT Panel Report, Imposition of Countervailing Duties on Imports of 
Fresh and Chilled Atlantic Salmon from Norway , SCM/153, adopted 
28 April 1994, BISD 41S/576 
 
  WT/DS336/R 
 Page xv  
 
 
LIST OF ANNEXES 
 
Contents Page 
Annex A  Request for the Establishment of a Panel - Document 
WT/DS336/5  A-1 
 
 
   WT/DS336/R 
 Page 1  
 
 
I. INTRODUCTION 
1.1 On 14 March 2006, the Government of Korea ("Korea") requested consultations with the 
Government of Japan ("Japan") pursuant to Article 4 of the Understanding on Rules and Procedures 
Governing the Settlement of Disputes (the " DSU "), Article 30 of the Agreement on Subsidies and 
Countervailing Measures (the " SCM Agreement "), and Article XXII of the General Agreement on 
Tariffs and Trade 1994 (the " GATT 1994 ") regarding the imposition of countervailing duties by Japan 
on imports of certain Dynamic Random Access Memories ("DRAMS") from Korea, and certain 
aspects of the investigation and determinati on that led to the imposition of such duties.1 
1.2 On 27 March 2006, the United States requested to be joined in these consultations pursuant to 
Article 4.11 of the DSU .2  The European Communities made a similar request on 29 March 2006.3  
Japan accepted these requests.4  Consultations were held on 25 April 2006, but failed to settle the 
dispute.  
1.3 On 18 May 2006, Korea requested the Dispute Settlement Body (the "DSB") to establish a 
panel pursuant to Article 6 of the DSU , Article XXIII of the GATT 1994 , and Article 30 of the 
SCM Agreement .5  
1.4 At its meeting on 19 June 2006, the DSB establis hed a Panel pursuant to the request by Korea 
in document WT/DS336/5, in accordance with Article 6 of the DSU .  At that meeting, the parties to 
the dispute also agreed that the Panel should have st andard terms of reference.  The terms of reference 
are, therefore, the following: 
"To examine, in the light of the relevant provisions of the covered agreements cited 
by Korea in document WT/DS336/5, the matter  referred to the DSB by Korea in that 
document, and to make such finding s as will assist the DSB in making the 
recommendations or in giving the rulings provided for in those agreements."  
1.5 On 24 August 2006, the parties agreed to compose the Panel as follows:   
Chairman: Mr. Daniel Moulis 
 
Members: Dr. Faizullah Khilji 
   Mr. José Luis Santiago Pérez Gabilondo  1.6 China, the European Communities and the Unite d States reserved their third party rights. 
1.7 The Panel met with the parties on 5-6 Decemb er 2006 and on 23-24 January 2007.  It met 
with the third parties on 6 December 2006. 
1.8 The Panel issued its Interim Report to the parties on 16 April 2007. 
II. FACTUAL ASPECTS 
2.1 This dispute arises from Japan's imposition of  definitive countervailing duties on imports of 
DRAMS from Korea manufactured by Hynix Semiconductor, Inc. ("Hynix").  Japan's investigating authorities (the "JIA") initiated a countervailing inv estigation on 4 August 2004, after an application 
for the imposition of countervailing duties on DRAM S from Korea was submitted by Elpida Memory, 
                                                     
 
1 Document WT/DS336/1. 
2 Document WT/DS336/2. 
3 Document WT/DS336/3. 
4 Document WT/DS336/4. 
5 Document WT/DS336/5, attached at Annex A-1. WT/DS336/R 
Page 2  
 
Inc. and Micron Japan, Ltd.  The JIA sent questionnaires to a number of parties, including Hynix, the Government of Korea, and a number of Korean fina ncial institutions.  The pe riod of investigation for 
the subsidy determination covere d 1 January to 31 December 2003, while the injury period of 
investigation covered 1 Ap ril 2001 to 31 March 2004. 
2.2 On 21 October 2005, the JIA informed the Government of Korea and the parties involved in 
the proceeding of the essential facts under consid eration, pursuant to Article 12.8 of the 
SCM Agreement . In the essential facts, the JIA found that  certain debt restructuring programmes 
entered into by Hynix and its creditors in Oc tober 2001 and December 2002 were countervailable 
subsidies, and calculated a countervailing duty ra te of 27.2 per cent on imports of DRAMS from 
Korea manufactured by Hynix.  The JIA provided the Government of Korea and parties involved in 
the proceeding with the opportunity to submit comme nts and rebuttals on the essential facts as well as 
surrebuttals to the rebuttal comments.   
2.3 In its final determinati on dated 20 January 2006
6 the JIA upheld the findings set out in the 
essential facts.  Annexed to the JIA's final determ ination were the essential facts ("Annex 1 (Essential 
Facts)")7, and the JIA's summary of and response to th e comments and rebuttals and surrebuttals that 
had been submitted ("Annex 3 (R ebuttals and Surrebuttals)")8.  These Annexes constitute an integral 
part of the final determination.   
2.4 Japan gave public notice of the final dete rmination and announced the imposition of 
countervailing duties in Cabinet Order No. 139 and Ministry of Finance Notice No. 35,10 published 
respectively in Issue No. 4264 and Special Issu e No. 17 of the Official Gazette, both dated 
27 January 2006. 
III. PARTIES' REQUESTS FOR FINDINGS AND RECOMMENDATIONS 
A. KOREA  
3.1 Korea requests11 the Panel to find that: 
 (a) Japan improperly calculated the benefit to the alleged recipient of the alleged 
financial contributions from the Octobe r 2001 and December 2002 restructurings 
using methods that were not specified in Japan's national legislation or implementing 
regulations.  Its findings of subsidy bene fits during the 2003 investigation period 
from those restructurings were, therefore,  inconsistent with its obligations under 
Article 14 of the SCM Agreement .  
  (b) Japan improperly based its findings concerning "financial contributions" and 
"benefits" from the October 2001 and December 2002 restructurings on the absence 
of evidence, and failed to identify positiv e evidence supporting its conclusions.  Its 
findings of subsidies from the October 2001 and December 2002 restructurings were, 
therefore, inconsistent with its obligations under Articles 1 and 2 of the SCM Agreement .  More generally, its failure to  conduct an impartial, fair and 
reasonable investigation of these issues w as inconsistent with its obligations under 
Articles 10, 11, 12, and 22 of the SCM Agreement and Article X:3 of the GATT 1994 .   
                                                     
 
 6 Exhibit JPN-01.    
7 Exhibit JPN-02;  Exhibit KOR-03. 
8 Exhibit JPN-04;  Exhibit KOR-04. 
9 Exhibit KOR-01;  Exhibit JPN-07.  
10 Exhibit KOR-02;  Exhibit JPN-07.  
11 See Korea's First Written Subm ission, para. 283.    WT/DS336/R 
 Page 3  
 
 
 (c) Japan improperly treated entities that had no interest in the investigation as 
"interested parties," improperly applied "fact s available" instead of considering the 
information on the record, and improperly made adverse inferences against the 
interests of Hynix due to allegedly inadequa te cooperation by other interested parties 
or by other entities that were not under Hyni x's control and that were not obligated to 
participate in the investigation.  Its fi ndings of subsidies from the October 2001 and 
December 2002 restructurings were therefor e inconsistent with its obligations under 
Article 12 of the SCM Agreement .  More generally, its failure  to conduct an impartial, 
fair and reasonable investigation as a result of its mistaken identification of "interested parties" was inconsistent with  its obligations under Articles 10, 11, 12, 
and 22 of the SCM Agreement and Article X:3 of the GATT 1994 .   
  (d) Japan improperly found that the Oc tober 2001 and December 2002 restructuring 
transactions constituted "direct transfers of fu nds";  it did not make the comparison of 
outcomes required to determine that "reve nue otherwise due" had been "foregone or 
not collected" in those transactions;  and it improperly found government 
"entrustment or direction" in those transactions based on incorrect assumptions about the behaviour of rational creditors, and w ithout evidence that the government caused 
the creditors to act in an unreasonable manner.  Its findings that Hynix received "financial contributions" from the October 2001 and December 2002 restructurings were, therefore, inconsistent with its obligations under Article 1.1(a) of the 
SCM Agreement . 
  (e) Japan improperly failed to determine whet her the alleged government direction of the 
October 2001 and December 2002 restruct urings made Hynix "better off";  it 
improperly analyzed exchanges of claims in those restructurings that had equal 
economic value without considering both si des of the exchange;  and it improperly 
ignored market benchmarks demonstrating th at the alleged "financial contributions" 
in those restructurings did not make H ynix "better off" than the market-based 
alternatives.  Its findings that the a lleged "financial contributions" in the 
October 2001 and December 2002 restructurings  provided a "benefit" to Hynix were, 
therefore, inconsistent with its obligations  under Article 1.1(b) and Article 14 of the 
SCM Agreement .  Japan's imposition of countervailing duties based on this flawed 
analysis was inconsistent with the requirements of 19.4 of the SCM Agreement and 
Article VI:3 of the GATT 1994 .   
  (f) Japan improperly failed to consider whether the October 2001 and December 2002 
restructurings were made using the same procedures and on the same terms that were 
generally available to other companies in a similar condition.  Its findings that the alleged subsidies were specific to Hynix were, therefore, inconsistent with the 
requirements of Article 2 of the SCM Agreement . 
  (g) Japan imposed and maintained counter vailing duties without determining whether a 
benefit continued to exist following changes in the ownership of Hynix as a result of 
the October 2001 and December 2002 restructurings.  Its imposition of countervailing duties was, therefore, inconsistent with the requirements of Articles 10, 14, 19, and 21 of the SCM Agreement . 
 
 (h) Japan improperly levied a countervailin g duty on imports entering Japan in 2006 to 
offset subsidies allegedly received in Oc tober 2001, even though, by Japan's own 
calculations, the alleged subsidies from the October 2001 restructuring had ceased to provide any benefit after 2005.  Its imposition of countervailing duties was, therefore, 
inconsistent with the requirements of Articles 19 and 21 of the SCM Agreement . 
 WT/DS336/R 
Page 4  
 
 (i) Japan's determination improperly failed to  demonstrate that the allegedly subsidized 
imports were, through the effect of the alle ged subsidies, causing injury within the 
meaning of the SCM Agreement .  Its determination of injury and its imposition of 
countervailing duties were, therefore, in consistent with the requirements of 
Articles 15.5 and 19.1 of the SCM Agreement . 
 
 (j) As a consequence of these errors, Ja pan's imposition of countervailing duties on 
imports of DRAMS from Korea was not consistent with the requirements of Article 32.1 of the SCM Agreement , which provides that "[n]o specific action against 
a subsidy of another Member can be taken except in accordance with the provisions 
of GATT 1994 , as interpreted by this Agreement." 
 3.2 Korea also requests that the Panel suggest that the countervailing duty measures imposed by 
Japan on imports of DRAMS from Korea be immedi ately rescinded, and that any countervailing 
duties collected by Japan on such imports be refunded forthwith. 
B. J
APAN  
3.3 Japan requests the Panel to reject Korea's claims in their entirety. 
IV. ARGUMENTS OF THE PARTIES 
4.1 The arguments of the parties are set out in their written submissions and oral statements to the 
Panel, and in their answers to questions.  The parties' arguments as presented in their written 
submissions and oral statements are summarized in this section.  
A. FIRST WRITTEN SUBMISSION OF KOREA  
4.2 The following summarizes Korea's arguments in its first written submission. 
1. Japan's Imposition of Countervailing Duties Was Based on a Fundamentally Flawed 
Assumption  
4.3 The imposition of countervailing duties by the Japanese Investigating Authority ("JIA") on 
DRAMs from Korea produced by Hynix was based on its conclusion that restructuring transactions 
entered into by Hynix's creditors in October 2001  and December 2002 constituted subsidies within the 
meaning of the " SCM Agreement ".  That determination, in turn, hinged almost entirely on the JIA's 
assumption that no rational creditor would have ente red into the restructuring transactions with a 
company in Hynix's financial condition.  
4.4 The JIA's assumption, however, reflects a fl awed understanding of how creditors of a firm 
that is facing "financial distress" actually operate.12  For creditors of an insolvent firm, the 
fundamental issue is whether the firm's "going-concer n" value is greater than its "liquidation value."  
If the going-concern value is higher, rational creditors will take the steps needed to capture that higher 
value.  When the realization of the higher going-concern value requires new investments, the existing  
                                                      
12 Korea notes that its use of the term "financial dist ress" in its submissions is meant to imply only that 
Hynix did not have the funds on hand to meet its current payment obligations.  It does not mean that Hynix had engaged in any unsound financial practices, or that Hynix was not a good long-term investment. 
It should be noted that Japan's determination in its investigation was based on its assumption that 
Hynix was "bankrupt" during much, if not all, of the relevant period.  Korea's submission seeks to identify the logical errors occasioned by Japan's failure to consider the implicati ons of that assumption.  None of the 
arguments presented in Korea's submissions should be construed as an admission that Hynix actually was 
"bankrupt," or that Korea agrees with Japan's assessment of Hynix's financial condition.  WT/DS336/R 
 Page 5  
 
 
creditors of an insolvent firm will be able to maximize their returns by providing new funds to the 
insolvent company – despite its appa rently bad financial condition.   
4.5 By contrast, the arithmetic of the cost-benefit analysis will discourage new investors from 
making new loans or investments to an insolven t firm, because any returns generated by the new 
investments will have to be shared with the existi ng creditors to satisfy thei r unsatisfied pre-existing 
claims, even if those existing creditors do not partic ipate in the new investment.  The advantage that 
existing claimants have when analyzing new inve stments is not, however, immutable – because the 
arithmetic of the cost-benefit analysis for new inv estments can be altered by changing the status of 
pre-existing claims (for example, by "subordinating" the pre-existing claims).  In practice, this 
subordination of existing claims is often accomplishe d by converting pre-existing debt into equity.  
Pre-existing creditors may benefit from the conversi on of pre-existing debt into shares, if that 
conversion allows the company to attract investment s and generate returns th at would not otherwise 
be available. 
4.6 Despite these economic realities, creditors may,  in practice, find it difficult to reach an 
agreement on debt-restructuring due  to cooperation problems.  Bankr uptcy procedures have evolved 
both to enforce the legal rights of creditors, a nd to provide a mechanism for working out the 
conflicting interests of the creditors, managers and shar eholders of the firm.  In practice, a variety of 
approaches have been adopted.  In the end, how ever, the outcome under the different approaches is 
essentially the same.  As one World bank expert explained:  "[T]he differences among bankruptcy 
laws matter mainly for negotiating tactics, not outcomes."13   
4.7 The October 2001 and December 2002 restructur ings of Hynix's debts were undertaken 
pursuant to a generally available Korean la w modeled on the "London Approach" to debt 
restructuring.  The restructurings were consistent  with economic principles and with normal financial 
practices in Korea and other markets.  And, they were extraordinarily successf ul for the creditors:  
The creditors that converted debt into equity in  October 2001 earned a return of over 150 per cent, 
while the creditors that converted debt into equi ty in December 2002 earned a return of over 290 per 
cent. 
4.8 In these circumstances, the JIA's assumption that  no rational creditor would have entered into 
the October 2001 and December 2002 restructurings is fundamentally flawed.  As discussed more 
fully below, the findings that th e JIA made based on that assumption are not consistent with the 
requirements of the SCM Agreement . 
2. Japan's Investigation Was Procedurally Flawed and Legally Invalid 
(a) Failure to Promulgate Bene fit Calculation Methods  
4.9 Article 14 of the SCM Agreement requires that "any method" used to calculate the benefit of a 
subsidy must be provided for in the relevant le gislation or implementin g regulations.  Japan's 
legislation and implementing regulations fail to m eet this requirement.  Japan's countervailing duty 
statute does not even mention the word "benefit. "  Its "Guidelines" – which implement Japan's 
countervailing duty statute – provide little guidance be yond what is already contained in Article 14 of 
the SCM Agreement .  None of the detailed calculation formulas and methodologies described in 
Japan's determination in this case appear anywhere  in the Japanese "Guidelines."  In fact, although 
Japan's determination in this case sets forth specific rules for calculating the "benefit" of extensions of 
loan maturities and debt-equity swaps, the Gu idelines do not even mention such transactions. 
                                                      
13 See Ramachandran, Bankruptcy's Role in Enterprise Restructuring:  A Hammer to Turn a Screw? , 
PUBLIC POLICY FOR THE PRIVATE SECTOR , The World Bank FPD Note  No. 38 (March 1995). WT/DS336/R 
Page 6  
 
4.10 If "any method" used to calculate the benefit of subsidies must be set forth in a Member's 
legislation or implementing regulations, then met hods that are not set forth in legislation or 
implementing regulations cannot be used.   Consequently, the JIA's determination that the alleged 
subsidies conferred a benefit on Hynix during the in vestigation period cannot be sustained.  Indeed, 
unless and until Japan complies with the minimal pro cedural requirements of Article 14, it is not 
permitted to impose countervailing duties on imports from any WTO Members. 
(b) Improper Burden of Proof 
4.11 From the earliest days of the GATT, it has b een recognized that an investigating authority 
may not assume  that the dumping or subsidies exist, and th en require the foreign respondents to refute 
that assumption.  Instead, the investigating aut horities must obtain positive evidence demonstrating 
the existence of each element required for the imposition of antidumping or countervailing duties.
14 
4.12 The JIA's analysis in this case failed to follow those principles.  Its determination was based 
on the assumption that no rational creditor motivated  by commercial considerations would have 
entered into the restructuring transactions.  The JI A claimed (incorrectly in Korea's view) that the 
contrary evidence presented by the Korean governme nt, Hynix and its creditors (including direct 
testimony) should be disregarded.  But, the rejection of the evidence contradicting its assumptions is 
not proof that the assumptions were corr ect.  Because the JIA failed to adduce positive  evidence 
demonstrating the existence of a s ubsidy, its determination was not c onsistent with the provisions of 
Articles 2.4 and 15.1 of the SCM Agreement that require positive eviden ce of the existence of 
subsidies and injury, or with the more general re quirement (under Articles 10, 11, 12, and 22 of the 
SCM Agreement and Article X:3 of the GATT 1994) that an investigating authority conduct an 
impartial, reasonable and fair investigation.   
(c) Improper Identification of "Interested Parties" 
4.13 The JIA issued questionnaires in Japanese to 16 fi nancial institutions that had been creditors 
of Hynix during the relevant period.  When some of  those institutions failed to provide information, 
the JIA resorted to "facts available."  According to th e JIA, this use of "facts available" in this manner 
was authorized by Article 12.7 of the SCM Agreement .   
4.14 By its terms, Article 12.7 applies only wh en necessary information is not provided by 
"interested parties."  And, in order for an entity to be an "interested party," it must have an "interest" 
in the outcome of the proceeding.15  If an entity does not have an inte rest in the outcome, Article 12.7 
does not permit the use of "facts available" for information the entity is unable or unwilling to 
provide. 
                                                      
14 See, e.g., Swedish Anti-Dumping Duties , L/328, 23 February 1955, 3S/81, para. 15. 
15 For example, all of the entities that are specifica lly identified as "interested parties" by the SCM 
Agreement – i.e., exporters, importers, foreign producers, domestic producers, and their associations – are 
directly affected by the outcome of investigations, and therefore have a clear "inter est" in the conduct of the 
proceedings.  Furthermore, Article 12.4 of the SCM Agreement presupposes that "interested parties" must have 
a "case" to present to the investigating authorities.  Ar ticle 12.8 requires that investigating authorities provide 
"interested parties" with an adequate opportunity to "d efend their interests."  These provisions would make no 
sense if the term "interested parties" were defined to include entities that had no "i nterests" in the proceeding, 
and thus no "case" to present. 
The SCM Agreement's provisions concerning the collection of information and the use of "facts 
available" mandate a similar interpretation.  Articles 12 .1 and 12.7 of the SCM Agreement permit investigating 
authorities to request information from interested parties, and provide consequences if the "interested parties" do 
not respond.  Such provisions would be patently unfair – and would violate any notion of procedural due process 
– if the parties who do have an interest in the outcome of the case could have their interests prejudiced by the 
non-responsiveness of entities that have no interest in the outcome.    WT/DS336/R 
 Page 7  
 
 
4.15 The JIA asserted that it was "obvious" and "normal" to consider the financial institutions to be 
"interested parties."  However, the JIA neve r explained why it believed those entities were 
"interested" in the proceeding.  Thus, it failed to establish a factual foundation for concluding that any 
of the financial institutions to which it sent questi onnaires was, in fact, an "interested party."   
4.16 As the Appellate Body has recognized, it is impr oper to punish exporters that cooperate fully 
in an investigation for the non-responsiveness of others that are beyond their control.16  But that is 
exactly what the JIA did in this case:  It impo sed countervailing duties on Hynix's exports because 
other entities that were not under Hynix's control di d not provide requested information, even though 
Hynix itself cooperated fully with all of the JIA's re quests.  That result is not consistent with the 
definition of "interested party" in Article 12 of the SCM Agreement , or with Japan's overall obligation 
to conduct an impartial, fair a nd reasonable investigation under Ar ticles 10, 11, 12, and 22 of the 
SCM Agreement and Article X:3 of the GATT 1994.   
3. Japan's Findings of Subsidies to Hynix Were Inconsistent with the Requirements of the 
SCM Agreement 
(a) Improper Finding that Hynix Received Financial Contributions  
(i) Improper Classification of Transactions that Did Not Involve Any Transfer of Funds as 
"Direct Transfers of Funds" 
4.17 As a matter of elementary logic, a "direct transfer of funds" under sub-paragraph (i) of 
Article 1.1(a)(1) requires, at a minimum, that there be a transfer  of funds .  In this regard, the ordinary 
meaning of the term "transfer"  requires a "conveyance from one pe rson to another of property."17  The 
term "funds" refers to "money."18  Thus, in order for there to be a "transfer" of "funds," money must 
change hands – from the government (or government-direct ed private body) to the subsidy recipient.   
4.18 In its determination, the JIA held that the term  "direct transfers of f unds" in sub-paragraph (i) 
encompassed all of the elements of the restructurings, including inter alia :  (1) "extensions of the 
maturities" of existing loans, (2) "reductions of the interest rates on existing loans," (3) "conversion of 
interest-bearing debts to long-term loans," and (4) "d ebt-equity swaps."  This conclusion is, however, 
plainly incorrect.  There is no conveyance of mone y when a lender agrees to extend the maturities of 
existing loans, or to reduce the interest rates on exis ting loans, or to convert existing interest payment 
obligations into loan principal, or to write-off loans entirely, or to convert debts into equity.  In those 
transactions, a creditor holding existing claims agains t the borrower agrees to modify the nature of 
those claims – or to exchange one set of claims for another – without  providing any money to the 
borrower.  Consequently, there is no transfer  of funds , and sub-paragraph (i) of  Article 1.1(a)(1) does 
not apply.  As a result, the JIA's finding that th e restructurings provided "financial contributions" 
because all of their elements were "direct transfers of funds" cannot be sustained. 
(ii) Lack of Factual Findings for a Determination that Revenue Otherwise Due Had Been 
Foregone 
4.19 Although modifications to loan terms and debt -equity swaps are not "direct transfers of 
funds" within the meaning of sub-paragraph (i) of  Article 1.1(a)(1), they might, in appropriate 
circumstances, be considered "foregone gove rnment revenue" within the meaning of sub-
paragraph (ii) of that provision.  In this regard, the Appellate Body has explained that the analysis 
under sub-paragraph (ii) necessarily requires a " comparison  between the revenues due under the 
                                                      
16 See United States – Anti-Dumping Measures On Certain Hot-Rolled Steel Products From Japan , 
WT/DS184/AB/R, 24 July 2001, paras. 102-104. 
17 See, e.g., SHORTER OXFORD ENGLISH DICTIONARY (5th ed. 2002) at 3325. 
18 Id. at 1049. WT/DS336/R 
Page 8  
 
contested measure and revenues that woul d be due in some other situation."
19  But, the JIA never 
purported to make such a comparison in this case – and it never made the factual findings that would 
be needed for such a comparison.  Thus, the JIA's finding of financial contributions from the various 
elements of the restructuring – such as the extensi on of the maturities of the loans, modifications to 
interest rates, write-off of debts, and swaps of debt for equity – cannot be sustained. 
4.20 Even if Japan were permitted to offer post hoc rationalizations to explain how the various 
transactions constituted "foregone government re venue," the outcome would be the same.  For 
example, extensions of loan maturities (or roll-ups of interest into principal) do not represent foregone 
revenue when interest is charged on the amounts to be paid for the extended loan period.  
Furthermore, exchanges of debt for equity do not represent foregone revenue, when the debt would 
otherwise have been discharged in bankruptcy proceedings, and did not have a greater value than the 
equity for which it was exchanged.  In these circum stances, the various modifications to the terms of 
Hynix's outstanding debts did not represent any "foregoing" of reve nues by Hynix's creditors, and 
thus were not financial contributions within the mean ing of sub-paragraph (ii) of Article 1.1(a) of the 
SCM Agreement .   
(iii) Improper Finding of "Entrustment or Direction" of Hynix's Private Creditors 
4.21 The Appellate Body has observed that sub-paragra ph (iv) of Article 1.1(a) is a kind of "anti-
circumvention" provision, which prevents gove rnments from evading the disciplines of the 
SCM Agreement by taking action through private bodies that  would constitute subsidies if performed 
directly by the government.20  A finding of "entrustment or direction" is permitted, therefore, only 
where a government uses a private body as a "proxy."  The Appellate Body has also clarified that the 
evidence relied upon by an investigating authority in  making that determination must demonstrate that 
entrustment or direction has occurred with resp ect to each private body in a given financial 
contribution.21   
4.22 The JIA's finding of "entrustment or directi on" was based, in the end, on the following 
findings: 
(1) The Korean government had expressed an  intention to "keep Hynix alive." 
(2) The actions by Hynix's creditors were irrational, because 
(a) No rational creditor would have entere d into the restructuring transactions, in 
view of Hynix's poor, and deterior ating financial condition;  and 
(b) The evidence submitted by the indivi dual creditors (or the "facts available" 
adopted by the JIA where the creditors were non-responsive) did not establish 
that the creditors had conducted a suffici ent analysis of the transactions before 
entering into them. 
In reality, however, each of these "findings" was demonstrably wrong.  Taken individually or as a 
whole, they fail to establish government entrustment or direction. 
4.23 First , none of the stories cited by the JIA reported a government desire to save Hynix at the 
expense of its creditors.  Instead, the stories relati ng to the restructurings consistently reported only 
that the government viewed the restructurings as ma tters to be left to the creditors.  There is no 
                                                      
19 See United States – Tax Treatment for "Foreign Sales Corporations ," WT/DS108/AB/R,  
24 February 2000, para. 90 (emphasis added). 
20 See United States – Countervailing Duty Inve stigation on Dynamic Random Access Memory 
Semiconductors from Korea , WT/DS296/AB/R, 27 June 2005, para. 113. 
21 See United States – Countervailing Duty  Investigation on DRAMs from Korea , WT/DS296/AB/R, 
27 June 2005, para. 140.  WT/DS336/R 
 Page 9  
 
 
indication whatsoever that the government attempted to  intervene to force the creditors to enter into 
transactions that were not in their own interests. 
4.24 There were a number of reports indicating that the Korean government was keeping an eye on 
the developments in Hynix's situa tion throughout all of the restructur ings – and that the government at 
times expressed its desire to see the situation resolv ed expeditiously.  However, this monitoring and 
expressed desire for expeditious resolution by the creditors  is entirely consistent with the 
government's prudential role in preventing serious ha rm to the overall financial sector.  By the same 
token, an intent to see the credito rs resolve matters quickly is not the same as an intent to use the 
creditors as a "proxy" to save Hynix by pressuring th em into entering into transactions that were not 
in their own interests.   
4.25 Second, as discussed above, rational profit-maximizi ng creditors can have sound reasons to 
provide new loans, extend the maturities of existing loans, swap debt for eq uity, or forgive loans 
entirely, even when the borrower is insolvent.  Furthermore, th ere is ample evidence that such 
transactions occur all the time – whether in the c ontext of formal bankrupt cy proceedings or in 
informal workouts.  The evidence in this case demonstrated that Hynix's going-concern value far 
exceeded its liquidation value at all relevant times.  Consequently, the restructuring transactions were 
economically rational for Hynix's creditors. 
4.26 Third , the JIA itself admitted that finding of subjective  irrationality in the banks decision-
making processes was based on its conclu sion that the banks' decisions were objectively  irrational.  
Fortified by an assumption that the creditors' actions simply had to be irrational, the JIA looked for justifications to reject the evidence showing that  the creditors had, in fact, undertaken a rational 
analysis and come to a rational decision.  In following that approach, the JIA clearly did not conduct 
an unbiased examination of the evidence.  But even  with its biased rejection of the information 
presented by the creditors, the JIA still failed to estab lish its case.  While the JIA might have rejected 
the creditors' descriptions of th e analyses they performed, it di d not present any positive evidence 
demonstrating that the creditors had actually  failed to perform a rational analysis.   
4.27 Finally, the JIA's determination that the restructuring transactions were commercially 
irrational is inconsistent with the fact there were  a number of "private creditors" who were not found 
by the JIA to be "entrusted or directed" and who en tered into the restructuring transactions at the same 
time and on the same terms as the allegedly gove rnment-directed banks.  Consequently, the JIA's 
assumption that the creditors entered into the restructurings only because of "entrustment or direction" 
by the Korean government cannot be sustained. 
(b) Improper Finding that Hynix Received a Benef it from the Alleged Financial Contributions 
4.28 The Appellate Body has held that the determ ination of the existence of a benefit under 
Article 1.1(b) of the SCM Agreement requires a comparison:  A benefit exists only where the 
"financial contribution" makes the recipient  "better off" than it would otherwise have been.
22  
4.29 Under Article 1.1(a)(1) of the SCM Agreement , the "financial contribution" from "entrustment 
or direction" is the government's action,  and not the funds transfers or foregone revenue provided by 
the private creditors in  response.  Because the SCM Agreement refers to "benefits" flowing from the 
"financial contribution," it follows that the be nefit analysis must focus on the effects of that 
government action.  Consequently, the issue in this  case is not whether Hynix was made "better off" 
by the various restructuring transactions.  Inst ead, the issue is whether the alleged government 
involvement resulted in better restructuring transacti ons for Hynix than it would have been able to 
negotiate in the absence of government involvement.   
                                                      
22 See, e.g., Canada – Measures Affecti ng the Export of Civilian Aircraft , WT/DS70/AB/R, 
2 August 1999, para. 157. WT/DS336/R 
Page 10  
 
4.30 The JIA made no findings on that issue.  It made no findings as to what a non-government-
directed restructuring might have looked like.  As a result, it never made the comparison required by 
the Appellate Body – to determine whether the government  action  constituting the "financial 
contribution" made Hynix "better off."  
4.31 Furthermore, even if the benefit analysis were  focused on the transactions themselves, and not 
on the alleged government action, the result would be the same.
23  Article 14 of the SCM Agreement 
makes clear that transactions that are consistent w ith normal market behaviour do not confer a benefit 
on the recipient.  As discussed above, there is am ple evidence that real-wor ld creditors enter into 
restructuring transactions with insolvent companies all the time.  The restructuring of Hynix's debt 
was fully consistent with normal commercial pr actices – especially in light of the evidence 
demonstrating that Hynix's going-concern va lue far exceeded its liquidation value.   
4.32 And, the evidence was not just limited to economic theory and textbook examples.  Instead, 
the evidence demonstrated that cr editors that the JIA conceded we re not government-directed entered 
into the same transactions on the same terms as the allegedly government-directed creditors.  That fact 
alone should have resulted in a finding that the restruct urings were consistent wi th the relevant market 
benchmarks. 
4.33 The JIA claimed that the actions of the non-gove rnment-directed creditors could not establish 
a market benchmark, due to distortions caused by s ubsidies allegedly provided to Hynix in the past.  
In other words, the JIA ignored the actual market tr ansactions because it consid ered them inconsistent 
with the hypothetical transactions in a hypothetical  market in which past transactions had not 
occurred.  That analysis cannot be reconciled with the SCM Agreement 's instructions to use actual 
market transactions as the benchmark for finding be nefits.  Also, it effectively double-counts alleged 
subsidy benefits, by finding a be nefit from alleged past subsidies both when the alleged subsidy was 
first received and again when it allegedly permitte d the recipient to obtain subsequent market-
equivalent financing that would not  otherwise have been available. 
4.34 In these circumstances, the JIA's failure to rely  on actual market behaviour and the available 
market benchmarks to measure the benefit to Hyni x cannot be sustained.  Because the restructurings 
were consistent with normal commercial practic es, and because non-government-directed private 
bodies entered into the same transactions at the same time and on the same terms,  there was no benefit 
from the alleged government entrustment or direction. 
(c) Improper Finding that the Alleged Subsidies Were Specific to Hynix 
4.35 The JIA found that the restructuring transactions were all specific to Hynix, because they 
were all "rescue measures specific to a specific corpor ation."  But, that conclusion has no basis in the 
evidence.  Even if the JIA were correct in d escribing the restructurings as government-directed 
"rescue measures", there is no evidence that  such measures were unique to Hynix. 
4.36 The legal framework that governed  Hynix's restructurings was the same as the rules that 
governed the restructuring of other Korean companies.   The type of reports by financial experts that 
were relied upon in the Hynix restructurings were also relied upon in the restructurings of other 
Korean companies.  There is no ev idence that the terms of the Hynix restructuring transactions were 
any more favourable to Hynix than the terms of other restructurings involving similarly situated 
                                                      
23 In this regard, it should be noted that the restructuring transactions in this case involved exchanges 
by the creditors of one set of claims for another – which the JIA valued inconsistently.  In particular, in 
determining whether there was a benefit from the restructuring, the JIA assumed that Hynix did not have the 
ability to repay its outstanding debts and was facing "ban kruptcy" – which necessarily meant that the creditors 
could not expect to be paid in full.  But, in calculating the amount of the benefit from the restructuring, the JIA 
assumed that Hynix's debts would have been repaid in full in the absence of the restructuring.  This inconsistent 
analysis cannot be sustained.  WT/DS336/R 
 Page 11  
 
 
companies in Korea.  In fact, the evidence pre sented to the JIA (including statements by Hynix's 
creditors) confirmed that Hynix was not treated  any more favourably than any other Korean 
companies going through restructurings.   
4.37 By focusing microscopically on Hynix, the JIA mi ssed the broader picture.  In the absence of 
evidence that the role of the government a nd the government-directed banks in the Hynix 
restructuring was any different from their role in the thousands of similar situations occurring in 
Korea at the same time, the JIA's determination th at the alleged subsidies were specific to Hynix 
cannot be upheld. 
4. Japan Improperly Imposed Countervailing Duties on Imports that Were Not Subsidized 
(a) Failure to Consider the Impact of Changes in the Ownership of Hynix 
4.38 The debt-equity swaps undertaken in the restruct urings worked a fundamental change in the 
ownership of Hynix.  Before those transactions, none  of the creditor banks or financial institutions 
owned any shares in Hynix.  Afterward, the cred itor banks and financial institutions collectively 
owned an overwhelming majority of Hynix's shares.  The restructurings  also resulted in a fundamental 
change in Hynix's management – with a vice president  of KEB (the lead creditor bank) taking over as 
Hynix's Chief Executive Officer in July 2002. 
4.39 The Appellate Body has held that, when there is  a change in the ownership of a company at 
fair market value, the investigating authorities must  consider whether the subsidies received before the 
change in ownership continue to pr ovide a benefit after the ownership change.  It has also held that 
such a change in ownership creates a rebuttable pr esumption that the benefits of the subsidy have 
been extinguished.  And, it has found that the failure  of investigating authorities to comply with that 
obligation is inconsistent with Articles 10, 14, 19, and 21 of the SCM Agreement .24 
4.40 In this case, the JIA failed to consider whethe r the subsidies allegedly provided to Hynix 
continued to provide benefits following the change  in ownership wrought by the debt-equity swaps.  
Thus, in accordance with the Appellate Body pa st decisions, the JIA's determination was not 
consistent with Articles 10, 14, 19, and 21 of the SCM Agreement . 
(b) Improper Imposition of Duties on Imports after the Benefit of the Alleged Subsidies Had 
Expired 
4.41 According to the JIA's analysis, Hynix's facilities had an estimated useful life of five years.  
As a result, the alleged subsidies were allocated ove r a five-year period, including the year in which 
they were received.  Thus, the subsidies allegedly received by Hynix in 2001 were all allocated to the 
five-year period from 2001 to 2005.   
4.42 The JIA's final determination was published in Ja nuary 2006.  At the time the determination 
was published, the JIA knew that, under its calc ulations, the benefits from the October 2001 
restructuring had already been assigned fully to pr evious years, and could not have any additional 
impact on 2006 or future years.  Nevertheless, th e JIA imposed a countervailing duty of 18.1 per cent 
in 2006 to offset the subsidies allegedly received in the October 2001 restructuring. 
4.43 Article 19.4 of the SCM Agreement provides that the countervailing duty imposed may not 
exceed the amount of the subsidy found "to exist."  In other words, it does not permit duties to be imposed based on past subsidies that no longer "exist."  Article 21.1 of the SCM Agreement makes 
                                                     
 
24 See, e.g., United States – Countervailing Measures Concerning Certain Products from the European 
Communities , WT/DS212/AB/R, 9 December 2002,  paras. 126-27, 144 and 161. WT/DS336/R 
Page 12  
 
this requirement explicit, providing that:  "A  countervailing duty shall remain in force only as long as  
and to the extent necessary to counteract s ubsidization which is causing injury."   
4.44 In this case, the JIA's calculations fully a llocated the benefits of the October 2001 
restructuring to the five years from 2001 to 2005.  There were no benefits left from the October 2001 
restructuring to be allocated to 2006.  Conseque ntly, the JIA's imposition of countervailing duties in 
2006 based on the alleged benefit of the October 2001 restructuring was inconsistent with the 
requirements of Articles 19 and 21 and cannot be sustained. 
5. Japan's Finding that the Subsidized Imports Were Causing Injury Was Inconsistent 
with the Requirements of the SCM Agreement  
4.45 The "causation" requirement set forth in Ar ticle 15.5 requires a demonstration "that the 
subsidized imports are, through the effects of subsidies , causing injury…."  This requirement is 
echoed in Article 19.1, which permits the imposition of countervailing duties only i f  " a  M e m b e r  
makes a final determination ... that, through the effects of the subsidy , the subsidized imports are 
causing injury...."  Under these provisions, it is not enough that the imports  which happen to be 
subsidized are causing injury.  Instead, it must also  be demonstrated that the injury is occurring 
"through the effects of the subsidy." 
4.46 In its determination, the JIA concluded th at any harm caused by Hynix's exports was 
necessarily a result of the subsidy, because Hynix w ould not have been in operation, and thus would 
not have been able to export, in the absence of s ubsidies.  The JIA's argument is, however, based on a 
fundamental legal error.  Contrary to what the JI A appears to believe, "bankruptcy" is not a synonym 
for piecemeal liquidation.  Instead, "bankruptcy" is a legal process, which affords a debtor protection 
from its creditors while the debtor's  future is being determined.   
4.47 The Korean bankruptcy laws do provide for li quidation of insolvent debtors in certain 
circumstances.  But, as a general matter, "K orean bankruptcy law fa vours reorganization over 
liquidation."
25  Consequently, there is no reason to believe that, if Hynix had filed for "bankruptcy," it 
would have ceased operations.  In all likelihood, the "bankruptcy" of Hynix would simply have 
resulted in corporate reorganization before the Korean  courts.  Thus, the JIA's finding that the injury 
had occurred "through the effects of the subsidy" – which was based exclusively on its assumption 
that Hynix would have ceased operations without the a lleged subsidies – has no basis.  And, since the 
JIA has failed to "demonstrate that the subsidized imports are, through the effects of subsidies, 
causing injury," its countervailing duty measures cannot be sustained. 
6. Request for Ruling and Recommendation 
4.48 In Korea's view, once the JIA's determination is brought into conformity with Japan's 
obligations under the GATT 1994 and the SCM Agreement , there can be no basis for the imposition of 
countervailing duties on imports of DRAMs from Kor ea.  Korea therefore requests that the Panel 
suggest that the countervailing duty measures imposed by Japan on imports of DRAMs from Korea be immediately rescinded, and that any countervailing duties collected by Japan on such imports be 
refunded forthwith. 
B. F
IRST WRITTEN SUBMISSION OF JAPAN  
4.49 The following summarizes Japan's arguments in its first written submission.  
                                                      
25 See, e.g.,  Yun, A Primer on Korean Bankruptcy Law , 18-5 A M. BANKRUPTCY INST. J. 18 
(June 1999).  WT/DS336/R 
 Page 13  
 
 
1. The Panel's Terms Of Reference 
4.50 Korea's First Written Submission (FWS) raises a num ber of claims that either are outside of 
the Panel's terms of reference under Article 6.2 of the DSU or fail to present a prima facie  case.  Of 
the ten potential claims ultimately raised by Korea26, six lack sufficient specificity to form a valid 
claim.  Specifically:  Claim 2 (cites Articles not c ited in Korea's Panel Request and fails to specify 
specific obligations within the cited Articles), Cl aim 3 (cites Articles not cited in Korea's Panel 
Request and fails to specify specific obligations wi thin the cited Articles), Claim 5 (fails to specify 
specific obligations within the cited Article), Claim 6 (fails to specify specifi c obligations within the 
cited Article), Claim 7 (fails to specify specific ob ligations within the cited Articles), and Claim 10 
(fails to provide any argument in support of the alle gation), which correspond to Items 3, 4, 5, 6, 7, 9, 
12, 13, and 15 of Korea's Panel Request, are not presented with sufficient clarity and should be 
dismissed. 
4.51 Furthermore, as pointed out in Japan's Request for a Preliminary Ruling, Items 9, 10, and 15 
of Korea's Panel Request were not presented with sufficient clarity under Article 6.2 of the DSU to 
begin with.  Japan respectfully re quests that the Panel make a preliminary ruling to dismiss such 
defective claims. 
2. Evidentiary and Procedural Issues 
(a) Korea Failed to Meet Its Burden of Proof in This Dispute 
4.52 Korea fails to meet its burden of proof as the complaining party to present a prima facie case, 
and simply alleges violations without  adequate analysis or explanation.27  However, as the Appellate 
Body has confirmed, Korea cannot rely on the Pa nel to make a case for the complaining party.28 
(b) The Standard of Review of the Panel 
4.53 Article 11 of the DSU establishes the standard of review for panels which is to conduct an 
"objective assessment of the facts of the case and the applicability of and confor mity with the relevant 
covered agreements."  The Appellate Body has rep eatedly clarified that in a dispute involving a 
determination made by investigating authorities, a panel may not conduct a de novo  review of the 
evidence assessed in th e investigation or substitute its judgement for that of the competent authorities, 
and that the panel's "objective assessment" is to i nquire whether the evidence and explanation relied 
on by the investigating authority r easonably supports its conclusions.29  For example, where an 
investigating authority makes a finding relying on the totality of the evidence which includes 
circumstantial evidence, the panel must review th e investigating authority's conclusion on the same 
basis. 
4.54 However, Korea has asked the Panel to review the JIA's determination in a manner that is 
different from how the JIA conducted its analysis a nd to examine information and arguments that was 
not before the JIA in the inves tigation.  Korea's request for a de novo review is inconsistent with 
Article 11 of the DSU, and should be rejected. 
                                                      
26 Claims numbered in accordance with the order presented in paragraph 283 of Korea's FWS. 
27 See Appellate Body Report, EC – Hormones , para. 104, Appellate Body Report, US – Shirts and 
Blouses , p. 14. 
28 Appellate Body Report, US – Gambling , paras. 140-41. See also Appellate Body Report, EC- 
Hormones , para. 104. 
29 See Appellate Body Report, US – Countervailing Duty Investigation on DRAMS , paras. 182-88. WT/DS336/R 
Page 14  
 
3. The JIA's Factual Findings on The Subsidization of Hynix 
4.55 In addition to its findings on subsidization through public bodies, the JIA determined 
subsidization through private bodies under entrustmen t or direction by the Government of Korea 
based on the totality of the evidence on record.  The record of the investigation demonstrates that the 
Government of Korea maintained a political intent  to promote its semiconductor industry and also 
made the normalization of Hynix, which had been experiencing serious financial difficulties, one of 
its economic priorities. The Government of  Korea repeatedly stated that Korea would take measures 
to normalize certain companies, such as Hynix.  As such, Korea had strong concerns about the 
financial situation of Hynix.  The Prime Minister 's Decree No. 408 in 2000 allowed the Government 
of Korea to request cooperation or support of fina ncial institutions and to exercise its rights as a 
shareholder in financial institutions .  Certain banks recognized this s ituation and that the government's 
policies may influence their investment decisions in prospectuses submitted to the US SEC.  The 
Government of Korea executed Memoranda of Unde rstanding with various banks, gaining a degree of 
control over these banks.  Furthermore, the Govern ment of Korea held a significant share of the 
ownership of certain banks and was in a position to  exert substantial or direct influence on such 
banks.  The JIA found that from late 2000 through late  2002, the Government of Korea intervened in 
the banks' financial decision-making repeatedly. 
4.56 The JIA found that from late 2000 through May 2001, the Government of Korea extended 
subsidies to Hynix in a number of programs pr ovided by public bodies and through private bodies 
under the entrustment or direction of the Government of Korea.  Despite these subsidies, the financial 
situation of Hynix, which had been unable to obtain financing from the market, continued to 
deteriorate, necessitating further financial assistance .  The Government of Korea's actions with respect 
to the private financial institutions ranged from, inter alia , pressing the private bodies to agree to 
provide financial support at mee tings of Council for Creditor Fina ncial Institutions, to sending 
instructions to KEIC to maintain prior subsidi zed financing, and to pressuring investment trust 
companies to make financial contributions against their will.  The JIA found that the Government of 
Korea extended subsidies in the May 2001 Pr ogram through public bodies and private bodies 
entrusted or directed by the Government of Kore a.  The Government of Korea later officially 
acknowledged that the May 2001 Program was an exam ple of success of the Government of Korea's 
efforts.  The JIA examined each of the banks' dete rminations to participate in the Program on a bank-
specific basis and found that the decisions of four banks to participate in the May 2001 Program were 
based on a factor other than commercial factors.   Consequently, the JIA found entrustment or 
direction by the Government of Korea over these four banks. 
4.57 Hynix's financial condition continued to dete riorate after the May 2001 Program, and in 
October 2001, Hynix fell into a situation of "Selectiv e Default" for its loan obligations.  Hynix was 
unable to obtain financing from the commercial mark et.  The Government of Korea's interest and 
involvement in Hynix's restructuring continued af ter May 2001.  Through an examination of, inter 
alia, their internal credit examination records and reports on Hynix by external organizations, the JIA 
found that certain private banks' decisions to par ticipate in the October 2001 Program were not based 
on commercial considerations.  Furt hermore, although the banks claime d to have relied on the Arthur 
Anderson Report when making their decisions, the Report was not issued until after the decisions were made.  Thus, the JIA found that the decisions  by four banks to participate in the October 2001 
Program were based on a factor other than comm ercial factors.  Consequently, the JIA found 
entrustment or direction by the Government of Korea over these four banks. 
4.58 The October 2001 Program did not solve Hyni x's financial problems, which continued 
through 2002, necessitating yet another bail out in December 2002.  The JIA found, inter alia , that the 
Government of Korea kept contacting creditors, requesting their cooperation, monitoring them, and 
had intervened into the preparation of the report commissioned by the banks and Hynix summarizing 
the December 2002 Program, i.e., the Deutsche Bank Report, which contained obvious discrepancies 
in its calculations.  Hynix itself admitted that the Deutsche Bank Report containe d errors effecting its  WT/DS336/R 
 Page 15  
 
 
calculation of the going-concern value of Hynix.  The JIA found that the decisions of four banks to participate in the December 2002 Program were based  on a factor other than commercial factors.  
Consequently, the JIA found entrustment or direc tion by the Government of Korea over these four 
banks. 
4. Korea's Claims of Errors  
(a) The JIA Correctly Based the Final Determination on an Objective Assessment of the 
Evidence on the Record and Provided Reas oned and Adequate Explanations Based on 
Probative and Compelling Evidence 
4.59 The JIA conducted a reasonable and objective ex amination of the extensive evidence on 
record and made its determination on the basis of the evidence in its totality.  Evidence on the record 
that infers entrustment or direction includes th e Government of Korea's official documents, the 
questionnaire responses of the interested parties, swor n statements by the financial institutions to the 
US SEC recognizing the Government of Korea's infl uence on their decisions, the investigative reports 
of Korea's National Assembly, a nd detailed public comments by top officials of the Government of 
Korea and bank representatives attesting their collabora tion for Hynix, and various news reports.  The 
JIA also reviewed credit ratings by third parties a nd financial institutions that participated in Hynix 
bailout programs;  reports for Hynix bailout progr ams prepared by several external organizations 
including SSB, Arthur Andersen, and Deutsche Bank;   and internal credit examination documents of 
individual banks to decide whether to participate in Hynix bailout programs, and provided a reasoned explanation of how such evidence demonstrated entr ustment or direction to certain private banks as 
well as its overall determination.  The JIA also ex amined arguments raised by interested parties 
concerning the JIA's determination, and gave expl anations of the reasons why it chose to discount 
alternatives to reach its conclusions.  Thus, the JI A's Final Determination was consistent with the 
requirements of the SCM Agreement .   
4.60 Korea has failed to demonstrate any example of an alleged "reversal of the burden of proof" 
or a "finding not based on affirmative evidence" by the JIA.  Korea's claims on these issues are based 
on an erroneous position that "smoking gun" evidence is required for finding entrustment or direction, 
a position already rejected in prior disputes, and should be rejected.  
(b) Korea Misinterprets the Evidentiary  Standard for an Investigation 
4.61 As clarified by the Appellate Body, the SCM Agreement does not specify a particular 
"standard for the evidence requi red to substantiate a finding of  entrustment or direction under 
Article 1.1(a)(1)(iv)", and only requires that "t he total evidence relied on by an agency must 
'demonstrate' entrustment or direction" for the rele vant financial institutions.  This evidence need not 
be "irrefutable," nor "be of such quality or quantity so as to 'force' the [investigating authority] to 
arrive at a finding of entrustment or direction."
30  U n d e r  t h e  SCM Agreement , individual pieces of 
circumstantial evidence may be assessed "in conjunction with other pieces of evidence" to establish a 
proposition.  Consequently, inves tigating authorities may conduct a comprehensive analysis on "the 
totality of the evidence" and, when taking into account circumstantial evidence, consider "how the 
interaction of certain pieces of evidence may justif y certain inferences that could not have been 
justified by a review of the individual pieces of evidence in isolation." 31 
4.62 The evidentiary standard Kor ea proposes has no basis in the SCM Agreement .  If accepted, 
such argument would amount to an imposition of a qu alitative standard higher than that contemplated 
by the SCM Agreement , and thus should be rejected.  
                                                      
30 Appellate Body Report, US – Countervailing Duty Investigation on DRAMS , paras. 138-39. 
31 Ibid., para. 157. WT/DS336/R 
Page 16  
 
(c) The JIA Properly Found Financial Contributions to Hynix 
(i) The JIA's Finding of a Transfer of Funds Was C onsistent with Article 1.1(a)(1)(i) of the 
SCM Agreement 
4.63 The JIA correctly found that the extension of lo an maturities, reductions of interest rates, 
transfers of the interest payments of loans into  long-term loans, and debt-to-equity swaps were 
transfers of funds under Article 1.1(a)(1)(i) of the SCM Agreement .  Korea appears to argue that only 
the types of transfers of funds explicitly listed in Article 1.1(a)(1)(i) qualify as transfers of funds for 
the purpose of the SCM Agreement .  Korea, however, ignores the text of the provision, which 
indicates the listed transfers of funds are merely illust rative.  This Article has been interpreted broadly 
in light of the use of an illustrative list.  The panel in Korea - Commercial Vessels  found that "interest 
rate reductions and deferrals," "interest/debt forg iveness," and "debt-for-equity  swaps", which are the 
types of transfer of funds at issue in this case, are financial contributions under Article 1.1(a)(1)(i).
32  
Korea also ignores the admonition of the Appella te Body that a narrow interpretation of the 
SCM Agreement 's financial contribution provisions "woul d permit the circumvention of subsidy 
disciplines" of the SCM Agreement .33  Thus, Korea's claim on "transfer of funds" is based on an 
incorrect interpretation of Article 1.1(a)(1)(i) of the SCM Agreement . 
(ii) The JIA Properly Found  the Government of Kore a's Entrustment or Direction to Private 
Creditors  
4.64 The JIA examined the totality of the evidence on record and found that the Government of 
Korea entrusted or directed certain private bodies to  provide financial contributions to Hynix within 
the meaning of Article 1.1(a)(1)(iv) of the SCM Agreement .  The JIA's findings were consistent with 
the requirements of Article 1.1(a)(1)(iv) as clarifie d by the Appellate Body, which has explained that 
"entrust" and "direct" are broader than "delegation" and "command."34 
4.65 The JIA based its finding of entrustment or di rection on ample evidence, including evidence 
of the non-commercial nature of the investment d ecisions taken by the participating creditor banks35, 
evidence demonstrating the Government of Korea's pow er to control the creditor banks that ultimately 
participated in the October 2001 Program and the December 2002 Program36, and evidence that  the 
Government of Korea had the clear intent to save Hynix and evidence that the Government of Korea 
exercised its authority over the banks, giving the banks the responsibility to restructure and rescue Hynix.
37 After assessing such evidence in its totality , The JIA reasonably concluded that the 
                                                      
32 Panel Report, Korea-Commercial Vessels , para. 7.413. 
33 Appellate Body Report, US – Softwood Lumber IV , para. 64. 
34 See Appellate Body Report, US – Countervailing Duty Investigation on DRAMS , paras. 110-11. 
35 Evidence of the non-commercial nature of the banks' investment decisions included the generally 
acknowledged disastrous financial state of Hynix at the time of the October 2001 and the December 2002 
Programs, the non-existence of new investors or bank s which were willing to extend credit to Hynix, the 
negative assessments made by a number of the existi ng creditor banks concerning further investments into 
Hynix, the lack of consultation of impartial and timely outside assessment and the lack of their own analysis on 
the going concern versus the liquidation value of Hynix, the inconsistent decisions of banks shown from their 
internal documents and the ac tual decisions made at the Creditors' Council, the inconsistent statements by the 
banks and other related evidence, the statements in the US  SEC filings and in the bank s' annual reports, and the 
evidence that a number of creditors cited reasons other th an commercial reasons as r easons for participating in 
the Programs. 
36 Evidence of the Government of Korea's power to control the creditor banks included the Government 
of Korea's shareholding of creditor banks, Prime Minister's Decree, and the Memoranda of Understanding between  the Government of Korea and the banks. 
37 Evidence of  the Government of Korea's exercise of control over the banks included the statements 
by the Government of Korea, press reports, and acknowledgements of the banks themselves.     WT/DS336/R 
 Page 17  
 
 
Government of Korea had entrusted or directed th e financial institutions to provide the financial 
assistance to Hynix. 
4.66 Such evidence demonstrat ed that the Government of Korea took actions that were much more 
than mere expressions of an intention to save Hyni x, as the Government of Korea had exercised its 
authority over the banks to  provide the financial measures to Hynix.  The JIA examined each financial 
institution on a bank-specific and bailout program-specific basis, focusing on the banks' own 
assessments of Hynix and of the bailout programs.  After reviewing such evidence, the JIA concluded 
that the banks based their decisions to participat e in the programs on a factor other than commercial 
factors.  The JIA did not, as Korea now argues, apply a particular economic theory in its analysis of 
the banks' decision-making process or operate under the broad supposition that "no rational creditor 
would have entered" the Hynix bailout programs.  Indeed, the JIA did not require the banks to 
establish that they made a sufficient analysis accord ing to some particular economic model.  The JIA 
examined the banks' actual decision-making process to participate in the Hynix bailouts, following the 
process that these banks stated that they had fo llowed.  The JIA concluded that the evidence 
demonstrated that private creditors made non-commerc ial decisions.  The JIA further determined that 
certain private banks participated in Hynix bailout programs because of entrustment or direction by  
the Government of Korea. 
4.67 Korea mistakenly argues that entrustment or direction can only be found when the entrusted 
or directed party pursues a measure that is against its own interest.  However, Korea's argument has no basis in the text of the SCM Agreement .  It also ignores the Appellate Body's explanation that 
entrustment may be established when the government simply "giv[es] responsibility to someone for a 
task or an object."
38 Thus, an examination of entrustment or direction requires an objective 
determination of whether such r esponsibility was given, not whether the responsibility was against the 
interest of the entrusted or directed private body. 
4.68 Korea's insistence that specific pieces of evidence should be examined in isolation from other 
evidence and must directly indicate a partic ular conclusion is inconsistent with the SCM Agreement , 
which does not limit the types of evidence on which an investigating authority may rely.  As the 
Appellate Body explained, circumstantial evidence may be assessed in their totality;  the interaction of 
certain pieces of evidence ma y justify certain inferences.39  Thus, Korea's insistence that each of 
individual pieces of evidence must establish the fact of  existence of the entrustment or direction is 
baseless, and it is an attempt to distort the analytical  approach adopted by the JI A in the investigation.  
Korea is requesting a de novo review by the Panel.  Its arguments, therefore, should be rejected. 
4.69 Relying in part on an incorrect English transl ation of the JIA's determination, as well as 
information  the Government of Korea, nor any othe r party, chose not to submit to the JIA during the 
investigation, Korea only presents general argu ments on the JIA's bank-specific findings of 
entrustment or direction and ignores the JIA's actual analysis and explanations.  A review of the JIA's 
actual bank-by-bank analysis would confirm that th e JIA reasonably reached findings of entrustment 
or direction. 
(d) The JIA Properly Found Benefit 
4.70 Under Articles 1.1(b) and 14 of the SCM Agreement and as clarified by the Appellate Body40, 
a benefit analysis is made from the perspective of  the recipient, not the provider, and whether the 
recipient was better off than it would have been absent  the financial contribution.  Contrary to Korea's 
argument41, there is no requirement in the SCM Agreement that an investigation authority must 
                                                      
38 Appellate Body Report, US – Countervailing Duty Investigation on DRAMS , para. 110. 
39 See Appellate Body Report, US – Countervailing Duty Investigation on DRAMS , paras. 144-57. 
40 Appellate Body Report, Canada – Aircraft , paras. 154-55. 
41 FWS of Korea, paras. 229-30. WT/DS336/R 
Page 18  
 
consider what a "non-government restructuring  might have looked like " in determining the amount of 
benefit without referring to the evidence on the r ecord.  Korea bases its arguments on two erroneous 
premises:  (i) that investigating authorities must compare financial contributions actually provided to 
the recipient with financing, which might have been available to the recipient, ignoring the fact that 
Hynix and bailout programs could not have existed without prior government subsidies and therefore 
no evidence on the record provides any basis to consider  such situation, and (ii) that benefit can be 
measured by the difference of returns that the creditors  could have received had there been no 
government entrustment or direction. 
4.71 Korea ignores the Appellate Body's clarification
42 that a situation distorted by the very same 
subsidies in question may not serve as a benchmark for the calculation of benefit because the use of 
such a distorted situation would frustrate the object and purpose of the SCM Agreement .  Accordingly, 
the JIA did not use subsidy-distorted transactions as a benchmark, because Hynix's financial conditions were realized only as a result of  the Go vernment of Korea 's prior and contemporaneous 
subsidies, for which the JIA determined benefit.  Korea also ignores the fact that the financial 
institutions which were not found to  have been entrusted or directed by  the Government of Korea 
also entered into the bailout programs based on consideration of non-commercial factors and 
overlooks the facts including Hynix's disastrous and ever  deteriorating financial state, its bad history 
of serving debt, the collapse of the stock price af ter the GDR issuance of June 2001, and the reality 
that no new investors were willing to put funds into Hynix.  
4.72 Korea's remaining arguments on benefit either lack support in the evidence on the record of 
the investigation or are not based on the provisions of the SCM Agreement .   
(e) The JIA Properly Found Specificity 
4.73 The JIA correctly found specificity under Article 2 of the SCM Agreement because the 
bailouts in question were tailored subsidies for one  particular company, Hynix.  The panel in EC-
Countervailing Measures on DRAM Chips  affirmed a similar finding that the bailouts were specific to 
Hynix, explaining that these subsidies were "for Hynix," "to Hynix," and "of Hynix."
43  Korea has not 
attempted to distinguish the JIA's analysis on specifi city in this case from that previously considered 
by the panel in EC-Countervailing Measures on DRAM Chips , nor has Korea identified the specific 
obligation within Article 2 of the SCM Agreement that the JIA allegedly violated.  Japan is not 
required to search for the basis of Korea's claim among the numerous obligations under Article 2.  
The absence of any explanation specific obligations  regarding specificity in Korea's FWS confirms 
that Korea has failed to present a prima facie  case.  
4.74 Korea argues that the legal framework in which the Hynix bailouts were conducted was 
available to other Korean enterprises prevents a fi nding of specificity.  However, Korea ignores the 
fact that the JIA did not find that the general le gal framework itself was a government subsidy and the 
JIA's analysis on specificity, which was similar to that affirmed by the panel report's explanation in 
EC-Countervailing Measures on DRAM Chips .44  
4.75 Korea's argument is also based on non-reco rd evidence concerning companies that were 
subject to the CRPA restructuring during the inves tigation.  Therefore, Korea's claim concerning 
specificity should be dismissed. 
                                                      
42 Appellate Body Report, US – Softwood Lumber IV , paras. 90-95. 
43 Panel Report, EC-Countervailing Measures on DRAM Chips  para. 7.231. 
44 See Panel Report, EC – Countervailing Measures on DRAM Chips , para. 7.231.  WT/DS336/R 
 Page 19  
 
 
(f) Korea's Change-in-Ownership Argument Is Irrele vant to the JIA's Subsidies Determination 
4.76 Korea's change-in-ownership argument is presente d without any analysis or explanation on 
how Articles 10, 14, 19, and 21 support its conclusion.  Furthermore, Korea argues that the debt-to-equity swaps under the October 2001 and Decembe r 2002 Programs themselves extinguished the 
benefits received by Hynix, but does not present any argument or evidence regarding change in 
ownership subsequent to the findings  of benefit under each Program.  However, the issue of a change 
in ownership is whether a subsidy continues to provide  a benefit after a transfer of all or substantially 
all the property of the recipient of the subsidy (i.e., through privatization) through an arm's length transaction at fair market value.
45  The debt-to-equity swaps under the October 2001 and 
December 2002 Programs do not meet any of these c onditions.  Korea is repeating an argument, 
which has already been rejected by the panel in Korea – Commercial Vessels , that a new subsidy, 
which is not a "fair market transaction", does not extinguish the benefit of a prior subsidy.46  T h e  
provisions of Articles 1.1(a)(1)(i) and 14(a) of the SCM Agreement also clearly contradict an 
interpretation that an equity infusion that amounts to a subsidy simultaneously extinguishes the benefit therein.  Thus, Korea has failed to meet its burden of proof to present a prima facie  case, and 
its argument should be rejected.   
(g) The JIA Properly Imposed a Countervailing Duty on Imports Found to Have Been Subsidized 
during the Period of Investigation 
4.77 Korea's argument on the imposition period of countervailing duties does not follow from the 
SCM Agreement and should be rejected.  The JIA found and calculated the amount of subsidies that 
existed at the time of the period of investigati on, as required under Articles 19.1 and 19.4 of the 
SCM Agreement .  There is no provision in the SCM Agreement that requires a determination of the 
imposition period in advance, or provides that an  "allocation period" of a subsidy defines such 
imposition period.  The provision of Artic le 19.2 - "all requirements for imposition have been 
fulfilled " - clarifies that the imposition of counterva iling duties under Article 19 is a separate and 
distinct phase that occurs after  the determination of subsidization.   An investigating authority may 
impose a countervailing duty only after it determ ines that the countervailable subsidy "was 
bestowed"
47 during the period of investigation, from the in formation gathered with respect to a period 
of investigation.  There is no additional obligation, as Korea insists, to determine that the subsidy "is 
being bestowed" at the time of the imposition of the duties.  
4.78 Article VI:3 of GATT 1994, which author izes the imposition of duties on a "subsidy 
determined to have been granted ,"  further clarifies that an imposition of countervailing duties shall 
be based on a determination which necessarily pr ecedes the imposition of the duty.  Articles 10 
and 11.1 of the SCM Agreement recognize that investigating author ities must conduct an investigation 
following multiple steps to determine the subsidizati on and injury;  as a corollary of the time that is 
necessary to comply with these requirements, the imposition of countervailing duties concern the amount of subsidy found to exist in the period of investigation.  The Appellate Body in Mexico-Anti-
Dumping Measures on Rice also confirmed that the investigating authority's determination of the 
conditions for the imposition of a trade re medy may be based on a past period, i.e., the period of 
investigation.
48  Korea's argument also ignores the guidance of the EC-Tube or Pipe Fittings  panel 
report, which states, "[W]e are of the view that a fi nding that dumping exists during a recent past IP is 
a finding of 'present' dumping for the purposes of the Agreement."49 
                                                      
45 See Appellate Body Report, US - Countervailing Measures on Certain EC Products,  paras. 117, 127. 
46 See Panel Report, Korea – Commercial Vessels , para. 7.419. 
47 Panel Report, US – Lead and Bismuth II , para. 6.57. 
48 See Appellate Body Report,  Mexico – Anti-Dumping Measures on Rice , paras. 165-66. 
49 Panel Report, EC – Tube or Pipe Fittings , para. 7.102. WT/DS336/R 
Page 20  
 
4.79 Korea has not made any specific argument that  a subsidy had been "removed" or "taken 
away" to qualify as a withdrawal in the meaning of  Article 19.1 or any relevant argument concerning 
Article 21, which addresses a review that would be conducted after the imposition of countervailing 
duties. 
4.80 Based on the above, Korea's claim concerning the imposition period of the countervailing 
duty should be rejected. 
(h) Japan's Guidelines Sufficiently Set Fort h the Benefit Calculation Methods  
4.81 Contrary to Korea's argument, Japan complied with the requirements of Article 14 of the 
SCM Agreement to provide the calculation methods for s ubsidies in its Guidelines for Procedures 
Relating to  Countervailing and Anti-dumping Duties , and notified WTO Members of the Guidelines 
prior to the investigation.  The JIA explained th e methods as applied in the present investigation and 
its application of the methods was consis tent with the provisions of Articles 14. 
4.82 Korea's argument overlooks "the considerable  leeway" that WTO Members have "in adopting 
a reasonable methodology"
50 and the recognition of the Appellate Body that "more than one method 
consistent with Article 14 is available to in vestigating authorities for purposes of calculating the 
benefit to the recipient."51 Korea's argument reflects a funda mental misunderstanding between the 
methods  set forth in Japan's Guide lines in accordance with the chap eau of Article 14 of the 
SCM Agreement with the application of the methodologies in this particular case.  Korea has not 
demonstrated that the Guidelines or the application of methodologies fall outside of the parameters of 
Articles 14(a) through (d) of the SCM Agreement .  Thus, Korea has not presented a prima facie  case 
that the JIA violated Article 14 of the SCM Agreement.  
(i) The JIA's Designation of Certain Financial Institu tions as "Interested Parties" Is Consistent 
with the SCM Agreement  
4.83 Korea's argument on "interested parties" overlooks  the last sentence of Article 12.9 of the 
SCM Agreement which allows WTO Members to include as interested parties domestic or foreign 
parties that are not included in the list of exam ples of interested parties.  Contrary to Korea's 
argument, an interested party does not need to have  an interest in the out come of the proceedings, 
which is confirmed by Article 23, which recognizes th e existence of "interested parties" that are not 
directly or individually affected by the administra tive actions in the countervailing duty investigation.  
Thus, Korea's interpretation of "interested parties" would render inutile the provisions of Article 12.9 
and Article 23 and is in consistent with the SCM Agreement .  Korea's argument also ignores the object 
of Article 1.1(a)(1)(iv), which is an "anti-circ umvention" provision under which subsidies are 
provided through private bodies, as confirmed by the Appellate Body52.  Korea's interpretation would 
remove the very parties that are at the centre of  the investigation under Article 1.1(a)(1)(iv) from 
direct examination, ignoring the fundamental purpose of this provision. 
4.84 Contrary to Korea's allegation, the JIA did not "punish" Hynix or apply "adverse facts 
available" by including certain financial institutions as interested parties.  First, Korea has not offered 
any specifics of its allegations or indicated the specific provisions of the SCM Agreement that the JIA 
allegedly failed to follow.  Korea has not provid ed any explanation of the relevancy of Appellate 
Body Report in US – Hot-Rolled Steel , the only case cited by Korea,  to this dispute.  As a factual 
matter, the JIA did not find any subsidy with respect  to a financial institution which did not submit 
timely responses to the questionnaire or which refuse d to accept the on-the-spot investigation and did 
not include the financial contribution from these institutions in the countervailing duties imposed.  
                                                      
50 Panel Report, EC – Countervailing Measures on DRAM Chips , para. 7.213. 
51 Appellate Body Report, US – Softwood Lumber IV , para. 91. 
52 Appellate Body Report, US - Countervailing Measures on Certain EC Products,  para. 113.  WT/DS336/R 
 Page 21  
 
 
The JIA did not apply "adverse facts available" as Kor ea alleges.  The JIA based its determinations on 
the information on the record that it was able to obtain, including th e situations of the other parties 
that did provide information where interested par ties did not provide information requested by the 
JIA.  Korea has failed to present a prima facie  case for its claim concerning the scope of interested 
parties, and Korea's arguments should be rejected. 
(j) The JIA Correctly Considered the E ffects of Subsidies to Injury  
4.85 Korea has failed to present any specific arguments to support its assertion that the causation 
analysis of the JIA in this case, as explained in  the Final Determination, failed to comply with 
Articles 15.5 and 19.1 of the SCM Agreement .  Rather than present a prima facie case, Korea is 
seeking from the Panel an advisory opinion on a particular provision of the SCM Agreement .  In the 
absence of specific claims and arguments, Kore a's claim on this issue should be rejected. 
4.86 Article 15.5 and footnote 47 of the SCM Agreement clearly equate the analysis of the effects 
of the subsidy to the analysis unde rtaken under Articles 15.2 and 15.4 relating to the effect and impact 
of the subsidized imports.   Contrary to Korea's unsupported claim, the text of Article 15.5 of the 
SCM Agreement requires the establishment of a causal link between the subsidized imports and the 
injury to the domestic industry and does not impose an  additional and separate inquiry into the role of 
the subsidies.  Korea has presented no argument of any defect in the JIA's analysis under 
Articles 15.2 and 15.4.  Its claim, therefore, fails.   
4.87 In the investigation, the JIA found that the subsidies themselves allo wed the importation of 
the subsidized imports, thereby causing injury to th e domestic industry.  Thus, the JIA correctly found 
that the injury was caused through the effects of subsidies.  Korea's claims should be rejected. 
(k) Korea's Claim under Article 32.1 of the SCM Agreement is without Merit 
4.88 Any violation of Article 32.1 of the SCM Agreement is necessarily dependent on a violation 
of other provisions of the SCM Agreement .  As Korea has not demonstrat ed any other inconsistencies 
under the SCM Agreement , there is no violation of Article 32.1 
(l) Korea's Suggestion to the Panel to Specify a Particular Way to Implement a Recommendation 
(If Any) is Unnecessary 
4.89 Japan is confident that the Panel will not need to issue any recommendation in this dispute.  
However, assuming arguendo that the Panel was to find an inconsistency with the covered 
agreements, there is no "exceptional" circumstance in the present case to necessitate a departure from 
the "general rule" to allow all possible modalities of implementation.   
5. The Non-Record Evidence And Argument Pr esented By Korea Are Not Appropriately 
Before The Panel 
(a) Korea's Submission of Non-Record Evidence Should Be Rejected 
4.90 In its FWS, Korea submitted a new body of ev idence (and analysis based on such evidence), 
which the JIA never saw and thus could not consider in the investigation.  It would be inconsistent 
with the provisions of Article 11 of the DSU for th e Panel to consider such evidence in dispute as it 
was not part of the record of the investigation under Article 12.2 of the SCM Agreement . WT/DS336/R 
Page 22  
 
(b) Korea's Claims Based on Evidence and Argumen ts, Which  the Government of Korea and 
Other Interested Parties Chose Not to Submit in the Investigation, Should Be Rejected 
4.91 Under Article 12.2 of the SCM Agreement , the decision of "the investigating authorities can 
only be based on such informati on and argument as were on the written record of this authority and 
which were available to interested Members and inter ested parties participating in the investigation."  
When an interested Member or party chooses not to submit a specific argument or information to the 
investigating authority at the time of the investig ation and as a result the investigating authority is 
precluded from considering such argument or info rmation, the investigating authority cannot be 
faulted for not examining such argument or information. 
4.92 Korea has submitted arguments and information regarding, inter alia , a "rational creditor" or 
a "rational profit-maximizing" person or action, wh o will not take into account previous investments 
or other sunk costs.  During the investigation, however, The Government of Korea argued that the 
existing creditors would act differently from new i nvestors.  Korea also ar gues that the JIA should 
have considered evidence of other companies faci ng insolvency, which The Government of Korea and 
the other interested parties chose not to submit.   In both cases, the JIA cannot be faulted for not 
considering such evidence or arguments which was not submitted in the investigation.  Korea's 
arguments made based on such " non-record" arguments or evidence concerning the burden of proof, 
financial contributions, benefit, and sp ecificity should also be rejected.  
C. F
IRST ORAL STATEMENTS OF KOREA  
4.93 The following summarizes Korea's argume nts in its first oral statements. 
1. Opening Statement of Korea at the First Meeting of the Panel   
• Introduction 
 
4.94 It is beyond dispute that the government of Korea moved aggressively to address the fall-out 
from the Asian financial crisis.  The focus of thos e efforts, however, was to relieve the financial 
crisis – to restore the banks to health.  This pr ocess necessarily involved corporate restructuring – 
through debt write downs and operational restructur ing – in order to eliminate an overhang of non-
performing loans that otherwise might choke economic recovery.   
4.95 In its investigation, the JIA focused on the small part of this process that concerned Hynix.  It 
gathered dozens of newspaper articles, press releases and other statements describing the restructuring – all of which described a governme nt playing its appropriate role in promoting 
corporate restructuring in order to ameliorate a banking crisis.  Unfortunate ly, without understanding 
the overall context, the JIA wrongly concluded that the Government of Korea was taking 
extraordinary measures to force Hynix' s creditors to save the company.   
• Errors In The JIA's Determination 
 
(a) Procedural Flaws In The JIA's Determination 
(i) Use of Improper Benefit Calculation Methods  
4.96 In paragraphs 90 to 106 of its Notice of Important Facts, the JIA listed the formulas and 
methodologies it intended to use to calculate the s ubsidy benefits in this case.  These formulas and 
methodologies were not provided for in Japan's  legislation and impl ementing regulations.  
Accordingly, the JIA's determination is not consis tent with the first sentence of Article 14 of the SCM 
Agreement , which provides that "[A]ny method used by the investigating authority to calculate the  WT/DS336/R 
 Page 23  
 
 
benefit to the recipient conferred pursuant to para graph 1 of Article 1 shall be provided for in the 
national legislation or implementing regul ations of the Member concerned."   
4.97 Japan has claimed that Korea' s arguments under this provision constitute an improper "as 
such" claim.  But that is not correct.  Korea is challenging the JIA's use in this investigation  of 
methods that are not provided for in Japan's legislat ion and regulations.  It is not arguing that the JIA 
could not, in other cases, calculate subsidy benefits  using the rudimentary methods that are provided 
for in Japan's legislation and regulations. 
4.98 Japan also claims that its legislation and re gulations could not describe the detailed methods 
actually used in this case, because it needed to  maintain flexibility.  But the formulas and 
methodologies in question were actually copied from the published regulations of the US Department 
of Commerce.  It is a little hard to take seriously  Japan's claims that it could not have stated its 
methodologies in its regulations, when it copied t hose methodologies directly from the regulations of 
another country.   
(ii) Improper Burden of Proof 
4.99 The Appellate Body has held th at the evidence cited by the investigating authority must 
"demonstrate" that the relevant criteria have been met.  In addition, it has also specifically cautioned 
against acceptance of unsupported assumptions  by an investigating authority.   
4.100  In this case, the JIA did not establish the exis tence of the critical facts that would permit a 
finding of subsidies.  Instead, it assumed that those f acts existed, and then set about to explain why the 
Korean respondents' counter-arguments were insuffici ent.  The result was to shift the burden of proof 
entirely onto the Korean respondents – treating them  as "guilty" of subsidies unless they could prove 
their innocence.   
4.101  Such an approach does not meet the requirement of "impartial" administration set forth in 
Article X:3 of the GATT.  It makes a mockery of the provisions of Article 12, which provide that interested parties must have a fair opportunity to make their case, as well as the provisions of Article 22 requiring publication of the "reasons" for the determination.  And, perhaps most 
importantly, it is inconsistent with the requirements of Articles 1 and 2 of the SCM Agreement , which 
allow a subsidy to be found only when certain defined criteria exist – and not whenever a respondent 
is unable to prove that those criteria do not exist.   
(b) Determination of Financial Contribution 
(i) Direct Transfer of Funds and Forgone Revenue 
4.102  The JIA considered the extensions of loan ma turities and debt-equity swaps encompassed in 
the restructuring transactions by the private entities to constitute transactions which, if performed by 
the government, would have fallen under the category of "direct transfer of funds."  This classification 
is not consistent with the provisions of the SCM Agreement .  The expression "transfer of funds" refers 
to situations in which financial resources, typically  money, are transferred fro m one person to another.  
It does not refer to situations in which one person gives up a claim on another. 
4.103  This does not mean that debt forgiveness, or maturity extensions, or debt-equity swaps can 
never be found to be "financial contributions" within the meaning of Article 1.1(a) of the SCM 
Agreement .  Those transactions potentially fit within the concept of "government action foregoing or 
not collecting revenue" in s ub-paragraph (ii) of Article  1.1(a) – at least if it is established that the 
government has actually foregone or not collected revenue by entering into those transactions.  
Consequently, if the JIA wanted to classify such tran sactions as "financial contributions," it needed to 
analyze them in terms of the requirements of sub-paragraph (ii).  Because the JIA failed to undertake WT/DS336/R 
Page 24  
 
such an analysis, its imposition of countervailing dut ies is not consistent with the requirements of the 
SCM Agreement . 
(ii) Entrustment or Direction 
4.104  Japan claims that Korea's argument regardi ng entrustment or direction is based on a 
mistranslation of paragraph 81 of the JIA's respon se to comments.  However, the differences between 
the translation proposed by Japan and the translation prepared by Korea are slight, and do not affect 
the basic point.   
4.105  On the issue of the Korean Government's allege d intent, Japan asserts that Korea has failed to 
look at the evidence in its totality.  However, Japan  has not identified any reports that Korea ignored, 
and it has not identified any evidence suggesting that  the Government of Korea wanted the banks to 
adopt measures that were inconsistent with the ba nks' own best interests.  An objective and unbiased 
review of the evidence in its totality would find that  the Korean government's role was no more than 
the normal prudential supervision one would expect gi ven the difficult situation of Korea's financial 
sector and the size of Hynix's debts. 
4.106  Japan also contends that the JIA never actually found that no rational investor would have 
entered into the restructuring transactions on th e same terms that Hynix's creditors accepted.  
However, that statement is belied by the JIA's dete rmination.  The JIA explicitly stated that, at the 
time of each of the restructuring transactions,  
Hynix could not obtain financing from commercial market, and that from the normal 
commercial point of view, there was no investor who was willing to invest in or provide loans to Hynix in the normal commercial market. 
And, that conclusion was not the result of evidence at all.  It was, instead, an inference, based solely 
on the JIA's finding that Hynix w as in financial distress at the time of the restructurings.   
4.107  As a logical matter, the mere fact that there was evidence that Hynix was in financial distress 
does not automatically justify the conclusion that no investor acting "from the normal commercial 
point of view" would have invested in or made lo ans to Hynix.  Instead, two further assumptions are 
needed.  First , one needs to make some assumption about the motivations of investors "in the normal 
commercial market" making decisions "from the normal commercial point of view."  And, second , 
one needs to make some assumption about whether the particular investments in Hynix would or would not have been consistent with the acco mplishment of the investor's objectives.   
4.108  In Korea's first submission, it challenged th e JIA's assumption that the restructuring 
transactions were not consistent with the objectiv es of investors "in the normal commercial market" 
making decisions "from the normal commercial point of view."  In particular, Korea provided a 
lengthy explanation of the economic, legal and em pirical analysis supporting the conclusion that a 
rational investor in the position of Hynix's creditors  who was seeking to maximize expected profits 
would have entered into the restructuring transactions  at issue in order to unlock the "going concern" 
value of the company, and avoid a liquidation that w ould have generated lower returns.  The point is 
indisputable.  Consequently, the JIA's conclusion  that "from the normal commercial point of view, 
there was no investor who was willing to invest in or provide loans to Hynix in the normal commercial market" was based on a false assumption and is, therefore, fundamentally illogical.   
4.109  In Korea's first submission, it also gave an ex ample of Woori Bank's own internal analysis of 
the October 2001 and December 2002 restructurings  which showed its participation in those 
transactions would allow Woori to avoid losses of hundr eds of billion of Won.  This example reveals 
that the JIA's assessment that the bank's internal  analyses of the restructuring transactions were 
inadequate and did not follow normal commercial procedures was, biased.    WT/DS336/R 
 Page 25  
 
 
4.110  None of the JIA's assumptions were based on evidence, and none was correct.  Consequently, 
the JIA's finding of entrustment or direction w as not consistent with the requirements of the SCM 
Agreement .  
(c) Benefit 
4.111  The guidelines set forth in Article 14 of the SCM Agreement do not directly address debt 
restructurings, but they do reflect the basic principle that benefits must be measured by comparing the 
alleged subsidy transaction with the normal practices of participants in transactions of the same type 
in the same market.  Thus, if creditors of Hyni x would have entered into the same restructuring 
transactions in the absence of government entrustmen t or direction, there is no benefit – whether the 
financial contribution is considered to be the a lleged government entrustment or direction, or the 
participation in the restructurings by the allegedly entrusted or directed creditors. 
4.112  In its determination, the JIA made no effort  to determine what te rms would have been 
available to Hynix if there had been no alleged go vernment entrustment or direction.  It failed to 
identify the normal practices of partic ipants in transactions of the same type in the same market.  As a 
result, the JIA failed to undertake the benefit analysis required by Articles 1 and 14 of the SCM 
Agreement .  Its determination cannot, therefore, be upheld. 
4.113  The JIA's benefit analysis is also incons istent with the fact that more than a hundred separate 
institutions that were not found to be entrusted or directed also participated in the restructuring 
transactions.  The fact that these private entities part icipated in the transactions on the same terms as 
the government bodies and the allegedly government-direct ed banks indicates that the transactions did 
not confer a benefit on Hynix. 
4.114  The JIA has contended that the existence of past  subsidies irrevocably tainted any subsequent 
market transactions by the non-entr usted or -directed creditors.  But,  that interpretation is flatly 
inconsistent with the requirements of the SCM Agreement .  Among other things, the JIA's 
interpretation simply cannot be reconciled with the provisions of Article 14 requiring investigating 
authorities to look to actual  market transactions and normal mark et practices as the benchmark for 
determining whether a benefit has been conferred.  More generally , the interpretation of Article 14 
proposed by the JIA would lead to absurd and inco nsistent results.  It would find a benefit based 
solely on the identity of the body making the loan, an d not based on any finding that the terms of the 
government loan made the recipient "better off"  than the available market alternatives.  
(d) Allocation Period and Imposition Period 
4.115  The JIA decided in this case that the alleged s ubsidies received by Hynix should be allocated 
over a five-year period, including the year in which th ey were received.  This meant that the subsidies 
allegedly received by Hynix in 2001 were all allocated to the five-year period from 2001 to 2005.  
There was no remaining benefit from those subsidies in  2006, when the JIA issued its determination.  
Consequently, the JIA's decision to continue to impose countervailing duties based on the 
October 2001 restructuring for a period extending be yond the five-year benefit "amortization" period 
is inconsistent with Articles 19.4 and 21.1 of the SCM Agreement . 
4.116  In its first written submission, Japan asserted that the JIA's imposition of duties was 
consistent with past decisions concerning similar provisions of the Antidumping Agreement.  But the 
Antidumping Agreement does not permit investigati ng authorities to calculate dumping margins for 
years into the future based on an amortization of a non-recurring price differential at some time in the 
past.  In these circumstances,  any effort to analogize the estimation  of dumping margins on sales 
during future periods with the calculation  of the amortized amount of the subsidy benefits from a 
particular transaction in a particular fu ture year is inherently illogical.   WT/DS336/R 
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(e) Injury Causation 
4.117  Articles 15.5 and 19.1 of the SCM Agreement require that the investigating authority must 
demonstrate "that the subsidized imports are, through the effects of subsidies , causing injury."  The 
ordinary meaning of this requirement is clear.  It is not enough that the imports  which happen to be 
subsidized are causing injury.  Instead, it must also  be demonstrated that the injury is occurring 
"through the effects of the subsidy." 
4.118  Japan, contends that this Panel should follow the interpretation adopted by a GATT Panel in 
Norwegian Salmon , which held that similar language in  the Tokyo Round Antidumping and Subsidy 
Codes required only a finding that the dumped or subsidized imports caused injury, and not a finding that the injury occurred through the effect of the dumping or subsidies.  Japan's position is, however, 
directly inconsistent with its strident criticism of the Norwegian Salmon decision at the time that 
decision was first announced.  And, in any event, the Norwegian Salmon decision is not consistent 
with the ordinary meaning and context of the relevant provision. 
4.119  In its determination, the JIA took the position that it had considered whether the injury had 
occurred through "the effect of the subsidy."  In pa rticular, the JIA claimed that it was appropriate to 
find that the injury had occurred through the "effect of the subsidies" because, in the absence of the 
subsidy, Hynix would have been forced into  bankruptcy and ceased production and exports.   
4.120  The problem in this case is that there is no evidence that Hynix would have ceased production 
and exports in the absence of the subsidies.  Th e JIA did not identify provisions in the Korean 
bankruptcy laws that would have forced Hynix to  cease production and exports in the event that it was 
forced to file for court protection under those la ws.  In fact, as demonstrated in Korea's first 
submission, the Korean bankruptcy laws would actua lly have allowed Hynix to continue operations 
under court protection while its creditors worked out a debt restructuring program.  There is no reason to believe Hynix would have  ceased production or export. 
• Conclusion 
 
4.121  This case is, in large part, about the difficulties the JIA had in handling its very first 
countervailing duty case, making things up as it went along in the absence of a sufficient description 
of procedures and substantive methodologies in Japan's statute and regulations.  It may well be that 
the JIA tried its best.  But effort does not excu se non-compliance with the procedural safeguards 
required by the SCM Agreement . 
4.122  Perhaps even more fundamentally, this case is about  assumptions.  Despite all of the details in 
its Notice of Important Facts, the JIA's decision tu rned on certain critical assumptions about market 
behaviour, about Korean law, and even a bout the meaning of certain terms in the SCM Agreement .  
Those assumptions were not supported by any eviden ce, and they turned out, in the end, to be 
unreasonable and incorrect.  In Korea's view, th e inconsistency with the provisions of the 
SCM Agreement of a determination based on such flawed assumptions is manifest. 
2. Closing Statement of Korea at the First Meeting of the Panel  
4.123  In Korea's view, the Japanese investigating au thority started its investigation with an 
assumption that the restructuring transactions must ha ve been directed or entrusted by the Korean 
government, and then set about to compile evidence that it thought would be sufficient to justify a 
determination to that effect.  But the underlyi ng assumption with which the JIA began the case 
inevitably infected its judgment.  It failed to see that the evidence it gathered did not, on its own, 
support the conclusions that the JIA wished to r each.  Instead, as expressed in Korea's  first written 
submission and in Korea's opening statement at the first meeting of the Panel, certain assumptions had 
to be made to link the evidence the JIA gathered to the conclusions it reached.  It is telling that Japan  WT/DS336/R 
 Page 27  
 
 
continues to deny that such assumptions were made , even as it repeated many of them in its oral 
statement at the first meeting of the Panel. 
4.124  During the course of the JIA's investigation,  Hynix and its creditors and the Korean 
government all explained to the JIA that the credito rs had agreed voluntarily to the transactions at 
issue because those transactions made economic sense for the creditors.  The JI A rejected that claim 
based on its assumption that "from the normal commerc ial point of view, there was no investor who 
was willing to invest in or provide loans to Hyni x in the normal commercial market."  In a single 
stroke of its pen, the JIA eliminated the vast army  of lawyers, bankers and economists who, right now, 
are toiling on debt restructurings for financially insolvent companies, both inside and outside of formal bankruptcy proceedings, in virtually every single country in the world.   
4.125  It is beyond dispute that firms all over the world at times find themselves in a position of 
"financial distress" in which they do not have the funds needed to make the payments that are due to 
their creditors — just as Hynix did.  It is equally cer tain that the creditors of such firms routinely enter 
into debt restructurings to maximize their own expect ed profits.  This is not economic theory.  It is a 
reality that could be seen every day.  And, once that  reality is recognized, the JIA's determination falls 
apart.   
4.126  One does not need assumptions of governme nt interference to make sense of the 
restructurings.  One needs only economic self-interest .  And, even if Korea assumes for the sake of 
the argument that Japan were correct in asserting that  the government of Korea twisted the arms of the 
creditors, there still would be no subsidy, because entr ustment or direction of private entities to enter 
into transactions that are in the private entities' own interests cannot confer a benefit within the 
meaning of the SCM Agreement . 
4.127  The SCM Agreement requires investigating authorities to base determinations on facts, not 
presumptions.  In its finding of entrustment or directi on, in its finding of a benefit, and in its finding 
that injury occurred through the effect of the allege d subsidies, the JIA failed to meet that standard.  
Consequently, its determination cannot be sustained, and the countervailing duties it imposed should 
be rescinded. 
D. F
IRST ORAL STATEMENTS OF JAPAN  
4.128  The following summarizes Japan's argumen ts in its first oral statements. 
1. Opening Statement of Japan at the First meeting of the Panel   
(a) Standard of Review and Evidentiary Standard   
(i) The Requirements under the WTO Agreements  
4.129  Japan has pointed out errors in Korea's claims  in its First Written Submission and emphasizes 
here the issues concerning the standard of review  and evidence of a subsidy investigation under the 
WTO Agreements.  First, it is essential that Korea' s claims be reviewed in light of the applicable 
standard of review that "a panel . . . should, on the basis of the record ev idence before the panel, 
inquire whether the evidence and explanation relie d on by the investigating authority reasonably 
supports its conclusions".53  
4.130  Secondly, the Appellate Body has rejected any particular standard of evidence beyond that set 
forth in the SCM Agreement (i.e., the existence of subsidy "can only be based on" record evidence) 
                                                      
53 Appellate Body Report, US – Countervailing Duty Investigation on DRAMS , para. 188. WT/DS336/R 
Page 28  
 
and has recognized that an investigating authority has full discretion in conducting an investigation within such bounds, or "on its own terms".
54  
4.131  Thirdly, Article 1.1(a)(1)(iv) of the SCM Agreement "is, in essence, an anti-circumvention 
provision."55  WTO Members may not escape the SCM Agreement 's disciplines where a government 
"entrusts or directs" private bodies to provide a financial contribution.  
(ii) The Actual Investigation and Determination by the JIA  
- Hynix's Financial Situation:  On the Verge of Collapse  
4.132  Korea has not based its arguments on the act ual investigation that the Investigating 
Authorities of Japan ("IA") conducted;  thus, its arguments are inconsistent with the applicable 
standard of review.  Korea argues that the Hynix restructuring was rational in light of a certain 
economic model.  However, the JIA determined wh ether the Government of Korea had entrusted or 
directed financial institutions to save Hynix, not whether the outcome might appear to align with a 
general voluntary work-out.  The premise of Korea's voluntary work-out theory is that of a company facing a temporary funds shortage.  However, the r eality of Hynix was quite different.  Japan will 
highlight here that:  (1) Hynix had been facing a di re financial distress;  and (2) The Government of 
Korea's consistent policy and actions to save Hynix. 
4.133  The Hynix liquidity problem was not temporar y. The Government of Korea's financial 
contributions had saved Hynix from collapse.  Afte r 1997, Hynix's situation was disastrous.  Hynix's 
maturing debts of approximately KRW 9 trillion  in 2001 dwarfed its 2000 year-end deposit balance of 
KRW 10.1 billion .
56  "Hynix did not have the cash on hand to repay those debts" 57 and would have 
gone "bankrupt without obta ining outside financing"58.  Hynix's financial indicia continued to decline 
sharply in early 2001 when it was saved temporarily by the May 2001 Program. 
4.134  In August 2001, Hynix defaulted on payment obligations59and by October 2001, Standard & 
Poor's downgraded Hynix's rating to "Selective Default,"60 but the October 2001 Program could not 
solve Hynix's troubles, which worsened throughout 2002.61 Its external advisor stated "Hynix is not an 
investment-grade company", and "Hynix is techni cally bankrupt, kept alive only through debt 
restructuring programs."62  No financial institution would provide new credit to Hynix until the 
December 2002 Program.63  
- The Policy and Actions of The Government of Korea to Save Hynix Since the "Big Deal" 4.135  In July 1998, the Government of Korea and its  business community agreed to the "Big Deal" 
scheme to reorganize companies among five ma jor conglomerates, which established Hynix.
64  The 
Government of Korea maintained its objective to  promote the semiconductor industry and prioritized 
                                                      
54 Ibid., paras. 140, 151. 
55 Ibid., para. 113. 
56 See Annex 1 of the Final Determination ("Annex 1"), paras.28, 110 (JPN-02), and JPN-02-12 
and 02-104. 
57 First Written Submission ("FW S") of Korea, para. 74. 
58 See Annex 1, para.110 (JPN-02), and JPN-02-104. 
59 Annex 1, para.261 (JPN-02), and JPN-02-307 and 308. 
60 Annex 1, para.265 (JPN-02), and JPN-02-313 and 314. 
61 Annex 1, para.323 (JPN-02), and JPN-02-377 and 378. 
62 Annex 1, para.324 (JPN-02), and JPN-02-381. 
63 Annex 1, para. 325 (JPN-02). 
64 Ibid., para. 38.  WT/DS336/R 
 Page 29  
 
 
Hynix's normalization65, its policy from the company's inception.   The Government of Korea gave 
effect to its policy through the various Hynix bail-out programs from December 2000. 
4.136  The Government of Korea did not merely exerci se its general regulatory powers to do so.  It 
drove the process at the 28 November 2000 Economic Ministers' Meeting, which formed the basis for the first three restructurings, discussing "Measures to alleviate the cash crunch of [Hynix]", and 
subsequently sent a notice to the Korea Export Insurance Corporation and the Korea Export Bank 
("KEB") to instruct them to "carr[y the results of the discussion] out perfectly".
66  In accordance with 
this notice, KEB and two other banks requested  the regulating government body for, and were 
promptly granted, a waiver of the credit ceilings of these banks, which allowed them to participate in 
the Syndicated Loan.67 
4.137  The Government of Korea also possessed the legal means to involve itself in specific 
operations of banks.68  The Government of Korea did exert such authority, as Woori Bank and 
Kookmin Bank admitted.69 
4.138  In January 2001, the Financial Supervisory Se rvice notified banks that liabilities would be 
exempted or reduced when loan s became uncollectible for, inter alia , "a purchase of a financially 
deteriorating company that is necessary under the government's national industrial policy, and 
provision of assistance for operating funds, etc. after such purchase."70  
4.139  At the Council for Creditor Financial Instituti ons' meeting in March 2001 which formed the 
basis of the May 2001 Program, high-ranking governme nt officials pressured financial institutions to 
provide Hynix financial support.71  The Government of Korea boasted that this Program was an 
example of success of its own efforts .72 Deputy Prime Minister's announcement that "in the case that 
[the problem] does not settle, the government will directly step in...[t]here will be criticism no 
matter . . ., but we will accept the responsibility for resolving these problems"73 exemplifies the 
Government of Korea's intent to support Hyni x between the May 2001 and October 2001 Program.  
Hynix's financial situation further deteriorated  in 2002, and The Government of Korea worked 
together with creditors to realize the December 2002 Program, intervening in the preparation of the 
structural adjustment plan.74 
4.140  These facts  and other facts, such as the content and process of internal examinations of KEB 
and Woori Bank, Chohung Bank and the National Agricultural Cooperative Federation ("NACF"), 
indicate the implementation of bailouts based on the G overnment of Korea's entrustment or direction.  
NACF, a quasi-public body, and these three privat e bodies were under  the Government of Korea's 
substantial influence.  Even other banks that also participated in the bailouts based their decisions on 
non-commercial factors.  One of the reasons the JI A found entrustment or direction only to these four 
banks was because  the Government of Korea's subs tantial power to control these banks further tilted 
the balance to infer entrustment or direction.  
                                                      
65 Annex 1, paras.35-41 (JPN-02), JPN-02-17 to 28 and 254, and Annex 3, para. 68 (JPN-04). 
66 Annex 1, para.117 (JPN-02), and JPN-02-110 and 111. 
67 Annex 1, para. 120(JPN-02), JPN-02-114, 115. 
68 See for example, Articles 5 and 6 of the Pr ime Minister Decree No . 408 (JPN-02-80). 
69 Annex 1, paras. 83 - 87 (JPN-02), and JPN-02-86 to 89. 
70 Annex 1, para. 82 (JPN-02), JPN-02-85. 
71 Annex 1, paras. 193-196 (JPN-02), JPN-02-218 to 238. 
72 Annex 1, para. 202 (JPN-02), JPN-02-253. See also Annex 1, para. 200 (JPN-02) and JPN-02-246 
to 250. 
73 Annex 1, para. 272 (JPN-02), JPN-02-329. See also Annex 1, paras. 273-275 (JPN-02), JPN-02-330 
to 334. 
74 Annex 1, paras. 329-336 (JPN-02), JPN-02-386 to 426. WT/DS336/R 
Page 30  
 
(iii) The Facts Found in the Investigation and th e Evidentiary Standard for Entrustment or 
Direction 
4.141  Korea has clarified that it only disputes the JIA's factual findings regarding the October 2001 
and December 2002 Programs and ha s not challenged the prior programs.  Among the facts Korea 
does not dispute are the fact that: 
• The Government of Korea has a long history of actively normalizing its 
semiconductor industry, in particular Hynix, and maintained a policy to save Hynix;   
• The Government of Korea had the power to control the entrusted or directed banks; 
• the banks' internal documents show thei r unusual decision making process to commit 
to the May 2001 Program before  their internal decisions were made, that certain 
banks ignored their internal conditions, and that certain banks participated in the 
Program after internally decided not to participate;   
• the Government of Korea granted subsidies to Hynix through the D/A financing, 
KDB Program, and May 2001 Program that helped keep alive, but not cure, Hynix; 
• banks which participated in the Oct ober 2001 and December 2002 Programs 
recognized the deteriorating fi nancial conditions of Hynix; 
• the statements of high-ranking government officials on Hynix's financial crisis, 
various news articles reporting that  the Govern ment of Korea would or did intervene;   
• NACF's admission that the Government of Korea intervened into the December 2002 
Program;  and  
• the banks' consideration of non-commercial factors in reaching their decision to 
participate in the October 2001 and December 2002 Programs.   
 
4.142  Korea's arguments on the factual findings are lim ited to five narrow aspects.  First, Korea 
argues that the banks considered the Arthur A ndersen Report ("AA Report") for the October 2001 
Program.  However, the AA Report was comp leted well after the Program's conclusion
 , and the banks 
were not able to consider it before deciding to participate. 75  
4.143  Second, Korea argues that Woori Bank and Chohung Bank's internal examination in the 
October 2001 Program negates the JIA's finding.  Th ese banks' internal examination indicated that 
they based their decisions on noncommercial factor s;  Korea also has not disputed the JIA's 
examination of internal decisions by KEB or NACF. 
4.144  Third, the only assessment by the JIA concerning banks in the December 2002 Program 
Korea disputes is Woori Bank's examination.  Kor ea argues that Woori Bank critically reviewed the 
Deutsche Bank Report and made its own assessment.  However, the "internal document" Korea 
presents states only that Woori Bank considered the Report to be [[BCI]] because it [[BCI]]76, which 
does not indicate a critical review of the Report. Rather, Woori Bank wholly accepted the Report, and 
based its calculation of potential losses assuming [[BCI]].77 
4.145  Fourth, Korea presents arguments based on the valuation in the Deutsche Bank Report;  
which contains critical errors, even admitte d by Hynix, and thus is not reliable. 
                                                      
75 See the cover page  of the Arthur Andersen Report (KOR-17). See also pages 70 and 86 (KOR-17). 
76 See FWS of Korea, footnote 198, and Woori Bank's internal report, Section VI.3. (KOR-29). 
77 Business Confidential Information.  WT/DS336/R 
 Page 31  
 
 
4.146  Finally, Korea argues that the participation of  the banks for which the JIA made no finding of 
entrustment or direction in the October 2001 an d December 2002 Programs indicates the commercial 
rationality of all of the banks.  Korea, however , has not disputed the finding that such banks 
participated upon their consideration of non-commercial factors. 
4.147  Korea argues that there is "no ev idence that the [the Government of Korea] told any of the 
creditors what to do", without addressing any specific an alysis by the JIA.  However, such evidentiary 
standard does not exist;  Article 1.1(a)(1)(iv) anti- circumvention cases will often involve an analysis 
of totality of facts based on circumstantial evidence78, as done by the JIA.  A claim that only smoking 
gun evidence can show entrustment or direction amounts to a request for a de novo review. 
(iv) Non-Record Evidence and Arguments   
4.148  Korea's non-record exhibits such as KOR-26 and arguments based on such exhibits are 
irrelevant under the standard of review of the Pane l.  Similarly, the JIA cannot be faulted for not 
examining an argument that was not presented in th e investigation, and c ould not reasonably have 
considered, such as Korea's economic theory argumen ts.  Korea's argument that the JIA should have 
considered the financing of others facing insolven cy is belied by the refusal of the Government of 
Korea  and other parties to submit evid ence necessary for such an analysis.   
(v) Conclusion  
4.149  Korea's argument is inapposite to the JIA's determ ination.  The reality was that there was no 
financing available from the general commercial market  for Hynix.  The Government of Korea had to 
step in to entrust or direct the creditors.  
(b) Other Errors In Korea' s Claims 
(i) Benefit  
4.150  The first of the two other examples of errors in  Korea's claims is its arguments on benefit. 
Benefit in the meaning of Articles 1.1(b) and 14 refer to a benefit to the recipient .79  However, Korea 
argues whether the private creditors acted in their own interest by pursuing restructuring rather than 
liquidation.80  
4.151  Korea also argues that banks, for which the JIA did not make any finding of entrustment or 
direction, should be the benchmark.  However,  Hynix was only in operation at the time because of 
subsidies, and the terms and implementation of  the October 2001 and December 2002 Programs stood 
on such financial condition of Hynix.  A benchmark ot her than the existing market may be used if the 
market was so distorted because of the government's involvement.81  In this case,  the Government of 
Korea subsidies heavily distorted the premise a nd the terms and conditions of these Programs. 
4.152  In addition, the evidence indicates that  the Gove rnment of Korea intervened in the content of 
the December 2002 Program when Hynix's creditors c ould not agree to the terms.  Moreover, these 
"other" banks' decisions to participate were ba sed on non-commercial considerations.  Thus, their 
financing do not show usual invest ment practice or that their loans were commercially obtainable.  
The JIA reasonably found that these Programs were not from the normal commercial market and that 
financing by "other" banks could not serve as benchmark.   
                                                      
78 Appellate Body Report, US – Countervailing Duty Investigation on DRAMS , para. 150 and 
footnote 277. 
79 See, e.g., Appellate Body Report, Canada – Aircraft , para. 154. 
80 FWS of Korea, paras. 234-243. 
81 Appellate Body Report, US – Softwood Lumber IV , paras. 90 – 95. WT/DS336/R 
Page 32  
 
4.153  Korea's argument that the AA Report and Deutsche Bank Report show that Hynix's going-
concern value exceeded liquidation value is null.  These valuations were based on Hynix's heavily 
distorted financial conditions, and cannot serve as a benchmark.  Also, the alleged Hynix 2001 4Q 
going-concern value in the AA Report is an ex post  calculation, incorporating the October 2001 
Program's success.
82 The going-concern valuation could not have been reached absent the 
contributions from public bodies and the entrusted or  directed private bodies, which contributed over 
[[BCI]] and [[BCI]] per cent respectively of the debt-to-equity swaps and new loans.83  Thus, this 
going-concern value does not show what was obtaina ble without such financial contribution.  The 
going-concern valuation in the Deutsche Bank Report84 also assumed the success of the December 
2002 Program;  the values were not realizable absent the public bodies' and entrusted or directed 
banks' participation.85 Furthermore, if the critical errors in that report were corrected, the going-
concern values would [[BCI]]  
(ii) Determination of the Amount of Subsidy  
4.154  The second example is Korea's claim that the October 2001 Program ceased to provide 
benefit as of the end of 2005.  The SCM Agreement simply requires a determination of subsidy at the 
time of the period of the investiga tion, based on data available therei n, not a re-determination as of the 
time of duty imposition.  The allocation period of non-r ecurring subsidy is just a part of the duty rate 
calculation as of the period of investigation, not a determination of benefit expiry.  The JIA based this 
allocation period on the useful life of Hynix' s assets, which may subsequently change.86  The matters 
concerning the existence or amount of subsidy that can be discerned post-investigation period is to be 
reviewed under Articles 21.2 and 21.3 of the SCM Agreement ;  Japan does have a review mechanism 
that fully reflects the principles of Articles 19.4 and 21. 
2. Closing Statement of Japan at the First Meeting of the Panel 
4.155  First, in both its First Written Submission and its  Oral Statement at the first meeting of the 
Panel, Korea referred to what it called the "syll ogism."  Korea summarized its position at the first 
meeting of the Panel by arguing that the determina tion of entrustment or direction by Japan was based 
on the findings that: 
• The Korean Government had expressed an  intention to 'keep Hynix alive'; 
• No rational creditor would have entered into the restructuring transactions, in view of 
Hynix's poor, and deteriorati ng financial condition;  and 
• The evidence submitted by the individual creditors (or the findings made by the JIA 
where the creditors were non-responsive) did not establish that the creditors had 
conducted a sufficient analysis of the various  transactions before entering into them."87 
4.156  The Panel should take careful note that in r esponse to a question from Japan at the first 
meeting with the Panel, Korea confirmed that its claim was limited to these three elements.  This 
answer by Korea is highly significant.   
                                                      
82 See Arthur Anderson Report, pages 81 and 9 (KOR-17). See also  pages 70 and 86. 
83 See Arthur Anderson Report, pages 9, 70 and 86 (KOR-17), and Annex 1, paras. 256, 311 (JPN-02), 
JPN-02-365. 
84 FWS of Korea, para. 241. 
85 Annex 1, para.318 (JPN-02). 
86 As recognized in the  International Accounting Standard 16 , para. 49 (shown in para. 51 of the 
7 June 2004 text) (JPN-15).  
87 Korea's Opening Statem ent for the First Panel Meeting, para. 41.  WT/DS336/R 
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4.157  As Japan explained in its First Written Submis sion, Korea is wrong when it asserts that the 
full overview of the Investigating Authority's dete rmination can somehow be captured in these three 
points.   
4.158  Korea's translation of this section of the Fina l Determination also was incorrect.  Yet leaving 
aside translation issues, Korea has misinterpreted th e findings of the Investigating Authority.  With 
respect to the first element of the supposed syllo gism, the record evidence, discussed at length in 
Japan's submission, showed that the Government of Korea not only had the clear intent to save Hynix, 
but exercised its authority over the banks to ba il out Hynix through the October 2001 Program and the 
December 2002 Program.  As for the second and th ird elements of the alleged syllogism, the 
Investigating Authority did not re ly on "assumptions", but rather reviewed various factors on a bank-
specific and program-specific basis.  Based on this record evidence, the Inv estigating Authority found 
that non-commercial factors underlay the decision of  the banks to participate in the October 2001 and 
December 2002 Program rescue programs.   
4.159  The important point to stress here is that Korea's claim against entrustment and direction is 
limited  to the three claims set out in its "syllogism."  If Japan demonstrates that the "syllogism" 
does not accurately state the basis on which the investigating authority made its determination, 
then Korea's "entrustment or direction" claim must, of necessity, be dismissed.  Japan mentioned 
that it will return to this issue in its Second Written Submission. 
4.160  The other issue to discuss relates to the Panel's terms of reference.  Japan has sustained – and 
continues to sustain – significant prejudice as a result of Korea's failure to comply with its binding 
obligations under DSU Article 6.2. 
4.161  It is important to recall that Korea's failure to state its claims clearly is not some minor, 
procedural breach, but rather infringes the fundamental due process rights of Japan, as a responding party, to know the nature of the claims being made against it.  The Appellate Body has articulated this 
obligation in unambiguous terms: 
The requirements of due process and orderly procedure dictate that claims must be 
made explicitly in WTO dispute settlement.  Only in this way will the panel, other 
parties, and third parties understand that a specific claim has been made, be aware of its dimensions, and have an  adequate opportunity to a ddress and respond to it.  WTO 
Members must not be left to wonder what specific claims have been made against 
them in dispute settlement.
88 
4.162  Unfortunately, in the present case,  Japan has been left "wondering  what specific claims have 
been made against it" by Korea.  The situati on in the present case is similar to that in Thailand – H-
Beams , where the Panel found that the "prejudice to Thailand's ability to defend itself was a function 
of the fact that the precise nature and scope of the claims…remained unclear and confusing to Thailand -- and to us – even followi ng Poland's first written submission."
89  As in that dispute, Japan's 
ability to defend itself is a function of the fact that  the "precise nature and scope" of Korea's claims 
remain unclear and confusing to Japan – and doubtless to the Panel – even following Korea's First 
Written Submission.  For example, for Korea to make broad sweeping clai ms, without bothering to 
provide any specificity as to the nature of its co mplaint, renders the due process requirements of DSU 
Article 6.2 essentially meaningless.  Two examples will illustrate the problem. 
4.163  First, as Japan has previously argued, Korea's Claim 15 is a "catch-all" claim of violation of 
"Articles 10, 11, 12, 14, 15, 22, and 32.1 of the SCM Agreement and Articles VI:3 and X:3 of the 
GATT 1994."  This vague and expansiv e claim falls far short of the Appellate Body's admonition that 
                                                      
88 Appellate Body Report , Chile – Price Band System , para. 164. 
89 Panel Report, Thailand – H-Beams , para. 7.29. WT/DS336/R 
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responding parties and third parties must be made aware of the "specific" claims being made, as well 
as their "dimensions."  Stating claims in this ma nner deprives Japan of its due process rights to have 
an "adequate opportunity to address and respond" to the claims against it. 
4.164   Second, in its Opening Statement, Korea used formulations such as the following: 
• A determination based on assumption and not evidence is not consistent with each and 
every provision of the SCM Agreement requiring findings based on evidence, and a fair 
and impartial determination.90 
•  A determination based on "facts available," and not on evidence, is not consistent with 
each and every provision of the SCM Agreement requiring findings based on evidence, 
and a fair and impartial determination.91   
Claims that Japan has violated "each and every pr ovision" of the SCM Agreement render a nullity the 
due process provisions of the DSU, particularly in li ght of the Appellate Body's clear ruling that the 
"mere listing of treaty Articles" may not satisfy the st andards of DSU Article 6. 2.  Since the Appellate 
Body has found that the listing of Articles – rather  than their various sub-pr ovisions – may fall short 
of the requirements of DSU Article 6.2, claims of  violation of "each and every provision of the SCM 
Agreement " can only be an egregious viola tion of Japan's due process rights. 
4.165  Accordingly, Korea's breach of DSU Article 6.2 has fundamentally prejudiced Japan's rights 
as a responding party in WTO dispute settlement.  Japan  respectfully requests this Panel to remedy 
this violation by placing the illegal claims identif ied by Japan outside its Terms of Reference.  
E. SECOND WRITTEN SUBMISSION OF KOREA  
4.166  The following summarizes Korea's arguments in its second written submission.  
1. Japan's Imposition of Countervailing Duties was based on a Fundamentally Flawed 
Assumption  
4.167  In its oral statement during the first panel mee ting, Japan claimed that the finding of subsidies 
by the Japanese Investigating Authority ("JIA") wa s supported by the fact that Hynix was "facing 
dire, structural financial distress" that left it unabl e to pay its debts.  Japan asserted that this severe 
financial distress meant that "Hynix would have gone bankrupt" and "could  not have survived" 
without government help.92  According to Japan, the "Government of Korea had to  step in to entrust 
or direct the creditors" in order "to save Hynix."93 
4.168  This assumption – that a company "facing dire, structural financial distress" could only have 
been saved by government intervention – underlay th e JIA's entire analysis.  But that assumption is 
demonstrably false.  The debts of insolvent debtors – of companies "facing dire, structural financial 
distress" – are restructured by their creditors all the time, as long as the going-concern value of the 
company exceeds its liquidation value.   
4.169  Japan and some of the third parties have a ttempted to confuse the issue by referring to 
different economic theories about the manner in whic h investors make their investment decisions.  
But the rationale for restructuring the debts of an insolvent debtor is simple arithmetic:  Where the 
insolvent company's going-concern value exceeds its liquidation valu e, the creditors holding the 
                                                      
90 Korea's Initial Comments on Japan's Expanded Preliminary Ruling Request , 1 December 2006, 
para. 24.  (Emphasis added.) 
91 Ibid, para. 28.  Emphasis added. 
92 See Japan's Opening Statement, para. 13. 
93 See Japan's Opening Statement, para. 46 (emphasis added).  WT/DS336/R 
 Page 35  
 
 
company's debts can earn a higher return  if they agree to restructure the debts through, inter alia,  the 
provision of new loans, the modification of the terms of existing loans, or the exchange of debts into 
equity.  The arithmetic is indisputable.  And, it is borne out by actual real-world experience, in which 
the debts of insolvent companies are restructur ed, both in formal bankruptcy proceedings and 
informal workouts, in every market (including Japan). 
4.170  The Appellate Body has cautioned that "[a]n i nvestigating authority that uses a methodology 
premised on unsubstantiated assumptions does no t conduct an examination based on positive 
evidence."  And, it clarified that "[a]n assumption is  not properly substantiated when the investigating 
authority does not explain why it would be appropriate to use it in the analysis."94  It is difficult to 
imagine a more apt description of the basic flaw in the JIA's determination.  Unless the Panel believes 
that insolvent companies must always  be liquidated in the absence of  government subsidies, the JIA's 
determination cannot be upheld. 
2. Japan's Investigation Was Procedurally Flawed and Legally Invalid 
(a) Failure to Promulgate Bene fit Calculation Methods  
4.171  In Korea's first submission, it demonstrated that the JIA's determination used benefit 
calculations that were not provided for in Japan's national legislation or im plementing regulations, in 
contravention of the explicit requirement of  the first sentence of Article 14 of the SCM Agreement .  In 
response, Japan has asserted that the formulas and methodologies used in its determination were not 
"methods" within the ordinary meaning of that term .  According to Japan, a "method" refers to "a 
mode of procedure;  a (defined or systematic) way of doing a thing."95   
4.172  But the formulas and methodologies used by Japan clearly meet that definition:  The legal 
fictions adopted by the JIA to justify treating loan  maturity extensions as loans and debt-equity swaps 
as equity infusions, the policy of allocating the bene fits from equity infusions and debt forgiveness 
over a period of years, the formula used to allocate subsidy benefits, the adoption of the "useful life" 
from Korea's tax laws as the allocation period in th at formula, the formula used to calculate the 
discount interest rate for non-creditworthy borrowers  – all of these constitute "mode[s] of procedure;  
a (defined or systematic) way of doing a thing."   
4.173  Japan has also contended that the argument presented in Korea's first submission was an 
improper "as such" claim that lacked the proper found ation.  That claim is, however, incorrect.  Korea 
is objecting to the methods used by the JIA in this particular case.  Because those methods were not 
provided for in Japan's legislation or implementing re gulations, the JIA's finding of a benefit is invalid 
and its imposition of countervailing duties must be rescinded. 
(b) Improper Reliance on Assumptions and Reversal of Burden of Proof 
4.174  In Korea's first submission, it noted that th e JIA's determination was based on a number of 
assumptions.  In response, Japan's first submission denied that any assumptions had been made.96  
According to Japan, all of the JIA's findings were di rect inferences from evidence.  A careful review 
of the JIA's determination confirms that the follo wing assumptions, among others, were critical to its 
analysis: 
• The JIA's finding of a "direct transfer of  funds" was based on a legal fiction that 
"deemed" that Hynix had first repaid its outst anding debts, and that the creditors used the 
                                                      
94 Mexico – Definitive Anti-Dumpin g Measures on Beef and Rice , WT/DS295/AB/R, 
29 November 2005, para. 205. 
95 See Japan's First Written Submission, para. 528. 
96 See, e.g., Japan's First Written Submission, para. 238. WT/DS336/R 
Page 36  
 
repaid funds to make new loans and equity in fusions.  This "fiction" was, of course, 
contrary to the JIA's own finding that Hyni x was unable to repay its outstanding debts. 
•  The JIA's finding that the creditors were motivated by "externa l," "non-commercial" 
factors was explicitly based on an assumption that, in light of "the deterioration of 
Hynix's financial situation, ... there was no invest or that would invest in or make loans to 
Hynix in the general commercial market from a normal commercial perspective."  But, as 
discussed above, that assumption is inconsistent with the basic arithmetic and with the undisputed fact that private creditors acting solely from a "normal commercial 
perspective" do engage in restruct uring transactions all the time.   
•  The JIA's finding of a subsidy benefit from the alleged financial contribution was based 
on the same incorrect assumption that "there  were no investors who would additionally 
invest in or make loans to Hynix from a nor mal commercial perspective."  Again, that 
assumption is inconsistent with the basic ar ithmetic and with the undisputed fact that 
private creditors acting solely from a "nor mal commercial perspective" do engage in 
restructuring transactions all the time.  
•  The JIA's finding that the subsidized imports had caused injury "through the effects of 
the subsidy" was based on the assumption that "Hynix had been saved from bankruptcy 
because of subsidies" and "[t]hus, the subs idies enabled Hynix to continue production 
and continue exporting."  But bankruptcy is a process, not a defined outcome.  And, the 
"Korean bankruptcy law favours re organization over liquidation."97  Consequently, there 
is no reason to believe that, if Hynix had filed for "bankruptcy," it would have ceased 
operations.   
In these circumstances, it is cl ear that the JIA's determination was based, fundamentally, on 
assumptions, and that the JIA's assumptions do not st and scrutiny.  Japan has suggested, however, that 
the JIA's determination should nevertheless be upheld, because it listed facts and provided 
explanations and responded to comments and claimed to  make decisions based on the "totality of the 
evidence."  In Japan's view, the Panel's role should be limited to ensuring that the JIA provided the 
form of a fair procedure, without looking at wh ether the JIA's determination was actually supported 
by the evidence.98   
4.175  That view is, however, plainly incorrect.  The Appellate Body has clarified that, in applying 
the standard of review set forth in Article 11 of  the DSU, panels must undertake a "critical and 
searching, "in-depth" examination to "test whethe r the reasoning of the authority is coherent and 
internally consistent," and to ensure that "the re was positive evidence before [the investigating 
authority] to support the inferences made and conclusions reached by it."99  Furthermore, "a panel can 
assess whether an authority's explanation for its determination is reasoned and adequate only if the 
panel critically examines that explanation in the light  of the facts and the alternative explanations that 
were before that authority."100  And, perhaps most importantly, the Appellate Body has clarified that 
"[a]n investigating authority that uses a met hodology premised on unsubstantiated assumptions does 
not conduct an examinatio n based on positive evidence."101   
                                                      
97 See Korea's First Written Submission, para. 280, citing Yun, A Primer on Korean Bankruptcy Law , 
18-5 Am. Bankruptcy Inst. J. 18 (June 1999). 
98 See, e.g., Japan's First Written Submission, paras. 39 to 41.   
99 See United States – Investigation of the International Trade Commission in Softwood Lumber from 
Canada;  Recourse to Article 21.5 of the DSU by Canada , WT/DS277/AB/RW, 13 April 2006, para. 93 
100 Id., para. 99 . 
101 Mexico – Definitive Anti-Dumpin g Measures on Beef and Rice , WT/DS295/AB/R, 
29 November 2005, para. 205.  WT/DS336/R 
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4.176  Japan has asked the Panel to declare "inadmi ssible" the various academic publications that 
were cited in Korea's first written submission.102  However, Japan has not ask ed the panel to disregard 
the logical arguments set forth in Korea's first s ubmission.  Those arguments are, by themselves, 
sufficient to show that the JIA's assumptions were  "unsupported."  Under the standard of review 
described by the Appellate Body, the JIA's decision cannot be sustained. 
(c) Improper Identification of "Interested Parties" 
4.177  As explained in Korea's first submission, the text and context of the SCM Agreement indicate 
that an investigating authority may only designate as "interested parties" those entities that have an 
interest in the outcome of the proceeding.  Japan and the United States have argued that the provisions 
in Article 23 – which addresses the right to appeal administrative determinations – can be read to 
indicate that the term "interested parties" ma y encompass entities that "are not directly and 
individually affected by the administrative action."  But the recognition that some entities may only be indirectly  affected by the administrative action – such as labour unions representing domestic workers 
or trade associations made up of domestic produ cers – does not mean that entities that have no interest 
in the outcome of the proceeding can be classified as "interested parties." 
4.178  Under the SCM Agreement , an investigating authority is permitted to base its decision on 
"facts available" only when an "interested party"  fails to provide necessary information.  An 
investigating authority is not permitted to rely on "facts available" when an entity that is not an 
"interested party" does not respond.  Instead, the investigating authority must in such cases base its 
determination on evidence that relates di rectly to the specific factual issue. 
4.179  In this case, the JIA failed to comply with that obligation.  It based its decision on 
assumptions – using "facts available" to find that cr editors for which it had no  information acted in a 
non-commercial manner based solely on evidence rela ting to other banks.  Such an approach is 
permitted under the SCM Agreement only if the creditors for which the JIA had no information were 
properly designated as "interested parties," and only if those creditors failed to provide necessary 
information that had been requested from them .  Because the JIA did not establish a factual 
foundation for concluding that any of those creditors was an "interested party," its use of "facts 
available" for them cannot be sustained. 
3. Improper Finding that Hynix Received Financial Contributions  
(a) Improper Classification of Transactions that Did Not Involve Any Transfer of Funds as 
"Direct Transfers of Funds" 
4.180  As explained in Korea's first submission, the JIA's determination improperly classified 
transactions that did not involve any transfer of  funds as "direct transfers of funds" under sub-
paragraph (i) of Article 1.1(a)(1) of the SCM Agreement .  In response, Japan contends that the term 
"funds" is broader than mere "cash."  But Korea ne ver claimed that "funds" wa s limited" to coins and 
"legal tender" paper notes.  Instead, Korea argued th at a "transfer of funds" requires a conveyance of 
monetary assets  to the alleged subsidy recipient.  While th e original loan from a creditor to a borrower 
would involve a conveyance of monetary assets  to the recipient, the subsequent modification of the 
                                                     
 
102 In this regard, it should be noted that Japan's request to declare the publications "inadmissible" has 
no basis in the DSU.  As Japan has, itself, contended in other proceedings, the DSU does not impose any 
limitations on the materials that may be presented to a panel.  See United States – Anti-Dumping Measures on 
Certain Hot-Rolled Steel Products from Japan , WT/DS184/R, 28 February 2001, Annex A-3, para. 6, n. 3. 
As Japan has conceded, it is for the Panel to decide how much weight should be given to those 
publications.  In Korea's view, because those publications were submitted to contest the JIA's assumptions, and not to challenge the evidence relied upon by the JIA, the publications should be given great weight.  But, in the 
end, whether the Panel relies on those publications or not, the outcome must be the same.  Because the JIA's 
decision was based on unsubstantiated assumptions, its decision cannot be sustained. WT/DS336/R 
Page 38  
 
terms of the loan (either through extensions of the loan maturities or the swapping of the debts into 
equity) does not. 
4.181  Japan also claims that an expansive interpretation of the term "transfer of funds" is needed to 
prevent circumvention of the SCM Agreement 's disciplines on subsidies.  But there is no need to do 
violence to the language of the SCM Agreement .  In reality, extensions of loan maturities and debt-
equity swaps that provide a "financial contribution"  to the recipient can be classified as "foregone 
revenue" within the meaning of sub-para graph (ii) of Article 1.1(a)(1).  
4.182  The problem in this case is that the JIA faile d to undertake the factual analysis necessary to 
show that the creditors actually did forego revenue as a result of the restructuring transactions.  It 
failed to make the required " comparison  between the revenues due under the contested measure and 
revenues that would be due in some other situ ation" that the Appellate Body has required.
103  As a 
result, the JIA's finding of a financial contributi on is not consistent with the requirements of 
Article 1.1(a)(1) of the SCM Agreement . 
(b) Improper Finding of "Entrustment or Direction" of Hynix's Private Creditors 
4.183  The JIA's analysis of entrustment or directi on was also based on flawed assumptions and 
biased analysis.  In order to reach its conclusion, the JIA had to assume that creditors of insolvent 
companies would never agree to restructure the comp any's debts – despite the obvious point that such 
restructurings occur all the time in every market  in the world.  The JIA had to assume that the 
creditors did not conduct reasonable analyses of the restructurings, despite the evidence showing that 
the restructurings were in the cred itors' interests, and that the credito rs were aware of that fact.  The 
JIA had to assume that creditors that it had neve r examined or even contacted were not acting in 
accordance with normal commercial considerations .  And, it had to assume that the Korean 
government had an intent to save Hynix, even th ough the evidence as a whole showed nothing more 
than normal prudential concerns about the effect of uncertainty on the Korean financial system, and a 
desire to see Hynix's creditors reso lve the situation one way or anot her as quickly and efficiently as 
possible. 
4.184  An unbiased and objective analysis would, of course, have seen that each of the JIA's 
assumptions was flawed.  In apparent recognition of  the flaws in the JIA's analysis, Japan has now 
contended that a decision that made no sense in its  details can nevertheless be upheld based on the 
totality of the evidence.  But the totality of the evidence standard does not absolve an investigating 
authority of the requirement to draw reasoned and adequate conclusions from evidence without 
relying on unsubstantiated assumptions.  The JI A's finding of entrustment or direction cannot, 
therefore, be sustained. 
4. Improper Finding that Hynix Received a Benefit from the Alleged Financial 
Contributions 
4.185  The JIA's finding of a benefit from the restructuring transactions was also contrary to the 
requirements of the SCM Agreement .  Because Hynix's going-concern value was higher than its 
liquidation value at all relevant times, any rational actor in the position of Hynix's creditors who was 
following usual market practices would have agreed to  the restructurings in order to unlock the higher 
going-concern value.  In fact, the evidence indicates that a number of banks and financial institutions 
that were not found to be entrusted or directed  by the Korean government engaged in the same 
transactions on the same terms as the allegedly entr usted or directed banks.  The obvious conclusion is 
that the alleged government involvement in the rest ructurings did not confer any benefit on Hynix, 
because Hynix could have obtained the same terms in the absence of any alleged government action. 
                                                      
103 See United States – Tax Treatment for "Foreign Sales Corporations ," WT/DS108/AB/R, 
24 February 2000, para. 90 (emphasis added).  WT/DS336/R 
 Page 39  
 
 
4.186  In order to avoid this obvious conclusion, th e JIA engaged in a results-oriented analysis 
designed to find a benefit where none existed.  T hus, the JIA did not compar e the alleged financial 
contributions – i.e., the restructuring transactions agreed to  by Hynix's creditors – with a market 
benchmark based on the usual practices for similar transactions.  Instead, it compared the alleged 
financial contributions with a market benchmark fo r completely different transactions (involving an 
initial full repayment of debts by Hynix followed by  a subsequent transfer of new funds from the 
creditors to Hynix) that never occurred and that, unde r the JIA's findings, never could have occurred.   
4.187  Furthermore, the JIA disparaged the analyses of Hynix's going-concer n and liquidation values 
by respected financial services firms on completely frivolous grounds.  The JIA's complaints about the analyses undertaken for the October 2001 restructuring show a complete misunderstanding of 
basic financial analysis.  Its complaints about th e analysis undertaken for the December 2002 raise 
nitpicking to an art form.  A fair assessment conf irms what an unbiased observer would have surmised 
– that it was the JIA officials, and not the experienced financial professionals who prepared the reports, who were mistaken. 
4.188  The JIA's benefit analysis was, therefore, inhe rently and fundamentally flawed.  It was not 
consistent with the requirements of Article 1.1(b) or the guidelines set forth in Article 14 of the 
SCM Agreement .  And, it was not consistent with the fair and unbiased analysis that is always 
required in countervailing duty cases.  In these circumst ances, the JIA's determination that the alleged 
financial contributions conferred a be nefit on Hynix cannot be sustained. 
5. Improper Finding that the Alleged Subsidies Were Specific to Hynix 
4.189  In order to make a proper finding of specificity under Article 2 of the SCM Agreement , the 
JIA was required to "clearly substantiate," b ased on "positive evidence," that the restructuring 
transactions were specific either in law or in fact.  The conclusory statements made by the JIA – that 
the restructurings were specific because they were "specific to a specific corporation" – do not meet 
that requirement. 
4.190  Japan has argued that the JIA's determinati on can be defended because it considered the 
restructurings, and not the CRPA, to be the relevant  program for purposes of the specificity analysis.  
But neither Japan nor the JIA presente d "positive evidence" demonstrating why the restructurings, and 
not the CRPA, constituted the relevant program.  If the restructuring programs reflected only the 
normal operation of the CRPA, then the JIA should have considered the CRPA, and not the restructurings, as the relevant program.  By focusing  on the specific restructurings to find specificity, 
the JIA assumed what it was supposed to "substantiate" with "positive evidence. 
6. Improperly Failure to Consider the Impact of Changes in the Ownership of Hynix 
4.191  The Appellate Body has held that, when there is  a change in the ownership of a company at 
fair market value, the investigating authorities must  consider whether the subsidies received before the 
change in ownership continue to pr ovide a benefit after the ownership change.  It has also held that 
such a change in ownership creates, at a minimum, a rebuttable presumption that the benefits of the 
subsidy have been extinguished.
104  And, it has found that the fail ure of investigating authorities to 
comply with that obligation is inconsiste nt with Articles 10, 14, 19, and 21 of the SCM Agreement .   
                                                      
104 In cases involving transactions between private pa rties, the Appellate Body has suggested that the 
presumption may be irrebuttable.  See United States – Countervailing Measures Concerning Certain Products 
from the European Communities , WT/DS212/AB/R, 9 December 2002, para. 124 ("The Panel's absolute rule of 
"no benefit" may be defensible in the context of tr ansactions between two private parties taking place in 
reasonably competitive markets…."). WT/DS336/R 
Page 40  
 
4.192  Japan claims that Korea has failed to "present any evidence or argument that there has been a 
'change in ownership' as defi ned by the Appellate Body."
105  It appears that Japan reads the Appellate 
Body's past decisions to require the sale of 100 per cent of the outstanding shares of the company.  
But the relevant Appellate Body decision disti nguishes only between situations in which the seller  
retains a controlling interest  in the company and those in which it does not.  Indeed, the Appellate 
Body specifically stated that its analysis applied as long as the seller transferred "substantially all" of 
its interest.106 
4.193  Finally, Japan also contended that the analysis set forth in the Appellate Body's past decision 
is inapplicable because Hynix's creditors did not pay fair market value for its shares.  But Japan 
cannot seem to decide what it is arguing.  It claims that Hynix's creditors paid both more and less than 
the fair market value for those shares.107 
4.194  To the extent that Japan is asserting that Hynix' s creditors paid too much for Hynix's shares, 
its arguments concerning the applicability of the pa st Appellate Body decision are plainly without 
merit.  As the Appellate Body noted, the reason that a change in ownership "extinguishes" past 
subsidies is that the price that the new owners pa id already includes the valu e of any past subsidies.108  
If the new owners paid too much for the shares, then  the price they paid still includes the value of any 
past subsidies – but it also includes an additional am ount.  In either case, the result should be the same 
– because in both cases the price paid fully re flects the value of the past subsidies. 
7. Improper Imposition of Duties on Imports a fter the Benefit of the Alleged Subsidies had 
Expired 
4.195  The period of investigation chosen by the JIA wa s calendar year 2003.  Significantly, none of 
the restructuring transactions and none of the ot her alleged subsidy progra ms occurred during that 
period.  Instead, the restructuring transactions and other alleged programs analyzed by the JIA all occurred in 2000, 2001 and 2002.  The JIA found subsidies during the 2003 investigation period only because it chose to "allocate" the benefit of subsidies a llegedly received in earlier years to that period.   
4.196  The JIA's own amortization – which was necessary to the JIA's finding of subsidies in 2003 – 
clearly indicated that the benefit from the October 2001 restructuring ended in 2005.  Thus, the JIA's 
determination that a subsidy existed in 2003 necessar ily implied that there was no continuing subsidy 
from the October 2001 restructuring transaction when the JIA issued its final determination in 2006. 
4.197  Article 19.4 of the SCM Agreement provides that the countervailing duty imposed may not 
exceed the amount of the subsidy found "to exist" – and thus does not permit duties to be imposed 
based on past subsidies that no longer "exist."  Artic le 21.1 makes this requirement explicit, providing 
that:  "[a] countervailing duty shall remain in force only as long as  and to the extent necessary to 
counteract subsidization which is causing injury."   The JIA's continued imposition of duties in 2006 
when it knew that the benefit of the October 20 01 restructuring had already expired cannot be 
reconciled with these provisions. 
                                                     
 
105 See Japan's First Written Submission, para. 458. 
106 See Japan's First Written Submission, paras. 458 and 459, citing United States – Countervailing 
Measures Concerning Certain Products from the European Communities , WT/DS212/AB/R, 9 December 2002, 
para. 117. 
107 See Japan's First Written Submission, para. 463 (arguing that the debt-equity swap by Hynix's 
creditors was "[a} transaction done for ' above fair market value ,'" and also that "Hynix's equity transaction was 
made far below the fair market value .") (emphasis added). 
108 See United States--Imposition of Countervailing Duties on Certain Hot-Rolled Lead and Bismuth 
Carbon Steel Products Originating in the United Kingdom , WT/DS138/AB/R, 10 May 2000, para. 68 (Since the 
new owners "paid fair market value for all the productive assets, goodwill, etc., they acquired and subsequently 
used in the production", the Appellate Body found no error in the Panel's conclusion that "the 'financial 
contributions' bestowed' on the previous owner "could not be deemed to confer a 'benefit' on [BCI].").    WT/DS336/R 
 Page 41  
 
 
4.198  Japan has contended that the provisions of Article 21 do nothing more than establish the 
requirements for reviews of outstanding countervailing duty orders.109  But, the very heading of 
Article 21 – which refers to the " Duration and Review  of Countervailing Duties and Undertakings" – 
indicates that its content is not limited to reviews.  Furthermore Article 21.1 (which sets forth the limitation on the duration of duties) does not mention the word review at all.   
4.199  Japan also contends that the imposition of co untervailing duties even after the benefit had 
expired is consistent with langua ge in the Appellate Body's decisions in two antidumping cases (the 
EC – Bed Linens case and the Mexico – Rice  case).  But the issues addressed in those cases were 
entirely different – concerning the relationship be tween the finding of dumping for particular 
exporters in a particular period and the determin ation that dumped imports from all exporters had 
caused injury in what might be a different period.
110   
4.200  Furthermore, Japan's arguments ignore the f undamental differences between antidumping and 
countervailing duty proceedings.  There are important textual differences between Article 9.3 of the 
Antidumping Agreement (which limits antidumping duties to a specific calculation undertaken 
pursuant to Article 2) and Article 19.4 of the SCM Agreement (which limits countervailing duties to 
"subsidies found to exist").  Furthermore, there is nothing in the Antidumping Agreement 
corresponding to Article 19.1 of the SCM Agreement (which prohibits the imposition of 
countervailing duties, even after the investigatio n has been completed, when the subsidies are 
"withdrawn").  And, finally, there is nothing in the Antidumping Agreement that permits the 
amortization of dumping from a period before th e investigation period to find dumping in the 
investigation period and in future periods.   
4.201  Finally, the imposition of duties after the benefit has expired would be contrary to the purpose 
of the SCM Agreement – which is simply to "offset" subsidies.  111  At the time it made its 
determination in this case, the JIA knew with certainty that the benefits from the October 2001 
restructuring extended only until 2005, and did not  exist in 2006.  In such circumstances, the 
imposition of duties in 2006 could not "offset" the subsidies from the October 2001 restructuring, 
because those subsidies no longer existed. 
8. Japan's Finding that the Subsidized Imports Were Causing Injury Was Inconsistent 
with the Requirements of the SCM Agreement  
4.202  The text of Articles 15.5 and 19.1 require a de termination that the injury caused by the 
subsidized imports occur "through the effects of the subsidy."  Under these provisions, it is not 
enough that the imports  which happen to be subsidized are caus ing injury.  Instead, it must also be 
demonstrated that the injury is occurri ng "through the effects of the subsidy". 
4.203  Japan and the United States assert that a footnot e to Article 15.5 (footnote 47) defines the 
phrase "effect of the subsidy" to mean the price a nd volume effects, and the consequent impact on the 
domestic industry, described in Articles 15.2 and 15.4.  But the footnote in question is placed immediately after the word "effects" and thus serves only to define that word.  It does not define the 
entire phrase "through the effects of the subsidy."  Indeed, a contrary interpretation would render the 
reference to the effects "of the subsidy" inutile. 
                                                     
 
109 See, e.g., Japan's First Written Submission, para. 511.   
110 See European Communities – Anti-Dumping Duties on Imports of Cotton-Type Bed Linen from 
India;  Recourse to Article 21.5 of the DSU by India , WT/DS141/AB/RW, 8 April 2003,  para. 123;  Mexico – 
Definitive Anti-Dumping Measures on Beef and Rice , WT/DS295/AB/R, 29 November 2005, paras. 165-166.  
111 See, e.g., United States – Imposition of Countervailing Duties on Certain Hot-Rolled Lead and 
Bismuth Carbon Steel Products Originating in the United Kingdom , WT/DS138/R, 23 December 1999, 
para. 6.56.  WT/DS336/R 
Page 42  
 
4.204  Japan and the United States also contend that the Panel should follow the decision by a GATT 
Panel in the Norwegian Salmon  cases.
112  But Japan itself severely criticized the Norwegian Salmon 
decision "subverted the rule" in the Tokyo Round Subs idies Code and "denied the true meaning" of 
the phrase "through effects of the subsidy."113  The GATT Panel report was adopted only in light of 
the statement by the Chairman of the Committee on Subsidies and Countervailing Measures that the 
"Panel Report did not create oblig ations on parties that were not parties to the specific dispute 
addressed by the Panel Report, nor did it represent binding legal precedent applicable to other 
disputes. "114  Because the Norwegian Salmon decision is not consistent with the ordinary meaning and 
context of the relevant provisi on, its holding should not in any way bind the Panel in this case. 
4.205  Finally, it should be noted that the JIA, in th is case, apparently agreed that it was necessary to 
demonstrate that the injury occurred "through the effect s of the subsidy."  But, the JIA concluded that 
any harm caused by Hynix's exports was necessarily a result of the subsidy, because Hynix would not have been in operation, and thus would not have been able to export, in  the absence of subsidies.
115  
As noted in Korea's first submission, that conc lusion is based on a fundamental legal error.  
"Bankruptcy" is a legal process, which affords a debt or protection from its creditors while the debtor's 
future is being determined.  Under the Korean bankruptcy laws, the "bankruptcy" of Hynix would 
have led to debt restructuring, no t liquidation.  Thus, the JIA's equa tion of bankruptcy with liquidation 
has no basis. 
9. Failure to Comply with the Substantive and Procedural Requirements of the 
SCM Agreement 
4.206  As discussed above, the JIA's imposition of count ervailing duties in this investigation failed 
to comply with the procedural and substantive requirements of the SCM Agreement and the 
GATT 1994.  Consequently, the imposition of those du ties was inconsistent with the requirements of 
Articles 10 and 32.1 of the SCM Agreement . 
F. SECOND WRITTEN SUBMISSION OF JAPAN  
4.207  The following summarizes Japan's argumen ts in its second written submission. 
1. Standard of Review and Burden of Proof 
(a) Standard of Review 
4.208  Article 11 of the DSU provides the proper standa rd of review to be applied by panels 
examining the subsidy determ inations of WTO Members:116 an objective assessment of the matter, 
including "an objective assessment of the facts of the case and the applicability of and conformity 
with the relevant covered agreements."117  A panel may not reject an agency's conclusions simply 
                                                      
112 See, e.g., Japan's First Written Submission, para. 599, and US Third-Party Submission, para. 73, 
citing United States – Imposition of Countervailing Duties on Imports of Fresh and Chilled Atlantic Salmon 
from Norway , SCM/153, 4 December 1992, paras. 328-334.  
113 See Committee on Subsidies and Countervailing Measures, Minutes of the Meeting Held 
on 28-29 April 1993, SCM/M/65, 31 August 1993, para. 104.   
114 See Committee on Subsidies and Countervailing Measures, Minutes of the Meeting Held 
on 28 April 1994, SCM/M/69, 21 September 1994, para. 77. 
115 See JIA Response to Comments, paras. 740-741.  See also  Japan's Opening Statement, paras. 46 
and 50. 
116 Appellate Body Report, US – Countervailing Duty Investigation on DRAMS , para. 182.  
117 Ibid. ("A panel's "objective assessment" will be info rmed by "an examination of whether the agency 
provided a reasoned and adequate expl anation as to:  (i) how the evidence on the record supported its factual 
findings;  and (ii) how those factual findings supported the overall subsidy determination."  Such explanation  WT/DS336/R 
 Page 43  
 
 
because the panel would have arrived at a different ou tcome if it were making the determination itself.  
Rather, a panel should, on the basis of the record  evidence before it, "inqui re whether the evidence 
and explanation relied on by the investigating authority reasonably supports its conclusions."118  A  
panel should "examine the evidence in the light of the investigating authority's methodology", and in 
order to do so, a panel should "identify the inference drawn by the agency  from the evidence, and then 
consider whether the evidence c ould sustain that inference."119  An impermissible de novo  review 
would occur "[w]here a panel examines whether a pie ce of evidence could directly lead to an ultimate 
conclusion – rather than support an intermediate infe rence that the agency sought to draw from that 
particular piece of evidence "120 
4.209  Where an investigating authority relies on the totality of circumstantial evidence in finding 
entrustment or direction, "this imposes upon a panel th e obligation to consider, in the context of the 
totality of the evidence, how the interaction of certain pieces of evidence may justify certain 
inferences that could not have been justified by a review of the individual pieces of evidence in isolation."
121 
(b) Burden of Proof 
4.210  Two fundamental principles of the WTO dispute settlement procedures are of particular 
relevance to this case:  (1) "[T]he  burden of proof rests upon the party…who asserts the affirmative of 
a particular claim…."122;  and (2) A "responding Member's law will be treated as WTO-consistent 
until proven otherwise."123  The determination of the investiga ting authority in the present case must 
be assumed to be WTO-consistent in its entirety, and the burden rests on Korea to prove otherwise. 
2. Korea's Claims of Error 
(a) Japan's Guidelines 
(i) The Limited Scope of Korea's Claim 
4.211  Korea has limited its clai m under Article 14 of the SCM Agreement to whether the method 
used by the JIA in the benefit calculation was "pr ovided for" in Japan's  national legislation or 
implementing regulations.  
(ii) The JIA's Benefit Calculation Methodolog y Was Provided for in Japan's Law 
• The Panel should reject Korea's "as such" claim 
4.212   A claim that the calculati on methodology has not been provided for in Japan's "national 
legislation or implementing regulati ons" is by definition an "as such " challenge but Korea's claim falls 
far short of the standard for "as such" challenges.  Korea did not claim that the application of benefit 
calculation formulae in the Final Determination caused any impairment of procedural rights of 
interested parties during the investigation, that the formulae are inconsistent w ith methods set forth in 
the Guidelines, or that the formulae in the Final Determination were themsel ves inconsistent with 
Article 14 of the SCM Agreement .   
                                                                                                                                                                     
should be "discernible from the published determina tion itself ... The explanation provided … should also 
address alternative explanations that could reasonably be drawn from the evidence  . . . ."") (emphasis added).  
118 Appellate Body Report, US – Countervailing Duty Investigation on DRAMS , para. 188. 
119 Ibid., para. 151. 
120 Ibid., para. 151 (original emphasis;  footnote omitted).  
121 Ibid., para. 157 (original emphasis). 
122 Appellate Body Report, US – Wool Shirts and Blouses , p. 14. 
123 Appellate Body Report, US – Carbon Steel , para. 157 (emphasis in original). WT/DS336/R 
Page 44  
 
• Korea continues to confuse method with application   
4.213  The chapeau of Article 14 clearly delineates between the method used by the investigating 
authority to calculate benefit, which must be pr ovided for in national legislation or implementing 
regulations and the application of that method to each particular case, which must be transparent and 
adequately explained.  The method  the JIA used to calculate bene fit was provided for in Japan's 
Guidelines.  Its application  was set out in the Final Determination.  The application of a method will 
inevitably be more detailed than the Guidelines upon which any investigating authority will rely.   
• Article 14 does not prescribe how WTO Members must apply their Guidelines 
4.214  Article 14 does not prescribe any particular methodology that Members must adopt, but 
provides "considerable leeway in adopting a reasonable methodology."124  Paragraphs (a) through (d) 
of Article 14 should not be interpreted as "rigid rules that purport to contemplate every conceivable 
factual circumstance".125  However, Korea urges the Panel to adopt such an interpretation.  Such 
argument negates the discretion accorded to each WTO Member as explained by the Appellate Body and the panel.  Japan's Guidelines set its benefit calculation methods as requi red under the chapeau of 
Article 14.  The Guidelines are sufficiently deta iled and in compliance with Article 14.  The 
Guidelines left the application of the methods to individual cases. 
• The Panel should reject Korea's argument th at any failure to comply with Article 14 
renders the countervailing duty order invalid 
4.215  When a breach is found through a WTO disput e settlement procedure, under the general 
principle pursuant to Article 19.1 of the DSU, th e Member concerned receives a recommendation to 
bring its measures into conformity and will have the discretion to determine the means  of 
implementation and a reasonable period of time for doing so. 126  The countervailing duty as a whole 
would not be considered to be invalid. 
(b) The Record Evidence  
4.216  There is "no basis in the SCM Agreement or in the DSU to impose upon an investigating 
authority a particular standard for the evidence s upporting its finding of entrustment or direction".127  
The SCM Agreement requires "positive evidence" only with resp ect to specificity under Article 2 and 
injury under Article 15.128   The use of circumstantial evidence has been recognized by the Appellate 
Body129, which has found that Article 1.1(a)(1)(iv) is , in essence, an anti-circumvention provision"130 
and that indirect or circumstantial evidence play an especially important role.  Korea's premise, that 
only "positive evidence", "smoking gun" or "dir ect evidence" qualify as evidence in a subsidy 
investigation, in arguing that the JIA "shifted the burden of proof" is wrong. 
4.217  The JIA conducted a reasonable and objective ex amination of the extensive evidence on the 
record and made its determination on the basis of evidence viewed in its to tality.  It also addressed 
alternative explanations regarding such evidence gi ven from interested parties in the course of the 
                                                      
124 Panel Report, EC – Countervailing Measures on DRAM Chips , para. 7.213.  
125 Appellate Body Report, US – Softwood Lumber IV , para. 92.  See also Panel Report, US – 
Countervailing Measures on Certain EC Products , paras. 7.114, 7.118. 
 126 Appellate Body Report, US – Anti-Dumping Measures on Oil Country Tubular Goods , para. 187. 
127 Appellate Body Report,  US – Countervailing Duty Investigation on DRAMS,  para. 138. 
128 Ibid., footnote 250.  See also FWS of Japan, paras. 259-61. 
129 See, e.g. , Appellate Body Report, US – Countervailing Duty Investigation on DRAMS , 
paras. 144-58.  
130 Appellate Body Report, US – Countervailing Duty Investigation on DRAMS , para. 113.  WT/DS336/R 
 Page 45  
 
 
investigation.  When it disregarded such altern ative explanations, it explained the reasons why it 
chose to discount such alternatives in reaching its conclusions.   
(c) Designation of Certain Financial Institution as "Interested Parties" 
4.218  Korea has not made any persuasive argument that  financial institutions cannot be included as 
"interested parties" under the SCM Agreement and fails to establish a prima facie  case. 
(d) Financial Contribution 
(i) The JIA Correctly Found a Transfer of "Funds"  
4.219  The ordinary meaning of the term "funds" in the context of Article 1.1(a)(1)(i) of the 
SCM Agreement in light of its object and purpose encompasses debt-to-equity swaps and the extension 
of maturities of loans.  The ordinary meani ng of the word "funds" encompasses more than just 
"money" and includes as well all financial resources, which have monetary or exchangeable value or 
provide financial gains.131  As a consequence, Korea's claim re garding "government revenue that is 
otherwise foregone" is irreleva nt and should be rejected.  
(ii) The JIA Correctly Determined that the Priv ate Creditors Were Entrusted or Directed 
• Summary of argument and general approach 
 
4.220  "Entrustment or direction" occurs when a gove rnment "gives responsibility to" or "exercises 
its authority over" a private body.132  The SCM Agreement imposes no particular evidentiary standard 
for the evidence for the determination of entrustment or direction.133  In light of the anti-
circumventive nature of an "entrustment or dir ection" case, circumstantial evidence may play a key 
role in a determination unde r Article 1.1(a)(1) of the SCM Agreement .  The JIA found, based on the 
totality of the evidence before it, that the Governme nt of Korea's involvement  in the bailout programs 
for Hynix was not a mere facilitation for such pr ograms, and the bailout programs were not an 
"inadvertent or a mere by-product of governmental regulation".134  A review of the JIA's analysis of 
the individual pieces of circumstantial evidence in  conjunction with other pieces of evidence, as the 
JIA did, as well as the accuracy of the individual pieces of evidence, and an assessment whether the 
intermediate findings of fact made by the JI A on the basis of these evidence, and the overall 
conclusion based on these intermediate findings, dem onstrates that the JIA's determination provided a 
reasoned and adequate explanation.  
• Rebuttal to Korea's arguments 
 
4.221  Korea's argument that the JIA's finding of entrustment or direction rests solely on a three-
prong "syllogism" misstates the JIA's determination and overlooks the fact that the JIA considered 
other factors ( e.g.,  the Government of Korea's power to c ontrol the private bodies, the Government of 
Korea's intervention into the progress of th e October 2001 and December 2002 Programs).135 
- The Government of Korea's intent 
                                                      
131 See, e.g., Oxford English Dictionary (5th ed. 2002) at 1049;  Concise Oxford English Dictionary 
(10th ed. 2002) at 919. 
132 Appellate Body Report, US – Countervailing Duty Investigation on DRAMS , paras. 110-11. 
133 Appellate Body Report,  US – Countervailing Duty Investigation on DRAMS,  para. 138.  
134 Appellate Body Report, US – Countervailing Duty Investigation on DRAMS , para. 114.  
135 See FWS of Japan, paras. 335-46 for the summary of these factors. WT/DS336/R 
Page 46  
 
4.222  The JIA had abundant evidence before it that  the Government of Korea had expressed a clear 
intent to save Hynix.
136  As clarified by the Appellate Body, in some circumstances, "guidance" can 
constitute entrustment or direction.137  Whether the government's action is ultimately not inconsistent 
with the private bodies' own interests is not a fact or that needs to be considered in assessing the 
government's action of entrustment or direction.138   
4.223  Contrary to Korea's allegation, the JIA did not  ignore the newspaper article cited by Korea, 
but rather addressed it and explained the weight it was given.139  The JIA sufficiently discussed other 
evidence related to  the Government of Korea' s actions related to the October 2001 Program.140  The 
JIA fulfilled its responsibility to provide reas oned explanation on its determination under the 
SCM Agreement .  In assessing the accuracy and adequacy of  any statements by interested parties 
during the investigation, it was reas onable for the JIA to c onsider whether, in light of the totality of 
the evidence before it, such statem ents were accurate and adequate, and if the evidence demonstrated 
that they were not, to reach a finding th at such statements are not reliable.   
- Lack of investors and the lack of su fficient analysis by participating banks 
4.224  As a premise, the JIA focused on the commercia l reasonableness of the participating banks' 
decisions and decision making process, and the JIA's conclusion that the banks acted in a non-
commercial manner sheds light on some of the other evidence on the record, as the Panel in EC – 
Countervailing Measures on DRAM Chips acknowledged that "such non- commercial behaviour may 
well be seen as an indication of possible government entrustment or direction".141 
4.225  Next, with respect to the creditor banks for which the JIA did not make finding on whether 
entrustment or direction was made, it should be noted that the JIA had sent questionnaires to these 
banks and asked them to provide information concer ning their decisions to participate in the Hynix 
bailout programs, but only one responded.  Thus, the JIA relied on the facts that were otherwise 
available, including those provided by responsive bank.  Also, the fact that the JIA did not make such 
finding does not suggest that the ba nks acted in commercial manner.  
- Korea's Specific Arguments on the JIA's Assess ment of the Lack of Investors Willing to 
Participate in the Bailout Programs 
4.226  The JIA's finding was based on abundant of evid ence that there existed no investors, either 
new or existing creditors, in the general  commercial market who would ha ve invested in or provided 
loans to Hynix from a normal commercial perspective  such as views of investment analysts, 
investment trust companies, and purchasers of the GDRs, i.e., an outsider's point of view.142   The JIA 
further examined the commercial reasonableness for ex isting creditors to provi de additional financing 
to Hynix even where no investors in the genera l commercial market would provide any financing.143  
The JIA followed the same proc ess in examining banks' financing decisions in the October 2001 
                                                      
136 See, e.g., JPN-02-17-21, 24-25, 112, 113, 235, 321-323, 328, 329, 334, and 386-406.  
137 Appellate Body Report, US – Countervailing Duty Investigation on DRAMS , para. 116. 
138 See FWS of Japan, para. 69. 
139 Annex 3 of the Final Determination, para. 401 (JPN-04). 
140 See Annex 1 of Final Determination, paras. 269-75. 
141 Panel Report, EC – Countervailing Measures on DRAM Chips, para. 7.59.  
142 See Annex 1 of Final Determination, paras. 261-68 (JPN-02) for the JIA's analysis on the 
October 2001 Program and ibid., paras. 322-27 for the same on the December 2002 Program. 
143 See Annex 1 of Final Determination, paras. 204-221 (JPN-02).  WT/DS336/R 
 Page 47  
 
 
Program144 and the December 2002 Program145 on the premise that existing creditors would possibly 
provide additional funding in order to maximize the recovery of credit.146   
4.227  The Arthur Andersen Report, which all the banks  alleged to have formed the basis for their 
decision to participate in the October 2001 Program , was not ready until more than a month after the 
conclusion of the October 2001 Program.  With respect to the December 2002 Program and the 
Deutsche Bank Report, the JIA examined the accuracy  and adequacy of the Deutsche Bank Report. 
However, the JIA found it was not an objective third party analysis as the Deutsche Bank [[BCI]].147  
There also was evidence on the reco rd that the government intervened in the preparation of the 
Deutsche Bank Report148, as acknowledged by NACF.149  In addition, KEB and Woori Bank refused 
to submit minutes of Special Committee for Corporate Restructuring irrespective of the JIA's request.  
Thus, it did not have sufficient third party charact er to substantiate a commercial judgment, given 
Hynix's serious financial situation.150   
4.228  The JIA also pointed to a number of anomalies in this Report for which no satisfactory 
explanation was provided.151  Equally important is the fact that all the creditors seemed to have 
ignored these anomalies and that they went ahead with the excessively risky investment in Hynix 
based on this unreliable Report, casting doubt on the ge neral claim by the creditors that they based 
their decision on the Deutsche Bank Report and th at this decision was therefore commercially 
reasonable.    
4.229  The offer made by Micron in April 2002 cannot be evidence of the situation in 
December 2002 and the Memorandum of Unders tanding between Hynix and Micron was not 
submitted to the JIA at the time of the investigation.152  None of the Korean banks stated that it relied 
on the Micron offer in evaluating the value of Hynix.   
- Korea's Specific Arguments concerning the Lack of Analysis by Participating Banks 4.230  Exhibits KOR-27 and KOR-29 confirm a number of  the JIA's findings on Woori Bank.  With 
respect to the October 2001 Program, KOR-27 shows th at the Bank [[BCI]];  that the Arthur Andersen 
report [[BCI]] in the October 2001 Program;  and that Woori Bank took into account the [[BCI]].  
With respect to the December 2002 Program, KOR- 29 shows that Woori Bank accepted the Deutsche 
Bank Report at face value, despite of the many s hortcomings both from a procedural and substantive 
point of view and its own admission that the Deutsche Bank was[[BCI]]. 
(e) The Determination of Benefit  
(i) Introduction and Overview of Japan's Argument 
4.231  The JIA's conclusion that Hynix could not raise funds on the commercial market comparable 
to those raised through the October 2001 Program  and the December 2002 Program was reasonable 
                                                     
 
144 See Annex 1 of Final Determination, paras. 269-97 (JPN-02). 
145 See Annex 1 of Final Determination, paras. 328-74 (JPN-02). 
146 Annex 3 of Final Determination, paras. 140-41 (JPN-04) (emphasis added). 
147 Annex 1 of the Final Determination, paras. 340-42 (JPN-02);  Annex 3 of the Final Determination, 
paras. 480-83 (JPN-04). 
148 Annex 1 of the Final Determination, paras. 334–36  (JPN-02);  Annex 3 of the Final Determination, 
paras. 472-74 (JPN-04). 
149 Annex 3 of the Final Determination, paras. 526 and 528 (JPN-04). 
150 Annex 1 of the Final Determination, paras. 338-42 (JPN-02). 
151 Annex 1 of the Final Determination, para. 343  (JPN-02);  Annex 3 of Final Determination, 
paras. 489, 491-492, 495-499, 501-503, and 505.  
152 See Japan's Answer to Q.44 of the Panel's Questions (1st Substantive Meeting). WT/DS336/R 
Page 48  
 
and is supported by facts on record.
153  Participation in these Programs by financial institutions, for 
which the JIA did not make any finding whether they were entrusted or directed by  the Government 
of Korea, cannot be the benchmark to determine the benefit as these fi nancial institutions also acted in 
consideration of non-commercial factors.   
4.232  The terms and conditions of the October 2001 and the December 2002 Programs were so 
heavily distorted by past subsidies, as well as the c oncurrent government entrustment or direction for 
the particular subsidy, that they were not obtai ned from the commercial market.  The evidence on the 
record also established, inter alia , that the Government of Korea inte rvened into the contents of the 
Deutsche Bank Report154, which provided the financial terms of the December 2002 Program. 
(ii) Rebuttal to Korea's Arguments 
• Korea's flawed argument based on the going concern value 
 4.233  The assertion that the going concern value was higher than the liquidation value and thus the 
banks' participation reflected market be nchmark is erroneous  and unsubstantiated.
155  The Arthur 
Andersen Report was only finalized after the decisions  to participate had already been taken and its 
going-concern value was based on Hynix's financial conditions after its receipts of the actual 
financings as executed under the October 2001 Program.156  For the Deutsche Bank Report, the 
estimated recovery rates in case of turnaround scenarios, i.e., its going-concern values for creditors, 
contain errors and various other deficiencies.   
4.234  Neither Article 1.1(b) nor Article 14 provides any particular methodology that an 
investigating authority should use where no comme rcial benchmarks from the actual market are 
available as an "investigating authority is entitled to considerable leeway in adopting a reasonable 
methodology."157   
4.235  With respect to the assertion that the JIA did not  examine the normal practice of participants 
in transactions of the same type, Korea disregards the fact that the Government of Korea and other 
interested parties refused to submit information of the financings provided to other companies subject 
to the CRPA during the investigation, despite the request of the JIA.  Thus, the JIA was precluded 
from considering such potential market benchmarks.158 
• Korea's flawed argument using the banks - fo r which the JIA made no finding of whether 
they have been entrusted or directed - as benchmarks 
 
4.236  In light of the fact that the banks, to which the JIA sent questionnaires, were the major 
creditors to Hynix, selected based on the response of   the Government of Korea on this point, and the 
response of KEB, the lead bank in Hynix's Creditors Council ( i.e., that the credit of such other banks 
                                                      
153 Such facts include the combination of Hynix's disastrous and deteriorating financial state, its bad 
history of servicing debt, the collapse of the stock price after the GDR issuance of Ju ne 2001, the reality that no 
new investors put funds into Hynix, including so-called vulture funds, that no existing creditor provided any financing outside  of the October 2001 an d December 2002 Programs. See Annex 1 of the Final Determination, 
paras. 170, 261, 263, 265-68, 323, 324 325-27, footnote 47 (JPN-02);  Annex 3 of Final Determination para. 448 
(JPN-04). 
154 Annex 1 of the Final Determination, paras. 334-36 (JPN-02);  Annex 3 of the Final Determination, 
paras. 472-74. 
155 See Annex 1 of the Final Determination, para. 343 (JPN-02), Opening Statement of Japan, 
paras. 55-60. 
156 See Annex 1 of the Final Determination, paras. 276 and 299, and footnote 362 (JPN-02).  See also  
Opening Statement of Japan at the First Substantive Meeting of the Panel, para. 32. 
157 Panel Report, EC – Countervailing Measures on DRAM Chips , para. 7.213. 
158 See also FWS of Japan, paras. 627-31.  WT/DS336/R 
 Page 49  
 
 
"is small" and that KEB does not "think this information is necessary for the countervailing duty investigation procedure"), the JIA's selection of banks to investigate was reasonable.   
4.237  Article 14 does not require an investigating au thority to accept as a benchmark a market so 
distorted by the government's intervention that the trade-distorting potential of the subsidy would not 
be properly recognized.
159  To require use of such a distorted benchmark would lead to an 
underestimation of the trade-distorting potential of the subsidy. 
4.238  The "market" in this case is the financing by private entities that is commercially available to 
Hynix.  If the government is heavily subsidizing a company, then private entities would construct 
their financial arrangements to the company based on its subsidy-distor ted financial conditions.  It is 
therefore clear that the government's intervention is distorting "the market" available to the company.  
In some cases, such as this one, the scale and timi ng of the subsidies is such that it is not just a 
question of impacting on the terms of the financ ing, but actually creates the existence of such 
financing itself.  At the time of the Oct ober 2001 Program and the December 2002 Program, no 
commercial investment was available to Hynix160 and it was well recognized that it would go bankrupt 
without a new financial infusion.161  
4.239   In the case at hand, the JIA did not make any finding of whether certain banks were entrusted 
or directed, but this does not mean that such ba nks necessarily constitute a market benchmark.  These 
other creditors had not acted in a commercially r easonable manner.  Apart from Kookmin Bank, none 
of these other banks provided responses to the JIA's qu estionnaires, forcing the JIA to rely on the facts 
available.162  With respect to the December 2002 Program , the JIA had no choice but to base its fact 
finding on the information from those banks that replied. 
4.240  Subsidies such as the D/A financing, the KDB program and the May 2001 Program were not 
granted in the distant past.  They remained in  effect and enabled Hynix to survive until the 
October 2001 Program, which in turn enabled Hyni x to stay in business until the December 2002 
Program.  Given the extent of the subsidies provide d, it is evident that the terms and conditions of 
these banks' financings in the October 2001 and D ecember 2002 Programs were affected and distorted 
by the earlier bail-out programs.  
4.241  In the case at hand, the government's role in  the restructuring of Hynix through public bodies 
and entrusted or directed private bodies was so predominant both prior to and at the time of the actual programs that were countervailed, that a comparis on with a distorted private market would become 
completely circular.   
(f) Imposition of a Countervailing Duty on Imports F ound to Have Been Subsidized during the 
Period of Investigation 
(i) The Limited Nature of Korea's Claim 
4.242  Korea's claim under "Articles 19 and 21" has b een narrowed down to its arguments based on 
Articles 19.4 and 21.1. 
                                                     
 
159 Appellate Body Report, US – Softwood Lumber IV , paras. 90-95. 
160 See Annex 1 of Final Determination, para. 190 (JPN-02).  See also Annex 1 of Final Determination, 
paras. 261-68 (JPN-02) for the JIA's analysis on the October 2001 Program and ibid., paras. 322-27 for the same 
on the December 2002 Program. 
161 See, e.g., Oral Statement of Korea, para. 59. 
162 See Annex 1 of Final Determination, footnote 362 (JPN-02). WT/DS336/R 
Page 50  
 
(ii) The Determination was Fully Consistent with Article 19.4 
4.243  Article 19.4 of the SCM Agreement explicitly references the amount of the subsidy " found to 
exist", i.e., using the past tense of "find," was made.  A subsidy can only be "found" to exist during 
the period of investigation.  If Korea's interpre tation of Article 19.4 is accepted, investigating 
authorities would not be able to complete the inves tigation, as they would be forced to examine the 
amount of benefit concurrently with the imposition of a countervailing duty.  
(iii) The Determination was Fully Consistent with Article 21.1 
4.244  Article 21 covers "Duration and Review of Countervailing Duties…." Article 21 is 
inapplicable in a dispute over the imposition of countervailing duties in accordance with the final 
determination of an investigation.  Korea's interpre tation would negate the clear  intent of the drafters, 
who chose to place Article 21.1 u nder the provision dealing with reviews , rather than under Article 
19, which imposes disciplines with respect to investigations .  
(iv) Article VI of the GATT 1994, and the Prov isions of the SCM Agreement Provide 
Incontrovertible Textual S upport for Japan's Position 
4.245  Article VI of GATT 1994 and the provisions of the SCM Agreement provide vital textual 
support for use of a period of investigating ("PO I") to determine the amount of the subsidy.  
Article VI:3 of GATT 1994 provides, in part, that the subsidy is that " determined to have been 
granted ." The drafters have used the past perfect te nse (referring to a subsidy "determined to have 
been granted") rather than the pr esent tense (a subsidy "being granted" ).  The countervailing duty may 
be imposed on the basis of a subsidy "determined to have been granted" prior to the imposition of the 
duty,  i.e., during the POI.  
4.246  Under Articles 10 and 11.1 of the SCM Agreement , the investigating authority determines the 
existence of the subsidy ( i.e., subsidization), as well as the degree of the subsidy ( i.e., the amount of 
subsidy) as of the time as alleged in the applica tion.  Article 15 provides that the determination of 
subsidy must precede the investigating authority' s examination of injury.  Consequently, the 
determination of the amount of subsidies, which c onstitutes the basis to dete rmine the existence of 
subsidization, must also be made on the past data as of the time contemporaneous with the period of 
time in which the injury is determined.  These provi sions inform Article 19 that a final determination 
must be made based on the evidence on the record wh ich relates to the POI.  Article 19.4, in turn, 
authorizes imposition of countervailing duties where a subsidy has been "found" to exist during the POI.  Nothing in the SCM Agreement requires a redetermination  of subsidy at the time of imposition 
of the duties.   
(v) Korea Wrongly Assumes that the Investigating Au thority "Fully Allocated" the Subsidies to 
the 2001-2005 Period 
4.247  The JIA did not make any finding on the expiry date of the effects of the non-recurring 
subsidy granted in the October 2001 Program but de termined only that the amount of the subsidy to 
be allocated to the POI was one-fifth of the origin ally granted amount of the non-recurring subsidy.  
This determination was a finding of the subsidy allocation for 2003 and does not represent a finding 
that the appropriate amount of the subsidy to be allocated to 2004 or 2005 would necessarily be one-
fifth of the total amount of the subsidy.163  
4.248  The issue of the allocation of subsidies in la ter years must be determined upon review of 
relevant facts for those years in a review proceeding under Article 21 of the SCM Agreement .  The 
JIA made no findings with respect to the amount of be nefit that might be allocated to the period after 
                                                      
163 Oral Statement of Korea, para. 90.  WT/DS336/R 
 Page 51  
 
 
the POI or how such amount would be allocated.  Such a finding cannot be made concurrently with 
the imposition of a countervailing duty, because, inter alia , the allocation factor to be used in the 
calculation of the amount of benefit for the relevant  subsequent periods and the residual amount of the 
subsidy may also change.164 
(vi) Korea's Claim Disregards Relevant  Findings by the Appellate Body 
4.249  Japan cited a number of WTO precedents165 that directly supported Japan's argument, and 
negated Korea's claim.  Korea has not commented on the merits of these rulings.  Furthermore, 
similarities of the ch aracteristics of the Anti-Dumping Agreement  and the SCM Agreement lead to the 
logical conclusion that both Agreements should be in terpreted similarly, where possible.  There is no 
obligation either under the Anti-Dumping Agreement or the SCM Agreement that the investigating 
authority must re-calculate the anti-dumping or count ervailing duty rate absent an affirmative act.  
(g) Effects of Subsidies in Injury Determination 
(i) Causal Link between the Subsidized Imports and Injury 
4.250  Article 15.5 of the SCM Agreement requires an investigating authority only to demonstrate a 
"causal relationship between the subsidized imports and the injury to the domestic industry" and to 
conduct a non-attribution analysis in which the inv estigating authority examines "known factors other 
than the subsidized imports" to ensure that any in jury caused by such known factors is not attributed 
to the subsidized imports.  The "effects" are thos e set forth in Articles 15.2 and 15.4.  Article 15.5 
contains no additional requirement fo r an independent assessment of the effect of the subsidy itself.  
4.251  Because "serious prejudice" under Article 6.3 of the SCM Agreement is an "entirely different 
concept from injury" under Article 15, Article 6.3 does not create any requirements under Article 15.  
The guidance provided by the Appellate Body that  the parallel injury causation provisions in the Anti-
Dumping Agreement  do not specify particular analytical methodologies or approaches.166  T h e  
provisions of the Anti-Dumping Agreement  that correspond to Articles 15.1 and 15.2 of the 
SCM Agreement "do not set out a specific methodology."167  The "particular methods and approaches" 
for non-attribution analyses under Article 15.5 "are not prescribed"168 and "Article 15.5 does not 
impose any particular methodology when conducting the causation analysis set forth therein".169   
(ii) The JIA Correctly Found that Hynix's Exports We re through the Effects of Subsidies Causing 
Injury to the Domestic Industry 
4.252  Even assuming arguendo  that Article 15.5 requires an i nvestigating authority to examine 
causation between the effects of subsidies and th e injury, the JIA still is in compliance with 
Article 15.5 as it found that the subsidized imports in jured the domestic industry through the effects of 
subsidies as the subsidies themselves allowed the importation of the subsidized imports, thereby 
causing injury to the domestic industry.  As a matter of fact, Hynix was able to continue its business, 
including exports of its DRAMs to Japan only because of subsidies. 
                                                      
164 See paragraph 51 of International Accounting Standard 16 (JPN-15). 
165 See, e.g.,  Appellate Body Report, EC – Bed Linen (Article 21.5 – India) , para. 123;  Appellate Body 
Report,  Mexico – Anti-Dumping Measures on Rice , para. 165 (emphasis added, footnotes omitted). See also 
Panel Report, EC – Tube or Pipe Fittings , para. 7.102. 
166 Appellate Body Report, US—Hot-Rolled Steel , para. 224. 
167 Appellate Body Report, EC—Bed Linen (Article 21.5-India) , para. 113.  
168 Appellate Body Report, US—Hot-Rolled Steel , para. 224.   
169 Panel Report, EC – Countervailing Measures on DRAM Chips , para. 7.405. WT/DS336/R 
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G. S
ECOND ORAL STATEMENTS OF KOREA  
4.253  The following summarizes Korea's arguments in its second oral statements. 
1. Opening Statement of  Korea at the Second Meeting of the Panel 
(a) Introduction 
4.254  Korea's opening presentation at the second panel meeting focuses on four issues:  (1) the 
proper understanding of the panel's task in this  proceeding, (2) the appropriate method for 
determining whether an allegedly government-direc ted debt restructuring confers a benefit on the 
recipient, (3) the relationship between the amortizat ion of a subsidy benefit and the duration of the 
countervailing duty, and (4) the requirement that ther e be a finding that the subsidized imports are, 
through the effects of the subsidy, causing injury to the domestic industry. 
(b) The Panel's Task in this Proceeding  
(i) The Interpretation of the Relevant Agreements 
4.255  Although there appears to be a vast gulf in how Korea and Japan see this case, there are 
certain basic rules for interpreti ng the terms of the WTO Agreements on which the parties should be 
able to agree. 
4.256  First , the panel must begin its analysis with an  examination of the text of the relevant 
provision, giving meaning to each term.  Second , the individual terms of the Agreements must be 
"interpreted in good faith in acco rdance with the ordinary meaning to be given to the terms of the 
treaty in their context and in the li ght of its object and purpose."  And, third, the panel must exercise 
caution in reading meaning into provisions that is not supported by the text itself.   
4.257  The application of these principles to the issues in this case should be straightforward.  For 
example, in order to properly interpret the provisions of the SCM Agreement relating to "interested 
parties," it is necessary to assign some meaning to the word "interested."  Japan's interpretation - 
which would permit an investigating authority to d esignate any entity that it sends a questionnaire to 
as an "interested party" - would render the word "interested" entirely superfluous.   
4.258  Similarly, the interpretation of the first clause of  the first sentence of Article 14 must reflect 
the actual language of that provision — which focuses on the methods actually used by the 
investigating authority.  An investigating authority that uses methods that are not provided for in its 
national legislation or implementing regulations does not act consistent ly with the requirements of the 
first clause of the first sentence of Article 14, rega rdless of what other methods might be described in 
the legislation and regulations. 
4.259  Finally, the phrase "direct transfer of funds" in sub-paragraph (i) of Article 1.1(a)(1) must be 
interpreted in light of the ordinary meaning of t hose terms — which does not encompass extensions of 
loan maturities or debt-equity swap s.  Japan's suggestion that the SCM Agreement be read expansively 
cannot overcome the clear meaning of the language of  the Agreement and, in particular, the phrase 
"transfer of funds."   
(ii) The Requirement of a Prima Facie Case 
4.260  Japan has argued repeatedly that Korea has failed in a number of instances to make a prima 
facie case.  But the use of the Latin phrase should not obscu re the obligations in this case.  Korea does 
not have an obligation to prove that there were no  subsidies, or that the findings by the Japanese 
Investigating Authority ("JIA") were factually wrong.   Instead, Korea only need s to show that the JIA  WT/DS336/R 
 Page 53  
 
 
failed to comply with the requirements of the SCM Agreement .  There are a number of ways for Korea 
to meet that obligation - for example, by identif ying instances in which th e JIA ignored evidence, 
failed to consider alternative explanations, imposed  improper burdens of proof, improperly resorted to 
facts available instead of creditor-specific info rmation, or based its determination on unsupported 
assumptions.  If Korea demonstrates that there were su ch errors, then it has established that the JIA's 
decision was inconsistent with the obligations of the SCM Agreement - even if Korea does not prove 
that the JIA's assumptions were, in fact, incorrect. 
(iii) Evidentiary Requirements under the SCM Agreement  
4.261  The Appellate Body has stated th at the evidence relied upon by an investigating authority in a 
countervailing duty proceeding must "demonstrate" that the relevant subsidy criteria exist.  
Furthermore, the Appellate Body has clarified that, in applying the standard of review set forth in 
Article 11 of the DSU, panels mu st undertake a "critical and search ing", "in-depth" examination to 
"test whether the reasoning of the authority is coherent  and internally consistent ," and to ensure that 
"there was positive evidence before [the investigati ng authority] to support the inferences made and 
conclusions reached by it."170  As the Appellate Body has clarified, "[a]n investigating authority that 
uses a methodology premised on unsubstantiated ass umptions does not conduct an examination based 
on positive evidence."171   
4.262  The JIA's decision cannot withstand such scrutiny.   Consider, for example, its treatment of 
loan-maturity extensions and debt-equity swaps.  The JIA's Notice of Important Facts "deemed" those 
transactions to involve a two-step process in which Hynix first repaid its outstanding debts in full, and 
the creditors then used the funds received from Hyni x to make new loans and equity infusions.  But 
that assumption is illogical and completely withou t support:  There was no evidence that Hynix, its 
creditors, or any lender or investor in Korea actu ally considered the loan-maturity extensions and 
debt-equity swaps to be equivalent to full repaymen ts followed by new loans and new equity infusions 
- especially in light of Hynix's insolvency.   
4.263  A similar problem can be seen with the JIA's finding of entrustment or direction.  The JIA's 
analysis of "entrustment or direction" began with the assumption that, in light of "the deterioration of 
Hynix's financial situation, ... there was no investor th at would invest in or make loans to Hynix in the 
general commercial market from a normal commercial perspective."   But, there was no evidence to 
support that assumption.  In reality, private creditors acting solely from a "normal commercial perspective" routinely engage in restructuring tr ansactions with insolvent debtors whose finances are 
deteriorating.   
4.264  Japan has attempted to distract the Panel from the unsupported assumptions, unreasonable 
inferences and other obvious flaws in the JIA's analys is by invoking the concept of the "totality of the 
evidence."  But Japan's interpretation is fundament ally illogical.  When an investigating authority 
invokes the "totality of the evidence" to support its fi ndings, it is necessarily adopting the position that 
all of the evidence identified as supporting its conclusion was relied upon to reach the conclusion.  
After all, if some of that evidence that the inves tigating authority relied upon turns out to be incorrect, 
or to have been analyzed incorrectly, then the l ogic of the investigating authority's initial decision - 
which was based on a consideration of all of the evidence - can no longer hold.   
4.265  In Korea's view, the evidence cited by the JIA is  insufficient on its face to support a finding of 
entrustment or direction.  But even if ther e were doubt, the Panel cannot uphold a decision that 
purports to be based on the "totality of the evid ence," when some of the evidence relied upon by the 
                                                     
 
170 See United States – Investigation of the International Trade Commission in Softwood Lumber from 
Canada;  Recourse to Article 21.5 of the DSU by Canada , WT/DS277/AB/RW, 13 April 2006, para. 93. 
171 Mexico – Definitive Anti-Dumpin g Measures on Beef and Rice , WT/DS295/AB/R, 
29 November 2005, para. 205. WT/DS336/R 
Page 54  
 
investigating authority turns out to be incorrect or  inconsistent with the investigating authority's 
interpretation. 
(c) The Benefit Determination  
(i) The Appropriate Benchmark 
4.266  As mentioned, the JIA's benefit analysis "dee med" the restructuring transactions to be new 
loans and new equity investments by creditors who se pre-existing claims had already been repaid in 
full.  The JIA therefore used the practices of inv estors considering "new" loans and investments as the 
benchmark for its benefit analysis.  But that analys is is fundamentally inc onsistent with the JIA's 
factual findings that Hynix was unable to repay its  existing debts at the time of the restructuring 
transactions.   
4.267  The problem for Hynix's creditors was that they could not get their money back from Hynix, 
because Hynix was insolvent.  The cr editors had, therefore, to try to  maximize their returns given the 
fact that they had already committed their money to Hynix.  The creditors did not have the option of 
taking back their money in full and investing it so mewhere else.  The behaviour of persons who did 
have that option is, therefore, irrelevant to the anal ysis of the options available to Hynix's creditors. 
4.268  Japan has admitted that the JIA never considered  the normal market practices of  creditors of 
insolvent companies.  Japan has also admitted that the JIA never made any findings regarding Hynix's 
going-concern and liquidation values at the time of the restructurings — even though those figures would have been critically important to creditors  of insolvent companies acting in accordance with 
usual market practice.  In the absence of such fi ndings, there was no evidentiary basis for the JIA's 
conclusion that the restructurings were inconsistent with market benchmarks. 
(ii) The Evidence Concerning Hynix's Goi ng-Concern and Liquidation Values   
4.269  The evidence before the JIA included reports fro m various financial advisors and industry 
experts, as well as analyses from the creditors th emselves, confirming that Hynix's going-concern 
value was higher than its liquidation value at the time of the October 2001 restructuring and at the time of the December 2002 restructuring.   
4.270  In its analysis of the October 2001 restructuri ng, the JIA disregarded the valuation analyses 
performed by outside consultants, because the final versions of the reports were not completed until 
after the restructuring had been approved.  But, even if the JIA were correct about the timing of those reports, it would not affect the benefit analysis.  As Japan has conceded , creditors acting in accordance 
with the usual market practices would have obtained similar valuation analyses.   And, when presented 
with such figures, creditors acting in accordance with usual market practices would have agreed to 
restructure Hynix's debts.  Consequently, there was no benefit to Hynix from the alleged government 
entrustment or direction. 
4.271  The JIA's analysis of the December 2002 restruct uring took a different approach:  It claimed 
that the report by the outside consultant was so obviously flawed that no creditor acting under usual 
market practices would have relied on it.  But the JI A reached that conclusion by taking statements 
out of context and portraying minor disagreements a bout presentation as evidence of error.  In reality, 
its criticisms were without merit.  An objective and unbiased analysis would have found that the 
financial consultant's report relating to the De cember 2002 restructuring was consistent with the 
normal practices of financial advisors assisting credito rs in figuring out what to do with an insolvent 
debtor, and that the creditors' reliance on that repor t was consistent with normal market practices.   
4.272  
On the whole, there was no evidence to support th e JIA's assertion that the restructurings were 
inconsistent with normal market practices.  Conse quently, the JIA's finding of a benefit to Hynix from  WT/DS336/R 
 Page 55  
 
 
the October 2001 and December 2002 restructurings w as inconsistent with the requirements of the 
SCM Agreement . 
(iii) Participation of Non-Entrus ted or-Directed Creditors 
4.273  Only four of the banks that participated in the restructurings were found by the JIA to have 
been entrusted or directed by the Korean government.  The JIA did not find entrustment or direction 
of any of the more than one hundred other financial institutions that participated in the restructuring 
on the same terms.  Indeed, the JIA did not even c ontact most of these institutions - even though many 
of them held a higher share of Hynix's debt than some of the banks the JIA did investigate.   
4.274  Japan has asserted that the JIA was justified in ignoring the behaviour of the financial 
institutions it never contacted, because Hynix's fina ncial condition at the time of the restructurings 
was distorted by past subsidies.  But Japan's argu ments concerning the relevance of past subsidies are 
inconsistent with the provisions of Article 14 of the SCM Agreement .  Article 14 provides that the 
benefit of a subsidy is to be m easured solely by the difference betw een the terms of the subsidized 
transaction and the terms of an equivalent market  benchmark transaction.  By contrast, Japan's 
proposed approach would define the benefit from subs idies to include not only the difference between 
the subsidized financing and the mark et benchmarks, but also any future financing, even if that future 
financing is fully consistent with market benchmarks.   
4.275  As Korea has demonstrated, Japan's interpretati on would also lead to absurd results, where 
two identical companies with identical subsidies in a prior period and identical financing in the 
investigation period might nevertheless be subjected  to drastically different countervailing duties.  
Such an interpretation of the SCM Agreement cannot be correct. 
(d) Imposition of Duties Beyond the Amortization Period  
4.276  It is undisputed that the alleged subsidy bene fit from the October 2001 restructuring was fully 
allocated to the period from 2001 to 2005 by the me thods adopted in the JIA's determination.  
Because the transaction in question was found by Ja pan to be a non-recurring subsidy, there is no 
basis for assuming that it might somehow be resuscitated to provide a new subsidy and new benefits 
in the future. 
4.277  Japan has suggested that there might have been  uncertainty about the subsidy rate in 2006, 
because the volume of sales or production used as th e denominator for the calculation of the duty rate 
in 2006 was unknown at the time of the JIA's decisi on.  But, no matter what Hynix's sales were in 
2006, the duty rate relating to th e October 2001 restructuring would have been zero - because a 
subsidy benefit of zero divided by any number results in a rate of zero.   
4.278  Japan also contends that it was possible that the subsidy amortization period might have 
changed after the JIA's determination — if, for exam ple, the estimated useful lives of Hynix's assets, 
and thus the subsidy amortization pe riod, were modified.  But, this issue is also irrelevant:  The 
estimated useful lives of Hynix's assets during th e entire amortization period was already known at 
the time the JIA made its final determination in  January 2006, because the amortization period had 
ended in December 2005.   
4.279  In this case, the JIA knew at the time that it ma de its decision in January 2006 that there was 
no continuing benefit from the October 2001 restru cturing.  It knew that the duty was no longer 
necessary to counteract any alleged subsidizatio n arising from the October 2001 restructuring.  
Consequently, the imposition of duti es is inconsistent with the pr ovisions of Article 21.1 of the SCM 
Agreement , which specifically states that "A counterva iling duty shall remain in force only as long as 
and to the extent necessary to counteract subsidization which is causing injury."  In addition, it is also WT/DS336/R 
Page 56  
 
inconsistent with the requiremen ts of Article 19.4, which provides that "No countervailing duty shall 
be levied on any imported product in excess of the amount of the subsidy fo und to exist...."   
(e) Causation of Injury "Through the Effects of Subsidies" 
4.280  Japan contends that the phrase "through the eff ects of subsidies" in the first sentence of 
Article 15.5 has no distinct meaning, and that the on ly purpose of the first sentence of Article 15.5 is 
to introduce the remaining sentences of Article 15 .5.  But Japan's interpretation cannot be correct, 
because it would not give meaning to every word in the first sentence of Article 15.5 — or, indeed, to the first sentence of Article 15.5 as a whole.  
4.281  In its determination in this case, the JIA never stated that it was unnecessary to show that the 
injury had occurred "through the effects of the subs idy."  Instead, the JIA cl aimed that the evidence 
showed that the injury had occurred "through the eff ects of the subsidy," because the mere fact that 
Hynix was still in operation, and able to export, refl ected the fact that the alleged subsidies had saved 
Hynix from bankruptcy.  But, as Korea has shown, th is conclusion makes no sense.  Under the Korean 
bankruptcy laws, the "bankruptcy" of Hynix would have led to debt restructuring, not liquidation, as long as Hynix's going concern value was higher than its  liquidation value.  There is no basis for the 
JIA's assumption that Hynix would have been liqui dated in the absence of the alleged subsidies. 
4.282  Japan has responded that there is nothing in the SCM Agreement that required the JIA to make 
findings about the operation of the Korean bankruptcy laws.  But, it was the JIA (and not Korea) that 
chose to base the causation analysis on an assump tion about how bankruptcy would have affected 
Hynix's production and exports.  It was the JIA that  asserted, without any evidence to support it, that 
bankruptcy would have necessarily required Hynix to  cease production and export.  Because the JIA's 
assertion was just unsupported (and, indeed, flatly wrong), the JIA's determination cannot be upheld 
under the relevant standard of review.   
(f) Conclusion 
4.283  The logic that led the JIA to find government "e ntrustment or direction" and to conclude that 
Hynix benefited from that alleged government action is flawed.  The credito rs acted in accordance 
with their rational self-interest, and the debt restructur ings they adopted were c onsistent with the usual 
market practices of creditors of insolvent compan ies.  Consequently, there was no reason to assume, 
as the JIA did, that there must have been government  interference, and there is no reason to conclude 
that the alleged entrustment or direction made Hy nix "better off."  Because the JIA's determination 
was inconsistent with basic logic, everyda y experience, and the requirements of the SCM Agreement , 
it cannot be upheld by the Panel. 
2. Closing Statement of Korea at the Second Meeting of the Panel 
4.284  Korea has engaged in a great deal of discussion at  its meetings with the Panel and in its past 
written submissions about the circumstances of the Hynix restructurings that are at the heart of this case.  As noted, there is no doubt that Hynix was in  financial distress and unable to pay its debts in 
full at the time of the restructurings.  But, contrary  to Japan's apparent view, Hynix's difficult financial 
situation is not the end of the analysis.  Instead, it is only the beginning.   
4.285  Korea has presented arguments - based on the evidence and the JIA's own determinations - 
which in Korea's view compel the conclusion that there was no entrustment or direction, that there 
was no benefit, and that there was no injury through th e effects of the subsidies.  Korea believes that  
it is clear that Hynix's condition left the creditors w ith no real options other than to restructure Hynix's 
debts.  Japan, it seems, wants to outlaw bankruptcy and informal debt workouts.  The answer is clear:  
The restructuring of Hynix's debts was not the result of government entrustment or direction that  WT/DS336/R 
 Page 57  
 
 
made Hynix better off than the market alternatives, but was, instead, the expected outcome of rational 
creditors following the usual market practices.   
4.286  Nevertheless, as noted previously, it is not Korea' s obligation in this proceeding to prove that 
there were no subsidies.  Instead, Korea is require d only to show that the JIA failed to live up to its 
obligations under the SCM Agreement .   
4.287  Japan has repeatedly  accused Korea of failing to present a prima facie case.  Consider, for 
example, paragraph 27 of Japan's response to  Korea's questions, where Japan stated:   
Japan notes that it is Korea's responsibility to show a prima facie  case with respect to 
the value of Hynix if liquidated in accordan ce with the relevant provisions of Korean 
insolvency laws, if Korea wishes to a dvance such a claim in this dispute. 
As a matter of law, this statement is simply wr ong.  Korea does not bear the burden of proving there 
were no subsidies.  Instead, Korea's burden is simp ly to establish that the JIA's findings were not 
consistent with the requirements of the SCM Agreement . 
4.288  In examining whether the JIA complied with tho se requirements, it may be useful to pause, 
for a moment, to consider some of the things that Japan has admitted the JIA did not do.  Among 
other things, in its response to Korea's questions, Japan admitted that the JIA made no findings as to 
what Hynix's going concern or liquidation value might have been at the time of the restructurings.172  
And, in its statement at the second meeting of the Panel, Japan admitted that the JIA made no findings 
as to what Hynix's creditors — or what other priv ate actors in the position of Hynix's creditors making 
decisions in accordance with usua l market practices — would have done in the absence of the alleged 
entrustment or direction. 
4.289  This can be seen plainly in paragraphs 33 to 36 of Japan's Opening Statement.  In 
paragraph 33, Japan stated explicitl y that "Hynix would have been unable to continue its business if 
the situation had been left untouched, i.e., if Hynix's creditors would not have taken actions to allow 
Hynix to continue its busin ess."  But, in the very next sentence,  Japan went on to clarify that:   
This finding, however, does not mean that the JIA made a finding as to what steps 
Hynix creditors would have taken had no subsidies been provided.  The fact in this 
case is that the actual subsidies, not some pot ential restructuring, were granted to save 
Hynix.173  
In those two sentences, Japan has admi tted that the JIA had no basis for finding a benefit in this case.   
 4.290  As the Appellate Body has made clear, a finding  of a benefit under Articles 1 and 14 requires 
a determination that the recipient has been made "b etter off" than the alternatives available in the 
relevant market.
174  Now, Japan has admitted that the JIA made no findings as to the alternatives that 
were available in the relevant market if the allege d entrustment or direction had not occurred.  Japan 
has, therefore, conceded that the JIA made no finding as to whether the alleged entrustment or 
direction made Hynix "better off." 
4.291  In case there were any doubt about what Japan meant, Japan continued on to repeat twice 
more that the JIA failed to examine what would have happened without th e alleged subsidies.  
According to Japan, "Whether or not any other theo retical restructuring would have saved Hynix, if 
                                                      
172 See Japan's Response to Korea's First Questions, paras. 23-27. 
173 Japan's Second Opening Statement, para. 34. 
174 See, e.g., Canada – Measures Affectin g the Export of Civilian Aircraft , WT/DS70/AB/R, 
2 August 1999, para. 157. WT/DS336/R 
Page 58  
 
the subsidies had not been granted, is an irrelevant question ."
175  Japan admits the JIA did not look at 
what would happen in a market-based restructuring b ecause that is not what happened;  according to 
Japan subsidies are what happened.  In Japan's view looking at "other potential bailout plans" would 
be "pointless."176  
4.292  Under the SCM Agreement , however, looking at the "other potential bailout plans" that would 
have been available from the market is not "pointl ess."  It is, instead, the entire point.  A government 
financial contribution is not a subsidy unless it conf ers a benefit on the recipient, and it only confers a 
benefit on the recipient if it makes the recipient "bette r off" than the available market alternatives.  By 
declaring an analysis of the available market a lternatives "pointless", Japan has simply read the 
benefit requirement out of the Agreement.  The Panel obviously cannot uphold that result. 
4.293  Korea has plainly met its burden of proof in this proceeding:  In its submissions, it has 
identified instances in which the JIA ignored eviden ce, failed to consider alternative explanations, 
imposed improper burdens of proof, improperly resorted  to facts available instead of creditor-specific 
information, and based its determination on un supported assumptions.  As a result, Korea has 
established that the JIA's decision was inc onsistent with the obligations of the SCM Agreement .  In its 
statement at the Second Substantive meeting of the Panel, Japan has admitted  that Korea are right. 
H. SECOND ORAL STATEMENTS BY JAPAN  
4.294  The following summarizes Japan's arguments in its second oral statements.  
1. Opening Statement of Japan at the Second Meeting of the Panel 
(a) Korea's Economic Theories Arguments are Irrelevant    
4.295  In light of the irrelevance of its argument and the Panel's standard of review, Korea's 
economic theories argument cannot serve as the basi s for the Panel to make any assessment of the 
JIA's determination. 
(b) Japan's Provision of Methods is  Consistent with Article 14 
4.296  The application of the method under Article 14 need only fall within the umbrella of the 
methods "provided for".  Beyond the "provided for" requirement, Article 14 does not specify a 
particular level of detail.177   
(c) The "Assumptions" Alleged by Korea  
(i) The First Category of an "Assumption" Alleged by Korea is Based on an Incorrect 
Understanding of the JIA's Determination178 
4.297  The JIA first made a finding that there was no financing available from the viewpoint of 
outside investors.  The JIA then examined the existing creditors " on the premise that existing 
creditors would possibly provide additional funding in order to maximize  the recovery of credit. "179  
The JIA examined the actual decisions made by th e existing creditors by reviewing the processes and 
materials actually considered by the creditors. 
                                                      
175 Japan's Second Opening Statement, para. 35 (emphasis added).  
176 Id. 
177 Panel Report, US – Softwood Lumber IV , para. 92. 
178 SWS of Korea, paras. 51and 59. 
179 Annex 3 of Final Determination, para. 141 (JPN-04) (emphasis added).  WT/DS336/R 
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(ii) The Second Category of an "Assumption" Alleged by Korea Is in Fact a Factual Finding 
Based on the Evidence on the Record180 
4.298  Korea's second category of an alleged "assumption" is not an assumption, but a finding of fact 
that the Government of Korea in fact had intervened  in the existing creditors' preparation of the Hynix 
bailout programs and in individual banks' de cision making to provide financing to Hynix181. 
(iii) The Third Category of an "Assumption" Alle ged by Korea is Based on an Incorrect 
Understanding of the JIA's Findings and the Evidence182 
4.299  The third category of Korea's alleged "assumptions" is made regarding the JIA's injury 
finding.  The JIA did not assume, but found, that Hynix was able to continue production and export 
because of  the Government of Korea' subsidies.183 
(iv) The Fourth Category of an "Assumption" Alleged by Korea Is in Fact a Factual Finding 
Based on the Evidence on the Record 184 
4.300  The fourth category of an alleged "assumption" is contradicted by the Final Determination.  
Korea has not identified any failure to consider th e Government of Korea and the other interested 
parties' arguments and has not identified any spec ific evidence on the record in support of its 
assertion.   
(d) Positive Evidence and Standard of Review  
(i) Korea's Erroneous Application of a "Positive Evidence" Standard 
4.301  The Appellate Body's findings cited by Korea185 concern only injury determinations under 
Article 3 of the AD Agreement  and Article 15 of the SCM Agreement .   
 
(ii) Non-Record Evidence Should Not Be Examined 
4.302  Regardless of how Korea tries to characterize th e non-record evidence it submits, in light of 
Article 12.2 and the Panel's standard of review, it is obvious that the fact that the JIA did not consider 
such evidence and argument based thereon presented to the JIA does not affect the reasonableness of 
the JIA's determination. KOR-34, 42, 43 and 44 should also be excluded from the Panel's 
consideration. 
(e) Interested Parties  
(i) Korea's Argument on the Scope of Interested Parties Is Without Merit 
4.303  Korea's argument on the scope of intere sted parties under Article 12.9 of the SCM Agreement 
is inconsistent with Articles 12.9 and 23 of the  SCM Agreement .  
                                                      
180 SWS of Korea, para. 51. 
181 See, e.g.,  Annex 1 of the Final Determination, paras. 269-75 and 328-37. 
182 SWS of Korea, paras. 51, 79. 
183 See Annex 1 of the Final Determination, paras. 550 and 605 (JPN-02).  
184 SWS of Korea, para. 53. 
185 See SWS of Korea, paras. 6, 68-70, 79, fn. 5, 50-53, 66, in which Korea cites the Appellate Body's 
findings in US – Softwood Lumber VI , para. 92 and Mexico-AD Measures on Rice , para. 204. WT/DS336/R 
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(ii) Korea's "Adverse Facts Available" Argument Is Without Merit 
4.304  The JIA has not applied "adverse facts available" , and Korea fails to identify how any of the 
examples it raises can be viewed as "adverse facts available." 
(f) Revenue Foregone/Transfer of Funds  
(i) Korea's Interpretation of "Transfer of Funds" Is Erroneous 
4.305  Korea's argument that a "transfer of funds" onl y means that "money must change hands" is 
unsubstantiated.   
(ii) The Extension of Maturity of Loans and Debt-to-Equity Swap  
4.306  The JIA considered that an extension of a loan maturity consists of two elements ( i.e,. the 
original loan is repaid and a new loan is granted)  and that the debt-to-equity swap consists of two 
elements ( i.e., the existing loan is satisfied and equity is  issued).  These interpretations are reasonable 
and entirely consistent with th e nature of these transactions. 
(g) Financial Contribution  
(i) The "Syllogism" Korea Asserts Is an Erroneous Understanding  
4.307  Korea's argument on a "syllogism" is based on e ither a misunderstanding or a misstatement of 
the JIA's actual finding on financial contribution.
  
(ii) The Decisions of Woori Bank and Chohung Bank 
4.308  An examination of the relevant evidence in its totality indicates that the decisions by these 
banks were not made from a commercial viewpoint.   
(iii) The JIA's Finding on Government Intent Was Reasonable 
4.309  The JIA considered all record evidence, examin ed such evidence, and made findings as to the 
weight and credibility of such evidence in  light of the other evidence and facts. 
(iv) Prime Minister's Decree No. 408 Does Not Prohibit Government Intervention 
4.310  Contrary to Korea's assertion, Article 5 of the Decree permits the Financial Services Agencies 
to "request cooperation or assistance of Financial Institutions, etc. for the purpose of stability of the 
financial market…" and provided the power to make  such request to the Government of Korea.  
(h) Benefit 
(i) Korea's Argument that Hynix's Debt s Were Worthless Is Without Merit 
4.311  The record evidence shows that loans were  swapped at their full principal amount.186 
(ii) Korea's Going-Concern Value Argument Is Without Merit  
• Korea's Arguments are Based on Assumptions Without Any Evidence  
 
                                                      
186 See Variance of New Equity Issuance and Capital Amount (JPN-24).  WT/DS336/R 
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4.312  Even assuming, arguendo , that the going-concern value was higher than its liquidation value, 
the evidence contradicts an assumption that conseque ntly creditors would always participate in a 
restructuring.187 
4.313  The JIA examined the evidence of the actual d ecision-making of individual banks taking into 
account the possibility that they may participat e even when no investors from an outsiders' 
commercial view point would, but found that the fi nancial institutions partic ipated upon consideration 
of non-commercial factors.188 The JIA concluded that these Programs were not obtained on a 
commercial basis and accordingly could not be  the benchmark to determine the benefit.189  The JIA 
also established that the terms and conditions of  the Programs stood on Hynix's financial condition 
that was heavily distorted by subsidies.190  These facts demonstrate that such terms and conditions 
were achieved because of  the Government of Korea.   
• The JIA's Findings on The October 2001 Program Were Reasonable 
 
4.314  The evidence on the record shows that Woori Bank and Chohung Bank did not evaluate the 
available options in deciding participation in the October 2001 Program, contrary to Korea's 
acknowledgement that "any cred itor" considering options " would require  an analysis showing the 
effect of choosing each  of those options."191  Other Hynix creditors decided to participate without 
reviewing the Arthur Andersen Report valuation. 
• The JIA's Findings on The December 2002 Program Were Reasonable 
 
4.315  The Deutsche Bank Report was hardly an indepe ndent third party report, and was prepared 
under the scrutiny and intervention by the Government  of Korea, which had requested Deutsche Bank 
to revise the Report after reviewing the draft.192 
4.316  Korea ignores the going-concern values calculated under all of the [[BCI]].  The JIA 
reasonably found that the lack of analysis on [[BCI]]193 is strange.  Deutsche Bank's consideration of 
the [[BCI]] necessitates an examination of the details of the feasibility of such, [[BCI]].   
4.317  The JIA pointed out that the Deutsche Ba nk Report did not explain why it relied on a 
recovery rate of [[BCI]] per cent to assess the valid ity of liquidation value instead of the rate of 
[[BCI]] per cent.  For creditors, these recovery rat es would be the material issue to examine whether 
they would be better off, but the Deutsche Bank Repo rt failed to mention such material fact.  The JIA 
correctly found that the recovery rate calcula tions under the [[BCI]] in the Deutsche Bank Report 
would have [[BCI]]194  Hynix admitted that an error was made in the Report.195 
                                                      
187 See Annex 1 of the Final Determination, para. 200 (JPN-02).   
188 See Annex 1 of the Final Determination, paras. 278-88, 299, 347-65 and 376, and footnote 362 
(JPN-02).  
189 See Annex 1 of the Final Determination, paras. 299 and 376 (JPN-02). 
190 See Annex 1 of the Final Determination, paras. 299 and 376 (JPN-02). 
191 SWS of Korea, para. 184 (emphasis added). 
192 See Annex 1 of the Final Determination, paras. 334-35 (JPN-02). See also Annex 3 of the Final 
Determination, para. 526 (JPN-04) (NACF stated that " despite  the intervention of the government, the 
conclusion of the . . . Report remained  'normalization of operation' of Hynix to be the top priority".) (emphasis 
added). 
193 Annex 1 of the Final Determination, para. 344 (JPN-02). 
194 See Notes (5) in page 13 of the Deutsche Bank Report (KOR-20). 
195 See Annex 3 of Final Determination, para. 500 (JPN-04).  WT/DS336/R 
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• The JIA's Treatment of Other Creditors Was Reasonable  
 
4.318  The JIA reasonably identified the financial in stitutions which should be investigated and 
found that the Other Creditors participated in the bailout programs for non-commercial reasons. 
• The Distortion to the Market Caused by Past Subsidies 
 
4.319  The JIA found that Hynix was able to obtain financing under the terms and conditions of the 
Programs because of prior subsidies, and therefor e, their terms and conditions were not those 
obtainable from the commercial market.196  This finding is separate from the finding that Other 
Creditors made their decisions to particip ate based on non-commercial considerations. 
4.320  The issue is the government's role in structuri ng the prices in the market. The Government of 
Korea's subsidies played a predominant role in crea ting the terms and conditions of the Programs.  In 
light of the JIA's discretion in calculating benefit197, the JIA's calculation of the benefit where there 
was no comparable market benchmark is reasonable. 
• The JIA Reasonably Found that Past  Subsidies Caused a Distortion  
 
4.321  Korea erroneously assumes that Hynix could have repurchased its debt at discounted value, 
disregarding the evidence on th e record to the contrary. 
4.322  To determine the available commercial loans, the JIA examined the interest rate that would be 
available to Hynix, based on the information with respect to simila rly situated companies.  Korea's 
argument that the JIA should have used the "u sual practice" of creditors is baseless.  
(i) Specificity  
4.323  The relevant Programs were designed and executed solely for Hynix, and thus de jure specific 
to Hynix. 
(j) Change in Ownership  
4.324  The Hynix bailout programs can not be evaluate d as a "change in ownership" in the meaning 
of the Appellate Body's findings.198    
(k) Allocation of Subsidies  
4.325  Article 21 of the SCM Agreement concerns circumstances after the imposition of a 
countervailing duty and thus does not a pply to an original investigation.199  As Korea agreed, a 
"withdrawal" of a subsidy in Article 19.1 requir es an affirmative action by the government or 
recipient, which has not occurred.  Neither Article  19.1 nor Article 21 supports Korea's argument.  
(l) Injury Determination  
4.326  Korea's argument that the SCM Agreement 's use the same terms ("the effect of the subsidy") 
for both serious prejudice and material injury necess itates an identical analysis ignores the different 
provision in which the term was used. 
                                                      
196 Annex 1 of the Final Determination, paras. 299, 376 (JPN-02). 
197 See Appellate Body Report, US–Softwood Lumber IV , para. 92.  
198 See, e.g., Appellate Body Report, US - Countervailing Measures on Certain EC Products,  paras. 117 
et seq.  
199 Appellate Body Report, US – Carbon Steel , para. 70 (emphasis added).  WT/DS336/R 
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2. Closing Statement of Japan at the Second Meeting of the Panel 
(a) Introduction  
4.327  Japan would like to address certain significan t issues that Korea argues in its Opening 
Statement. 
(b) Korea's Erroneous Understanding of its own Obligation to Establish a Prima Facie  Case 
4.328  Korea's argument concerning a prima facie  case200 is entirely erroneous.  As Japan has 
already explained201, "a prima facie  case must be based on 'evidence and legal argument' put forward 
by the complaining party in relation to each of the elements of the claim."202  Thus, Korea's argument 
that "[to establish a prima facie case means nothing more than that Korea] must present arguments 
that are sufficient to persuade the Panel"203 is wrong – such argument must be based on evidence.  
Furthermore, the examples Korea raises as in stances of Korea's failure to establish a prima facie  
case204, as pointed out by Japan, are all instances in whic h Korea first made a claim, or tried to make a 
claim, to which Japan rebutted by pointi ng out that Korea failed to establish a  prima facie  case in 
forwarding the particular claim.  For example, in  response to Korea's argument that there was no 
rational basis for the JIA's finding that  the Hynix shares had no value, Japan first demonstrated that in 
paragraphs 414 to 415 of Japan's FWS that there had been a reasonable basis for the JIA's 
determination , then pointed out, in paragraph 416 therein which Korea cited, that Korea failed to 
establish a prima facie case to contradict the reasonableness of the JIA's finding.  Japan has not once 
in this panel proceeding requ ested that Korea establish a prima facie  case that the Government of 
Korea did not provide subsidy to Hynix.  Each of Japan's indication of Kore a's failure of establishing 
a prima facie  case point to Korea's failure to establish a prima facie  case of its claim that alleges that 
the JIA's investigation and determination had b een inconsistent with the requirements of the 
SCM Agreement .  
(c) Submission of an "Argument" in a Panel 
4.329  Japan would like to further clarify its view  on the example Korea raised concerning the 
admissibility of a mathematical proof in the second m eeting of the Panel.  If such mathematical proof 
is relevant to the dispute before a panel, it may be s ubject to examination by a panel.  In such instance, 
Appendix 4 of the DSU may become relevant.  However,  if a mathematical proof is irrelevant to the 
matter before the panel, any argument based on such proof similarly would be irrelevant.  This is a 
matter of relevance, not admissibility.  As a separa te matter, in a case where the issue is whether an 
investigating agency should have considered a pa rticular mathematical proof, unless the evidence and 
the arguments on the record of the investigation de monstrates that the particular mathematical proof 
was before the investigating agency, an ex post  submission of evidence or presentation of argument of 
such mathematical proof is inadmissible in light of the standard of review of a panel.205 
                                                      
200 Korea's Opening Statemen t for the Second Panel Meeting, paras. 12-17. 
201 FWS of Japan, paras. 24-27. 
202 Appellate Body Report, US – Gambling , paras. 140-41 (emphasis original).  See also  Appellate 
Body Report, Thailand – H- Beams , para.136. 
203 Korea's Opening Statem ent for the Second Panel Meeting, para. 13.  See also ibid. , para. 16. 
204 Korea's Opening Statem ent for the Second Panel Meeting, para. 13. 
205 See FWS of Japan, paras. 30-36, SWS of Japan, paras. 5-15, Opening Statement of Japan at the First 
Substantive Meeting of the Panel, paras. 2-11, Opening Statement of Japan at the Second Substantive Meeting of the Panel, paras. 2-6. WT/DS336/R 
Page 64  
 
(d) Korea's Argument on the Interpretation of the Extension of the Maturity of Loans and the 
Debt-To-Equity Swap has no Merit 
4.330  Korea's argument on the extension of the matur ity of loans and debt-to-equity swaps in its 
Opening Statement shows that its argument is based  on a distorted understanding of the JIA's finding 
and Japan's statements.  Japan does not argue, nor did the JIA find, that "Hynix first repaid its 
outstanding debts in full, which funds that the cred itors then used to make new and equity infusions" 
as alleged by Korea.
206  The JIA's statements on the nature of these transactions, as stated in 
paragraphs 103 and 104 of the Essential Facts, are th e JIA's reasonable interpretation of facts, not the 
facts themselves.  It is not an issue of substitu ting a finding based on evid ence with an assumption as 
Korea alleges.  The issue of the interpretation mu st be distinguished from the issue of fact-finding. 
4.331  Korea's attempt to separate a debt-to-equity swap into debt forgiveness and issuance of the 
equity does not comport to the clear designation of "e quity infusion" as a direct transfer of funds in 
Article 1.1(a)(1)(i).  Korea argues that a debt-to-equi ty swap is a type of debt forgiveness, which must 
be classified in Article 1.1(a)(1)(ii).  However, wh ere certain monetary value is given to the equity-
issuing company in exchange fo r the equity, such transaction is the equity infusion.  Korea has not 
provided any explanation of this apparent discrepancy  between its interpretation and the nature of the 
transaction. 
(e) Korea's Argument on Individual Banks' Analysis was based on an Isolated Portion of 
Evidence and Failed to Address other Relevant Evidence 
4.332  Korea again argues in its Opening Statement that  Woori Bank considered the expected loss, 
Hynix's going concern value, and liquidation value in the October 2001 Program.207  Korea again 
considered in isolation only a part of the evidence,  ignoring the other eviden ce – unlike the JIA, which 
assessed the evidence in its totality .  In the October 2001 Program, Woori Bank did not consider all 
options available, as discussed in Japan's Opening Statement.208  In addition, Woori Bank repeatedly 
emphasized public interest concerns, such as [[BCI]].209  Furthermore, Woori Bank's President stated 
even before the October 2001 Program was pr epared, "If the Council for Creditor Financial 
Institutions agrees to support Hynix, we can change the current debt of Hynix into investment.  We 
can also provide more financial aid,"210 indicating that Woori Bank prioritized certain interests to save 
Hynix over its own economic interests.  
4.333  As this example shows, Korea's allegations on the analysis of individual banks are based on a 
highly selective presentation of a porti on of the evidence, and failed to consider the entire record of 
evidence, ignoring the JIA's determination, thus making the request of the de novo review to the 
Panel.   
(f) Korea Now Admits that Deutsche Bank Prepared  the Report in its Capacity as Financial 
Advisor to Hynix 
4.334  Although Korea previously questioned the JIA' s finding that the contractual relationship 
between Hynix and Deutsche Bank called into question neutral, external nature of Deutsche Bank 
                                                      
206 Korea's Opening Statem ent for the Second Panel Meeting, para. 25. 
207 Korea's Opening Statement for the Second Panel Meeting, paras. 25 and 54.  While Korea also 
presents arguments regarding Chohung Bank's consid eration in October 2001 Program and Woori Bank's 
consideration in December 2002 Program, which Japan has already rebutted in prio r submissions, and will not 
repeat herein. 
208 Opening Statement of Japan at the Second Substantive Meeting of the Panel, para. 70. 
209 See evidence listed in the footnote 347 of the Annex 1 of the Final Determination (JPN-02-347). 
210 Annex 1 of the Final Determination, footnote 348 (JPN-02).  See also evidence listed therein 
(JPN-02-348)  WT/DS336/R 
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Report211, Korea recognize that Deutsche Bank was " Hynix's  financial advisor"212 and thereby 
admitted that the financial advisor was not exclusiv ely representing Hynix's creditors.  The fact that 
Deutsche Bank was one of Hynix's financial advisors is  a fact, which the JIA considered in relation to 
the other relevant facts.  
(g) The Deutsche Bank Report is not Immune from Review 
4.335  Korea suggests that the JIA should have been deferential to Deutsche Bank Report because it 
"was prepared by one of the world's leading financial services firms."213  However, it is not axiomatic 
that the brand name of a financial advisor necessi tates the reliability of its work.  Indeed, the 
Government of Korea itself has recognized that th e objectivity of highly-esteemed financial advisors 
may be compromised.214  In the context of the October 2001 Program, for example, Korea's Minister 
of Finance and Economy acknowledged before the National Assembly that "the creditor banks do not 
consider that the [Salomon Smith Barney] Report is  reliable, and it is expected that a different, 
objective organization will carry out the evaluation."215  Like Deutsche Bank, Salomon Smith Barney 
was the one of the world leading firms.  Korea's su ggestion of brand name reliability in this dispute 
does not square with the Government of Korea's intervention into the Deutsche Bank Report.  Korea 
completely ignores the record evid ence that the Government of Korea "request[ed Deutsche Bank] to 
revise its contents . . . [breaking] its promise . . . not to interfere with inspections made by . . . 
Deutsche Bank" and that the Government of Kor ea "requested Deutsche Bank to review the plan."216   
(h) Korea's Alleged Scope of Entrustment or Dir ection Based on its own Economic Theory is 
Contrary to the Scope under the SCM Agreement  
4.336  Korea alleges that the Government of Korea's entrustment or direction is irrelevant because 
creditors had no options other th an further financing to Hynix.217  According to Korea, creditors had 
no choice but to "make new investments needed … when the company's going -concern value exceeds 
the liquidation value."218  This argument is flawed legally, factually, and theoretically. 
4.337  Legally, the government's "twist[ing]" of the ar ms of creditors can be an example of the 
government's entrustment or direc tion, and is quite relevant to an entrustment or direction under 
Article 1.1(a)(1)(iv).  Entrustment or direc tion by the government may be found where the 
government's entrustment or direction is one of the factors influencing the decision of the creditors to 
finance the debtor.  Korea's interpretation that creditors would never be subject to government 
entrustment or direction whenever the going-conc ern value is higher than the liquidation value, 
regardless of the manner in which the government intervenes, is erroneous interpretation of the 
SCM Agreement .  It does not have to be the sole basis for their decision to provide financing.  
4.338  Factually, Hynix's creditors could not reach the terms and conditions  of the October 2001 
Program and the December 2002 Program until th e Government of Korea intervened.  The 
October 2001 Program then offered three options for cr editors to choose from.  In  this case, therefore, 
                                                      
211 See, e.g. , SWS of Korea, paras. 191-92 (citing Annex 1 of the Final Determination, para. 340 
(JPN-02). 
212 Opening Statement of Korea, para. 50. 
213 Opening Statement of Korea, para. 73. 
214 See Annex 1 of the Final Determination, para. 276 (JPN-02);  Annex 3 of the Final Determination, 
para. 367 (JPN-04). 
215 Annex 3 of the Final Determination, para. 367 (JPN-04). 
216 Annex 1 of the Final Determination, para. 334 (JPN-02). 
217 See Korea's Opening Statement for the Second Panel Meeting, para. 44 ("whether the government 
twisted their arms or left them entirely alone, the creditors did not have the option of taking back their money in full and investing it somewhere else.") 
218 Korea's Opening Statem ent for the Second Panel Meeting, para. 49. WT/DS336/R 
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there were options for banks to choose from, and there was room for the Government of Korea to 
entrust or direct creditors to provide financing to Hynix. 
4.339  Theoretically, creditors always have choices to remain as creditors of a troubled company or 
to cash out and leave the company.  A going concer n value is always based on the prediction of the 
future.  Accordingly, such prediction always i nvolves a certain amount of uncertainty.  Creditors 
usually assess risk of potential failure of the predic tion or predictions.  The result of the assessment 
may vary by creditors.  For example, an additiona l investment if it failed could threaten the very 
existence of the creditor.  Depending on the situati on of the debtor and individual creditors, it is not 
commercially reasonable for a creditor to extend fi nancing blindly even when going concern value 
exceeds liquidation value.  In this context, what b ecomes relevant is the creditors' assessment of the 
risk.  An economic theory on creditors' behaviour by no means dictates what a particular creditor will 
do according to a theory given the particular situation.   Korea's argument is simply misuse of a theory. 
A theory does not decide reality. 
(i) The JIA's Investigation Sufficiently Covere d Hynix's Representative Financial Institutions 
4.340  Regarding the JIA's selection of Hynix's cred itor financial institutions, Korea  ignores 
evidence that Hynix did submit during the investigation.
 219  The lists submitted by Hynix in the 
investigation confirm that the JIA's investigati on sufficiently covers Hynix's representative creditor 
financial institutions, as the JIA sent its questionnair es to 18 financial institutions, or [[BCI]] per cent 
of Hynix's total debts out of 19 financial institutions or [[BCI]] per cent thereof identified in the list as 
of October 2001, and 8 financial ins titutions, or [[BCI]] per cent of the total debts out of 10 financial 
institutions or [[BCI]] per cent thereof identified in  the other list as of December 2002.  In addition, 
the KEB, the main bank of Hynix and chair of th e Hynix's Creditor Financial Institutions Council, 
also responded that "we decided to omit the full 114 name of companies because their amount of credit is small," and "we do not think this information is necessary for the countervailing duty investigation procedure."
220  Therefore, the Investigating Authority reasonably found that it had 
sufficiently covered Hynix's representative creditor financial institutions. 
(j) Korea's Interpretation of EC Re gulations is Incorrect;  EC's  Regulations in fact Support 
Japan's View 
4.341  Korea's citation of Article 15(1) of the EC's anti-subsidy regulations does not support Korea's 
argument concerning the relationship between an  amortization period and countervailing duties.221  
The provision that "unless… it has been demonstrated that th e subsidies no longer confer any 
benefit " supports Japan's point that a determination of whether a subsidy no longer confers any 
benefit subsequent to the POI necessitates a new i nvestigation which demonstrates such fact.  There 
was no such "demonstration" in this case. 
(k) Korea's Interpretation of "Found to Exist" is out of Context of the SCM Agreement  
4.342  Korea's ad hoc comment at the second meeting of the Panel on the term "found" in 
Article 19.4, while informative on grammatical term s, did nothing to undermine Japan's interpretation, 
which is amply supported by the text of this Article and the context of other Articles of the 
SCM Agreement and Article V:3 of the GATT, as clarif ied by the Appellate Body reports in Mexico – 
                                                      
219 Evidence listed in the footnote 2 of Annex 3 (JPN-04-2). 
220 Annex 3 of the Final Determination, para. 10 (JPN-04), and evidence listed in footnote 3 of Annex 3 
(JPN-04-3).  
221 Korea's Opening Statement for the Second Panel M eeting, para. 95.  As Korea has already conceded 
that an expiry of an amortization period does not amount to a "withdrawal of a subsidy" ( see Opening Statement 
of Japan at the Second Substantive Meeting of the Panel, para. 150), Korea's citation concerning a withdrawal of a subsidy is irrelevant.  WT/DS336/R 
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Antidumping Measures on Rice222 and EC-Bed Linens (Article 21.5 – EC)223 and the panel reports in 
US-Lead and Bismuth Steel and US-Lead and Bismuth II.224 
(l) Conclusion 
4.343  In conclusion, Japan would like to  recall its obligations under the SCM Agreement .  The 
Agreement  gives investigating authorities certain oblig ations:  to request information, to accept 
information and argument, to consider such, to reach reasoned conclusions , and to explain their 
conclusions.  Japan's investigating authority did just that and did so reasonably.  Thus, in applying its 
standard of review, which is to examine whether th e JIA acted reasonably, the Panel should find that 
Japan fulfilled its obligations under the SCM Agreement .  Japan would like to thank the Panel for its 
careful consideration and efforts in this dispute. 
V. ARGUMENTS OF THE THIRD PARTIES 
5.1 The arguments of the third parties, China, th e European Communities and the United States,  
are set out in their written submissions and oral st atements to the Panel, and in their answers to 
questions. The third parties' arguments as presented in their written submissions and oral statements 
are summarized in this section. 
A. THIRD PARTY WRITTEN SUBMISSION OF CHINA  
5.2 The following summarizes China's argument s in its third party written submission 
1. Introduction 
5.3 In its third party submission, China presents its views on two key issues involved in this 
dispute:  (i) whether the effect of past subsidi es could be a proper ground for rejecting a primary 
market benchmark;  and (ii) for non-recurring subs idies that are allocated over time, whether the 
imposition period of the CVDs against such s ubsidies may extend beyond the allocation period 
established by the investigating authority. 
2. Effects of Past Subsidies over the Primary Market Benchmark 
5.4 In the investigation carried out by the JIA, it was ruled that the investment decisions by 
private entities were influenced by Hynix's financial s ituation enhanced by past subsidies, and for this 
and other reasons, the JIA refused to deem such investment decisions as market benchmark.   
5.5 Firstly, China observes that the threshold for ab andoning a primary benchmark is very high.  
In accordance with Article 14 (a) and (b) of the  SCM Agreement , the market benchmark for 
government provision of equity capital is the usual  investment practice of private investors in the 
territory of that Member while the benchmark for government loans is the amount the firm would pay 
on a comparable commercial loan which the firm could actually  obtain on the market.  In China's 
view, both the words "usual" and "actually" imply that the benchmarks contemplated under Article 14 
point to the actions of private entities in the marketpl ace.  Thus, in this dispute, the decisions by those 
private financial institutions, which had not been found  to be entrusted or directed by the Government 
of Korea, to participate in the restructurings at  issue obviously represent the usual and actual practice 
                                                      
222 Appellate Body Report, Mexico – Antidumping Measures on Rice , paras. 165-66. 
223 Appellate Body Report, EC-Bed Linen (Article 21.5-EC) , para. 123. 
224 Panel Report, US-Lead and Bismuth II , para. 6.57.  See also  Panel Report, US-Lead and Bismuth 
Steel , para. 6.50.  For additional discussion on this point, see FWS of Japan, paras. 479-502, SWS of Japan, 
paras. 135-139, and the Opening Statement of Japan at the Second Substantive Meeting of the Panel, paras.149-53.  WT/DS336/R 
Page 68  
 
of private investors, and thus constitute a prim ary market benchmark for measuring the benefits 
conferred by the alleged subsidies by the Government of Korea.  
5.6 By reference to the holdings of the Appellate Body in US – Softwood Lumber IV  which 
relates to paragraph (d) of Article  14, China submits that in orde r to abandon a primary benchmark, 
the investigating authority must meet the high threshold,  which, in that particular dispute, is that the 
private prices are aligned with those of the govern ment-provided goods such that both prices have no 
noticeable differences.  China submits that such high threshold should apply to the present dispute 
involving paragraphs (a) a nd (b) of Article 14.  
5.7 In China's view, the actions of private financ ial institutions in this dispute represent the actual  
market reaction with respect to the same  target company and under the particular circumstances 
surrounding the company and the transactions at issue.  Such actions are more persuasive than those 
terms and conditions that the recipient "could"  obtain from the market.  
5.8 Therefore, China believes that unless the inves tigating authority has sufficient evidence on the 
record that shows the investment decisions by the private entities are so distorted as to fail to reflect 
the actual market situation, such  decisions as primary market benc hmark should not be disregarded 
lightly.   
5.9 Secondly, China does not consider appropriate the JIA's reliance on the effect and influence 
of the previous subsidies as one of the factors that justify the disregard of the primary benchmark.   
5.10 In China's view, a rationale private investor will undoubtedly take into account the financial 
situation of the target company before making an  investment decision.  However, whether such 
financial situation is enhanced by the effects of previous subsidies is out of the concern of the 
investor.  Based on China's understanding of  the position of the Appellate Body in Canada – Aircraft , 
the market benchmark shall be the terms and conditions  available to the recipient at the time of the 
transaction and under the particular situation of the recipient.  This market benchmark does not bear 
any qualification to the effect that the recipient mu st not have received any previous subsidies.   
5.11 In addition, China submits that in case of a CVD investigation targeting multiple subsidies, 
the existence and amount of benefit of each i ndividual financial contribution should be assessed 
independently.  However, in this dispute, China not es that although such an approach was adopted by 
the JIA, it was finally ruled that the previous subs idies enhanced Hynix's situ ation and therefore, the 
investment decisions made by the private financ ial institutions were distorted by the previous 
subsidies.  China believes such a position held  by the JIA would be problematic for a CVD 
investigation involving multiple subsidy programs in that it would mean that once a previous subsidy 
is found, the subsequent action of the private inve stor would always be tainted by the previous 
subsidy.  According to the JIA's approach, this may probably rendered the primary market benchmark 
unusable and meaningless.  In China's view, such a position would undermine the basic concept of benefit and the guidelines provided for in Article 14 of the SCM Agreement .  
5.12 In summary, in China's view, in considerati on of the high threshold of rejecting a primary 
benchmark, the effect of past subsidies on the fina ncial situation of the company at issue cannot be a 
proper factor that justifies the rejection of the ac tions of private investors as market benchmark.   
3. Imposition Period v.s. Allocation Period 
5.13 The second issue that China comments on is wh ether, for non-recurring subsidies allocated 
over time, the imposition period of CVDs against such subsidies can extend beyond the allocation 
period established by the investigating authority.    WT/DS336/R 
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5.14 Firstly, China finds no clear guideline under the SCM Agreement as to how to allocate 
subsidies in a CVD investigation, but certain  disciplines do exist between the lines of the  
SCM Agreement .  China recalls that the word "offsetting" under Article VI:3 of GATT 1994  informs 
the purpose of CVDs, i.e. to offset  (or counteract) subsidies, which is also echoed by Article 19.4 and 
Article 21.1 of the SCM Agreement which respectively require that CVDs may not exceed the amount 
of subsidy found to exist and CVDs may only  exist as long as and to the extent necessary to 
counteract subsidization.   
5.15 In China's view, in case of non-recurring subsid ies allocated over time, once the investigation 
authority establishes the total amount of the subsidi es and the relevant allocation period, two things 
have become definite:  (i) the amount of benefit allocated to a specific year;  and (ii) the period of 
existence of the subsidy.  By way of allocation,  the one-time subsidies are deemed to be granted 
repeatedly during each year within the allocation period and in the amount equal to the allocated 
amount.  
5.16 Having said that, if the investigating authorit y imposes a CVD order with duration beyond the 
allocation period, the order that remains in effect  after the allocation period would be offsetting a 
subsidy that is not deemed to exist at that time.  Thus, such an order would contradict the underlying 
purpose of a CVD measure as provided in Article VI:3 of GATT 1994 .   
5.17 In the investigation at issue, when the JIA made the final determination, the JIA was clearly 
aware that the benefit accruing from the October 2001 Restructuring had been allocated within the 
fixed period of five years which ended in 2005.  Nevertheless, the JIA imposed the CVD order of 
18.1 per cent which would remain in effect from 2006 until 2010.  Therefore, such an order is 
offsetting a subsidy that does not exist as of 2006 and is inconsistent with Article 21.1 of the 
SCM Agreement because it fails to remain in force only as long as and to the extent necessary  to 
counteract subsidization. 
5.18 Secondly, China does not agree to the reas oning of Japan that, like an anti-dumping 
investigation, in case of a CVD investigation, the investigating authority also needs to rely on the 
historical data for the investigation period and may disregard the fact that a subsidy may cease to exist 
after such period. 
5.19 In accordance with Article 18.1 of the SCM Agreement , no CVD shall be imposed if the 
subsidy is eliminated.  This provision also supports the view that even if a subsidy is found to exist during the period of investigation, a CVD s till cannot be imposed so long as it has be established  
during the investigation that the subsidy at issue will cease to exist after the inv estigation period.  This 
understanding is in line with Article VI:3 of GATT 1994 regarding the purpose of CVD as well as 
Article 21.1 of the  SCM Agreement discussed above.  
5.20 Furthermore, in China's view, for the particular  issue under discussion, it is not appropriate to 
refer to the "parallel provision" in the  AD Agreement  due to the different nature of AD and CVD 
investigations.  
5.21 In case of AD investigations, the investigating authority when concluding the investigation 
can only make sure whether dumping occurred dur ing the period of the investigation and is not aware 
whether dumping will continue.  This is true b ecause:  (i) dumping margin can only be calculated 
based on the transaction and cost data available to the investigating au thority at the time of 
investigation and such data is related to the act ual situation during a past period of time (i.e. 
investigation period);  and (ii) dumping is an act by the exporter and it may be changed by the 
exporter at its own discretion.  Therefore, it is  reasonable to deem a finding of dumping during a 
recent past period of investigation as a finding of "present" dumping in the context of Article 11.1 of the AD Agreement .   WT/DS336/R 
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5.22 In contrast, in case of CVD investigations, the inves tigating authority, in mo st cases, is able to 
ascertain  whether the subsidy will continue to exist afte r the investigation.  For example, in case of 
recurring subsidies having a definite term, the inv estigating authority may establish the exact date of 
expiry of such subsidies.  In case of non-recurri ng subsidies allocated over time, as discussed above, 
the investigating authority may also establish th e period of existence of the subsidies once it 
determines the period of allocation.  
5.23 In China's view, so long as the investigating authority establishes  that the subsidy exists in a 
fixed period of time, the presence of subsidies dur ing a past investigation period cannot be simply 
regarded as "present" subsidization for the purpose of Article 21.1 of the  SCM Agreement .  Thus, 
China submits that Japan's argument based on the AD Agreement  does not support its view that the 
JIA has properly imposed a CVD with duration be yond the relevant allocation period against a 
subsidy the benefit of which had been fully allocated.   
5.24 In summary, given the above understanding of the provisions in the SCM Agreement and 
GATT 1994 , China submits that in case of non-recurring subsidies that are allocated over time, the 
imposition period of CVDs that relate to such s ubsidies shall not extend beyond the allocation period 
as established by the investigating authorities. 
4. Conclusion 
5.25 In conclusion, China is of the following views on the key issues discussed above:   
• China believes that in considering whether to reject the actions of private investors as 
market benchmark, the effect of previous subsidies on the company at issue is not a 
relevant factor to be taken into account;   
• For non-recurring subsidies that are allocated ove r time by the investigating authority, the 
imposition period of CVDs against such subs idies should not extend beyond the allocation 
period of such subsidies as established by the authority. 
B. THIRD PARTY ORAL STATEMENT OF CHINA  
5.26 The following summarizes China's arguments in its third party oral statement.  
1. Effects Of Past Subsidies Over The Primary Market Benchmark 
5.27 The first legal issue China would like to address is whether the effect of past subsidies could 
be a proper ground for rejecting a primary market benchmark.  
5.28 In the investigation carried out by the JIA, it was ruled that Hynix's financial situation had 
been enhanced by past subsidies, and consequently  the investment decisions by the private financial 
institutions were influenced by such financial situa tion.  For this and other reasons, the JIA refused to 
deem the investment decisions as market benchmar k.  In this respect, China submits the following 
views.  
5.29 First, China observes that the threshold for ab andoning a primary market benchmark is very 
high.  In accordance with Article 14 (a) and (b) of the  SCM Agreement , the market benchmark for 
government provision of equity capital is the usual  investment practice of private investors in the 
territory of that Member.  And the market benc hmark for government loans is the amount the firm 
would pay on a comparable commercial loan which the firm could actually  obtain on the market.  In 
China's view, both the words "usual" and "actually" imply that the benchmarks contemplated under Article 14 point to the actions of private entities in th e marketplace.  In this dispute, the decisions by 
those private financial institutions not found to be en trusted or directed by the Government of Korea  WT/DS336/R 
 Page 71  
 
 
obviously represent the usual and actual practice of private investors.  Such decisions should constitute a primary market benchmark for calcula ting the benefits of the alleged subsidies.  
5.30 Meanwhile, considering the Appellate Body's holdings in US – Softwood Lumber IV  in 
respect of paragraph (d) of Article 14, China believ es that the investigating authority must meet very 
high threshold before it can reject the primary benc hmark.  China submits that such high threshold 
should also apply to the present dispute involving para graphs (a) and (b) of Article 14.  Furthermore, 
since the private investors decided to invest in  the same target company under the same conditions, 
such decisions are more persuasive than those terms and conditions that the recipient "could" obtain in 
the market.  
5.31 Therefore, China believes that , unless the JIA has sufficient evidence on the record showing 
that, the private investment decisions are so distorte d as to fail to reflect the actual market situation, 
such decisions as primary market benchmark should not be disregarded lightly. 
5.32 Second, the JIA relied on the effect and influence of previous subsidies as one of the basis for 
disregarding the primary market benchmark.  China does not think it appropriate to do so.   
5.33 In China's view, before making an investment  decision on a target company, a rationale 
private investor will certainly take into account the financial situation of that company.  However, 
whether such financial situation is enhanced by the effects of previous subsidies is out of the concern 
of the investor.  As the Appellate Body ruled in Canada – Aircraft , the market benchmark shall be the 
terms and conditions available to the recipient at the time of the transaction and under the particular 
situation of the recipient.  There is no such re quirement on the market benchmark that the recipient 
must not have received any subsidy previously. 
5.34 In addition, China submits that the JIA's appr oach would be problematic in a countervailing 
investigation involving multiple subsidies.  The JIA's position would mean that once a previous 
subsidy is found, the subsequent action of the pr ivate investor would always be tainted by the 
previous subsidy.  In China's view, such a position undermines the concept of benefit and the 
guidelines under Article 14 of the SCM Agreement , and would probably render the primary market 
benchmark unusable and meaningless. 
5.35 In summary, taking into account the high thres hold of rejecting a primary benchmark, China 
submits that the effect of past subsidies on the cu rrent financial situation of the subject company is 
NOT such a proper factor that can justify the disreg ard of the actions of private investors as market 
benchmark.   
2. Imposition Period v.s. Allocation Period 
5.36 The second issue China would like to address is whether, for non-recurring subsidies 
allocated over time, the imposition period of counterv ailing duties against such subsidies can extend 
beyond the allocation period established by the investigating authority.   
5.37 First, China observes that certa in disciplines on allocation of subsidies do exist between the 
lines of the  SCM Agreement .  China recalls that the word "offsetting" under Article VI:3 of 
GATT 1994  informs the purpose of a countervailing duty, name ly, to offset subsidies.  Such purpose is 
echoed by two provisions in the SCM Agreement .  Article 19.4 provides that countervailing duties 
may not exceed the amount of subsidy found to ex ist while Article 21.1 requires that countervailing 
duties may only exist as long as and to the exte nt necessary to counteract subsidization.   
5.38 In China's view, in the case of non-recurring subsidies allocated over time, by way of 
allocation, the one-time subsidies are deemed to be  granted repeatedly during each year within the 
allocation period and in an amount equal to the allo cated amount.  Therefore, if the investigating WT/DS336/R 
Page 72  
 
authority imposes a countervailing duty with duration beyond the allocation period, the duty existing after the allocation period would be offsetting a subs idy that is not there.  Thus, such a duty would 
contradict the purpose of countervailing measures.   
5.39 Turning to this investigation at issue, when making the fi nal determination, the JIA was 
clearly aware that the benefit of the October 2001 Restructuring had been allocated within five years 
until 2005.  Nevertheless, the JI A decided to impose the countervailing duty of 18.1 per cent from 
2006 until 2010.  Accordingly, such a duty is offse tting a subsidy that does not exist as of 2006.  It 
thus violates Article 21.1 of the SCM Agreement as it fails to remain in force only as long as and to 
the extent necessary  to counteract subsidization. 
5.40 Second, China does not agree to Japan's pos ition that the investigating authority may 
disregard the fact that a subsidy may cease to exist after the investigation period. 
5.41 Under Article 18.1 of the SCM Agreement , no countervailing duty shall be imposed if the 
subsidy is eliminated.  This provi sion supports the view that even if a subsidy is found to exist during 
the period of investigation, a countervailing duty  still cannot be imposed, so long as it has be 
established  that the subsidy at issue will cease to  exist after the investigation period. 
5.42 Furthermore, for the particular issue under di scussion, China does not consider it appropriate 
to refer to the "parallel provision" in the  AD Agreement  due to the different nature of anti-dumping 
and countervailing investigations.  
5.43 In the case of anti-dumping investigations , when concluding the investigation, the 
investigating authority can only establish whether dumping occurred during the period of the investigation while is not aware whether dumping will continue.  This is so because dumping margin 
can only be calculated based on historical data availa ble to the investigating authority at the time of 
investigation.  In addition, dumping is an act by exporters and may be changed by exporters at their 
own discretions.  Therefore, it is reasonable to deem  a finding of dumping during a recent past period 
of investigation as a finding of "present" dumping in the context of Article 11.1 of the AD Agreement .   
5.44 By contrast, in the case of countervailing investig ations, the investigating authority, in most 
cases, is able to ascertain  whether the subsidy will continue to ex ist after the investigation.  A vivid 
example is the case of non-recurring subsidies allocated over time.  As discussed above, the 
investigating authority may establish the period of existence once it determines the period of 
allocation.  
5.45 In China's view, so long as the investigating authority establishes  that the subsidy only exists 
in a fixed period of time, the presence of subsidies during a past investigation period cannot be simply 
regarded as "present" subsidization fo r the purpose of Article 21.1 of the  SCM Agreement .  
5.46 Therefore, given the above understanding of the provisions in the SCM Agreement and 
GATT 1994 , China submits that in the case of non-r ecurring subsidies allocated over time, the 
imposition period of countervailing duties agains t such subsidies shall not extend beyond the 
allocation period established by the investigating authorities. 
C. THIRD PARTY WRITTEN SUBMISSION OF THE EUROPEAN COMMUNITIES  
5.47 The following summarizes the European Comm unities arguments in its third party written 
submission.   WT/DS336/R 
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1. Article 6.2 of the DSU 
5.48 In Korea – Dairy  the Appellate Body set out a four stage test for fulfilling the requirements of 
Article 6.2 DSU. As regards the fourth requirement , the Appellate Body considered that Article 6.2 
demands only a brief summary of the legal basis of the complaint, but the summary must, in any event, be one that is "sufficient to present the probl em clearly". In other words, it is not enough that 
the legal basis of the complaint is  summarily identified;  the identif ication must "present the problem 
clearly". 
5.49 In EC – Bananas  the Appellate Body stated that there are two important reasons for insisting 
on precision in the request for a panel.  First, it ofte n forms the basis for the terms of reference of the 
panel pursuant to Article 7 of the DSU;  and, se cond, it informs the defending party and the third 
parties of the legal basis of the complaint.  Th ese reasons were further described by the Appellate 
Body in Brazil – Desiccated Coconut.  In view of Japan's arguments in section II of its first written 
submission, it is in particular the reason relating to the rights of defence or "due process" that is at 
stake in this case. 
5.50 In this respect the Appellate Body found in Thailand – H-Beams  that : 
Article 6.2 of the DSU calls for sufficient clar ity with respect to the legal basis of the 
complaint, that is, with respect to the "claims" that are being asserted by the complaining party.  A defending party is entitled to know what case it has to answer, and what violations have been alleged so  that it can begin preparing its defence. 
Likewise, those Members of the WTO who intend to participate as third parties in panel proceedings must be informed of the legal basis of the complaint.  This 
requirement of due process is fundamental to  ensuring a fair and orderly conduct of 
dispute settlement proceedings. 
5.51 In US – OCTC Sunset Reviews  the Appellate Body specified furt her that for a panel request to 
"present the problem clearly", it must plainly connect  the challenged measure(s) with the provision(s) 
of the covered agreements claime d to have been infringed.  In EC-Bananas  the Appellate Body 
considered that there is a si gnificant difference between the claims identified in the request for the 
establishment of a panel, which establishes the panel' s terms of reference under Article 7 of the DSU, 
and the arguments  supporting those claims.  However, in Korea –  Dairy  the Appellate Body 
considered whether the listing of articles of an agre ement is generally sufficient to meet the standard 
of Article 6.2 DSU.  Therefore, the analysis must be made on a case-by-case basis.  
5.52 The Panel should first examine whether Korea h as presented claims that are not based on the 
legal bases identified in its panel request.  In the second stage the Panel should examine on a case by 
case basis whether the mere listing of treaty articles is  sufficient.  It would appear that for the second 
stage analysis the Panel has some discretion in or der to assess whether the abilit y of the respondent to 
defend itself was prejudiced. 
2. Burden of Proof and Standard of Review 
5.53 Any investigation involves an enquiry into fact s, evidence, law and legal characterisation of 
the facts.  Some degree of factual inference is inev itable in all investigations.  If there is significant 
factual inference, such a situation is sometimes described as one in which there is "circumstantial 
evidence", although what really char acterises such cases is  the degree of factual inference.  In such 
cases the authority may particularly look at the to tality of the facts and evidence when reaching its 
determinations.  Where it appears that necessary fact s or evidence are being withheld, the procedures 
set out in Article 12.7.  WT/DS336/R 
Page 74  
 
5.54 The SCM Agreement does not expressly impose on Members obligations regarding burden of 
proof rules to be applied by authorities in investig ations.  Article 1 uses the term "shall be deemed to 
exist", supporting the view that inference may be  appropriate or necessary when determining the 
existence of a subsidy, and particularly the imputat ion of the measure to a government.  Past panels 
and the Appellate Body have conf irmed this.  This is consistent with the fact that a subsidy 
investigation, unlike a dumping investigation, enquires into the behaviour of governments .  Whilst 
governments are subject to the same or an even hi gher obligation of co-operation as companies, there 
may be practical differences between the investig ation of companies and the investigation of 
governments.  For this and other reasons, in practice it is likely to be more difficult for an investigating authority to conduct effective verificati ons on government premises.  This situation also 
has implications for the Panel's standard of review.  
3. Interested Parties 
5.55 Article 12.7 refers to any interested Member  or interested party.  The term "Member" includes 
"government" as that term is first used in Article 1. 1(a)(1).  The term "government" is then used a 
second time in Article 1.1(a)(1), being defined  as "a government or any public body within the 
territory of a Member".  It follows that a bank that is a "public body" that is alleged to have made a 
financial contribution is necessarily to be identified with "government" and in turn with "Member";  
thus being in turn an interested Member or party w ithin the meaning of Article 12.7.  Article 1.1(a)(1) 
then refers to "a private body" that is entrusted or directed by government to carry out one or more of the functions illustrated, which would normally be vested in the government, and the practice in no 
real sense differs from practices normally followed by governments.  It follows that a bank that is a 
"private body" that is alleged to ha ve been entrusted or directed is also an interested Member or party 
within the meaning of Article 12.7. 
4. Financial Contribution 
• Direct transfer of funds 
 
5.56 Article 1.1(a)(1)(i) of the SCM Agreement does not provide that a subsidy is deemed to exist 
if there is  a direct transfer of funds.  Rather, it provi des that a subsidy is deemed to exist if " a 
government practice involves a direct transfer of funds".  This wording reflects the well established 
principle that the analysis is conducted on an accrual  basis, rather than a payment basis.  A subsidy 
exists at the moment it is granted , even if there has not yet been a direct transfer of funds.  The 
subsidy does not only come into existence at some later date when, for example, an amount of money 
is actually paid to the recipient pursuant to the term s of the grant.  Thus, all that is required is that 
there is a "government practice" (such as a grant) that "involves" "a direct transfer of funds" (a grant 
involves now or in the future a direct transfer of funds). 
5.57 It follows that whenever the terms of the "govern ment practice" (be it a grant, loan or equity 
infusion) are modified, and particularly in any manne r that is more favourable to the recipient, then 
there is a new "government practice" within the meaning of Article 1.1(a)(1)(i) which "involves" 
(now or in the future) "a direct transfer of f unds".  There is no doubt that the extension of the 
maturities of existing loans and a debt-to-equi ty swap qualify as "government practice" that 
"involves" (now or in the future) "a direct transf er of funds", thus triggering the application of 
Article 1.1(a)(1)(i) of the SCM Agreement . 
•
 Revenue foregone 
 5.58 In the light of the preceding observations, the EC  agrees with Japan that Korea's submissions 
with respect to revenue foregone are irrelevant.  WT/DS336/R 
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• Entrustment or direction 
 
5.59 The EC generally agrees with the submissions of Japan rather than those of Korea.  The EC 
believes that these issues have already been extensively discussed in the Panel Report in EC-DRAMs , 
and subsequently in the Appellate Body Report in US-DRAMs , and the EC concurs with those 
findings.  The EC respectfully invites this Pane l to follow the same ap proach in these Panel 
proceedings.  The EC reserves the right to re -visit this issue in its oral statement. 
5. Benefit 
• Any method used to calculate benefit to the recipient must be provided for in legislation 
or implementing regulations 
 
5.60 The first obligation in the chapeau of Article 14 requires that any method used by the 
investigating authority to calculate the benefit to the recipient is provided for in the national 
legislation or implementing regulations.  The EC disagrees with Korea's assertion that if there is an inconsistency with the first obligation in the chap eau of Article 14, it necessarily follows that the 
measure imposing countervailing duties "cannot be sust ained" or is "invalid".  Japan's municipal law 
is, at least in part, entitled "Guidelines …", whereas the chapeau of Article 14 refers to "legislation" 
and "implementing regulations".  The EC believes th at as a general matter in the municipal laws of 
WTO Members the terms "legislation" and "regul ation" would generally suggest measures having 
binding force, whereas the term "guidelines" might  not.  Notwithstanding this the use by Japan of 
"Guidelines" should be considered capable of bei ng consistent with the chapeau of Article 14.  
5.61 There is a distinction between the "method" and its application  in specific cases.  The fact 
that, when applying a method in a specific case, it is necessary to elaborate it, does not automatically 
mean that there is an inconsistency with the fi rst obligation in the chapeau of Article 14.  The 
dictionary meanings (which are re levant to although not determinativ e of the meaning) of the term 
"method" include:  "procedure for attaining an obj ect;  systematic arrangement, order." The term 
"method" thus indicates something that can be describ ed in relatively abstract and brief terms.  The 
use of the term "provided for" is significant.  Th e relevant obligation does not require, for example, 
that the method be "exhaustively set out";  but mere ly "provided for".  The use of this term simply 
indicates something that is "foreseen". 
• Any such method used to calculate benefit to the recipient must be consistent with the 
guidelines in Article 14, paragraphs (a) to (d) 
 
5.62 What must be consistent with the guidelines set out in paragraphs (a) to (d) of Article 14 is 
both the method set out in the national legislation or implementing regulations;  and the method used 
in the measure imposing the countervailing duty.  Ko rea has failed to precisely explain exactly which 
part of Japan's legislation or regulations (including Japan's Guidelines) is supposed to be inconsistent 
with paragraphs (a) to (d) of Article 14, and why.   "Extensions of loan maturities" are capable of 
falling within, for example, paragraph (b) of Article  14;  and thus within the corresponding provisions 
of Japan's legislation and regulations (including Japan's Guidelines).  The fact that the measure 
imposing countervailing duties calculates an amount of benefit with respect to such instruments does 
not indicate any inconsistency with the SCM Agreement .  The position is the same with respect to 
debt-equity swaps. 
6. Specificity 
5.63 These issues have already been extens ively discussed in the Panel Report in EC-DRAMs , and 
the EC concurs with the Panel in that case on this matter.  The EC invites this Panel to follow the 
same approach in these Panel proceedings. WT/DS336/R 
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7. Imposition of countervailing duties 
5.64 Countervailing duties are levied on imported pro ducts, calculated in terms of subsidization 
per unit of the subsidized and exported product, typically at an ad valorem  rate.  The ad valorem  rate 
is determined by expressing the amount of the s ubsidy as a percentage of the total value of the 
relevant sales of the firm in question.  There is no other basis on which the ad valorem  rate could be 
calculated.  The calculation can only be made on the b asis of data relating to the investigation period.  
The amount of the subsidy will therefore be the amount of the subsidy granted during the 
investigation period (or allocated to the investigati on period, if the subsidy pre-dates the investigation 
period).  As will the value of the relevant sales.  It is permissible to allocate large "non-recurring" 
subsidies over a period of time, starting with the year in which the subsidy is granted.  This approach 
reflects the duration of the economic "benefit" to the recipient of such subsidies and ensures that such 
large non-recurring subsidies do not escape from an appr opriate remedy.  After the end of year five, 
and in the context of assessment or refund proceedin gs based on a period of investigation or review 
contemporaneous with the exports fo r which final liability is being est ablished, and with reference to 
year six or later, the amount of the subsid y, and thus the duty, would be zero.    
5.65 The starting date for the period of allocation must be the year in which the subsidy is granted. 
The EC sees no basis on which the starting date could be deferred.  That would be to dissociate the 
date on which the subsidy was granted from the remedy , in a manner that would be inconsistent with 
the SCM Agreement .  Once the allocation period had ended, there is no further subsidy, and therefore 
no further remedy under the SCM Agreement .  Where the allocation period ends after  the date on 
which final measures are imposed, the final measure may nevertheless potentially remain in force for 
the five years provided for in Article 21.3, subject  always to the possibility of assessment or refund 
proceedings, or changed circumstances proceedings under Article 21.2 of the SCM Agreement .  The 
expiry of the allocation period does not trigger an automatic termination of the countervailing duty.  
Even if such a termination is requested by the exporting country, due process must be respected and 
the investigating authority has the right to investig ate, for example, any new allegations of subsidy, 
before deciding whether to continue the measure. 
5.66 The Panel should reject Korea's claim under Article 19.4.  The subsidy is always  found to 
have "existed" during the investigation period, as a proxy  for present subsidy.  It is never  found to 
exist on the date on which the countervailing duty is le vied.  The allocation period is used merely for 
calculating the ad valorem  rate of the countervailing duty.  Th e rule in Article 19.4 might operate 
during assessment or refund proceedings.  It has no relevance to the facts of the present case.  The 
position with respect to Korea's claim under Article 19.1 is less clear.  There is a distinction between a 
subsidy being "withdrawn" (such as, for example, th e repayment of a grant);  and a notional allocation 
period expiring.  On the other hand, Korea argues that  it is not justified for a Member to decide to 
impose a remedy, even in circumst ances where that Member has itsel f effectively recognised that the 
subsidy is no longer having any effects
 – a point with which one might at first sight have some 
sympathy.  That might also be seen as a point under Article 15, and here too the question(s) of 
causation and non-attribution are resolved by referen ce to the injury investigation period, and not the 
date of the final measure. 
5.67 No equivalent to the phrase in question "unl ess the subsidy or subsidies are withdrawn" 
appears in the Anti-Dumping Agreement .  That is presumably because dumping is in essence a matter 
of behaviour over time.  Whereas a subsidy is grante d at a specific moment or moments of time, even 
if it may have its effects over an extended period of time.  This suggests that the phrase is concerned 
with the punctual question of grant/withdrawal , rather than economic effects over time. 
8. Causation 
5.68 Once a subsidy to a company has been allocated to a specific product, it may be determined 
that the subsidy has had the effect of lowering th e price of that product.  In an environment of  WT/DS336/R 
 Page 77  
 
 
continuous subsidisation there may be no historical  trend of higher prices, but the application of 
straightforward economic reasoning nevertheless dictates such a conclusion.  The position under 
Part III of the SCM Agreement is not fundamentally different, even if, under Part V of the 
SCM Agreement the particular focus is on imports, given the nature of the remedy to be imposed. 
D. THIRD PARTY ORAL STATEMENT OF THE EUROPEAN COMMUNITIES  
5.69 The following summarizes the European Communities arguments in its third party oral 
statement. 
• Introduction 
 
5.70 The European Communities makes its third part y oral statement because of its systemic 
interest in the correct interpretation of the SCM Agreement .  There are six issues to comment on, and 
they are: 
• Article 6.2 of the DSU; 
• the circumstances in which the market benchmark for determining benefit may be 
other than the market of the granting Member; 
• the need to use the position of an outside inv estor, rather than an inside investor, as 
the market benchmark; 
• the distinction between the existence and grant of a subsidy; 
• the point at which a subsidy may be de emed to exist within the meaning of 
Article 1.1 of the SCM Agreement ;  and 
• the circumstances in which the change of ownership case law may be relevant. 
1. Article 6.2 of the DSU 
5.71 In view of its systemic interest in this case the European Communities did not enter into 
details in its written submission on whether or not certain items on Korea's panel request "presented 
the problem clearly" in accordance with Article 6.2 of the DSU.  The United States has in its written 
submission addressed two of these items in more detail.    
5.72 The European Communities would like to echo the concerns that the United States has 
presented in particular on item 15.  Under this item Korea generally listed seven different articles of 
the SCM Agreement and two articles of the GATT.  Korea claimed that these provisions have been 
breached because Japan "failed to conduct a thor ough and complete investigation, and failed to 
conduct its investigation and make determinations in accordance w ith fundamental substantive and 
procedural requirements". 
5.73 The European Communities is of the view that  item 15 is a prime example of a claim that 
does not present a problem clearly.  A number of provisions are cited generally although some of them contain multiple obligations .  In addition, these provisions are connected with an alleged 
omission and reference is just made to the breach  of "fundamental subs tantive and procedural 
requirements". 
5.74 The European Communities is of the view that such a presentation of the problem breaches 
the due process rights of the defendant. WT/DS336/R 
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2. The market benchmark for determining the ex istence and amount of a benefit is the 
market of the granting member, provided th at it has not itself been distorted by 
government subsidies 
5.75 When determining whether or not a financia l contribution confers a benefit, and when 
determining what the amount of any such benefit may be, it may be necessary to compare the actions 
of the government with a market benchmark.  Article 14(d) of the SCM Agreement refers, in the case 
of the provision of goods or services or the purch ase of goods by a government, to the prevailing 
market conditions for the good or service in question in the country of provision or purchase.  The other provisions of Article 14 do  not contain the same language. 
5.76 Thus, in the case of Article 14(d), the market benchmark relates to the Member, rather than 
the markets of other Members or the international ma rket.  The different market benchmarks could be 
different, depending, for example, on prevailing inter est rates and currency exchange rates.  In these 
circumstances, the correct benchmark is the market of the Member. 
5.77 However, the situation prevailing on the territory of the Member must nevertheless be capable 
of falling within the term "prevailing market  conditions", meaning market conditions that have not 
been predominantly distorted by government subsidy or intervention.  If, as would appear to be the 
case, the capital markets in Korea were distorted dur ing the relevant period by government subsidy or 
intervention, then it may be the case that there is, in  fact, no "market" as such on the territory of the 
granting Member suitable for use as a benchmark.  In  such circumstances, th e investigating authority 
may determine that there are no reliable market benc hmarks in the granting Member, and rely instead 
on suitable alternatives.
225 
3. The market benchmark for determining the exis tence and amount of benefit is that of 
an outside not an inside investor 
5.78 The European Communities then tu rned to a related but different question, namely that of 
whether the market benchmark for determining the existence and amount of benefit is that of an 
outside investor (that is, one that has no existing exposure to the bene ficiary) or an inside investor 
(that is, one that has an existing exposure to the beneficiary).  The European Communities considers 
that the market benchmark is that of an outside inv estor, not an inside investor.  That is especially the 
case in circumstances where the existing exposure of th e inside investor has been  created as a result of 
past government action.  That is, when the government  has previously entrusted or directed a private 
bank to take or maintain positions in Hynix other than on market terms, as would appear to be the 
case. 
5.79 Parties attempting to minimise or eliminate th e amount of benefit sometimes argue for an 
inside investor perspective.  They do so because th ey believe that a "market" benchmark based on the 
existing position of an inside investor may be lowe r.  That is based in turn on a rejection of the 
"expected utility model" of investment, according to which rational investors do not let the value of 
past investments affect present or  future investment decisions;  in favour of the so-called "prospect 
theory", according to which investors will continue to make investments in a particular project or 
entity in the hopes of minimizing past losses, even if  the investment would not be justified based only 
on the potential for future return. 
5.80 The European Communities considers that the SCM Agreement is based on a fundamental 
distinction between government on the one hand a nd markets on the other hand;  and that any 
                                                      
225Appellate Body Report, US-Softwood Lumber , paras. 89 to 107;  Panel Report, EC DRAMs , 
paras. 7.158 to 7.159 and footnote 171.  WT/DS336/R 
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measurement of benefit must be ma de by reference to an objective ma rket benchmark, that being one 
that does not depend on the subjective position of an existing stakeholder in the company.226 
4. Distinction between the existence of a subsidy and the grant of a subsidy 
5.81 The next point on which the European Communities would like to briefly comment relates to 
the distinction between the existence of a subs idy within the meaning of Article 1.1 of the 
SCM Agreement , and the moment at which a subsidy becomes available or is granted. 
5.82 Some subsidies may be unconditional from the mo ment they exist, in which case the moment 
of existence is the same  as the moment of granting.  This explains why it may not always be 
necessary to distinguish precisely between the two, a nd why the term "granting" may be used to refer 
to the same moment as the moment of existence.   
5.83 Other types of subsidies may be contingent on fu ture events.  Thus, the moment of existence 
and the moment of granting (when th e contingency is fulfilled) are, by definition , not the same, the 
moment of granting being after  the moment of existence.  In such cases it is necessary to distinguish 
between the existence of the subsidy, and the subsequent granting, when the contingency is 
fulfilled .   
5.84 This view is confirmed by the c onsistent manner (at least 15 times) in which the word "exist" 
is used in the SCM Agreement to refer to the moment at which a su bsidy is deemed to exist within the 
meaning of Article 1.1.227  The distinction between the existence of a subsidy and the granting of a 
subsidy was also confirmed by the Appellate Body in the Brazil – Aircraft  case.228  The Appellate 
Body also confirmed in the same case that "grantin g" occurs when all the legal conditions have been 
fulfilled that entitle the beneficiary to receive the subsidies, which is not the case if the exports in 
question have not yet occurred.229  Consistent with this approach , the Appellate Body found in the 
Canada – Automotive Industry  case that it is the "underlying legal instrument" that must provide 
expressly or by necessary implication that "the subsid y is available [or grante d] only upon fulfilment 
of the condition of export performance".230 
5.85 Thus, whilst the European Communities agrees with Japan that an actual "transfer of funds" is 
not essential in order for a subsidy to exist within the meaning of Article 1.1 of the SCM Agreement , 
                                                      
226 Panel Report, EC-DRAMs , para. 7.160. 
 227 SCM Agreement , Article 1.1  "a subsidy shall be deemed to exist";  Article 4.2  "the existence and 
nature of the subsidy in question";  Article 4.5 "the existence and nature of the measures in question";  
Article 7.2(a)  "the existence and nature of the subsidy";  Article 11.1  "the existence, degree and effect of any 
alleged subsidy";  Article 11.2  "the existence of a subsidy";  Article 11.2(iii)  "the existence, amount and nature 
of the subsidy";  Article 11.6  "the existence of a subsidy";  Article 17.1(b)  "a subsidy exists";  Article 19.1  "the 
existence and amount of the subsidy";  Article 19.4  "the subsidy found to exist";  Article 22.4  "the existence of 
a subsidy";  Article 22.4(iii)  "the existence of a subsidy";  Article 24.3  "the existence and nature of any 
subsidy";  Annex III, para. 2  "no subsidy should be presumed to exist". 
 228 Appellate Body Report, Brazil Aircraft , para. 156 :  "… we see the issue of the existence  of a 
subsidy and the issue of the point at which that subsidy is granted  as two legally distinct issues." (original 
emphasis).  
 229 Appellate Body Report, Brazil Aircraft , para. 158 "We agree with the Panel that "PROEX payments 
may be 'granted' where the unconditional legal right of the beneficiary to receive the payments has arisen, even 
if the payments themselves have not yet occurred." We also agree with the Panel that the export subsidies for 
regional aircraft under PROEX have not yet been "granted " when the letter of commitm ent is issued, because, at 
that point, the export sales contract has not yet been concluded and the export shipments have not yet occurred. 
For the purposes of Article 27.4, we conclude that the export subsidies for regional aircraft under PROEX are 
"granted" when all the legal conditions have been fulfilled that entitle the benefici ary to receive the subsidies. 
We share the Panel's view that such an unconditional legal right exists when the NTN-I bonds are issued." 
(footnotes omitted). 
230 Appellate Body Report, Canada – Automotive Industry , para. 100. WT/DS336/R 
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in making that point the European Communities wish es to make it clear that there are circumstances 
in which a distinction must be drawn between exis tence and grant, and these should not be considered 
to occur at the same moment in all cases. 
5. Point at which a subsidy may be deemed to exist within the meaning of Article 1.1 of the 
SCM Agreement 
5.86 The European Communities made a penultimate point relating to the moment at which a 
subsidy may be deemed to exist within  the meaning of Article 1.1 of the SCM Agreement .  In this 
respect, the European Communities is of the view th at a subsidy cannot be said to exist within the 
meaning of Article 1.1 until each of the relevant requirements set out in that provision has been fulfilled.  Thus, in the case of a grant, for exampl e, it would normally be necessary to identify such 
matters as the identity of the granting authority;  th e identity of the beneficiaries;  the form, amount 
and terms and conditions of the grant;  the time at which the grant would be made;  the purpose of the 
grant;  and so forth.  Prior to the requirements of Article 1.1 being met, it is not the case that all and any government action or omission, ev en if relating to the eventual be neficiary, are sufficient for there 
to be a subsidy within the meaning of Article 1.1. 
5.87 Thus, whilst the European Communities agrees with Japan that an actual "transfer of funds" is 
not essential in order for a subsidy to exist within the meaning of Article 1.1 of the SCM Agreement , 
in making that point the European Communities wish es to make it clear that a subsidy cannot be said 
to exist within the meaning of Article 1.1 until su ch time as each of the relevant requirements set out 
therein has been demonstrated to be met. 
6. The relevance of the change of ownership case law does not depend on privatisation 
5.88 Finally, the European Communities would like to  comment on the assertion made in the third 
party written submission of the United States that the change of ownership case law is not relevant to 
this case.
231  The European Communities disagrees in prin ciple with the United States suggestion that 
the case law should be so restricted.  In particul ar, the European Communities disagrees that the 
change of ownership case law is irrelevant, unless ther e is a privatisation.  The Appellate Body has 
expressly stated otherwise.232 
E. THIRD PARTY WRITTEN SUBMISSION OF THE UNITED STATES  
5.89 The following summarizes the United States argu ments in its third party written submission. 
1. Procedural Issues 
5.90 Claims 10 and 15 of Korea's Panel Request .  In Item 10, Korea's panel request refers to 
Article 15 of the SCM Agreement in its entirety;  likewise, Item 15 is exceedingly vague, cites to a 
number of articles containing multiple obligations, and provides no indication of the "problem" that is 
the subject of the dispute.  Insofar as the articles referenced therein contain multiple obligations, those 
aspects of Item 15 do not meet the standard establishe d under Article 6.2 and, like Item 10, should be 
considered outside of the Panel 's terms of reference. 
5.91 Analysis of "Prejudice" to the Respondent .  Korea incorrectly asserts that "'prejudice' to 
the responding party from alleged insufficiency of a panel request can only be established by a 
                                                      
231 United States third party written submission, paras. 60 to 64. 
 232 Appellate Body Report, US-CVDs on Certain Products from the EC , para. 124 :  "The Panel's 
absolute rule of "no benefit" may be defensible in the context of transactions between two private parties  
taking place in reasonably competitive markets;  howeve r, it overlooks the ability of  governments to obtain 
certain results from markets by shaping the circumstances and conditions in which markets operate." (bold italic 
emphasis added).  WT/DS336/R 
 Page 81  
 
 
consideration of the 'actual course of panel pro ceedings'" and therefore "a  panel cannot rule on a 
respondent's claim under Article 6.2 until the end of the process."233  While panels are not required in 
all cases to make findings prior to the conclusion of the proceedings, evaluation of prejudice to the 
respondent does not preclude them from doing so, and panels have in the past issued preliminary 
rulings regarding DSU Article 6.2 well before the proceedings have concluded.  Korea's argument 
appears to rest upon a mischaracterization of refere nces by certain panels and the Appellate Body to 
the "course of the panel proceedings" in analyzin g compliance with DSU Article 6.2, and would 
substantially compromise the ability of respondents and third parties to participate effectively in panel 
proceedings where a complaining party has made a number of vague assertions of breaches of WTO obligations.  
2. Burden of Proof, Standard of Review, and Evidence 
5.92 Burden of Proof.
  In its submission, Korea often appears to advance facts and arguments 
without specifying the legal obligations that it as serts are breached as a result, or identifies legal 
obligations it claims have been breached without i ndicating the arguments that support its conclusion.  
As the Appellate Body noted in US – Gambling , "A complaining party may not simply submit 
evidence and expect the panel to divine from it a claim of WTO-inconsistency.  Nor may a 
complaining party simply allege facts wit hout relating them to its legal arguments."234  Absent such an 
analysis with respect to these claims, the Unite d States submits that Korea has not established a prima 
facie case. 
5.93 Standard of Review.   Certain aspects of Korea's arguments suggest that it misunderstands 
the proper standard of review that a panel should apply when reviewing the WTO-consistency of an 
investigating authority's countervailing duty determinati on.  It is well established that a panel may not 
conduct a de novo  review of the evidence before the inv estigating authority or substitute its own 
judgment for that of the investigating authority.  The SCM Agreement does not require an 
investigating authority to take into consideration economic theories that are not on the record of the 
proceedings in making its decision.  Furt hermore, as the Appellate Body noted in US – Lamb Meat , a 
panel may not conclude that a decision is "not reas oned" simply because an alternative explanation is 
found to be "plausible."  Rather, the explanation under review must be found not "adequate in the 
light of that alternative explanation."235 
5.94 Evidence .  Korea makes a number of incorrect asserti ons regarding the nature of the evidence 
that an investigating authority must identify a nd how it must analyze that evidence in making its 
determination.  In particular, th roughout its submission, Korea claims that there exists a general 
obligation for an investigating authority to identif y "positive evidence demonstrating the existence of 
each element required for the imposition of antidumping or countervailing duties."236  Beyond where 
expressly provided, the SCM Agreement does not contain specific standards regarding the evidence 
that investigating authorities must use to support their determinations. 
3. Subsidy Determination 
5.95 JIA's Treatment of Several Banks as "Interested Parties" .  Korea claims that the JIA 
improperly treated various financial institutions as "interested parties" and inappropriately applied 
                                                      
233 Response of Korea to Preliminary Ruling Request of Japan, paras. 30 and 36.  
234 Appellate Body Report, United States – Measures Affecting the Cross-Border Supply of Gambling 
and Betting Services , WT/DS285/AB/R, adopted 20 April 2005, paras. 140-41. 
235 Appellate Body Report, United States – Safeguard Measures on Imports of Fresh, Chilled or Frozen 
Lamb Meat from New Zealand and Australia , WT/DS177/AB/R, WT/DS178/AB/R, adopted 16 May 2001, 
para. 106. 
236 First Written Submission of Korea, paras. 141 and 220. WT/DS336/R 
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facts available when these financial institutions failed to respond to requests for information.
237  
Korea's narrow interpretation of "interested party" is  contradicted by the text of Article 12.9 of the 
SCM Agreement , which provides that "interested parties" "shall" include certain entities, such as 
foreign exporters or producers of the product under i nvestigation, but then specifies that "This list 
shall not preclude Members from allowing domestic or foreign parties other than those mentioned 
above to be included as interested parties."  Fu rthermore, the ordinary meaning of the term 
"interested" supports the conclusion that an entrusted or directed entity may be considered an "interested party" under the SCM Agreement .  Korea's narrow reading of Article 12.9 is also at odds 
with how the term "interested pa rty" is used elsewhere in the SCM Agreement , and the panel's 
findings in EC – DRAMS  support the conclusion that an investigating authority may apply facts 
available when a third party entity fails  to cooperate with an investigation.
238  
5.96 Korea's Interpretation of the "Entrusts or Directs" Standard .  Referencing the Appellate 
Body report in US – DRAMS, Korea asserts that the evidence relied upon by an investigating authority 
in cases involving entrustment or directi on must be "probative and compelling."239  Neither 
Article 1.1(a)(1)(iv) itself nor any other provision of the WTO agreements supports the notion that a 
special evidentiary standard exists for purposes of  determining the existence of entrustment or 
direction.  The Appellate Body's report in US – DRAMS  states that an investigating authority is not 
required to base its determination on a "qualitative st andard higher than that contemplated by the SCM 
Agreement ."240  Korea also argues that the determination was insufficient because "there is actually no 
evidence that the Korean government told any of the creditors what to do in any of the 
restructurings."241  Korea's argument appears to suggest th at, in order to establish entrustment or 
direction, an investigating authority must have  evidence of a "direct" or "actual" government 
delegation or command, an interpretation th at is unsupported by the text of the SCM Agreement , as 
clarified by prior panel and Appellate Body finding s.  Furthermore, Korea appears to introduce an 
additional requirement of governmental "intent" or "m otive" to a finding of entrustment or direction 
which has no support in the text of the SCM Agreement .  Korea also suggests that the JIA could not 
reach a finding of entrustment or direction absent a finding that the Korean government intended to 
save Hynix "at the expense of its creditors."242  The existence of entrustment or direction under 
Article 1.1(a)(1)(iv) is determined by reference to the actions of the government, as well as the 
financial condition of the recipient firm at the time the financial contribution is made .  As long as the 
investigating authority reasonably concludes based  on the record that th ere is evidence that a 
government has entrusted or directed a body to prov ide a financial contribution, Article 1.1(a)(1)(iv) 
is satisfied.  Finally, Korea proceeds to critique ev idence cited in the JIA's analysis on a piecemeal 
basis, contrary to the holistic approach that the JIA appears to have used in its determination.  Insofar 
as the JIA appears to have adopted a holistic a pproach, the Panel should evaluate whether the 
evidence as a whole supports the determination, and should avoid looking at individual pieces of 
evidence in isolation as advocated by Korea in its submission. 
5.97 Korea's Interpretation of "Financial Contribution".   Korea's interpretation of the term 
"direct transfer of funds" is inconsistent with the provisions of Article 1.1(a )(1) and at odds with prior 
findings of WTO panels and the Appellate Body.  Article 1.1(a)(1)(i) specifies a number of examples 
of instruments that may result in a direct transfer of funds, but does not suggest that Article 1.1(a)(1)(i) is limited to the enumerated in struments.  Nothing in the text of the agreement 
supports Korea's narrow interpretati on of Article 1.1(a)(1)(i), particularly Korea's suggestion that 
"funds" only refers to "money;" indeed , prior panels have concluded that the types of transactions that 
                                                     
 
237 Id., paras. 153-164. 
238 Panel Report, European Communities – Countervailing Measures on Dynamic Random Access 
Memory Chips from Korea , WT/DS299/R, adopted 3 August 2005, paras. 7.266-7.267. 
239 First Written Submission of Korea, para. 196. 
240 Id., para. 139. 
241 Id., para. 144. 
242 Id., para. 200.  WT/DS336/R 
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Korea claims do not constitute "d irect transfers of funds" may in  fact qualify as such.  Korea's 
conclusion that the French and Spanish texts of the SCM Agreement support its "money changing 
hands" interpretation of "direct transfer of funds" is unsupported by the ordinary meaning of those 
terms.  Moreover, the Korea – Commercial Vessels  panel found that, contrary to what Korea now 
asserts, loan restructuring, debt forgiveness and debt -to-equity swaps are direct transfers of funds.   
Korea also incorrectly argues that modifications of existing loan terms and debt-to-equity swaps 
can only be defined as "revenue foregone " under Article 1.1(a)(1)(ii) of the SCM Agreement .243  
Nothing in the text of Article 1.1(a)(1)(i) obligat ed the JIA to treat the se transactions as foregone 
revenue under Article 1.1(a)(1)(ii).   Further, in the context of Article  1.1(a), the term "revenue" refers 
to forms of government revenue, such as taxes, duties, or other monies collected by a government, 
rather than income or profit by a creditor, as Korea seems to suggest.  
5.98 Korea's Approach to the Benefit Analysis.   Korea argues that the government "financial 
contribution" that confers a benefit is the gove rnment's action of entrustment or direction244, and that 
therefore the investigating authority was required to  evaluate whether the action of entrustment or 
direction made Hynix "better off."245  Korea's emphasis on whether the "restructuring made the 
creditors  ...  "better off'" is misplaced:246  in determining the existence of a benefit, the issue is the 
position of the recipient "but for" or "absent" the government's financial contribution.  Korea 
misidentifies the "financial contribution" by wh ich the existence of a benefit is determined 
under Article 1.1.  In essence, Korea confuses the two-step financial contribution analysis required under Article 1.1(a)(1)(iv) in cases of  entrustment or direction with the analysis 
required under Article 1.1(b) to determine the ex istence of a benefit.  The term "financial 
contribution," as stated in Article 1.1(a)(1), n ecessarily refers to the functions of the types listed 
in subparagraphs (i) through (iii), irrespectiv e of whether the case is one of government 
entrustment or direction.  The term does no t, as Korea improperly asserts, refer to the 
government action of entrusting or directing.  Notably, in US – DRAMS , the Appellate Body 
found that "a finding of entrustment or direction, by itself, does not establish the existence of a 
financial contribution."
247  Further, Korea's argument would be nearly impossible to apply:  Korea's 
approach to the benefit analysis would involve comparing the government entrusted or directed 
restructuring to a hypothetical non-government entrusted or directed restructuring.   
5.99 Privatization Jurisprudence and Determinatio n of Benefit From a Debt-to-Equity Swap.   
Citing the Appellate Body report in US – Countervailing Measures on Certain EC Products , Korea 
argues that the JIA was required to consider the e ffect of the change in Hynix's share ownership 
during the December 2002 restructuring on Hynix's benefit, and that its failure to do so was 
inconsistent with Articles 10, 14, 19, and 21 of the SCM Agreement .248  A debt-to-equity swap, in 
which creditors exchange the debt owed them for equity shares in a firm, is not the same as the 
privatization of a state-owned firm, and Korea has not demonstrated that a privatization occurred in 
this case:  it has not asserted that the government ow ned Hynix prior to the debt-to-equity swap and 
that, through the swap, it transferred all or substantia lly all of Hynix to a new private owner, retaining 
no controlling interest for itself.  Further, the ques tion posed by privatization analysis is whether the 
privatization of a firm extinguishes the benefit received from a prior  financial contribution.  As Korea 
notes, the privatization methodology described above  applies to an analysis of the benefit from 
subsidies "received before the change in ownership."249  Here, it is the restructuring debt-to-equity 
swap itself that the JIA concluded conferred the benefit.  For these reasons, the Appellate Body's 
                                                      
243 Id., paras. 176-178. 
244 Id., para. 228.  
245 Id., para. 228-29. 
246 Id., para. 242 (emphasis added).   
247 Appellate Body Report, United States – Countervailing Duty Investigation on Dynamic Random 
Access Memory Semiconductors (DRAMS) from Korea , WT/DS296/AB/R, adopted 20 July 2005, para. 124.   
248 First Written Submission of Korea, paras. 261-262. 
249 Id., para. 261. WT/DS336/R 
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assessment of privatization in US – Countervailing Measures on Certain EC Products  is irrelevant to 
the analysis of whether the December 2002 debt-to- equity swap resulted in a benefit to Hynix. 
4. Injury Determination 
5.100  Articles 15.5 and 19.1 of the SCM Agreement.  Korea's claim that the JIA's injury 
determination is inconsistent w ith Articles 15.5 and 19.1 of the SCM Agreement proceeds from the 
premise that these provisions require authorities to  demonstrate a causal link between the subsidy 
practice(s) at issue and the material injury experienced by the domestic industry.  Korea's 
interpretation of Articles 15.5 and 19.1 is inconsis tent with their language and prior reports discussing 
them.  The subject of both the first sentence of Ar ticle 15.5 and the third clause of Article 19.1 is the 
same:  "the subsidized imports."  Thus, under each provision, it is the "subsidized imports" that must 
be causing injury.  This conclusion is buttressed by the second sentence of Article 15.5, which states 
that "[t]he demonstration of a causal relationship be tween the subsidized imports and the injury to the 
domestic industry shall be based on an examination of  all relevant evidence before the authorities."  
The "demonstration" that the first clause of this sentence references is the same thing that "must be 
demonstrated" for purposes of the first sentence of Article 15.5.  Additionall y, footnote 47 of the 
SCM Agreement indicates that an authority properly conduc ts the assessment of "the effects of 
subsidies" referenced  in the first sentence of Artic le 15.5 by examining the volume, price effects, and 
impact of the subsidized imports.  It does not require an authority to conduct a separate or independent examination of  subsidy practices.  In United States – Imposition of Countervailing Duties 
on Imports of Fresh and Chilled Atlantic Salmon from Norway , the panel rejected the same argument 
that Korea raises here.
250  Contrary to Korea's assertion, WTO panel and Appellate Body reports 
reinforce the notion that the Atlantic Salmon panel's interpretation of Artic le 6:4 of the Tokyo Round 
Subsidies Code is fully applicable with respect to the nearly identical wording of Article 15.5 of the 
SCM Agreement .  This reading is further supported by the two previous panel reports addressing 
Korean challenges to countervailing duty measur es on DRAMs.  In both reports, the panels 
considered injury caused by the subsidized imports  to be the focus of Article 15.5251. 
F. THIRD PARTY ORAL STATEMENT OF THE UNITED STATES  
5.101  The following summarizes the Un ited States' arguments in its third party oral statement. 
5.102  The United States made a few brief points on the following topics:  (1) the preliminary ruling 
requests of Japan;  (2) certain threshold issues rega rding burden of proof, standard of review, and 
evidence;  (3) two issues regarding the subsidy de termination of the Japanese investigating authority 
(or "JIA");  and (4) the JIA's injury determination.  
1. Preliminary Ruling Requests  
5.103  Regarding Japan's preliminary ruling requests, a panel must evaluate the consistency of a 
panel request with DSU Article 6.2 based on the term s of the request itself.  Contrary to Korea's 
assertion in its December 1 submission, "information reasonably available to the responding parties at the time they received the panel request", but that was not included in the request, is not
 relevant to an 
assessment of whether the panel request complies with Article 6.2.252  Korea asserts that information 
submitted to the JIA could be deemed "reasonably ava ilable" such that Japan would not be prejudiced 
by a defective panel request.  The United States beli eves that this assertion is legally irrelevant and 
                                                      
250 SCM/153 (adopted 28 April 1994), paras. 335-339.  
251 Panel Report, United States – Countervailing Duty Investigation on Dynamic Random Access 
Memory Semiconductors (DRAMS) from Korea , WT/DS296/R, adopted 20 July 2005, modified by Appellate 
Body Report, WT/DS296/AB/R., para. 7.320. 
252 Initial Comments of the Republic of Korea on the Expanded Request for a Preliminary Ruling in 
Japan's First Written Submission (Dec. 1, 2006), para. 7.  WT/DS336/R 
 Page 85  
 
 
factually doubtful.  However, even if it were corre ct, Korea ignores the fact that such information was 
not "reasonably available" to other WTO Members, in cluding the third parties to this proceeding.  
5.104  DSU Article 6.2 establishes a standard that is no different for claims relating to antidumping 
and countervailing duty determinations than for claims  relating to other types of measures.  In all 
instances, a panel request must "identify the specifi c measures at issue and present a brief summary of 
the legal basis of the complaint su fficient to present the problem clearly."  With respect to Items 10 
and 15 of Korea's panel request, the United States agr ees with Japan that, to the extent they reference 
articles containing multiple obligations without sp ecifying the particular subprovision at issue, 
Items 10 and 15 do not satisfy the requirements of DSU Article 6.2, and the Panel should find them to 
be outside the Panel's terms of reference.  Korea' s arguments to the contra ry do not accord with the 
text of Article 6.2, and, if accepted, would subs tantially compromise the ability of both third parties 
and responding Members to participate effectively in panel proceedings. 
2. Burden of Proof, Standard of Review, and Evidentiary Standards  
5.105  Turning to a different topic, as the United St ates discussed in its written submission, Korea's 
first submission fails to make a prima facie case with respect to certain claims, suggests an incorrect 
standard of review in analyzing others, and mi scharacterizes how the Panel should properly assess the 
evidence before the JIA in evaluating Korea's claims.  
5.106  For example, in its five paragraphs challengi ng Japan's specificity determination, Korea does 
not cite once to Article 2 of the Agreement on Subsidies and Countervailing Measures  ("SCM 
Agreement "), much less a particular provisi on or obligation of that Article.253  Korea simply has not 
met its burden of putting forth both evidence and legal argument  to support each element of its 
claim.254  Korea cannot expect the Panel to make its case for it, by choosing which particular 
provisions of the SCM Agreement might be implicated and how Japan might have breached its 
obligations under those provisions.  In the United St ates' submission, several  other areas in which 
Korea's submission appears to have failed to set forth a prima facie case were noted.255 
5.107  In addition to asking the Panel to make its case for it, Korea would have the Panel engage in a 
de novo  review of Japan's subsidy determination.  Kor ea advances an alternativ e theory to the JIA's 
analysis of entrustment or direction, based  upon economic and corporate workout theories.256  
However, it appears that the evid ence upon which this theory is b ased was not on the record before 
the investigating authority.  As the Appellate Body noted in US – DRAMS , a panel's findings may not 
be based on facts that were not before the investigating authority at the time it made its 
determination.257  Moreover, and just as importantly , as the Appellate Body noted in US – Lamb Meat , 
the question before the Panel is not whether an alternative explanation advanced by Korea is 
"plausible."  Instead, the question is whether the JIA provided a reasoned and adequate explanation of 
how the evidence on the record supported its findings, and how those findings supported its overall determination. 
5.108  Additionally, in several portions of its subm ission, Korea erroneously urges the Panel to 
impose an evidentiary standard  on an investigating authority not contemplated by the SCM 
Agreement .  Other than where expressly stated, the SCM Agreement does not require an investigating 
                                                     
 
253 Korea First Written Submission, paras. 253-257. 
254 See Appellate Body Report, United States – Measures Affecting the Cross-Border Supply of 
Gambling and Betting Services , WT/DS285/AB/R, adopted 20 April 2005, paras. 140-41. 
255 US Third Party Submission, para. 15. 
256 See, e.g. , Korea First Written Submission, paras. 43-57. 
257 Appellate Body Report, United States – Countervailing Duty Investigation on Dynamic Random 
Access Memory Semiconductors (DRAMS) from Korea , WT/DS296/AB/R, adopted 20 July 2005, para. 175. WT/DS336/R 
Page 86  
 
authority to support a subsidy dete rmination with "positive evidence,"  and the Agreement contains no 
requirement that evidence of entrustment or  direction be "probative and compelling."
258  
5.109   Thus, Korea's first submission rests on a number of incorrect characterizations regarding the 
burden of proof, standard of review, and evidentiary  standards to be applied in evaluating the claims 
raised in this proceeding.  The Panel should declin e Korea's invitation to make its case for it, based 
upon a de novo  review of the evidence and economic theori es not on the record in the investigation, 
using evidentiary standards not contemplated by the SCM Agreement .  
3. Rejection of Private Benchmarks 
5.110  Turning to the JIA's benchmark analysis, the United States addressed Korea's arguments in 
the United States' written submission.  The United States would like to address the assertion by China 
in its own third party submission that there is a "very high threshold" for rejecting as benchmarks 
investments or loans made by private entiti es that were not entrusted or directed.259  Contrary to 
China's assertion, the SCM Agreement does not impose a special standard on investigating authorities 
in selecting a benchmark.  Therefore, consistent with SCM Agreement Article 12.2, the task for the 
Panel is to evaluate whether a reasonable, objectiv e decisionmaker, looking at all the evidence on the 
investigation record, could have concluded that th e benchmark selected by the JIA was appropriate. 
5.111  A number of factors may render a private entity's loan or investment an inappropriate 
benchmark, and the text of Article 14(a) and (b ) does not impose a higher burden on an investigating 
authority in making such a determination.  For example, as the panel in EC – DRAMS  noted, the 
nature of a private entity's relationship with the r ecipient of the financial contribution as well as with 
the government, and the particular characteristics of the private entity's investment or loan in relation 
to the financial contribution at issue, may make  it an inappropriate benchmark for purposes of an 
investigating authority's analysis.260  In such circumstances, an i nvestigating author ity may properly 
disregard investments or loans of tho se entities insofar as, consistent with SCM Agreement 
Article 14(a) or (b), they do not reflect "the usua l investment practice ... of private investors in the 
territory" or a "comparable commercial loan," resp ectively.  Likewise, circumstances may exist in 
which the government's financial contribution affect s the terms on which private entities invest in, or 
lend to, a particular industry or company, such that  private investments in, or loans to, the subsidy 
recipient would not be appropriate benchmarks. 
5.112  Furthermore, the United States disagrees with Ch ina's assertion that the threshold is "even 
higher if certain private entities also participate in the same  transactions that are alleged to be 
subsidies."261  In fact, in such circumstan ces, the private loan or investme nt may be even less likely to 
reflect "the usual investment practice ... of privat e investors" or a "comparable commercial loan," 
insofar as the terms on which the loan or inv estment was made may be influenced by the 
government's financial contribution.  Accordingly, an  investigating authority may properly reject such 
loans or investments as benchmarks. 
5.113  Finally, China's reliance on the Appellate Body's findings in Softwood Lumber  is misplaced.  
As China concedes, the Appellate Bo dy in that case was analyzing the language of Article 14(d), not 
Article 14(a) or (b).  Furthermore, the Appellate Body acknowledged that private benchmarks may be 
inappropriate if they are affected by extensive government involvement in the market262, explaining 
                                                      
258 Korea First Written Submission, para. 196. 
259 China Third Party Submission, section 2.1. 
260 Panel Report, European Communities – Countervailing Measures on Dynamic Random Access 
Memory Chips from Korea , WT/DS299/R, adopted 3 August 2005, para. 7.206 fn. 185. 
261 China Third Party Submission, para. 15 (emphasis in original). 
262 Appellate Body Report, United States - Final Countervailing Duty Determination With Respect to 
Certain Softwood Lumber From Canada , WT/DS257/AB/R, adopted 17 February 2004, paras. 100-103.  WT/DS336/R 
 Page 87  
 
 
that private market prices may be inappropria te as benchmarks if the extensive government 
involvement in the market indirectly affects those pr ices.  Similarly, if a government intervenes in the 
market to support a particular industry or company,  through grants, loans, or investments, this 
government support could influence the decisions of  private entities to invest in, or lend to, an 
industry or company.  In such circumstances, gr ants, loans, or investments by these entities may not 
be appropriate benchmarks, even if the entities have not been entrusted or directed by the government. 
4. The Chapeau of Article 14 
5.114  With respect to Korea's assertion that Japan breached its obligation under the chapeau of 
Article 14 to provide in its national legislation or  regulations for any method used to calculate the 
benefit, the United States does not offer a view on th e particular facts.  However, the United States 
agrees with the EC that, even if the Panel finds th at Japan breached this obligation,  such a finding 
does not necessarily mean that the counterva iling duty determination itself is invalid.263  Nothing in 
the text of the chapeau so provides, and Ko rea does not identify any obligation in the WTO 
Agreements that requires such a result.  If the Pane l finds that Japan acted inconsistently with the 
chapeau, then – consistent with DSU Article 19.1 – any recommendation to Japan to bring its 
measures into conformity with the Agreement shoul d leave it to Japan to decide precisely how it does 
so.  
5. Injury Determination 
5.115  With respect to the JIA's injury determina tion, the United States disagrees with Korea's 
contention that Articles 15.5 and 19.1 of the SCM Agreement require authorities to demonstrate a 
causal link between the subsidy practice(s) at issu e and the material injury experienced by the 
domestic industry.  
5.116  With respect to the text of the pertinent provi sions, the subject of both the first sentence of 
Article 15.5 and the third clause of Article 19.1 is the same:  "the subsidized imports."  Under each provision, it is the "subsidized imports" that must be causing injury.   
5.117  The first sentence of Article 15.5 further states that an authority must demonstrate that the 
subsidized imports are causing injury "through the e ffects of subsidies."  This phrase does not appear 
in the text in isolation.  Instead, its meaning is explained by footnote 47 of the SCM Agreement .  
Footnote 47 indicates that the pertinent "effects of  subsidies" are those set forth in Articles 15.2 
and 15.4.  
5.118  In turn, both Articles 15.2 and 15.4 of the SCM Agreement concern the "subsidized imports."  
Neither provision requires an authority to make an  independent assessment of the effects of the 
subsidy itself.  Rather, Article 15.2 requires the aut hority to consider "the volume of the subsidized 
imports" and "the effects of subsidized imports on pr ices."  Article 15.4 concerns examination of "the 
impact of the subsidized impor ts on the domestic industry." 
5.119  Consequently, footnote 47 to the SCM Agreement indicates that an authority properly 
conducts the assessment of the "effects of subsidies" referenced in the first sentence of Article 15.5 by 
examining the volume, price effects, and impact of the subsidized imports .  Thus, the first sentence of 
Article 15.5, along with its footnote, directs an authority to ascertain that the subsidized imports  are 
causing injury.  It does not require the authority to conduct a separate or independent examination of the effects of subsidy practices . 
                                                     
 
263 EC Third Party Submission, para. 35. WT/DS336/R 
Page 88  
 
5.120  This interpretation of Article 15.5 finds support in the Atlantic Salmon GATT panel's 
interpretation of virtually identical language in Article 6:4 of the Tokyo Round Subsidies Code.
264  It 
is also consistent with numerous dispute panel a nd Appellate Body reports.  Indeed, each of the two 
previous panel reports addressing Korea's cha llenges to countervailing duty measures on DRAMs 
considered injury caused by the subsidized imports  to be the focus of Article 15.5.265   
5.121  Finally, the Korea – Commercial Vessels panel report on which Korea relies does not purport 
to address injury or causation standards in counter vailing duty investigations.  Instead, it addresses the 
unrelated "serious prejudice" provisions of Article 6.3(c) of the SCM Agreement .  The Panel's 
conclusion in Commercial Vessels was dependent on the distinctive textual structure of Article 6.3 – 
one that is not shared by Article 15.5.  Indeed, in its submissions to the panel in Commercial Vessels , 
Korea argued that the causation standards for "s erious prejudice" inquiries under Article 6 were 
different from those for countervailing duty investiga tions under Article 15.  Korea was correct at the 
time in drawing a distinction between the provisions in Articles 6 and 15.  The Panel should draw the 
same distinction for purposes of this dispute. 
VI. INTERIM REVIEW 
6.1 On 16 April 2007, we submitted the Interim Repor t to the parties. Both parties submitted 
written requests for the review of precise aspects of the Interim Report.  Parties also submitted written 
comments on the other party's comments.  Neither pa rty requested an interim review meeting.  We 
have briefly outlined our reaction to the parties' comments below.  
A. COMMENTS BY KOREA  
6.2 In addressing Korea's comments, we note that Korea has sought to re-argue many of the 
points that it made during its submissions.  This is not necessarily the purpose of the interim review 
mechanism set forth at Article 15.2 of the DSU .  In particular, we do not consider that Article 15.2 of 
the DSU  requires us to provide a defence of our findings at the Interim Review stage. 
6.3 Regarding our finding at para. 6.91 of the Inte rim Report (para. 7.91 of this Report), Korea 
doubts our assessment of the JIA's use of the word "the refore".  We have reviewed Korea's arguments, 
but see no need to amend our findings.  We remain of  the view that the JIA's conclusion was based on 
findings of fact, rather than abstract economic theory. 
6.4 Regarding para. 6.275 of the Interim Report (p ara. 7.276 of this Report), Korea expresses 
concern that the Interim Report appears to accept th e proposition that a benefit may be found solely 
on evidence that the creditors failed to undertake a suffi cient analysis of the restructuring.  We have 
included note 475 to this Report in order to provide some clarification of our finding.  We remain of 
the view that evidence of reliance on non-commercia l considerations indicates terms more favourable 
than those available from the market. 
6.5 Regarding paras 6.288 to 6.289 of the Interim Report (paras 7.289 to 7.290 of this Report), 
Korea claims that ther e is no basis in the SCM Agreement  for applying "facts available" when 
creditors that were never contacted do not provide in formation that they were never asked to submit.  
Notes 484 and 485 to this Report make it clear that the JIA only applied facts available in respect of 
"interested parties", and only treated Other Cred itors to which it sent questionnaires as "interested 
parties".  Accordingly, there is no factual basis fo r Korea's allegation that we found that the JIA was 
entitled to use facts available in respect of Other Cr editors that did not provide information that they 
                                                      
264United States – Imposition of Countervailing Duties on Imports of Fresh and Chilled Atlantic 
Salmon from Norway , SCM/153 (adopted 28 April 1994). 
265 EC – DRAMS , paras. 7.401-7.402;  US – DRAMS (Panel) , para. 7.320.  WT/DS336/R 
 Page 89  
 
 
were never asked to submit.  We therefore see no need to change our findings in light of Korea's 
comment. 
6.6 Regarding para. 6.392 of the Interim Report (para.  7.393 of this Report), Korea asserts that an 
investigating authority should not be allowed to  base its decision on "facts available" whenever 
needed information is lacking fro m the record, in light of the investigating authority's need to 
complete its investigation.  Korea asserts that such  an approach in the present case led to Hynix being 
"punished for the actions of third parties that it coul d not control".  It is a practical reality that an 
investigating authority must in all circumstances be able to complete its investigation on the basis of 
facts, even if interested parties and third pa rties are non-responsive.  However, this does not 
necessarily mean that respondents will be "punish ed" as a result of the non-responsiveness of some 
third party, since the investigating authority is simply completing its investigation on the basis of 
facts.  Korea has failed to demonstrate that Hynix was "punished" in the present case.  In particular, 
Korea failed to establish that the JIA made any a dverse inferences against Hynix.  We therefore see 
no need to amend our findings in light of Korea's comment. 
6.7 Regarding paras 6.441 to 6.443 of the Interim Report (paras 7.442 to 7.444 of this Report), 
Korea claims that the Pane l ignored the normal usage of the term "transfer of funds".  Korea suggests 
that we did so "out of a concern that a finding that  extensions of loan maturities and debt-equity swaps 
were not 'direct transfers of funds' would mean that  those transactions could [not] be classified as 
'financial contributions' under the SCM Agreement".  This, however, was not a concern that motivated 
our findings.  Instead, we were concerned to interp ret the term "transfer of funds" in accordance with 
the requirements of Article 3.2 of the DSU .  We stand by that interpretation, and see no need to amend 
our findings in light of Korea's comments. 
6.8 Regarding our findings on Korea's Causation of Injury claim, Korea takes issue with our 
treatment of (i) the relationship between Article 15.5 of the SCM Agreement  and Article VI of the 
GATT 1994 , (ii) the relevance of the Article 6 serious prejudice causal standard, and (iii) the relevance 
of Article 11.2.  We considered these issues ca refully in reaching our interim findings, and see no 
need to amend our findings in light of Korea's comments. 
B. COMMENTS BY JAPAN  
6.9 Japan made a number of comments regarding typo graphical and clerical errors contained in 
our Interim Report.  We are grateful for those comments, and have made the necessary corrections.  Japan also requested certa in changes to avoid suggestions that  the Panel was implicitly criticizing 
Japan, and to clarify the arguments made by Japan.  We  have modified certain of our findings in line 
with these requests.  In addition,  Japan made certain substantive comments, to which we respond 
below. 
6.10 Regarding para. 6.166 of the Interim Report (p ara. 7.166 of this Report), Japan made a 
number of comments regarding the Panel's findings  on the JIA's treatment of the contractual 
relationship between Deutsche Bank and Hynix.  We have made a number of changes to clarify our 
findings in this regard.  In doing so, we stand by our conclusion that the JIA could not properly have 
called into question the independence of the De utsche Bank Report on the basis of Deutsche Bank's 
contractual relationship with Hynix. 
6.11 Regarding paras 6.167 and 6.168 of the Interim Report (paras 7.167 and 7.168 of this Report), 
Japan requested a number of changes regarding th e implications of the appointment of Morgan 
Stanley Dean Witter Asia Ltd. as a joint financial adviser with Deutsche Bank.  According to Japan, 
the JIA found that Morgan Stanley disagreed with Deutsche Bank's conclusions, and in any event only 
played a supplementary role in the process.  Japan also asserts that Korea did not make any arguments 
regarding the role of Morgan Stanley in the review  of the December 2002 restructuring.  First, we do 
not consider that the scope of our findings shoul d necessarily be limited to the arguments of the WT/DS336/R 
Page 90  
 
parties.  Provided we remain within our terms of reference, we consider that we have discretion to 
apply our own legal reasoning to the matter before us.  Second, the facts that Morgan Stanley may 
have disagreed with Deutsche Bank, or may only have  played a supplementary role in the review of 
the restructuring, do not negate our view that th e presence of Morgan Stanley would have limited 
Deutsche Bank's ability to favour the interests of Hyni x over those of its creditors.  We therefore see 
no need to make any of the changes requested by Japan. 
6.12 Regarding note 399 to the Interim Report (note 40 1 to this Report), Japan submits that there 
was sufficient evidence on the JIA's record indicatin g that the "normalization plan" was actually the 
Deutsche Bank Report.  However, none of the eviden ce referred to by Japan actually refers to the 
Deutsche Bank Report as the "normalization plan".  Furthermore, our findings proceed on the basis 
that the Deutsche Bank Report and "normalization plan" are one and the same thing.  There is 
therefore no need to make any change to our  findings on the basis of Japan's comment. 
6.13 Regarding para. 6.209 and note 431 to the Inte rim Report (para. 7.215 and note 435 to this 
Report), Japan submits that there is no evidence to suggest that the creditors  actually obtained the 
relevant legal opinion.  We have  deleted the last sentence of para. 6.209 of the Interim Report 
pursuant to Japan's request.  However, we do not consider it necessary to delete note 437 of this 
Report, as Japan's Interim Review arguments still fa il to establish that the JIA found "that the legal 
opinion had not been made available to the creditors". 
6.14 Regarding paras 6.214 and 6.218 of the Interim Report (paras 7.220 and 7.224 of this Report), 
Japan asks the Panel to indicate whether it agrees w ith Japan that a particular calculation error was 
made in the Deutsche Bank Report.  We have alread y concluded that the JIA failed to find that the 
Deutsche Bank Report contained the relevant calculati on error.  There is nothing in Japan's Interim 
Review comments that leads us to change this conc lusion.  Absent any appropriate finding by the JIA, 
there is no basis for us to conclude  that the alleged error existed. 
6.15 Regarding paras 6.233 and 6.238 of the Interim Report (paras 7.239 and 7.244 of this Report), 
Japan complains that the Panel failed to address the substance of a particular error that the JIA did 
find to exist.  We have concluded that the JIA did not have a proper basis for finding that the 
Deutsche Bank Report contained the relevant calculation error, in the sense that it improperly found that Hynix had acknowledged the existence of such e rror.  There is nothing in Japan's Interim Review 
comments to lead us to change this conclusion. 
6.16 Regarding paras 6.236 and 6.237 of the Interim Report (paras 7.242 and 7.243 of this Report), 
Japan asserts that the Panel incorrectly attributed the JIA's summary of arguments made by Hynix to 
the JIA.  We have amended the text to clarif y that the phrase we quote is the JIA's summary of 
Hynix's argument.  However, since the Final Determination sets forth the JIA's summary of Hynix's 
argument, technically it is correct  to attribute these words to the JIA. 
6.17 Japan takes issue with the Panel's treatment, in the Interim Report, of an alleged admission by 
NACF that the Government of Korea intervened in the preparation of the Deutsche Bank Report.  We 
have made a number of changes to our findings rega rding this matter.  However, we remain of the 
view that the alleged admission by NACF does not impugn the independence of Deutsche Bank or the commercial reliability of the Deutsche Bank Report. 
6.18 Regarding paras 6.250, 6.290 and 6.297 of th e Interim Report (paras 7.251, 7.291 and 7.298 
of this Report), Japan objects to the Panel's refere nce to "direct" and "indirect" evidence.  Japan 
suggests that the term "direct" evidence might be in consistent with the Panel's observation that the JIA 
based its finding of entrustment or direction on circumstantial (and therefore "indirect") evidence.  We 
have amended our findings accordingly.  WT/DS336/R 
 Page 91  
 
 
6.19 Regarding note 489 to para. 6.292 of the Interim Report ( see para. 7.292 of this Report), 
Japan objects to a finding by the Panel regarding the JIA's use of the term "bankruptcy".  Since this 
finding is not essential for our principal findings, we have de leted the relevant footnote. 
6.20 Regarding note 495 to para. 6.295 of the Inte rim Report (note 494 to para. 7.296 of this 
Report), Japan objects to the Panel's finding that the JIA failed to make any findings on the existence 
or role of "contemporaneous" subsidies.  We sta nd by our finding that Japan's arguments regarding 
this matter constitute ex post  rationalization.  We note that Japan has only referred to an ex post  
submission ( i.e., its response to Question 37 from the Panel) in support of its position ( see para. 55 of 
Japan's comments on the Interim Report).  Japan s till fails to identify where this issue was addressed 
by the JIA.  In light of these considerations, we see no need to change our findings in this regard.  
6.21 Regarding para. 6.312 of the Interim Report (par a. 7.313 of this Report), Japan submits that 
the Panel has made findings on a matter not presented to the Panel by Korea.  We disagree.  First, we 
note that Japan does not assert that this matter falls ou tside our terms of reference.  Second, we do not 
consider that the scope of our findings should n ecessarily be limited by the arguments developed by 
the parties, since we are entitled to apply our own le gal reasoning to the matter before us.  Third, we 
consider that Korea did in fact make the argumen t that we address at para. 6.312 of the Interim 
Report, for Korea argues (at para. 234 of its First Written Submission) that "[a] proper analysis of 
these transactions requires consideration of all parts of the exchanges — not only the value of whatever the recipient received, but also the value of whatever the reci pient gave in return."  In doing 
so, Korea cited para. 7.212 of the report of the panel in EC – Countervailing Measures on DRAM 
Chips .  Our finding, in turn, refers to para. 7.213 of th at panel's report, which is an obvious extension 
of the reasoning (referred to by Korea) set forth in  para. 7.212.  For these reasons, we see no need to 
amend our findings in line with Japan's comment. 
6.22 Regarding para. 6.313 of the Interim Report (par a. 7.314 of this Report), Japan asks the Panel 
to make a factual finding that certain interested part ies refused to submit particular information to the 
JIA.  Since Japan has failed to identify any basis in  the JIA's Final Determination for such a finding of 
fact, we decline Japan's request. 
6.23 Regarding note 543 to para. 6.348 of the Inte rim Report (note 542 to para. 7.349 of this 
Report),  Japan claims that the Panel erred in finding that loans and loan maturity extensions 
constitute non-recurring subsidies.  Japan also subm its that the scope of the Panel's findings exceed 
the scope of Korea's claim, which was limited to those non-recurring subsidies whose benefit was 
allocated by the JIA from 2001 to 2005.  We stand by our statement that "one-off loans are more 
properly treated as non-recurring subsidies".  However,  we note that our findings are based in large 
part on the JIA's allocation of benefit from the peri od 2001 to 2005.  We have therefore limited our 
findings to those non-recurring subsidies whose bene fit was allocated by the JIA in this way. 
VII. FINDINGS 
7.1 We shall begin by evaluating Korea's claim regarding the JIA's determination of entrustment 
or direction, after we have addressed the general issu es of standard of review, burden of proof, and the 
rules of treaty interpretation.  Before turning to th ose general issues, though, we must first consider 
two requests by Japan for preliminary rulings. 
A. REQUESTS FOR PRELIMINARY RULINGS  
7.2 On 5 September 2006, Japan filed a request for a preliminary ruling pursuant to DSU  
Article 6.2, which provides: 
The request for the establishment of a panel shall be made in writing.  It shall indicate 
whether consultations were he ld, identify the specific measu res at issue and provide a WT/DS336/R 
Page 92  
 
brief summary of the legal basis of the complaint sufficient to present the problem 
clearly.  In case the applicant requests the establishment of a panel with other than 
standard terms of reference, the written re quest shall include the proposed text of 
special terms of reference. 
7.3 Japan's 5 September request is based on the sec ond sentence of that provision.  Japan requests 
a preliminary ruling that items 9, 10 and 15 of Korea's Request for the Establishment of a Panel
266 
(hereinafter "Request for Establishment") failed to "provide a brief summary of the legal basis of the complaint sufficient to present the problem clearly."  
7.4 Japan included an additional request for prelim inary rulings in its First Written Submission.
267  
The Panel addressed a number of written268 and oral questions to Japan on this subject.  In light of 
Japan's replies to these questions, we  understand Japan to argue that: 
• sub-paragraphs (b), (c ) and (e) of para. 3.1 supra  fall outside the Panel's terms of reference, in 
so far as those claims allege violations of Articles 10, 11, 12, 14, 15, 22 and 32.1 of the SCM 
Agreement , and Articles VI:3 and X:3 of the GATT 1994, because item 15 of the Request for 
Establishment, in which those provisions are enumerated, did not cover the issues identified 
in sub-paragraphs (b),  (c) and (e);  and 
• items 3, 4, 5, 6, 7, 9, 12, 13, and 15 of Korea's Request for Establishment are inadmissible 
because those items did not "provide a brief su mmary of the legal basis of the complaint 
sufficient to present the problem clearly," contrary to Article 6.2 of the DSU . 
7.5 Before addressing each of Japan's requests in de tail, we must first resolve a basic difference 
between the parties regarding the interpretation a nd application of the second sentence of Article 6.2 
of the DSU .  In particular, we must decide whet her consistency with the second sentence of 
Article 6.2 may be assessed exclusively on the basis of  the text of the Request for Establishment, as 
alleged by Japan, or whether cons istency must be determined on the basis of whether or not Japan 
suffered prejudice during the course of the Panel proceed ings as a result of the lack of specificity in 
the Request for Establishment, as argued by Korea. 
7.6 In calling for a prejudice-based approach, Korea relies heavily on the ruling of the Appellate 
Body in Korea – Dairy .  In that case, the Appellate Body applied DSU  Article 6.2 taking into account 
"whether the ability of the respondent to defend itsel f was prejudiced, given th e actual course of the 
panel proceedings, by the fact that the panel request  simply listed the provisions claimed to have been 
violated."269  Korea interprets the Appellate Body to mean that DSU  Article 6.2 must always be 
applied at the end of the panel proceedings, in light  of whether or not the respondent actually suffers 
prejudice during the course of the proceedings. 
7.7 However, we note that the Appellate Body also ruled in another case, US – Carbon Steel , that: 
The requirements of precision in the request  for the establishment of a panel flow 
from the two essential purposes of the terms of reference.  First, the terms of reference define the scope of the dispute.  Secondly, the terms of reference, and the 
request for the establishment of a panel on which they are based, serve the  due 
process   objective of notifying the parties and third parties of the nature of a 
complainant's case .
   When faced with an issue relating to the scope of its terms of 
reference, a panel must scrutinize carefully the request for establishment  of a 
                                                      
266 Document WT/DS336/5, attached at Annex A-1. 
267 See Japan's First Written Submission, para. 23. 
268 See Questions 1, 2 and 3 from the Panel. 
269 Korea – Dairy , Appellate Body Report, para. 127.  WT/DS336/R 
 Page 93  
 
 
panel "to ensure its compliance with both the letter and the spirit of Article 6.2 of the DSU."
270 (footnote omitted, bo ld emphasis supplied)  
7.8 The Appellate Body's ruling in US – Carbon Steel  would seem to indicate that the sufficiency 
of the request, in terms of  the due process objective of DSU  Article 6.2, should be assessed purely on 
the basis of the text of the request.  This appr oach was subsequently applied by the panel in Canada – 
Wheat Exports and Grain Imports , which found - during its analysis of the US Request for 
Establishment relatively early in the panel process - that: 
the summary of the legal basis for the Un ited States' claims under Article 2 of the 
TRIMs Agreement  presents the problem raised with sufficient clarity, such that 
Canada is able to know the case it has to an swer and begin preparing its defence.  We 
also think that the summary provided is sufficient to inform the third parties about the 
legal basis of the complaint and to give them an opportunity effectively to respond to the United States' complaint.  We therefor e do not consider that the summary of the 
legal basis for the claims under Article 2 of the TRIMs Agreement  fails to comply 
with the requirements of Article 6.2.
271 
7.9 We agree with the approach adopted by the Appellate Body in US – Carbon Steel , as 
subsequently applied by the panel in Canada – Wheat Exports and Grain Imports .  In our view, the 
due process objective of the second sentence of Article 6.2 of the DSU may only properly be upheld if 
panels apply that provision on the basis of the text of the Request for Establishment.  We believe that 
consideration of an actual prejudice suffered dur ing the panel process undermines that due process 
objective, since it allows a Member to correct any lack of clarity in its request during the panel 
proceedings, even though the request may not have b een sufficiently clear for the respondent to begin 
preparing its defence at the beginning of the panel process. 
7.10 Accordingly, we shall address Japan's requests for preliminary rulings on the basis of the 
totality of the text of Korea's Request for Estab lishment, by establishing whether or not the problem 
was presented with sufficient clarity  such that Japan was able to know the case it had to answer and 
begin preparing its defence.  
1. Japan's 5 September Request 
7.11 Japan's 5 September request concerns items  9, 10 and 15 of Korea's Request for 
Establishment. 
(a) Item 9 
7.12 Item 9 of Korea's Request for Esta blishment alleges a violation of: 
Articles 14 and 19.4 of the SCM Agreement and Article VI:3 of the GATT 1994 
because, inter alia , Japan failed to properly measure the benefit in accordance with 
the principles of the SCM Agreement , which resulted in countervailing duties levied 
in excess of the amount allowed under the SCM Agreement and the GATT 1994. 
7.13 According to Japan, item 9 fails to comply with Korea's obligations under DSU  Article 6.2 for 
two reasons.  First, Article 14 establishes "not one single, distinct obligation, but rather multiple 
obligations,"272 and "[i]n such a situation, the listing of artic les of an agreement, in and of itself, may 
                                                      
270 US – Carbon Steel , para. 126. 
271 Canada – Wheat Exports and Grain Imports , para. 6.10, sub-paragraph 51. 
 272 Appellate Body Report, Korea – Dairy , para. 124. WT/DS336/R 
Page 94  
 
fall short of the standard of Article 6.2."
273  Second, Japan asserts that Korea provides no indication of 
the "principles of the SCM Agreement " Japan is alleged to have violated.   
7.14 Korea submits that item 9 is not a "mere listing" of articles of treaties.  Instead, it contains a 
narrative description of the "problem".  Korea also notes that Article 14 is one of the few provisions of the SCM Agreement that does not contain separate paragraphs — there is no Article 14.1 or 14.2 
or 14.3.  In addition, Article 19.4 (the other prov ision cited by this claim) contains only a single 
obligation (limiting the amount of countervailing duti es imposed to the amount of the subsidy found 
to exist).  Korea asserts that, when Articles 14 and 19.4 of the SCM Agreement are read together and 
in the context of Article VI:3 of the  GATT 1994 and of Korea's other claims under Article 14, the 
meaning of item 9 should be clear:  Korea is obj ecting to the imposition of duties in excess of the 
amount of the benefit that may permissibly be cal culated under the provisions of Article 14 (and, in 
particular, the provisions of Article 14 addr essing the calculation of subsidy benefits).  
7.15 We recall that, although DSU  Article 6.2 requires that requests for establishment must be 
"sufficient to present the problem clearly", they need only provide a "brief summary" of the legal 
basis of the complaint.  We consider that item 9 satisfies that standard, since it requires very little 
effort on the part of the reader
274 to identify the "problem" described in all the elements of that item:  
it is that Japan violated Article 14 because it failed to calculate the amount of benefit in conformity 
with the guidelines set forth in that provision, a nd thereby collected countervailing duties in excess of 
the amount of the subsidy found to exist, or th e amount equal to the estimated bounty or subsidy 
determined to have been granted, contrary to Article 19.4 of the SCM Agreement and Article VI:3 of 
the GATT 1994 .  Item 9 therefore presented the problem rais ed with sufficient clar ity, such that Japan 
was able to know the case it had to answer and begin preparing its defence. 
(b) Item 10 
7.16 Item 10 of Korea's Request for Esta blishment alleges a violation of: 
Article 15 of the SCM Agreement because, inter alia , Japan improperly found 
material injury caused by the allegedly s ubsidized imports without proper evidentiary 
or legal foundations. 
7.17 Korea also made a claim regarding Article 15.5 of the SCM Agreement in item 11 of its 
Request for Establishment.  Korea confirmed at the Panel's first substantive meeting with the parties 
that it was not pursuing any Article 15 claim other than that covered by item 11.275  Since Korea has 
not pursued any other claim under Article 15, there is  no need for us to address Japan's request for a 
preliminary ruling regarding item 10 of Korea's Request for Establishment. 
(c) Item 15 
7.18 Item 15 of Korea's Request for Esta blishment alleges a violation of: 
Articles 10, 11, 12, 14, 15, 22, and 32.1 of the SCM Agreement and Articles VI:3 
and X:3 of the GATT 1994 because Japan, inter alia,  failed to conduct a thorough 
and complete investigation, and failed to conduct its investigation and make 
determinations in accordance with funda mental substantive and procedural 
requirements. 
                                                      
 273 Ibid. 
274 We consider that a complaining party is entitled to expect that the respondent Member reading the 
Request for Establishment is familiar with WTO issues and parlance. 
275 See Korea's oral statement at the fi rst substantive meeting, para. 97.  WT/DS336/R 
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7.19 Japan asserts that Korea does not  identify for which of the multiple obligations encompassed 
in Articles 10, 11, 12, 14, 15, 22, and 32.1 of the SCM Agreement , or the very general obligations 
under Articles VI:3 and X:3 of the GATT 1994 , it is alleging an inconsistency.  Japan submits that 
there is no indication as to which aspects of these nine  articles Japan allegedly breached in terms of its 
failure "to conduct a thorough and complete investig ation" or "make determinations in accordance 
with fundamental substantive and procedural re quirements."  Japan submits that, absent greater 
specificity, Korea could present innumerable claims while the Panel's terms of reference would remain vague and undefined, and Japan and third parties would be denied their fundamental due 
process rights to defend their interests. 
7.20 Korea  submits that item 15 is not a "mere listing" of articles of treaties.  Instead, it contains a 
narrative description of the "problem" — which is that "Japan failed to conduct a thorough and 
complete investigation, and faile d to conduct its investigation and make determinations in accordance 
with fundamental substantive and procedural requirements." 
7.21 Item 15 cites nine separate provisions of the SCM Agreement and GATT 1994 .  These 
provisions address an extremely broad variety of issu es, ranging from the sufficiency of an application 
for countervailing relief (Article 11.2)  to the conduct of on-site verifi cations (Article 12.6).  In the 
context of such a multitude of diverse obligations, it is simply not possible to tell from item 15, even 
when read in conjunction with the remainder of Korea's Request for Establishment, what specific 
"problem" Korea is addressing under item 15.  Acco rdingly, we find that item 15 did not meet the 
minimum requirements of DSU  Article 6.2, since the language was not sufficiently clear for Japan to 
know the case it had to answer and begin preparing its defence. 
2. Japan's Additional Request 
7.22 We recall that the first part of Japan's a dditional request concerns the admissibility of 
sub-paragraphs (b), (c ) and (e) of para. 3.1 supra , in so far as those claims allege violations of 
Articles 10, 11, 12, 14, 15, 22 and 32.1 of the SCM Agreement , and Articles VI:3 and X:3 of the 
GATT 1994 , by virtue of item 15 of the Request for Es tablishment.  We have already ruled that 
item 15 of Korea's Request for Establishment does not meet the requirements of the second sentence 
of Article 6.2 of the DSU .  Any claims based on item 15 therefore fall outside our terms of reference.  
Accordingly, we rule that any claims in s ub-paragraphs (b), (c) and (e) of para. 3.1 supra ,
276 in so far 
as they are based on item 15 of Korea's Requ est for Establishment, are inadmissible. 
7.23 The second part of Japan's additional request concerns  the consistency of items  3, 4, 5, 6, 7, 9, 
12, 13, and 15 of Korea's Request for Establishmen t with the second sentence of Article 6.2 of the 
DSU .  For each item, Japan asserts that Korea faile d to present the problem clearly because "Korea 
presented the 'mere listing of the treaty articles' as th e legal basis of its claims, despite the fact that 
these articles provide[] [for] multiple obligations."277  Korea provided detailed comments in respect of 
Japan's arguments concerning items 3, 4 and 9.  Fo r the remainder, Korea relied on its argument that 
conformity with Article 6.2 of the DSU  should be assessed in light of any prejudice suffered by the 
respondent during the Panel proceedings.278  We shall address each item in turn, noting that we have 
already examined the conformity of items 9, 10 a nd 15 with the second sentence of Article 6.2 of the 
DSU  in the context of Japan's 5 September request. 
(a) Items 3, 4 and 9 
7.24 Items 3, 4 and 9 of Korea's Request fo r Establishment allege violations of: 
                                                      
276 Sub-paragraphs (b), (c) and (e) concern entrustment or direction, benefit, and interested parties 
respectively. 
277 See Japan's reply to Question 3 from the Panel. 
278 See Korea's comments on Japan's replies to Questions 1, 2 and 3 from the Panel.  WT/DS336/R 
Page 96  
 
3. Articles 1.1 and 14 of the SCM Agreement because, inter alia , Japan failed to 
demonstrate that a benefit was conferre d upon the respondent Hynix Semiconductor, 
Inc., ("Hynix"), given available market  benchmarks and the circumstances of 
financial restructuring.  
4. Articles 1.1 and 14 of the SCM Agreement because, inter alia , the analyses of 
the "commercial rationality" of loans and ot her investments in Hynix, and the other 
analyses related to the determination of the financial contribution and benefit to 
Hynix, that were undertaken by Japan are in consistent with Japan's obligations under 
the SCM Agreement . 
9. Articles 14 and 19.4 of the SCM Agreement and Article VI:3 of the GATT 
1994 because, inter alia , Japan failed to properly measu re the benefit in accordance 
with the principles of the SCM Agreement , which resulted in countervailing duties 
levied in excess of the amount allowed under the SCM Agreement and the 
GATT 1994.   
7.25 Korea asserts that, taken together, items 3, 4 and 9 reflect a clear and concisely expressed 
position that the JIA's determination of bene fit failed to follow the provisions of the SCM Agreement 
concerning the determination of benefit, a nd therefore led to the improper imposition of 
countervailing duties. 
7.26 In our view, whether taken together or individua lly, the above items meet the requirements of  
the second sentence of Article 6.2 of the DSU.   Items 3 and 4 concern Articles 1.1 and 14 of the 
SCM Agreement .  Although Article 1.1 of the SCM Agreement contains a number of sub-paragraphs, 
it is evident – in the context of a claim expressly re ferring to benefit – that the relevant provision is 
Article 1.1(b).  That is the only provision  in Article 1.1 dealing with benefit. 
7.27 Since it is now well established that the existence and amount of benefit are determined by 
reference to the market, Korea's reliance on Article  14 is also self-explanatory.  Korea's claim under 
the chapeau  of Article 14 is addressed at item 8 of the Re quest for Establishment.  Accordingly, these 
other claims necessarily concern the remainder of Article 14, i.e., the guidelines.  We do not consider 
that a Member need necessarily specify precisely wh ich of the four guidelines it seeks to rely on in its 
Request for Establishment (especially in a case wher e certain of the measures at issue, such as debt- 
to-equity swaps, are not expressly mentioned in those guidelines). 
7.28 We have already ruled on the admissibility of ite m 9.  We are of the view that the claim being 
made under Article 19.4 of the SCM Agreement and Article VI:3 of the GATT 1994  is readily 
apparent from the text of Korea's Request for Estab lishment, since item 9 refers directly to a matter 
expressly covered by those provisions, namely th e alleged imposition of countervailing duties in 
excess of the amount of subsidy found to exist,  or determined to have been granted. 
7.29 In short, we find that items 3, 4 and 9 of Ko rea's Request for Establishment met the minimum 
requirements of DSU  Article 6.2, since the language was suffi ciently clear for Japan  to know the case 
it had to answer and begin preparing its defence. 
(b) Item 5 
7.30 Item 5 of Korea's Request for Esta blishment alleges a violation of: 
Article 2 of the SCM Agreement because, inter alia , Japan did not properly establish 
that all of the alleged subsidies were specific to Hynix on the basis of positive 
evidence.  WT/DS336/R 
 Page 97  
 
 
7.31 Japan asserts that Korea failed to  specify which sub-paragraph of Article 2 it was relying on.  
We acknowledge that Article 2 contains a number of  sub-paragraphs, dealing with different types of 
specificity.  However, we also note that the JIA failed to indicate whether it had made a finding of de 
facto  or de jure  specificity.279  In these circumstances, it would be wholly unreasonable to expect that 
Korea could specify the precise sub-paragraph of Article 2 at issue in this claim.  In the context of the 
JIA's determination of specificity, the language of item 5 was sufficiently clear for Japan to know the 
case it had to answer and begin preparing its defe nce.  We therefore find that item 5 of Korea's 
Request for Establishment met the minimum requirements of DSU  Article 6.2. 
(c) Item 6 
7.32 Item 6 of Korea's Request for Esta blishment alleges a violation of: 
Articles 1 and 2 of the SCM Agreement because, inter alia , Japan imposed an 
improper burden of proof on Hynix and Korea;  reached conclusions without adequate evidentiary basis, and thereby fa iled to base its decisions on affirmative, 
objective, and verifiable evidence.   
7.33 Read in the context of the five preceding items , we consider that the reader could readily 
discern that item 6 concerns the JIA's treatment of  evidence in respect of its determinations of 
entrustment or direction, financial contribution, be nefit and specificity.  Accordingly, we find that 
item 6 of Korea's Request for Establis hment met the minimum requirements of DSU  Article 6.2, since 
the language was sufficiently clear for Japan to know  the case it had to answer and begin preparing its 
defence. 
(d) Item 7 
7.34 Item 7 of Korea's Request for Esta blishment alleges a violation of: 
Article 12 of the SCM Agreement because, inter alia , Japan improperly treated 
entities that had no interest in the inves tigation as "interested parties," improperly 
applied "facts available" instead of cons idering the information on the record, and 
improperly made adverse inferences against the interests of Hynix due to allegedly 
inadequate cooperation by other interested parties or by other entities that were not 
under Hynix's control and that were not obligated to participate in the investigation. 
7.35 Although item 7 does not state expressly which su b-paragraphs of Article 12 are concerned 
by this claim, we consider that the description of  the problem is sufficiently clear for a reader to 
understand that the claim concerns sub-paragraphs  7 and 9 of Article 12, since those are the 
provisions concerning the problem described in item 7, namely the use of facts available and the 
definition of interested parties.  Accordingly, we find that item 7 of Korea's Request for Establishment 
met the minimum requirements of DSU  Article 6.2, since the language was sufficiently clear for Japan 
to know the case it had to answer and begin preparing its defence. 
(e) Item 12 
7.36 Item 12 of Korea's Request for Esta blishment alleges a violation of: 
Articles 10 and 32.1 of the SCM Agreement because, inter alia , the countervailing 
duties imposed by Japan against DRAMS originating in Korea were not in 
                                                     
 
279 For this reason, the Panel addressed Question 48 to Japan, asking whether the JIA had found de 
facto  or de jure  specificity.  (Japan replied that the JIA had found de jure  specificity.) WT/DS336/R 
Page 98  
 
accordance with the relevant provisions of the SCM Agreement or the relevant 
provisions of GATT 1994.   
7.37 Item 12 therefore concerns Articles 10 and 32 of the SCM Agreement .  Article 10 does not 
contain any sub-paragraphs, and Korea has specifica lly identified the first sub-paragraph of Article 
32.  Given the text of these two provisions, and the la nguage of item 12, we consider that the problem 
covered by item 12 is readily apparent to the reader .  It is that Japan alle gedly imposed countervailing 
duties contrary to the provisions of the SCM Agreement and the GATT 1994 , in violation of the 
express terms of Articles 10 and 32.1.  Accordingly,  we find that item 12 of Korea's Request for 
Establishment met the minimum requirements of DSU  Article 6.2, since the language was sufficiently 
clear for Japan to know the case it had to answer and begin preparing its defence. 
(f) Item 13 
7.38 Item 13 of Korea's Request for Esta blishment alleges a violation of: 
Articles 10, 14, 19, and 21 of the SCM Agreement because, inter alia , Japan imposed 
and maintained countervailing duties w ithout determining whether a benefit 
continued to exist following changes in the ownership of Hynix.   
7.39 Item 13 refers to four provisions of the SCM Agreement .  We believe that, in the context of 
items 3 and 4, a reference to Article 14 combined w ith a reference to the determination of benefit met 
the requirements of Article 6.2 of the DSU , given the relevance of the Article 14 guidelines for 
determining the existence of benefit.  Furthermor e, although Articles 19 and 21 contain multiple sub-
provisions, the reference to the continued existence of  benefit in conjunction wi th references to those 
provisions suggests strongly that Korea's claim is likely to be based on Articles 19.4 and 21.1 in 
particular.  In addition, since Article 10 is con cerned with the imposition of countervailing duties in 
violation of the provisions of the SCM Agreement and GATT 1994 , a reference to Article 10 in the 
context of any claim against a determination leading to the imposition of countervailing duties would make sense to the reader.  For these reasons , we find that item 13 of Korea's Request for 
Establishment met the minimum requirements of DSU  Article 6.2, since the language was sufficiently 
clear for Japan to know the case it had to answer and begin preparing its defence. 
3. Conclusion 
7.40 For the above reasons, we uphold Japan's request that item 15 of Korea's Request for 
Establishment failed to meet the requirements of the second sentence of Article 6.2 of the DSU .  
Claims made under that item are, therefore, inadmissi ble.  We reject the remainder of Japan's requests 
for preliminary rulings.
 280 
B. GENERAL ISSUES  
1. Standard of Review  
7.41 Article 11 of the DSU  sets out the applicable standard of review in proceedings under the 
SCM Agreement and the GATT 1994 .   Article 11 of the DSU  states, in relevant part, that: 
                                                      
280 Accordingly, we find that the clai ms set out in sub-paragraphs (a), (d), (e), (f), (g), (h) and (i) of 
para. 3.1 above fall within our terms of reference.  The claims set forth at sub-paragraphs (b) and (c) fall outside 
our terms of reference, insofar as they concern Articles 10, 11, 12 and 22 of the SCM Agreement , and 
Article X:3 of the GATT 1994.  WT/DS336/R 
 Page 99  
 
 
[A] panel should make an objective assessment of the matter before it, including an 
objective assessment of the facts of the cas e and the applicability of and conformity 
with the relevant covered ag reements...  (emphasis added) 
7.42 In US – Countervailing Duty Investigation on DRAMS , the Appellate Body offered the 
following guidance regarding the application of Article 11 of the DSU  in the context of reviewing an 
investigating authority's subsidy determination: 
[W]e are of the view that the "objective assessment" to be made by a panel reviewing 
an investigating authority's subsidy determin ation will be informed by an examination 
of whether the agency provided a reasoned and adequate explanation as to:  (i) how 
the evidence on the record supported its factual findings;  and (ii) how those factual 
findings supported the overall subsidy dete rmination.  Such explanation should be 
discernible from the published determination itself.  The explanation provided by the investigating authority—with respect to its factual findings as well as its ultimate 
subsidy determination—should also address alternative explanations that could 
reasonably be drawn from the evidence, as we ll as the reasons why the agency chose 
to discount such alternatives in coming to its conclusions. 
A panel may not reject an agency's conclusions simply because the panel would have 
arrived at a different outcome if it were ma king the determination itself.  In addition, 
in the absence of an allegation that the agen cy failed to investigate sufficiently or to 
collect certain information, a panel must limit its examination to the evidence that 
was before the agency during the course of the investigation, and must take into 
account all such evidence submitted by the parti es to the dispute.  In other words, a 
panel may not conduct a  de novo  review of the evidence or substitute its judgement 
for that of the investigating authority.  A failure to apply the proper standard of 
review constitutes legal error under Article 11 of the DSU.  
These general principles reflect the fact that a panel examining a subsidy 
determination should bear in mind its role as reviewer  of agency action, rather than as 
initial trier of fact .  Thus, a panel examining the evidentiary basis for a subsidy 
determination should, on the basis of the r ecord evidence before the panel, inquire 
whether the evidence and explanation relie d on by the investigating authority 
reasonably supports its conclusions. ...
281  (footnotes omitted) 
7.43 We are, therefore, conscious of the fact that it is not our role to perform a de novo review 
of the evidence which was before the JIA at the time it made its determination. We will examine whether on the basis of the record before it, a reasonable and objective investigating authority 
could have reached the conclusions that the JIA re ached.  Our task is first to understand what the 
JIA decided and how it came to those decisions.  Our examination of those decisions 
will be 
informed by whether the JIA provided a reasoned and adequate explanation as to:  (i) how the 
evidence on the record supported its factual findings ;  and (ii) how those factual findings supported 
the overall subsidy determination.   At the same time, we believe that our examination of the JIA's 
conclusions must be critical and searching, and that we would not be fulfilling our function if we were 
to simply defer to the conclusions of the JIA.282   
2. Burden of Proof 
7.44 We recall the general principles applicable to  burden of proof in WTO dispute settlement, 
which require that a party claiming a violation of a provision of a covered agreement by another 
                                                      
281 Appellate Body Report, US – Countervailing Duty Investigation on DRAMS , paras. 186-188.   
282 Appellate Body Report, US – Softwood Lumber VI (Article 21.5 – Canada) , para. 93.  WT/DS336/R 
Page 100  
 
Member must assert and prove its claim.
283  In this dispute, Korea, which has claimed that Japan acted 
inconsistently with the SCM Agreement and the GATT 1994 , thus bears the burden of demonstrating 
that Japan acted inconsistently with the relevant pr ovisions of those covered agreements.  In addition, 
it is generally for each party asserting a fact to provide proof thereof.284  We note in addition that a 
prima facie  case is one which, in the absence of effectiv e refutation by the other party, requires a 
panel, as a matter of law, to rule in favour of the party presenting the prima facie  case.  
3. Treaty Interpretation 
7.45 Article 3.2 of the DSU  directs panels to clarify the existing provisions of the covered 
agreements "in accordance with customary rules of in terpretation of public international law".  It is 
well settled in WTO case law that the principles codified in Articles 31, 32 and 33 of the Vienna 
Convention  are such customary rules.  These provisions read as follows: 
Article 31:  General rule of interpretation 
 
1.  A treaty shall be interpreted in goo d faith in accordance with the ordinary 
meaning to be given to the terms of the trea ty in their context and in the light of its 
object and purpose. 
 2.  The context for the purpose of the interpretation of a treaty shall comprise, in addition to the text, including its preamble and annexes:  
(a)  any agreement relating to the tr eaty which was made between all the 
parties in connection with the conclusion of the treaty; 
(b)  any instrument which was made by one or more parties in connection with the conclusion of the treaty and accepted by the other parties as an instrument related to the treaty. 
 
3.  There shall be taken into account, together with the context: 
 
(a)  any subsequent agreement between the parties regarding the interpretation of the treaty or the application of its provisions; (b)  any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation; 
(c)  any relevant rules of internati onal law applicable in the relations 
between the parties. 
 4.  A special meaning shall be given to a term if it is established that the parties 
so intended. 
 
Article 32:  Supplementary means of interpretation 
 
Recourse may be had to supplementary me ans of interpretation, including the 
preparatory work of the treaty and the circumstances of its conclusion, in order to 
confirm the meaning resulting from the application of article 31, or to determine the 
meaning when the interpretation according to article 31:  
(a)  leaves the meaning ambiguous or obscure;  or (b)  leads to a result which is ma nifestly absurd or unreasonable. 
 
                                                     
 
283 Appellate Body Report, US – Wool Shirts and Blouses , p. 16. 
284 Ibid.  WT/DS336/R 
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Article 33:  Interpretation of treaties authenticated in two or more languages 
 
1.  When a treaty has been authenticated in two or more languages, the text is 
equally authoritative in each language, unless the treaty provides or the parties agree 
that, in case of divergence, a particular text shall prevail. 
 
2.  A version of the treaty in a language other than one of those in which the text was authenticated shall be considered an au thentic text only if the treaty so provides 
or the parties so agree. 
 
3.  The terms of the treaty are presumed to have the same meaning in each authentic text.  4.  Except where a particular text preva ils in accordance with paragraph 1, when 
a comparison of the authentic texts discloses a difference of meaning which the 
application of articles 31 and 32 does not remove, the meaning which best reconciles 
the texts, having regard to the object and purpose of the treaty, shall be adopted.  
7.46 We shall apply these principles in interpreti ng the relevant provisions of the covered 
agreements. 
C. A
LLEGED REVERSAL OF THE BURDEN OF PROOF  
7.47 Korea claims that the Japan  acted inconsistently with Articles 1 and 2 of the SCM Agreement , 
on the basis that the JIA reversed the burden of proof in the countervailing duty proceeding by basing its subsidy determination on the absence of evidence disproving the existence of subsidies.  Japan 
submits that the Panel should reject Korea's claim and argument. 
7.48 This claim is concerned with the treatment of ev idence by the JIA.  Since we consider Korea's 
arguments regarding the treatment of evidence as part  of our broader analysis of Korea's substantive 
claims under Articles 1 and 2 of the SCM Agreement , we see no need to rule on this claim in the 
abstract. 
D. T
HE JIA' S DETERMINATION OF ENTRUSTMENT OR DIRECTION OF CERTAIN PRIVATE BODIES  
1. Introduction 
7.49 Hynix's creditors comprised both public and private bodies.285  Ordinarily, measures taken by 
private bodies may not be treated as subsidies.  This is because Article 1.1(a)(1) of the 
SCM Agreement defines a "subsidy" as a "financial contribution" that confers a "benefit" and, in 
general, only government, or public  body, actions may constitute "finan cial contributions".  Thus, if 
the government or a public body carries out one of the functions illustrated in subparagraphs (i) to 
(iii), then such action constitutes a financial contri bution in the sense of Article 1.1(a)(1) of the 
SCM Agreement .  If a private body undertakes the same action, there is generally no financial 
contribution in the sense of Article 1.1(a)(1) of the SCM Agreement .  However, Article 1.1(a)(1)(iv) 
of the SCM Agreement provides that measures taken by private bodies may be treated as "financial 
contributions" if such measures are taken pursuant to government entrustment or direction.  Thus, if it 
were established that a private body was entrusted or  directed by the government to carry out one of 
the functions illustrated in subpara graphs (i) to (iii), that priv ate body action would constitute a 
financial contribution in the sense of Article 1.1(a)(1) of the SCM Agreement . 
                                                      
285 Korea has not raised any claims regarding the JIA's designation of certain entities as "public 
bodies". WT/DS336/R 
Page 102  
 
7.50 The JIA found that four of Hynix's private creditors (KEB, Woori Bank, Chohung Bank and 
NACF, referred to hereinafter as the "Four Credito rs") had been entrusted or directed by the 
Government of Korea to participate in the Oct ober 2001 and December 2002 restructurings.  Thus, 
having established that these Four Creditors had carri ed out a function illustrated in subparagraph (i), 
the JIA treated their participation in the restruct urings as financial contributions.  The JIA made no 
findings of entrustment or direction in respect of the remaining (private) creditors that also 
participated in the restructurings (referre d to hereinafter as the "Other Creditors"). 
7.51 In a nutshell, the JIA found that the decisions of the Four Creditors to participate in the 
restructurings were not commercially reasonable, and could therefore only be explained by some 
external, non-commercial factor, namely the involveme nt in the restructurings of the Government of 
Korea.  To support this explanation various statemen ts by Government ministers, officials and others, 
and non-attributed statements, and various circumstan ces relating to the restructurings, were referred 
to in the JIA's determination as circumstantial eviden ce of entrustment or direction. It was the totality 
of this evidence that was the basis for the JIA's finding.  
2. The Claim 
7.52 Korea claims that Japan acted inconsistently with its ob ligations under Article 1.1(a) of the 
SCM Agreement , on the basis that the JIA did not have  a proper basis for its finding that the 
Government of Korea "entrusted or directed" the Four Creditors to participate in the October 2001 
and December 2002 debt restructurings. 
7.53 Japan submits that the Panel should reject Korea's claim and argument. 
3. Applicable Provisions  
7.54 Korea's claim pertains to paragraph (iv) of Article 1.1(a)(1) of the SCM Agreement .  
Article 1.1(a)(1) of the SCM Agreement provides in its totality that: 
1.1 For the purpose of this Agreement, a subsidy shall be deemed to exist if: 
 
(a)(1) there is a financial contribution by a government or any public body 
within the territory of a Member (referred to in this Agreement as 
"government"), i.e. where: 
 
(i) a government practice involves a direct transfer of funds  (e.g. grants, 
loans,  and equity infusion), potential direct transfers of funds or liabilities (e.g. loan guarantees); 
 
(ii) government revenue that is otherwise due is foregone  or not collected 
(e.g. fiscal incentives such as tax credits);  (iii) a government provides goods or services other than general 
infrastructure, or purchases goods; 
 (iv) a government makes payments to a funding mechanism, or entrusts 
or directs a private body to carry out one or more of the type of functions 
illustrated in (i) to (iii) above which would normally be vested in the government and the practice, in no r eal sense, differs from practices 
normally followed by governments ..." (emphasis added, footnote omitted)   WT/DS336/R 
 Page 103  
 
 
4. The JIA's Determination 
7.55 The JIA provided the following summary of its finding of entrustment or direction286 in 
respect of the October 2001 restructuring: 
(289) The measures taken by KEB, Woor i Bank, Chohung Bank  and NACF for the 
October 2001 Program were "new loans", "d ebt-to-equity swap", and "extension of 
maturity and interest rate reduction", wh ich would constitute practices involving 
direct transfers of funds within the meaning of Article 1.1(a)(1)(i) of the 
SCM Agreement if the Government of Korea had directly carried out such practices. 
(290) At the time of October 2001, the deteri oration of Hynix's financial situation was 
such that its rating was downgraded even to  "Selective Default", and it was unable to 
raise funds from the commercial market. The Investigating Auth orities therefore find 
that there was no investor that would invest in or make loans to Hynix in the general 
commercial market from a normal commercial perspective. 
(291) Under such circumstances, KEB, Woori Bank, Chohung Bank and NACF made 
financing decisions that were not based on commercial consideration. 
(292) It is generally inconceivable that fi nancial institutions which are private bodies 
voluntarily make financing decisions that are not based on commercial consideration. 
It is reasonable to conclude that some kind of external factor existed when they made financing decisions that was not based on commercial consideration. 
(293) At the time of the October 2001 Program, the Government of Korea was in a 
position to exert substantial influence on th ese financial institutions. This is because 
there was a legal framework that allowed the government to be involved in the 
individual business activities of banks in Kore a at that time, the Government of Korea 
held all or a large proportion of stocks in KEB, Woori Bank and Chohung Bank, and 
NACF was a quasi-public body. Moreover, the Government of Korea had the political intent to have Hynix survive at th at time, had been ascertaining at all times 
the progress of discussion and implementation of the October 2001 Program, which 
commenced from the end of July 2001, as well as the previous bailout measures by the creditor financial institutions, con tinuously contacted creditor financial 
institutions, exerted pressure on some creditors , and had the intention to intervene in 
the October 2001 Program depending on the pr ogress of the considerations given to 
the October 2001 Program. 
(294) Moreover, in the course of the inves tigation, the Investigating Authorities did 
not find any external factor which could ha ve influenced the decision making of the 
financial institutions other than the facts described above. 
(295) Based on the above facts, it is reasona ble to find that the financing judgments 
of KEB, Woori Bank, Chohung Bank a nd NACF, which were not based on 
commercial consideration, were made pursuant to the Government of Korea's 
involvement. 
                                                     
 
286 We note that the JIA made findings of "entrustment or direction", without specifying whether it 
found "entrustment", "direction", or both.  The Appellate Body has confirmed that the concept of "entrustment" is not the same as the concept of "direction" ( see US – Countervailing Duty Investigation on DRAMS , Appellate 
Body Report, para. 116, quoted at para. 77 infra ).  We do not pursue this issue, though, since it is not a matter 
that has been raised by Korea. WT/DS336/R 
Page 104  
 
(296) Because Hynix was not able to obtain  funds from the commercial market at the 
time of the October 2001 Program, this involvement of the government was 
indispensable to the provision of funds by  the above-mentioned creditor financial 
institutions.  It is reasonable to find that such involvement of the government towards 
private bodies constitutes entrustment or  direction within the meaning of 
Article 1.1(a)(1)(iv) of the SCM Agreement . 
(297) Therefore, the measures taken by KEB, Woori Bank, Chohung Bank and 
NACF in the October 2001 Program constitute the financial contributions based on 
the government's entrustment or direction w ithin the meaning of Article 1.1(a)(1)(iv) 
of the SCM Agreement .
287 
7.56 The JIA summarised its finding of entrustment or  direction in respect of the December 2002 
restructuring in very similar terms.288 
5. Main Arguments of Korea 
7.57 Korea asserts that the JIA's finding of "entrustment or direction" was based on a syllogism 
comprised of the following three premises: 
(1) The Korean government had expressed an intention to "keep Hynix alive"; 
(2) No rational creditor would have entered in to the restructuring transactions, in view 
of Hynix's poor, and deteriora ting, financial condition;  and 
(3) The evidence submitted by the individual  creditors (or the findings made by the 
JIA based on facts available where the creditors were non-responsive) did not 
establish that the creditors had conducted  a sufficient analysis of the various 
transactions before entering into them. 
7.58 According to Korea, the conclusion of the syllogi sm was that the actions of Hynix's creditors 
could, in the JIA's view, only be explained by Korean government pressure to save Hynix. 
7.59 Korea submits that each of the premises of the JIA's syllogism was flawed, because they were 
based on presumptions rather than evidence.  Kor ea submits that (a) the JIA's analysis of the 
Government of Korea's alleged intent was biased a nd inconsistent with the evidence, as none of the 
evidence cited by the JIA demonstrated a government  desire to save Hynix at the expense of its 
creditors;  (b) the JIA's inference of entrustment or  direction incorrectly assumed that creditors will 
never agree to restructure the debts of insolvent corporations without government intervention;  
(c) the JIA's analysis of the internal examinations  of the restructuring transactions by the creditor 
banks does not support its conclusions, since the evidence submitted by the individual creditors 
established that they had conducted a sufficient analys is of the various transactions before entering 
into them;  and (d) the willingness of Other Creditors  to enter into the same transactions on the same 
terms confirms that the transactions were based on commercial considerations. 
6. Main Arguments of Japan 
7.60 Japan submits that Korea's syllogism argument fa ils to correctly identify all of the elements 
underpinning the JIA's determination of entrustment or direction.  Jap an rejects Korea's argument that 
none of the press reports or stories cited by the JIA reported a government desire to save Hynix at the expense of its creditors.  Japan also denies that the JIA arrived at its finding of entrustment or 
direction on the basis of an assumption that no rational investor would have entered into the 
                                                     
 
287 See Annex 1 (Essential Facts). 
288 See Annex 1 (Essential Facts), paras. 366 – 374.  WT/DS336/R 
 Page 105  
 
 
restructuring transactions.  Furthermore, Japan rej ects Korea's argument that the evidence submitted 
by the individual creditors showed that the creditors had conducted a sufficient analysis of the various 
transactions before entering into them.  Finally, Jap an denies that the willingness of Other Creditors to 
enter into the same transactions on the same term s confirms that the transactions were based on 
commercial considerations. 
7. Evaluation by the Panel 
7.61 Korea's arguments raise four substantive issues regarding the JIA's determination of 
entrustment or direction:  (1) the alleged presumpti on that no rational creditor would have restructured 
Hynix;  (2) the determination of the Government of Korea's intent to save Hynix;  (3) the JIA's analysis of the commercial reasonableness of th e participation of the Four Creditors in the 
restructurings;  and (4) the participation of Other Creditors in the restructurings.  In making these 
arguments, Korea does not challenge the basic methodological approach adopted by the JIA, i.e., a 
conclusion of entrustment or direction based on inte rmediate factual conclusions regarding the actions 
and intent of the Government of Korea, and the commercial reasonableness of the restructurings etc.  
Instead, Korea challenges the validity of a number of the intermediate factual conclusions reached by 
the JIA.  Before examining the four substantive issues raised by Korea's arguments, we shall first 
address certain legal, interpretational, and eviden tiary issues raised by the parties' arguments. 
(a) Legal, Interpretational, and Evidentiary Issues 
(i) General Considerations 
7.62 The concept of "entrustment or direction" is not defined in the SCM Agreement .  However, its 
meaning has gradually been distilled through four WTO cases:  US – Export Restraints ;  Korea – 
Commercial Vessels ;  US – Countervailing Duty Investigation on DRAMS ;  and EC – Countervailing 
Measures on DRAM Chips .  Only one of these cases was appealed to the Appellate Body.  In 
reviewing the interpretation applied by the panel in US – Countervailing Duty Investigation on 
DRAMS , the Appellate Body found that "[a] finding of  entrustment or direction ... requires that the 
government give responsibility to a private body – or  exercise its authority over a private body – in 
order to effectuate a financial contribution".
289  In particular, the Appellate Body found: 
110. The term "entrusts" connotes the ac tion of giving responsibility to someone 
for a task or an object.  In the context of paragraph (iv) of Article 1.1(a)(1), the government gives responsibility to a private body "to carry out" one of the types of functions listed in paragraphs  (i) through (iii) of Article 1.1(a)(1).  As the United 
States acknowledges, "delegation" (the word used by the Panel) may be a means by 
which a government gives responsibility to a private body to carry out one of the 
functions listed in paragra phs (i) through (iii).  Delega tion is usually achieved by 
formal means, but delegation also could be  informal.  Moreover, there may be other 
means, be they formal or informal, th at governments could employ for the same 
purpose.  Therefore, an interpretation of the term "entrusts" that is limited to acts of 
"delegation" is too narrow. 
111. As for the term "directs", we note th at some of the definitions—such as "give 
authoritative instructions to" and "order (a person)  to do "—suggest that the person or 
entity that "directs" has authority over th e person or entity that is directed.  In 
contrast, some of the other defini tions—such as "inform or guide"—do not 
necessarily convey this sense of authority.  In our view, that the private body under 
paragraph (iv) is directed " to carry out " a function underscores the notion of authority 
that is included in some of the definitions of the term "direct".  This understanding of 
                                                     
 
289 Appellate Body Report, US - Countervailing Duty Investigation on DRAMS , para. 113. WT/DS336/R 
Page 106  
 
the term "directs" is reinforced by th e Spanish and French versions of the 
 SCM Agreement , which use the verbs "ordenar" and "ordonner", respectively.  Both 
of these verbs unambiguously convey a sense  of authority exercised over someone.  
In the context of paragraph (iv), this authority is exercised by a government over a private body.  A "command" (the word used by the Panel) is certainly one way in 
which a government can exercise authority ov er a private body in the sense foreseen 
by Article 1.1(a)(1)(iv), but governments are likely to have other means at their disposal to exercise authority over a private body.  Some of these means may be more subtle than a "command" or may not involve the same degree of compulsion.  Thus, an interpretation of the term "directs" that is limited to acts of "command" is also too 
narrow.   
(...) 113. We recall, moreover, that Article 1.1(a)(1) of the  SCM Agreement  is 
concerned with the existence of a financial c ontribution.  Paragraph (iv), in particular, 
is intended to ensure that governments do not evade their obligations under the 
 SCM Agreement  by using private bodies to take actions that would otherwise fall 
within Article 1.1(a)(1), were they to be  taken by the government itself.  In other 
words, Article 1.1(a)(1)(iv) is, in essence, an anti-circumvention provision.  A finding 
of entrustment or direction, therefore, re quires that the government give responsibility 
to a private body—or exercise its authority over a private body—in order to effectuate a financial contribution.   
114. It follows, therefore, that not a ll government acts necessarily amount to 
entrustment or direction.  We note that both the United States and Korea agree that 
"mere policy pronouncements" by a governmen t would not, by themselves, constitute 
entrustment or direction for purposes of Article 1.1(a)(1)(iv).  Furthermore, entrustment and direction—through the givi ng of responsibility to or exercise of 
authority over a private body—imply a more active role than mere acts of 
encouragement.  Additionally, we agree with the panel in  US – Export Restraints  
that entrustment and direction do not cove r "the situation in which the government 
intervenes in the market in so me way, which may or may not have a particular result 
simply based on the given factual circum stances and the exercise of free choice by 
the actors in that market".  Thus, government "entrustment" or "direction" cannot be 
inadvertent or a mere by-product of government al regulation.  This is consistent with 
the Appellate Body's statement in  US – Softwood Lumber IV  that "not all government 
measures capable of conferring benefits woul d necessarily fall within Article 1.1(a)";  
otherwise paragraphs (i) through (iv) of Article 1.1(a) would not be necessary 
"because all government measures conferring benefits, per se , would be subsidies."  
115. Furthermore, such an interpretation is consistent with the object and purpose 
of the  SCM Agreement , which reflects a delicate balance between the Members that 
sought to impose more disciplines on the use of subsidies and those that sought to impose more disciplines on the application of countervailing measures.  Indeed, the Appellate Body has said that the object and purpose of the SCM Agreement is "to 
strengthen and improve GATT disciplines relating to the use of both subsidies and 
countervailing measures, while, recognizing at the same time, the right of Members to 
impose such measures under certain conditions".  This balance must be borne in mind 
in interpreting paragraph (iv), which a llows Members to apply countervailing 
measures to products in situations where a government uses a private body as a proxy to provide a financial contribution (provided,  of course, that the other requirements of 
a countervailable subsidy are proved as well).  At the same time, the interpretation of 
paragraph (iv) cannot be so  broad so as to allow Members to apply countervailing  WT/DS336/R 
 Page 107  
 
 
measures to products whenever a governme nt is merely exercising its general 
regulatory powers. 
116. In sum, we are of the view that, pursuant to paragraph (iv), "entrustment" 
occurs where a government gives responsib ility to a private body, and "direction" 
refers to situations where the government ex ercises its authority over a private body.  
In both instances, the government uses a pr ivate body as proxy to effectuate one of 
the types of financial contributions listed in  paragraphs (i) through (iii).  It may be 
difficult to identify precisely, in the abstract, the types of government actions that 
constitute entrustment or direction and those that do not.  The particular label used to 
describe the governmental action is not n ecessarily dispositive.  Indeed, as Korea 
acknowledges, in some circum stances, "guidance" by a government can constitute 
direction.  In most cases, one would expect entrustment or direction of a private body to involve some form of threat or inducem ent, which could, in turn, serve as evidence 
of entrustment or direction.  The determin ation of entrustment or direction will hinge 
on the particular facts of the case.  (footnotes omitted) 
7.63 We consider that the above findings of the Appellate Body provide important guidance for 
interpreting and applying Article 1.1(a)(1)(iv) in the present case. 
(ii) In the Creditors' Own Interests 
7.64 On several occasions in its First Written Submission, Korea suggested that the JIA could not 
find entrustment or direction absent a finding that Hynix's creditors were forced to enter into 
transactions that were not "in their own interests" .  At para. 20, for example, Korea asserted that 
"[t]here is no indication whatsoever that the govern ment attempted to interven e to force the creditors 
to enter into transactions that were not in their own interests". 
7.65 Japan responded that there is no requirement in Article 1.1(a)(1)(iv) that the alleged 
entrustment or direction must require private bodi es to act contrary to their own interests.   
7.66 In response to Question 64
290 from the Panel, Korea asserted that: 
As a conceptual matter, sub-paragraph (iv)  of Article 1.1(a) does not limit a finding 
of "entrustment or direction" to situations in which private entities are forced by a government to undertake actions that are not in their own interests.  A government could, for example, order a bank to make a loan on commercial terms to a creditworthy borrower.  In such cases, ther e might be entrustment or direction, but 
there would also be no benefit to the recipient — and, as a result, there would be no 
subsidy. 
7.67 We therefore understand Korea to accept, as a le gal matter, that an investigating authority 
may find the existence of a financial contribution on the basis of entrustment or direction of private bodies, even if those private bodies are not required to act contrary to their own interests. 
7.68 As an evidentiary matter, though, Korea argued that: 
                                                     
 
290 Question 64: 
At para. 48 of its oral statement, Korea a sserts that "[t]here is no evidence that the 
Government of Korea wanted the banks to take any measures that were inconsistent with the 
banks' own best interests".  Does the fact that a bank might have acted in a manner consistent with its own best interests exclude a finding of entrustment / direction?  Is there government 
entrustment / direction if a government directs a bank to make a loan that the bank would have 
made anyway?  Please explain. WT/DS336/R 
Page 108  
 
a finding that a transaction was or was not in the private entity's own interests would ordinarily be relevant to a determination whether entrus tment or direction occurred 
that is based on circumstantial evidence.  Obviously, a finding that a particular 
transaction was not in the private entity's ow n interests would lead to an inference 
that some "external," "non-commercial" factor (to use the JIA's phraseology) had 
caused the private entity to en ter into the transaction.  On the other hand, such an 
inference would obviously be improper when  there is a finding that the particular 
transaction actually was in the private entity's own interests. 
7.69 Japan stated that a private body's action contra ry to its own interests would be evidence 
indicating that the private body would have acted pursuant to certain external factors, including inter 
alia government entrustment or direction.  We note  that the JIA's determination of entrustment or 
direction is in large part premised on a finding th at the relevant creditors acted on non-commercial 
terms, and therefore contrary to their own (commerc ial) interests.  Furthermore, we note that Japan 
asserted at para. 311 of its First Written Submission that "a creditor's provision of financing to a company against the creditor's interests would be an element that might indicate the government's 
intervention". 
7.70 In principle, we agree with the parties that  conduct which is contrary to a private body's 
commercial interests might be indicative of government entrustment or direction.  In the Panel's view 
it could not be determinative of itself, because it sa ys nothing about the conduct of the government 
concerned.  Evidence of non-commercial conduct woul d therefore need to be coupled with other 
evidence having sufficient probative value in order to a rrive at a finding of entrustment or direction. 
(iii) Direct / Circumstantial Evidence 
7.71 In its First Written Submission, Korea argued that the JIA's finding of entrustment or 
direction was invalid because "there is actually no evidence that the Korean government told any of 
the creditors what to do in any of the restructurings".
291 
7.72 This statement might suggest that, in Korea's view, an investigating authority may not 
properly find entrustment or direction in the absence of direct and conclusive evidence, or a "smoking 
gun",292 that demonstrates a government had explicitly  "told" a private body to provide financial 
contribution. Japan rejects such an interpretation.293  Subsequently, and pursuant to Japan's rejection 
of this argument, Korea clarified that, in its view "a finding of 'entrustment or direction' based on 
circumstantial evidence does not require a 'smoking gun.'"294  Accordingly, there is no dispute 
between the parties on this issue. 
7.73 We agree with the parties' view on this matter, since the entrustment or direction of a private 
body will rarely be formal, or explicit.  For this  reason, allegations of government entrustment or 
direction are likely to be based on pieces of ci rcumstantial evidence, as was the case in the 
investigation at hand.  The JIA made its findings on the basis of intermediate factual conclusions 
drawn from the totality of the evidence it reviewed.295  In assessing Korea's claims regarding the JIA's 
treatment of record evidence in its totality, we shall be guided by the following statement of the 
Appellate Body in US – Countervailing Duty Investigation on DRAMS : 
                                                      
291 See Korea's First Written S ubmission, para. 144. 
292 See Korea's Second Written Submission, para. 143. 
293 See Japan's First Written Submission., para. 244. 
294 See Korea's Second Written Submission, para. 143. 
295 See, for example, paras. 285 and 288 of Annex 1 (Essential Facts), and para. 150 of Japan's First 
Written Submission.  WT/DS336/R 
 Page 109  
 
 
150. ... if, as here, an investigating authority relies on individual pieces of circumstantial evidence viewed  together as support for a finding of entrustment or 
direction, a panel reviewing such a dete rmination normally should consider that 
evidence in its totality, rather than individua lly, in order to assess its probative value 
with respect to the agency's determinati on.  Indeed, requiring that each piece of 
circumstantial evidence, on its own, establish entrustment or direction effectively 
precludes an agency from finding entrustment or direction on the basis of circumstantial evidence.  Individual pieces of  circumstantial evidence, by their very 
nature, are not likely to establish a propos ition, unless and until viewed in conjunction 
with other pieces of evidence.   
151. Furthermore, in order to examine the evidence in the light of the investigating 
authority's methodology, a panel's analysis usually should seek to review the agency's decision on its own terms, in particular, by identifying the inference drawn by the agency  from the evidence, and then by c onsidering whether the evidence could 
sustain that inference.  Where a panel examines whether a piece of evidence could 
directly lead to an ultimate conclusion—rath er than support an intermediate inference 
that the agency sought to draw from that particular piece of evidence—the panel risks 
constructing a case different from that put forward by the investigating authority.  In 
so doing, the panel ceases to  review  the agency's determination and embarks on its 
own  de novo  evaluation of the investigating auth ority's decision.  As we explain 
below, panels may not conduct a  de novo  review of agency determinations. 
152. In this case, as we observed above, the USDOC relied on the evidence to 
arrive at certain factual conclusions as an intermediate step in its analysis before 
finding entrustment or direction.  These interm ediate factual conclusions were:  (i) the 
GOK pursued a policy of preventing the financial collapse of Hynix;  (ii) the GOK held control or influence over Hynix's Gr oup B and C creditors;  and (iii) the GOK 
pressured certain of Hynix's Group B and C creditors into participating in the 
financial restructuring.  A proper assessment by the Panel, therefore, would have considered whether the individual piece of  evidence being examined could tend to 
support—not establish in and of itself—the  particular intermediate factual 
conclusion  that the USDOC was seeking to draw from it.  By looking instead to 
whether such evidence directly supported a finding of entrustment or direction, the 
Panel determined certain pieces of evidence not to be probative when, in fact, had 
they been properly viewed in the framewo rk of the USDOC's examination, their 
relevance would not have been overlooked.  (footnotes omitted) 
7.74 We add that in the assessment of circumstantia l evidence, which could be taken to suggest 
entrustment or direction, an investigating au thority must also take into account evidence, 
circumstantial or otherwise, which is contrary to th at suggestion.  This is the very nature of an 
investigating authority's obligation to evaluate the ev idence before it in order properly to arrive at its 
conclusions. 
(iv) Probative and Compelling Evidence 
7.75 At para. 196 of its First Written Submission, Kor ea argues that the Appellate Body clarified in 
the US – Countervailing Duty Investigation on DRAMS  case that "the evidence relied upon by an 
investigating authority in making [a] determination [of entrustment or direction] must be 'probative 
and compelling'." 
7.76 Japan denies the existence of any evidentiary  standard that imposes a qualitative standard 
higher than that contemplated by the SCM Agreement , and argues that the above finding by the 
Appellate Body did not set out any new evidentiary standard. WT/DS336/R 
Page 110  
 
7.77 In US – Countervailing Duty Investigation on DRAMS , the panel had stated that the evidence 
of entrustment and direction "must in  all cases be probative and compelling".
296  Although the 
Appellate Body upheld the standa rd applied by the panel, it suggested that the panel would have 
erroneously applied a qualitative standard higher than that contemplated by the SCM Agreement if the 
panel had interpreted "compelling" to mean "of such weight as to require the decision-maker to arrive 
at one given conclusion".297  The Appellate Body found that the panel had not applied such a 
qualitatively higher standard.  According to the Appellate Body, "the Panel properly examined 
whether the USDOC's evidence could support its conclusion".298  The Appellate Body emphasised 
that "neither the SCM Agreement nor the DSU  explicitly articulates a standard for the evidence 
required to substantiate a finding  of entrustment or direction".299  The Appellate Body stated further 
that there is "no basis in the SCM Agreement or in the DSU  to impose upon an investigating authority 
a particular standard for the evidence supportin g its finding of entrustment or direction."300 
7.78 In light of the above guidance afforded by the Appellate Body in US – Countervailing Duty 
Investigation on DRAMS , we shall not be requiring the JIA's finding of entrustment or direction to 
have been based on a "probative and compelling" sta ndard of evidence.  Rather, we shall consider 
whether or not the JIA's evidence could support its conclusion. 
(v) Positive Evidence 
7.79 In its First Written Submission, Korea claimed th at there exists a general obligation for an 
investigating authority to identif y "positive evidence demonstrating the existence of each element 
required for the imposition of antidumping or countervailing duties."301 
7.80 According to Japan, the "positive evidence" standa rd only applies to findings of specificity 
and injury (by virtue of Articles 2.4 and 15.1 of the SCM Agreement , respectively).  Japan submits 
that this standard does not apply to findings of entrustment or direction. 
7.81 Whereas Article 2.4 of the SCM Agreement provides that "[a]ny determination of specificity 
... shall be clearly substantiated on the basis of pos itive evidence", and Article 15.1 provides that "[a] 
determination of injury ... sha ll be based on positive evidence", no requirement for positive evidence 
is imposed in respect of findings of government entrustment or direction un der Article 1.1(a)(1)(iv).302  
Furthermore, we have already noted  the Appellate Body's finding in US – Countervailing Duty 
Investigation on DRAMS  that there is "no basis in the SCM Agreement or in the DSU  to impose upon 
an investigating authority a particular standard for the evidence supporting its finding of entrustment 
or direction."303  Accordingly, we do not consider it appropr iate to consider whether or not the JIA's 
finding of entrustment or direction was based on "p ositive evidence", in so far as the application of 
such a standard would exclude the possibility that  circumstantial evidence could properly support the 
JIA's conclusion.  Rather, in addressing the substan tive arguments made by the parties in respect of 
                                                      
296 US – Countervailing Duty Investigation on DRAMS , para. 7.35. 
297 Appellate Body Report, US – Countervailing Duty Investigation on DRAMS , paras. 137 and 139. 
298 Appellate Body Report, US – Countervailing Duty Investigation on DRAMS , para. 139. 
299 Appellate Body Report, US – Countervailing Duty Investigation on DRAMS , para. 138. 
 300 Appellate Body Report, US – Countervailing Duty Investigation on DRAMS , para. 138.  
 301 See First Written Submission of Korea, para. 141;  see also  para. 220 ("While the JIA might have 
rejected the creditor's description of the analysis they performed, it did not present any positive evidence 
demonstrating that the creditors had actually failed to perform a rational analysis."). 
302 We note that the Appellate Body has referred to the need for investigating authorities to rely on 
"positive evidence" in the context of suns et reviews under Article 11.3 of the Anti-Dumping Agreement  (see US 
– Oil Country Tubular Goods Sunset Reviews , Report of the Appellate Body, para. 302).  In light of the express 
wording of Article 1.1(a)(1)(iv) of the SCM Agreement , and the Appellate Body's own findings regarding the 
absence of special evidentiary rules in respect of findings of government entrustment or direction, we see no 
need to apply a "positive evidence" standard in the present case. 
 303 Appellate Body Report, US – Countervailing Duty Investigation on DRAMS , para. 138.   WT/DS336/R 
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Korea's claim against the JIA's determination of en trustment or direction, we shall simply examine 
whether or not the JIA's evidence could support its conclusion of entrustment or direction. 
7.82 It is to those substantive arguments that we now turn. 
(b) The Alleged Presumption That No Rational Creditor Would Have Entered Into The 
Restructuring Transactions, In View Of Hy nix's Poor, And Deteriorating, Financial 
Condition304 
(i) Arguments of Korea 
7.83 Korea asserts that the JIA's analysis of "entrust ment or direction" in connection with both the 
October 2001 and December 2002 restructuri ngs began with the following statement: 
[T]he deterioration of Hynix's financial situation was such that its rating was 
downgraded even to "Selective Default," and it was unable to raise funds from the 
commercial market. The Investigating Aut horities therefore find that there was no 
investor that would invest in or make loans to Hynix in the general commercial 
market from a normal commercial perspective. 
Under such circumstances, KEB, Woori Bank, Chohung Bank and NACF made 
financing decisions that were not b ased on commercial consideration[s].305 
7.84 Korea submits that this analysis is based explicitly on the assumption that "there was no 
investor that would invest in or make loans to Hynix in the general commercial market from a normal 
commercial perspective."  Korea also submits that, more importantly, the JIA's description of its analysis makes clear that it used that assumption as the basis for its inference that "KEB, Woori Bank, 
                                                     
 
304 This is the first premise of the alleged syllogism identified by Korea.  Korea submits that the JIA's 
determination on entrustment or direction took the form of a syllogism based on three premises.  Japan denies 
that the JIA's determination of entrustment or directi on was based solely on the three elements identified by 
Korea.  According to Japan, the JIA relied on additional elements not included in Korea's syllogism argument.  
Although the parties disagree on whether or not Korea has properly identified all of the elements considered, 
and intermediate factual conclusions drawn, by the JIA, we do not consider it necessary to resolve this issue in 
order to dispose of Korea's claims.  Korea has made specific arguments against cer tain of the intermediate 
factual conclusions drawn by the JIA.  These arguments may be assessed in their own right, irrespective of 
whether or not these arguments cover all of the factors c onsidered by the JIA.  If upheld, these arguments would 
undermine the validity of the JIA's determination of entrus tment or direction, since that determination was made 
on the basis of the totality of the intermediate factual conclusions drawn by the JIA.  The JIA did not claim in its 
determination, nor has Japan claimed in these proceedings, that  any one of the intermediate conclusions, or a 
combination of some of them, supported the JIA's finding.  We make no findings regarding any elements of the 
JIA's determination of entrustment or direction that are not covered by Korea's claims and / or arguments.  This 
would include, for example, the JIA's reliance on the extent of the Government of Korea's shareholdings in the Four Creditors. 
305 See Annex 1 (Essential Facts), paras. 290-91 (discussing October 2001 restructuring).  Korea notes 
that the corresponding statemen t regarding the December 2002 restructuring was as follows: 
At the time of December 2002, there was no prospect of impr ovement in Hynix's 
financial conditions, and since October 2001, Hynix's credit rating had remained 
downgraded to "Selective Default."  Hyni x was in the situation where the company 
could not obtain financing from the commercial market.  The Investigating 
Authorities find that, from a normal commercial perspective, there existed no 
investors who would invest in, or make loans available to, Hynix in the general 
commercial market. 
Under such conditions, KEB, Woori Bank, Chohung Bank, and NACF made 
financing decisions that were not based on commercial consideration[s]. 
Annex 1 (Essential Facts), paras. 367-68. WT/DS336/R 
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Chohung Bank and NACF made financing deci sions that were not based on commercial 
consideration."
306  According to Korea, therefore, the finding that the individual banks did not act in 
accordance with commercial considerations was base d on the assumption that "there was no investor 
that would invest in or make loans to Hyni x in the general commercial market from a normal 
commercial perspective."  Korea submits that if the JIA had not made that assumption — if it had 
assumed, instead, that creditors of insolvent ba nks operating from normal commercial perspectives 
often do agree to debt restructurings — then the outcome would have been completely different:  the JIA would have had no logical basis for concl uding that "KEB, Woori Bank, Chohung Bank and 
NACF made financing decisions that were not based on commercial consideration." 
7.85 Based on the allegedly different pers pectives of "inside" investors ( i.e., existing investors) and  
"outside" investors ( i.e., potential new investors), Korea challenges the JIA's alleged presumption that 
no rational investor would have entered into the r estructuring transactions.  Korea argues that this 
presumption has no basis in economics or the evid ence.  Korea submits that rational, profit-
maximizing creditors can have sound reasons to prov ide new loans, extend the maturities of existing 
loans, swap debt for equity, or forgive loans entirely, even when the borrower is insolvent.  Korea 
further argues that there is ample support for the proposition that existing creditors acting solely from 
a "normal commercial perspective"
307 do engage in restructuring transactions all the time. 
7.86 Korea submits that "inside" investors have different claims on the future income of a 
company than "outside" investors, who have not ye t made any investments in the company.  Korea 
asserts that when the borrowing comp any is insolvent, the difference in the pre-existing claims held 
by "inside" investors and "outside" investors beco mes an important factor.  Korea asserts that an 
insolvent company, by definition, cannot pay its outstanding debts in full — which means that some 
portion of the pre-existing claims held by the "inside" investors will not be met by the company's current operations.  According to Korea, the "insid e" investors will therefore have a claim on a portion 
of the additional returns from an y new investments made in the co mpany, whether those investments 
are made by "inside" or "outside" investors, due so lely to their unsatisfied pre-existing claims.  Korea 
submits that the need to share any returns from new investments with creditors holding pre-existing 
claims means that the investment arithmetic for "o utside" investors is different from the investment 
arithmetic for "inside" investors.  Korea submits that the JIA failed to take this difference into 
account, and wrongly presumed that because it was not economically rational for outside
 investors to 
participate in the Hynix restructurings, it was similarly irrational for Hynix's existing  creditors to do 
so.  Korea asserts that it was economically rationa l for Hynix's creditors to participate in the 
restructurings, since there was record evidence demonstrating th at Hynix's going concern value 
exceeded its liquidation value. 
(ii) Arguments of Japan 
7.87 Japan rejects Korea's assertion that the JIA arrive d at its finding of entrustment or direction on 
the basis of an assumption that no rational invest or would have entered into the restructuring 
transactions.  According to Japan, the JIA did not make a determination that participation in the 
various programmes was per se  irrational in the abstract.  Ra ther, the JIA examined the actual 
decision-making processes of each financial institution on an institution-by-institution basis, including 
a review of the actual internal examination documents and the specific individual circumstances of each of the institutions.  Japan asser ts that the JIA neither applied a generic standard of inherent 
rationality nor a fixed economic model.  Japan not es that the JIA accepted the "premise that existing 
creditors would possibly provide additional funding in order to maximize the recovery of credit."
308  
According to Japan, the JIA examin ed the actual decision-making processes of the creditors to assess 
whether their actions demonstrated that they were acting in accordance with this premise. 
                                                      
306 See Annex 1 (Essential Facts), para. 291. 
307 See Annex 1 (Essential Facts), para. 290. 
308 See Annex 3 (Rebuttals and Surrebuttals), para. 141.  WT/DS336/R 
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(iii) Evaluation by the Panel 
7.88 In support of its argument, Korea presented th e Panel with a substantial volume of evidence 
and argument regarding the economics of corporate r estructuring.  As mentioned above, Korea's basic 
point is that "inside" investors, such as Hynix's cr editors, have different clai ms on the future income 
of a company than "outside" investors, who have  not yet made any investments in the company. 
7.89 We consider that there are two elements to Ko rea's arguments.  First, we understand Korea to 
assert that the JIA presumed  that it was not economically rational for outside  investors to participate 
in the Hynix restructurings.  Second, we understand Ko rea to argue that the JIA failed to consider the 
economic rationality of the restructurings from the perspective of Hynix's inside  investors, i.e., its 
existing creditors. 
The alleged presumption  
7.90 As noted by Korea, the JIA found that: 
[T]he deterioration of Hynix's financial situation was such that its rating was 
downgraded even to "Selective Default," and it was unable to raise funds from the commercial market. The Investigating Authorities therefore  find that there was no 
investor that would invest in or make loans to Hynix in the general commercial 
market from a normal commercial perspective.
309 (emphasis supplied) 
7.91 We have emphasised the word "therefore" in the above extract because it demonstrates that 
the JIA's conclusion "that there was no investor that  would invest in or make loans to Hynix in the 
general commercial market from a normal commercial perspective" ( i.e., from an outside investor's 
perspective310), was premised on the JIA's statement, in th e previous sentence, that "Hynix's financial 
situation was such that its rating was downgraded even to 'Selective Default,' and it was unable to 
raise funds from the commercial market."  The conclusion "that there was no investor that would invest in or make loans to Hynix in the ge neral commercial market from a normal commercial 
perspective" was not, therefore, a presum ption based on abstract economic theory.
311  It was, instead, 
a finding of fact based on evidence regarding Hynix's inability to raise funds from potential outside 
investors.312  We therefore reject Korea's argument that the JIA presumed  that it was not economically 
rational for outside investors to participate in the Hynix restructurings. 
                                                      
309 See Annex 1 (Essential Facts), para. 290. 
310 Japan explained in response to Question 31 from the Panel that this was a finding from the 
perspective of outside  investors.  Korea has not challenged Japan's explanation, which seems reasonable in the 
overall context of the JIA's determination. 
311 The parties disagree on the admissibility of certain evidence provided by Korea in support of its 
economic arguments.  In light of our finding that the JIA's determination of entrustment or direction did not depend on presumptions based on abstract economic theory, and in light of our finding in the next sub-section of 
our Report that the JIA did acknowledge the economic rationale for inside investors to participate in 
restructurings of insolvent companies,  there can be no relevant dispute between the parties regarding the validity 
of Korea's economic arguments, and therefore no need for us to consider Korea's ev idence – or the admissibility 
thereof – in further detail.   
312 The relevant evidence in respect of the October 2001 restructuring was set out at paras. 261 – 268 of 
Annex 1 (Essential Facts).  The relevant evidence in respect of the December 2002 restructuring was set out at 
paras. 322 – 327 of Annex 1 (Essential Facts).  Korea's only challenge to the JIA's intermediate factual conclusion that there was no outside investor willing to invest in Hynix concerns the offer made by Micron in 
April 2002 for Hynix's Memory Division ( see para. 67 of Korea's oral statem ent at the first substantive 
meeting).  Since this offer was made in April 2002, it has no bearing on the JIA's treatment of the October 2001 restructuring.  Furthermore, we can find no reference to  any evidence on the JIA's reco rd of an offer by Micron 
at the time of the December 2002 rest ructuring.  Indeed, Korea has acknowledged (at para. 211 of its Second 
Written Submission) that there was "no o ffer from Micron on the table" at that time.  Accordingly, the existence WT/DS336/R 
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The inside investor perspective
 
7.92 As noted above, the JIA made findings regardin g the absence of new, outside investors.  
Elsewhere in its findings, the JIA also c onsidered whether or not the decisions of existing  creditors to 
participate in the restructurings were based on comme rcial considerations.  In particular, the JIA made 
factual findings regarding the alleged reliance of Hynix's existing  creditors on internal and external 
analyses of the viability of the October 2001 and December 2002 restructurings.313  The JIA did so 
because it explicitly accepted the "pre mise that existing creditors would possibly provide additional 
funding in order to maximize the recovery of credit."314  Japan has confirmed that this means that the 
JIA accepted "the notion that existing creditors might engage in restructuring measures that potential, 
outside investors would not".315  Furthermore, the JIA accepted th at debt forgiveness by creditors 
might be "commercial" "[i]f such  action is reasonably found to be  unavoidable in order to maximize 
the debt recovery".316  Accordingly, we find that the JIA e xplicitly accepted that an inside investor 
standard was an appropriate standa rd to apply to the question of the commerciality, or otherwise, of 
the restructurings.  
7.93 For these reasons, we are not persuaded that  the JIA failed to consider the economic 
rationality of the restructurings from the perspective of Hynix's inside  investors, i.e., its existing 
creditors. 
Conclusion  
7.94 In light of the above, we reject Korea's argument that the JIA's findings were exclusively 
based on presumptions concerning the perspective of outside investors. 
(c) The Government of Korea's Alleged Intent To "Keep Hynix Alive" 
7.95 The JIA's determination of entrustment or dir ection was based in part on its intermediate 
factual conclusion that the Government of Korea had the political intent to save Hynix.317  K o r e a  
challenges that intermediate factual conclusi on in order to impugn the validity of the JIA's 
determination of government entrustment or direction. 
(i) The JIA's findings  
7.96 In respect of the October 2001 restructuring, the JIA found: 
Given the totality of these facts, the Investigating Authorities find that the 
Government of Korea had a political intent to make Hynix survive at the time, had 
                                                                                                                                                                     
of Micron's offer in April 2002 does not undermine the JIA's finding that there were no outside investors willing 
to invest in Hynix at the time of either th e October 2001 or Decem ber 2002 restructurings. 
313 See Sections 2.8.2.2.3 and 2.9.2.2.3 of Annex 1 (Essential Facts). 
314 See Annex 3 (Rebuttals and Surrebuttals), para. 141.  Despite references to this statement by Japan 
in its First Written Submission ( see para. 379) and in subsequent submissions to the Panel ( see, for example, 
para. 90 of Japan's Second Written Submission), Korea onl y acknowledged this statement in its final submission 
to the Panel after the Second Substantive Meeting ( see Korea's Final Comments, para. 4).  This statement 
appears to have been overlooked by Korea during the earlier stages of the Panel proceedings. 
315 See Japan's response to Question 98 from the Panel.  There is, therefore, no dispute between the 
parties regarding the appropriateness of analyzing the restructurings from the perspective of inside investors.  In 
other words, it was common ground between the parties that an inside investor standard can be a valid benchmark for the purpose of assessi ng the commercial reasonableness of  conduct in the context of the 
SCM Agreement .  Accordingly, there is no need for us to make any findings on whether or not the inside 
investor perspective constitutes a valid market benchmark for the purpose of establishing the existence of subsidization under the SCM Agreement . 
316 See Annex 3 (Rebuttals and Surrebuttals), para. 429. 
317 See, for example, Annex 1 (Essential Facts), para. 293.  WT/DS336/R 
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been ascertaining at all times the progress of discussion of the October 2001 Program, which is considered to  have started at the end of July 2001, kept in contact 
with creditor financial institutions, and had an  intention to intervene depending on the 
circumstances.
318 
7.97 Regarding the December 2002 restructuring, the JIA found similarly that: 
Further, taking into account the facts that the Government of Korea had a strong 
interest in the Hynix problem since the end of 2000, that the government had kept 
contacting the creditor financial institu tions, requesting their cooperation and 
monitoring them, and that in 2002 the government undertook intervention as 
described above, the Investigating Authoriti es  find that it was commonly recognized 
that the Government of Korea had the intent to support Hynix at the time of the December 2002 Program.
319 
(ii) Arguments of Korea 
7.98 Korea submits that the JIA's analysis of the G overnment of Korea's alleged intent was biased 
and inconsistent with the evidence, as none of  the evidence cited by the JIA demonstrated a 
government desire to save Hynix at the expense of its creditors. 
7.99 According to Korea, the press reports and statements cited by the JIA do not demonstrate any 
intent of the Government of Korea to save Hynix.  First, Korea asserts that, because there is no formal 
process for developing a government intent, the pr ocess of assigning meaning to government action is 
speculative.  Korea asserts that no government is a single entity with a single mind.  Korea suggests 
that, because of differences of view within a govern ment, and inter-agency battles, a "healthy degree 
of skepticism"320 is required for any effort to discern a specific government intent from such reports. 
7.100  Second, Korea asserts that there is no indication whatsoever that the Government attempted to 
intervene to force the creditors to enter into transactions that were not in their own interests.  Korea 
asserts that the reports cited by the JIA merely in dicated that the Government of Korea viewed the 
restructurings as matters to be left to the creditors .  Korea prepared Attachments 2 and 3 to its First 
Written Submission in support of this argument.  Although Korea acknowledges that the Government 
of Korea was "keeping an eye on"321 developments, Korea asserts that this monitoring, and the 
expressed desire for expeditious resolution by th e creditors, was entirely consistent with the 
government's prudential role in preventing ser ious harm to the overall financial sector. 
7.101  Third, Korea asserts that the JIA only reached the conclusion that the Government of Korea 
had the intent to save Hynix because of the JIA's a lleged assumption that the creditors were not acting 
in their own interests.  Korea asserts that if the JI A had believed, instead, that the restructurings were 
in the creditors' interest, the JIA would undoubted ly have viewed the Korean government's role 
differently — that any government encouragement of restructurings that really were the best deal 
possible for the creditors had nothing to do with a desire to save Hynix, and everything to do with an intent to save the banks.  Korea submits that the JIA would not then have attributed the allegedly 
entrusted or directed creditors' participation in th e restructurings to "some kind of external factor",
322 
namely the Government of Korea's intent to save Hynix. 
                                                      
318 See Annex 1 of the Final Determination, para. 275. 
319 See Annex 1 (Essential Facts), para. 337. 
320 See Korea's First Written S ubmission, para. 199. 
321 See Korea's First Written S ubmission, para. 202. 
322 See Annex 1 (Essential Facts), para. 292. WT/DS336/R 
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(iii) Arguments of Japan 
7.102  Japan rejects Korea's argument that none of the press reports or stories cited by the JIA 
reported a government desire to save Hynix at the e xpense of its creditors.  According to Japan, the 
JIA reached findings of fact based on the totality of th e evidence with respect to the issue in question.  
These findings of fact took into account various pieces of evidence including, but not limited to,  news 
reports.  Japan asserts that Korea's approach seeks to  evaluate each piece of evidence separately and to 
disregard those that do not directly prove a particul ar point, and should be re jected as inconsistent 
with the Appellate Body's clear guidance in US – Countervailing Duty Investigation on DRAMS  on 
how WTO panels are to review the findings of an investigating authority re lating to determinations 
that were made based on an assessmen t of the evidence in its totality. 
(iv) Evaluation of the Panel 
7.103  We have identified three main elements to Korea's arguments:  (1) the singularity of 
government intent;  (2) the reports of the intent of  the Government of Korea;  and (3) the assumption 
regarding the commercial interests of the creditors .  We shall examine each element in turn.  
Singularity of Government Intent
 
7.104  Depending on the circumstances, there may well be a certain degree of speculation in seeking 
to establish the intent of a government in the abstract .  However, to the extent that Korea is suggesting 
that the motivations behind government actions or  statements are not relevant in determining the 
existence of government entrustment or direction, we disagree.  In the case of alleged government 
entrustment or direction, it is reasonable for an investigating authority to seek to determine the 
motivations behind certain actions or statements  by government agencies or representatives.  
Entrustment or direction necessarily entails the c onveying, by a government, of a message of some 
sort to third parties to the effect that they have the responsibility to take a particular course of action, 
or must behave in a particular way.  Identifying motive and intent can assist in determining whether 
such a message was conveyed.  Provided appropria te caution is exercised in assessing the reliability 
of evidence, in our view an investigating authorit y may do so on the basis of statements properly 
attributed to named government agencies or repr esentatives, in the absence of express denials, 
corrections, or other evidence to the contrary.   
Reports of the Intent of the Government of Korea  
7.105  Upon review of the evidence relied on by the JIA in respect of the October 2001 restructuring, 
we consider that Korea has failed to establish a prima facie  case that a reasonable and impartial 
investigating authority could not properly have conc luded that the relevant reports demonstrated the 
Government of Korea's intent to save Hynix.  In our view, the evidence of "Government Action" cited 
by the JIA323 could properly be interpreted as indica ting that the Government of Korea had a 
preference for the continued existence of Hynix, an d that the Government of Korea was prepared to 
intervene directly in the Hynix restructuring process.324 
7.106  In particular, the JIA noted that on 2 July 2001 the President of Korea hosted an Economic 
Ministers' Meeting at which the May 2001 restru cturing of Hynix was reported as one of the 
achievements of the FSC – a government body - during th e first half of 2001.  This could properly be 
treated as evidence that the FSC, and therefore the G overnment of Korea, had been directly involved 
                                                      
323 See paras. 269 – 275 and 328 – 337 of Annex 1 (Essential Facts). 
324 We do not wish to suggest that evidence of government intent to save Hynix in and of itself could 
support a finding of government entrustment or direction to save Hynix.  WT/DS336/R 
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in the May 2001 restructuring, and that direct G overnment of Korea involvement in the October 2001 
restructuring would not have been unprecedented.325 
7.107  In addition, the JIA observed that on 24 Ju ly 2001 the Economic Ministers announced their 
decision "to strongly promote the structural reform of the six companies subject to the KDB Program, 
including Hynix",326 and envisaged "additional restructuring measures"327 for those companies.  
Furthermore, it was decided that "the financial supervisory authorities [would] check the progress"328 
made pursuant to these decisions.  In our view, an  objective and impartial investigating authority 
might properly interpret these reports, emanating from a government entity, as evidence that the 
Government of Korea intended to pursue the restructuring of Hynix beyond the May 2001 restructuring. 
7.108  Furthermore, the JIA noted that on 3 August 2001 the Deputy Prime Minister stated that "[i]f 
Hynix says it needs an additional KRW 1 trillion, and if the creditor group cannot make a decision whether or not to provide additional suppor t, the financial authorities should decide",
329 and that "[i]n 
the event that the creditor group is unable to resolve the Hy nix Semiconductor issue, the government 
will come forward to make a quick decision".330  The JIA found that the Deputy Prime Minister also 
stated on 8 August 2001 that "[c]reditor banks w ill help settle the problem of several companies331 
engaged in deals with foreign countries within this  month, and in the case that it does not settle, the 
government will directly step in".332  We consider that these statements might properly be treated as 
further evidence that the Government of Korea wa s prepared to intervene directly in the Hynix 
restructuring process, and to "save Hynix" in one way or other. 
7.109  Regarding the December 2002 restructuring, the JIA found that at least one Hynix creditor 
complained of "the government's headlong approach toward the handling of Hynix".333  In addition, 
the JIA observes that on 15 November 2002 the 2002 Re port of the National Audit Results stated that 
"KDB, through discussions with interested parties such as the government  and the creditor group, 
should determine and implement an action plan for dealing with Hynix Semiconductors as soon as 
possible".334  In our view, an objective and impartial investigating authority might properly conclude 
from these statements, read in light of relevant  evidence regarding the October 2001 restructuring, 
that the Government of Korea was di rectly involved in th e December 2002 restructuring, and that this 
was because the Government of Korea's in tent was that Hynix should be saved. 
7.110  According to Korea, the evidence collected by  the JIA "consistently reported only that the 
government viewed the restructurings as matters to be left to the creditors".335  Korea refers in this 
                                                      
325 The JIA referred to evidence regarding the May 2001 restructuring in its findings of entrustment or 
direction in respect of the October 2001 restructuring ( see para. 269 of Annex 1 (Essential Facts)).  Korea 
asserts (Attachment 2, page 17) that evidence regarding the May 2001 restructuring should have no bearing on 
the analysis of the October 2001 rest ructuring.  Since the May 2001 restru cturing took place only five months 
before the October 2001 restructuring, and since the relevant evidence actually dates from after the May 2001 restructuring, we find that the JIA did not err in cons idering such evidence in the context of the October 2001 
restructuring. 
326 See Annex 1 (Essential facts), para. 270, fourth indent. 
327 Ibid. 
328 Ibid. 
329 See Annex 1 (Essential Facts), para. 272, first indent. 
330 Ibid. 
331 The Panel notes that Japan explained in response to Question 24 from the Panel that Hynix could 
properly be understood to be one of th e "several companies" at issue.  Kor ea has not disputed this interpretation 
of the evidence. 
332 Ibid, second indent. 
333 See Annex 1 (Essential Facts), para. 334, fifth indent. 
334 See Annex 1 (Essential Facts), para. 329, ninth indent, emphasis added. 
335 See Korea's First Written S ubmission, para. 200. WT/DS336/R 
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regard to a 3 September 2001 statement by the Chai rman of the FSC that "Hynix is the issue which 
should be assessed and determined by the creditor fi nancial institution group", and his request to FSC 
officials "to take no part and even to  refrain from expressing personal opinion".
336  According to 
Korea, "[t]his statement clearly indicates the FSC' s position that the resolution of Hynix's situation 
was to be left to the creditors, and th at the government should not intervene."337  However, only five 
days later the very same government official was quoted as stating that "the government will 
determine how to treat the problems of Hynix ... by the end of September".338  Not only is the first 
statement capable of suggesting to an objective a nd impartial investigating authority that the FSC 
Chairman had to instruct officials not to inte rvene in the Hynix process precisely because they had 
been doing so, but the second statement could reas onably be taken to demonstrate that the FSC 
Chairman himself acknowledged that the Government of Korea was prepared to intervene directly in 
the Hynix restructuring process.  Korea's argume nt regarding the proper interpretation of the 
3 September 2001 statement is therefore not persuasive. 
7.111  At the first substantive meeting, Korea subm itted to the Panel a newspaper article dated 
1 September 2001, in the form of Exhibit KOR-33.  Korea asserted that the treatment of this report 
reveals a great deal about the JIA's approach to the evidence in this case.  Ko rea also asserted that the 
JIA had ignored this article completely in Annex 1 (Essential Facts).  Korea drew the Panel's attention 
to the following statements reported in the article:   
• The Deputy Prime Minister of Korea was quoted as saying "The creditor council will 
support Hynix if it sees any hope for Hynix,  but the slow down in semiconductor and 
other factors can lead them to another decision."   
• The President of Shinhan Bank, Lee Inho, was quoted as saying, "Before all financial 
support, we should make a right judgment if Hynix can survive or not, and more 
financial aid would be difficult." 
• The President of Hanvit Bank, Lee Deokhun, was quoted as saying that the creditor's 
council might agree to provide a dditional financial assistance to Hynix.  In this regard, he 
noted that the alleged Korean government in terference "does not matter since the creditor 
council is independently searching a support plan to minimize our own financial 
damage." 
7.112  In our view, this article is not sufficient to establish a prima facie case against the JIA's 
finding of a government intent to save Hynix.  First, an investigating authority might reasonably conclude that the reported statements by the President s of two private banks were not indicative of the 
intent of the Government of Korea in respect of  the Hynix restructurings.  Second, regarding the 
statement of the Deputy Prime Minister, there is no doubt that there was some evidence on the JIA's 
record to the effect that the Government of Ko rea would let the creditors decide for themselves 
whether or not to restructure Hynix.  Howeve r, this does not necessarily invalidate the JIA's 
determination, since the JIA might reasonably have found that there was also substantial evidence on 
the record to the effect that the Government of Korea intended to save Hynix, through direct 
intervention if necessary.  Indeed, the JIA's record indicates that the very same Deputy Prime Minister 
was quoted only weeks earlier as stating that the Government of Korea would "step in"
339 and resolve 
the Hynix issue if necessary.  In addition, we not e that the article was not  ignored completely in 
Annex 1 (Essential Facts), as alleged by Korea.  It wa s explicitly referred to by the JIA at para. 281 of 
Annex 1 (Essential Facts), in the context of the JIA's analysis of Woori Bank's internal examination of 
                                                      
336 See Annex 1 (Essential Facts), para. 272, fourth indent. 
337 See Attachment 2, page 21, Korea's First Written Submission. 
338 See Annex 1 (Essential Facts), para. 272, fifth indent. 
339 See para. 7.108 supra .  WT/DS336/R 
 Page 119  
 
 
the October 2001 restructuring.  For these reasons , we are not persuaded by Korea's arguments 
concerning the press report set forth in Exhibit KOR-33. 
7.113  We would emphasise that we do not mean to impl y that all of the evidence before the JIA was 
consistent with the conclusion that the Government of  Korea was prepared to in tervene directly in the 
Hynix restructuring process.  This  would be unlikely in an inves tigation based in large part on 
circumstantial evidence.  Nevertheless, the JIA coul d properly have concluded that the balance of the 
record evidence did indicate that the Government of Korea was prepared to in tervene directly in the 
Hynix restructuring process.  Furthermore, the JI A explicitly reviewed the record evidence in the 
context of earlier findings that the Government of Korea had "exerted pressure on certain banks when 
it implemented support measures such as KEIC's  insurance on the D/A financing and KDB 
Program".340  These earlier findings, which dated from  late 2000, and which concerned earlier 
measures safeguarding the continued viability of Hyni x, have not been challenged by Korea in the 
present proceedings.  In our view, the JIA properly reasoned that such findings from the recent past provide relevant context for interpreting the numer ous reports of government intent and intervention 
in respect of the October 2001 and December 2002 restructurings.
341  Faced with evidence of 
government pressure on Hynix creditors in the recen t past, and evidence that the Government of 
Korea was prepared to intervene directly in order to preserve Hynix as a going concern at the time of 
the October 2001 and December 2002 restructurings, we  consider that the JIA could properly have 
concluded that the Government of Korea had the po litical intent to save Hynix at the time of those 
restructurings – through direct intervention if necessar y - even if not all of the record evidence pointed 
in this direction.342 
7.114  In light of the above, we find that the JIA coul d properly have concluded that the Government 
of Korea intended to save Hynix at the time of the October 2001 and December 2002 restructurings. 
Assumption that the creditors were not acting in their own interests  
7.115  Korea asserts that the JIA only reached its c onclusion on the Government of Korea having the 
intent to save Hynix because of the JIA's alleged assu mption – based on an outside investor standard – 
that the creditors were not acting in their own in terests. Korea further asserts that the conclusion 
therefore cannot be maintained, because the outside i nvestor standard is not the standard that the JIA 
should have applied.    
7.116  We recall our finding that the JIA applied both an  outside and inside investor standard, and 
that the JIA applied an inside investor standa rd because it explicitly acknowledged "that existing 
                                                      
340 See Annex 1 (Essential Facts), para. 269. 
341 The JIA acknowledged that inter alia  evidence regarding government pr essure on creditors does not 
date from the time of the restructurings  at issue, but nonetheless concluded th at such evidence was relevant to its 
the findings of entrustment and direction in respect of those restructurings ( see paras. 269 and 328 of Annex 1 
(Essential Facts)).  Korea submits that  evidence in respect of such earlier ev ents "would have no bearing on" the 
later restructurings "unless it was demonstrated that there was a continuation of the government policy" ( see 
pages 1 and 17 of Attachment 2 to Korea's First Written Submission).  We disagree with Korea's evaluation of 
the potential relevance of evidence pre-dating the restructur ings at issue.  We see no reason why an investigation 
of alleged government entrustment or direction of Hynix creditors in respect of the October 2001 and 
December 2002 restructurings could no t properly have regard to eviden ce of government entrustment or 
direction of those same Hynix creditors dating from late 2000.    
342 We have noted Attachment 3 to Korea's First Written Submission, which addresses evidence in 
Annex 1 (Essential Facts) allegedly "indicating that the Korean Government's 'intent' was to leave decisions concerning the May 2001, October 2001 and December 2002 re structurings to the creditors."  We have already 
noted ( see para. 7.112 supra ) that statements purporting to leave the decision to creditors  need not, when 
properly reviewed in the context of other evidence, necessarily be determin ative.  Reviewing Attachment 3 as a 
whole, in the context of the remainder of the evidence considered by the JIA, we do not believe that the 
evidence cited by Korea was sufficient to prevent the JIA from properly concluding that the Government of 
Korea intended to save Hynix. WT/DS336/R 
Page 120  
 
creditors would possibly provide additional funding in order to maximize the recovery of credit."
343  
The JIA also accepted that debt fo rgiveness by creditors might be "commercial" "[i]f such action is 
reasonably found to be unavoidable in order to maximize the debt recovery".344  We further recall our 
finding that the JIA did not rely on presumptions re garding the outside investor standard, but rather 
made factual findings regarding the lack of outside i nvestors willing to invest in Hynix at the time of 
the restructurings.345  Thus, there is no basis to Korea's argument that the JIA only reached its 
conclusion on the Government of Korea having the intent to save Hynix because of the JIA's alleged 
assumption – based on an outside investor standard – that the creditors were not acting in their own 
interests. 
Conclusion  
7.117  For the above reasons, we reject Korea's argumen t that the JIA's analysis of the Government 
of Korea's intent was biased and inconsistent with the evidence.346 
(d) Commercial reasonableness:  the JIA's analysis  of the internal examinations of the 
restructurings by the Four Creditors 
7.118  A further element relied on by the JIA in finding that the Government of Korea had entrusted 
or directed the Four Creditors to participate in  the restructurings was its intermediate factual 
conclusion that the Four Creditors had decided to participate in the restructurings on the basis of non-commercial considerations. 
7.119  Korea submits that the JIA's analysis of the internal examinations of the restructuring 
transactions by the creditor banks does not suppor t its conclusions, since the evidence submitted by 
the individual creditors established that they ha d conducted a sufficient analysis of the various 
transactions before entering into them.  Korea do es not dispute that the commercial reasonableness of 
the creditors' actions might be rele vant to a determination of governme nt entrustment or direction.  
7.120  Japan asks the Panel to reject Korea's argument. 
(i) Main Arguments of Korea 
7.121  Korea submits that the creditor banks that responded to the JIA's questionnaires told the JIA 
the same basic story:  they had received the in formation needed to analyze the October 2001 and 
December 2002 restructuring transactions (in some cases,  through draft versions of reports that were 
only finalized at the time the restructuring agreem ents were adopted);  they had analyzed that 
information through their normal internal procedures ;  and they had concluded that the restructuring 
transactions were in their economic interests, esp ecially in light of the available alternatives. 
                                                     
 
343 See Annex 3 (Rebuttals and Surrebuttals), para. 141.  Despite references to this statement by Japan 
in its First Written Submission ( see para. 379) and in subsequent submissions to the Panel ( see, for example, 
para. 90 of Japan's Second Written Submission), Korea onl y acknowledged this statement in its final submission 
to the Panel after the Second Substantive Meeting ( see Korea's Final Comments, para. 4).  This statement 
appears to have been overlooked by Korea during the earlier stages of the Panel proceedings. 
344 See Annex 3 (Rebuttals and Surrebuttals), para. 429. 
345 Although the JIA ultimately conc luded that, because the Four Credito rs had not acted on the basis of 
commercial considerations, they had likely been influen ced by external factors su ch as the intent of the 
Government of Korea to save Hynix, this does not mean that the JIA's conclusions on the Government's intent 
were based on assumptions regarding the creditors' failure to act in their commercial interests.  The JIA made 
distinct factual findings regarding these two matters. 
346 We recall that Korea has only challenged the ev identiary basis for the JIA's intermediate factual 
conclusion regarding government intent.  Korea has not disputed that intermediate factual conclusions regarding 
government intent might support a finding of government entrustment or direction.  WT/DS336/R 
 Page 121  
 
 
7.122  According to Korea, the JIA rejected the ba nks' claims in large measure because the JIA 
applied an outside investor sta ndard, and could not accept that a ny rational bank would have entered 
into those transactions.  Korea asserts that, havi ng already decided that the banks' decision-making 
processes must have been irrational (from an outside investor perspective), the JIA then considered 
the actual evidence of what the banks actually did.  Korea asserts that the JIA's finding of subjective 
irrationality in the banks' decision-making processes was therefore based on the JIA's conclusion that 
the banks' decisions were objectively irrational,  from an outside investor perspective.   
7.123  Korea submits that the JIA's discussion of the banks' decision-making processes was not an 
even-handed assessment of the evidence.  Instead, it was a search for excuses to disregard evidence 
demonstrating that the banks had actually acted in a rational manner.  According to Korea, this bias 
can be seen by looking at the sp ecific issues that the JIA relied upon to discount the bank's statements 
concerning the October 2001 and December 2002 restructurings: 
• October 2001 :  Korea asserts that the independent analyses by Anjin Accounting and the 
Monitor Group had demonstrated that Hynix's going-concern value at the time of the 
October 2001 restructuring far exceeded its liquidation value.  
Korea accepts that these reports were not  finalized until after the terms of the 
October 2001 restructuring had been approve d by the banks, but asserts that the banks 
testified that they had received the reports in draft form before they made their decisions.  
Korea also asserts that at least one of the banks also submitted its own internal analysis, showing roughly the same results. 
• December 2002 :  Korea asserts that the analyses pr epared by Deutsche Bank and [[BCI]] 
in connection with the December 2002 restru cturing had shown that Hynix's going 
concern value far exceeded its liquidation value.   Korea states that the final versions of 
these reports had been prepared and circulated  to the banks before the banks made their 
decisions to participate in the restructuring.  
Korea asserts that the JIA never disputed the calculation of the going-concern value or 
liquidation value in those reports.  Instead, th e JIA disputed the substantive merits of the 
reports. 
(ii) Main Arguments of Japan 
7.124  Japan submits that the distinction drawn by Korea between objective and subjective 
rationality is artificial and not consis tent with the approach of the JIA.   Japan asserts that what Korea 
calls the objective and the subjective rationality of the creditor banks are not two separate elements 
but are rather mutually supporting aspects of the sam e overall intermediate findings that the creditor 
banks did not act in a commercially  reasonable manner.  Japan asserts that the JIA's finding was based 
on abundant evidence that there existed no investors,  either new or existing creditors, in the general 
commercial market who would have invested in  or provided loans to Hynix from an outsider 
investor's perspective.  Japan argues that the JIA did not base its examination of the commercial 
reasonableness of the Four Creditors' actions exclus ively from the perspective of outside investors, 
but also examined commercial reasonableness from the inside investor perspective. 
7.125  Regarding the JIA's examination of the commercial reasonableness of existing creditors' 
decisions to participate in the Hynix restructuri ngs, Japan asserts that the JIA followed the same 
process for both the October 2001347 and December 2002348 restructurings.  Japan asserts that the JIA 
explained this examination process in the following terms:   
                                                      
347 See Annex 1 of Final Determination, paras. 269-97. 
348 See Annex 1 of Final Determination, paras. 328-74. WT/DS336/R 
Page 122  
 
Based thereon, the Investigating Author ities examined the decision-making process 
of the individual creditor banks and find that there were decisions that were not commercially reasonable.  It is not found th at the decisions of the creditor banks were 
commercially unreasonable directly from the fact that it was impossible to raise funds from the commercial market or from new investors. … 
In the Essential Facts, the commercial reasona bleness of the decisions by the creditor 
banks to participate in the Hynix bail out measures was examined based on the 
specific individual circumstances and on the evidence concerning the review process 
pertaining to participation in the bailout  measures on the premise that existing 
creditors would possibly provide additiona l funding in order to maximize the 
recovery of credit.
349 
(iii) Evaluation by the Panel 
7.126  In the context of its claim regarding the JI A's intermediate factual conclusion that the 
decisions of the Four Creditors to participate in the restructurings were not commercially reasonable, 
Korea's arguments raise the question of whether or not the JIA improperly applied an outside investor 
standard.  Korea's arguments also raise issues rega rding the JIA's treatment of internal analyses and 
external reports prepared in respect of the Oct ober 2001 and December 2002 restructurings.  We shall 
examine each of these issues in turn. 
Outside / Inside Investor Perspective  
 7.127  Korea asserts that the JIA rejected the Four  Creditors' claims that their actions were 
commercially reasonable in large measure because th e JIA applied an outside investor standard.  
Korea submits that the JIA's finding of subjective irrationality in the banks' decision-making processes was based on the JIA's conclusion that the banks' decisions were objectively irrational, from 
an outside investor perspective.  Korea relies in this regard on the following statement by the JIA: 
In the Essential Facts, the Investigating Authorities find it was difficult for Hynix to 
raise funds from the commercial market at  the time taking into consideration the 
worsening DRAM market, the deteriorating financial condition of Hynix, the trends 
of Hynix share price and others, the deteri oration in its external credit rating, and 
other indicators.  Based thereon, the Inv estigating Authorities examined the decision-
making process of the individual creditor ba nks and find that there were decisions 
that were not commercially reasonable.
350 
7.128  Read in isolation, this statement by the JIA might well support Korea's interpretation of the 
JIA's analysis.  However, the very next sentence in the JIA's Response to Comments states that "[i]t is 
not found that the decisions of the creditor banks  were commercially unreasonable directly from the 
fact that it was impossible to raise funds from the commercial market or from new investors".351  This 
clarification was made by the JIA in Annex 3 (Rebutta ls and Surrebuttals), in response to virtually the 
same argument that Korea has raised in th e present proceedings.  The JIA's full response352 to that 
argument reads: 
                                                      
349 See Annex 3 (Rebuttals and Surrebuttals), paras. 140-41. 
350 See Annex 3 (Rebuttals and Surrebuttals), para. 140. 
351 Ibid.  
352 There are differences between the two transla tions of Annex 1 (Essential Facts) and Annex 3 
(Rebuttals and Surrebuttals) submitted by the parties.  Japan has challenged a number of alleged translation 
errors in the version submitted by Korea (see, for example, Japan's First Written Submission, para. 348, 
concerning para. 140 of Annex 3 (Rebuttals and Surrebuttals)).  Since Korea has not responded to Japan's 
argument that Korea's translation of para. 140 of Annex 3 (Rebuttals and Surrebuttals) is erroneous, and since  WT/DS336/R 
 Page 123  
 
 
(140)  In the Essential Facts, the Inves tigating Authorities find it was difficult for 
Hynix to raise funds from the commercial market  at the time taking into consideration 
the worsening DRAM market, the deterior ating financial condition of Hynix, the 
trends of Hynix share price and others, the deterioration in its external credit rating, 
and other indicators. Based thereon, the Investigating Authorities examined the 
decision-making process of the individual creditor banks and find that there were 
decisions that were not commercially reasonable.  It is not found that the decisions of 
the creditor banks were commercially unreasonabl e directly from the fact that it was 
impossible to raise funds from the co mmercial market or from new investors.   
Accordingly, the rebuttal by the Governme nt of Korea that "the Investigating 
Authorities concluded that the debt restru cturing acts of the banks were all non-
commercial measures because of the unsatisfactory financial state of Hynix," and "commercial reasonableness was examined  by evaluating the measures from the 
perspective of corporations that are provi ding new financing or investment to the 
pertinent company" differs from the findings in  the Essential Facts;  thus this rebuttal 
cannot be accepted. When examining the decision-making processes of the individual 
creditor banks, the Investigating Author ities conducted substantive bank-by-bank 
analysis of their decision-making processes to participate in the Hynix support measures based on the submitted inter nal examination documents and other 
materials that served as a basis for their decisions.  Consequently, the rebuttal that 
"an abstract and general evaluation of the commercial reasonableness of the debt 
restructuring was conducted despite that it must be evaluated from the real and 
specific standpoint of the creditor institutions  participating in such measures" also 
differs from the findings in the Essential Facts;   thus this rebuttal cannot be accepted.  
(141)  In the Essential Facts, the commerci al reasonableness of the decisions by the 
creditor banks to participate in the Hyni x bailout measures was examined based on 
the specific individual circumstances a nd on the evidence concerning the review 
process pertaining to participation in the bailout measures on the premise that existing 
creditors would possibly provide additiona l funding in order to maximize the 
recovery of credit.  No abstract judgment was made as to whether or not the decisions conform to a fixed economic model.  Th e assertions of Hynix and Micron are both 
arguments that concern economic models, and are not based on specific evidence 
leading to the decisions by the individual banks to participate in the bailout measures.  
Accordingly, they cannot be accepted. 
(142)  In any case, irrespective of whether one is an existing creditor or not, financial 
institutions examine a variety of factors from a profit-maximization or loss-minimization perspective such as the financ ial conditions of the pertinent company, 
its future potential, comparison of its goi ng-concern value with its liquidation value 
when making investment or lending decisions.  If such an examination was carried out in a reasonable manner, then it can be said that a commercially reasonable decision had been made based on the results of  the examination even if the result was 
the incurrence of a loss. On the other ha nd, in the case where the examination was 
insufficient, then one cannot make a find ing that a commercially reasonable decision 
had been made even if it resulted in generation of profit.  In the Essential Facts, the 
Investigating Authorities find that the financ ial institutions that participated in the 
support did not conduct sufficient examination of this sort, and that they decided to support non-commercially. (emphasis supplied) 
                                                                                                                                                                    
 
note 19 to Korea's Second Written Submission suggests th at Korea is prepared to  accept the translations 
proposed by Japan, we proceed on the basi s of the translations submitted by Japan.  WT/DS336/R 
Page 124  
 
7.129  We understand Japan to argue that the JIA fi rst established whethe r it was commercially 
reasonable for either outside or inside investors to  participate in the restructurings from an outside 
investor perspective.
353  Japan asserts that the JIA then  assessed whether it was commercially 
reasonable for individual inside investors to participat e in the restructurings from an inside investor 
perspective.354  This is consistent with the JIA's own description of its analysis, as detailed above. 
7.130  It is also consistent with the JIA's findings in  Annex 1 (Essential Facts).  In particular, having 
concluded that "Hynix was unable to raise funds fro m the commercial market, and [that] there existed 
no investors in the general market who would invest in Hynix or provide a loan to Hynix from a normal commercial perspective",
355 the JIA examined the "situation of [the] credit examination by 
banks".356  With respect to Woori Bank's participation in the October 2001 restructuring,357 for 
example, the JIA made inter alia  the following findings: 
According to the internal credit examination document concerning the October 2001 
Program Woori Bank submitted at the on-the- spot investigation,  Woori Bank was 
fully aware of the pessimistic financial situa tion of Hynix. It based its approval of the 
October 2001 Program on considerations of the public interest [[BCI]].* Moreover, 
there was a news report that President of the Bank had stated that the Bank was 
prepared to provide support for the debt-to- equity swap and new funds if the creditor 
banks agreed.*  These facts support the fact  that Woori Bank gave priority to the 
public interest, i.e., the bailout of Hynix, over its own commercial judgment. At the 
same time, according to Woori Bank's res ponse to the questionnaires, the credit rating 
of Hynix was [[BCI]]* the soundness classification was [[BCI]] at the end of 2001, 
and Woori Bank set aside [[BCI]]% [of claims to Hynix] as a loan-loss reserve.* This 
rate was very high compared with the aver age reserve rate for other claims, which 
was [[BCI]]%,* and it shows that the bank ha d low expectations of the possibility of 
recovering Hynix loans. As described above, with regard to the reports by various 
institutions, which was submitted as the basis for its judgment, it was apparent at that 
time that the two reports existing at the ti me of the resolution of the October 2001 
Program (the SSB Report and the Monitor Group Report) lacked reliability to serve as the material to substantiate the validity of the financial analysis to participate in the 
October 2001 Program from a commercial pe rspective. At the same time, Woori 
Bank selected option 1 prior to the release of  the Arthur Andersen Report, on which 
the October 2001 Program relied. The Investigating Authorities do not find that 
Woori Bank's provision of credit under such  circumstances as credit provided based 
on normal commercial judgment.
358  (* footnotes omitted) 
7.131  Thus, in addition to finding that it was not commercially reasonable for investors to 
participate in the October 2001 restructuring from an outside investor's perspective, based on 
objective considerations such as the poor financ ial state of Hynix, the JIA then considered inter alia   
Woori's participation from the inside investor's pe rspective, having regard to what Woori itself had 
indicated was "the basis for its judgment" ( i.e., its internal analyses, th e SSB Report, the Monitor 
Group Report, and the Anjin Accounting Report). 
                                                      
353 See Annex 1 (Essential Facts), paras. 261-68 for the JIA's analysis of the October 2001 Program and 
ibid., paras. 322-27 for the same on the December 2002 Program. 
354 Japan made the same argument in response to Qu estions 99 and 100 from the Panel after the Second 
Substantive Meeting. 
355 See Annex 1 (Essential Facts), para. 268. 
356 See Annex 1 (Essential Facts), section 2.8.2.2.3. 
357 The JIA also examined th e commercial reasonableness of the intern al analyses of the restructurings 
undertaken by KEB, Chohung Bank and NACF ( see Annex 1 (Essential Facts), paras. 278, 284 and 287 
respectively.  Korea has not challeng ed the findings of the JIA regard ing the internal analyses of the 
October 2001 restructuring by KEB and NACF. 
358 See Annex 1 (Essential Facts), para. 281.  WT/DS336/R 
 Page 125  
 
 
7.132  In light of these distinct phases in the JIA's analys is, we reject Korea's argument that the JIA's 
finding of subjective irrationality in the banks' d ecision-making processes was based on its conclusion 
that the banks' decisions were objectively irrati onal from the perspective of outside investors. 
Internal analyses of the October 2001 restructuring  
 
7.133  Korea submits that the JIA's review of th e Four Creditors' internal analyses of the 
October 2001 restructuring does not support the JIA's conclusion that the decisions of the Four Creditors to participate were not based on commercial considerations.  In particular, Korea asserts that 
the internal examinations of the October 2001 restructuring by Woori Bank and Chohung Bank 
explicitly considered the financial impact of the restructurings on those banks.  Korea asserts that 
these banks based their decisions to participate in the restructurings on an assessment that doing so 
would minimize their losses because Hynix's going concern value exceeded its liquidation value. 
7.134  Japan notes that the JIA found that Woori Bank based its approval of the October 2001 
Program on considerations of the public interest, "[[BCI]]".
359  The JIA also found that Woori Bank 
opted for option [[BCI]].  On the basi s of the JIA's review of Woori's internal analysis, together with 
other factors, the JIA reached an intermediate factual conclusion that "Woori Bank did not select 
Option [[BCI]] pursuant to a normal commercial judgment".360 
7.135  In our view, the JIA could properly have doubted the commercial reasonableness of Woori 
Bank's internal credit analysis on the basis of Woor i's failure to consider options [[BCI]] in that 
analysis.  Under such circumstances, Woori's an alysis of the October 2001 restructuring, which 
involved a choice between three options, was incomple te.  We also agree with the JIA's assessment 
that the commercial reasonableness  of that analysis is further undermined by Woori Bank's 
consideration of "[[BCI]]", and its statement that "[[BCI]]".361  I n  i t s  F i n a l  C o m m e n t s ,  K o r e a  
attributes such "public interest" consider ations to Woori's concern for "[[BCI]]".362  Although Woori 
did refer to the need to purchase a guarantee for a loan to a Hynix affiliate, this would not explain 
Woori's concern for [[BCI]].  Furthermore, Woori we nt so far as to estimate the [[BCI]] in the event 
that Hynix were liquidated, or entered into court receivership.  Thus, the relationship between [[BCI]] 
and [[BCI]] has not been sufficiently explained by Korea.  
7.136  Korea also submits that "the first and most im portant factor identified by Woori [] is the 
difference between the estimated going-concern va lue of [[BCI]] trillion Won and the estimated 
liquidation value of [[BCI]] trillion Won.  In lig ht of these estimates, the Woori Bank analysis 
expressly stated that '[[BCI]].'"363  Although we acknowledge that Woori Bank did estimate that 
Hynix's going concern value would exceed its liqui dation value, we note the JIA's finding that 
Woori's estimates were unsubstantiated, in the sense that Woori's analysis did not "record any basis 
for the estimate".364  We also note that there is nothing in W oori's internal analysis  to suggest that its 
estimate that Hynix's going concern value exceeded  its liquidation value was "the most important 
factor identified by Woori", as alleged by Korea.  Given Woori's failure to examine options [[BCI]], 
and its consideration of non-commerc ial factors pertaining to the public interest, including especially 
[[BCI]], Korea has failed to establish a prima facie  case that the JIA's review of Woori Bank's internal 
analysis was flawed simply by virtue of Woor i's reference to an unsubstantiated estimate that 
[[BCI]].365  
                                                      
359 See Annex 3 (Rebuttals and Surrebuttals), para. 400. 
360 See Annex 3 (Rebuttals and Surrebuttals), para. 400. 
361 See Exhibit KOR-27, page 3. 
362 See Korea's Final Comments, para. 41. 
363 See Korea's Final Comments, para. 40. 
364 See Annex 3 (Rebuttals and Surrebuttals), para. 382. 
365 In its Final Comments to the Panel, Korea challenges the JIA's interpretation of a statement made by 
the President of Woori Bank.  After referring to public in terest considerations in Woori's internal analysis, the WT/DS336/R 
Page 126  
 
7.137  Regarding Chohung Bank, the JIA found inter alia  that: 
Chohung Bank extended credit in a non-commerc ial manner on the basis of fact that 
inter alia  the decision was made to fulfil the [Memorandum of Understanding 
(hereinafter "MOU")] rather than based on  the possibility of  rehabilitating  Hynix 
and that the Bank selected Option 1 before th e AA Report and others were presented.  
With regards to the finding, Chohung Bank asserts that it had "various internal and 
external materials;" however, Chohung Bank responded at the on-the-spot 
investigation that "the materials that formed  the basis of the pertinent examination no 
longer remain at our Bank,"* and it has not submitted the aforementioned "various 
internal and external materials" to the Inv estigating Authorities.  In addition, although 
the internal credit examination document that  the Bank submitted contains an analysis 
of the liquidation value of Hynix ( i.e., the compensation when selected Option 3), 
there is no indication that the Bank evaluated the Hynix going-concern value or the Hynix share price for the selection of Option 1 or Option 2.  Thus, the assertion that the Bank selected the most favourable option from Options 1, 2, and 3 based on the 
impact each option would have on its profit- and-loss is inconsistent with the evidence 
on the record of the investigation.  Consequently, the assertion that the Bank 
"selected Option 1 which was the most favourab le to the Bank, out of Options 1, 2, 
and 3, based on the impact it would have  on profit-and-loss and the MOU" and the 
similar assertion of Hynix cannot be accepted.
366  (* footnote omitted) 
7.138  Korea made no arguments regarding these specific findings by the JIA.  Furthermore, 
regarding Chohung's alleged need to comply with its MOU, we note that the "synthesis opinion" in 
Chohung's internal analysis contains two bullet poin ts, both of which refer to the MOU.  The first 
bullet point states that "non-particip ation ... results in the miscarriage of MOU for this period".  The 
second bullet point contains the conclusion that "the  participation is of help for CHB to achieve 
MOU".  In addition, we note that there is no quan tification of either the share price or the going 
concern value in Chohung's internal analysis of opt ions 1 and 2.  In light of these observations, there 
is no basis to conclude that the JIA's review  of Chohung's internal analysis was flawed. 
7.139  For the above reasons, we reject Korea's arguments  regarding the JIA's review of the internal 
analyses of the October 2001 restructuri ng performed by Woori Bank and Chohung. 
Reliance on external reports for the October 2001 restructuring  
 
7.140  Korea asserts that the creditors worked with a variety of outside experts before deciding to 
participate in the October 2001 restructuring.  Korea asserts first that Salomon Smith Barney continued to provide financial advice and extensive studies for review by the creditor group.  Second, 
                                                                                                                                                                    
 
JIA referred to "a news report that President of the Bank had stated that the bank was prepared to provide 
support for the debt-to-equity swap and new funds if th e creditor banks agreed".  The JIA stated that this 
confirmed that Woori bank "gave priority to the public interest" (Annex 1 (Essential Facts), para. 281).  
According to Korea, "[u]nder any fair r eading, that statement indicates only that Woori Bank would be able to [] 
go along with the decision of the Council for Creditor Financial Institutions, which might include debt-equity 
swaps [] and other types of financial support [].  There is nothing in the Woori Bank president's statement 
suggesting that the Creditors Council was expected to adop t a programme that was not in the creditors' interests, 
or that Woori Bank was willing to sacrifice its own interests 'to save Hynix'" (Final Comments, para. 45).  
Korea's argument overlooks the explana tion provided by Japan, which emphasised that the President's statement 
had been made "even before the October 2001 Program was prepared".  In this regard, we note that the 
statement was dated 31 August 2001, whereas Woori's internal analysis was dated 31 October 2001.  In other 
words, the President's statement was made before Woori's internal analysis had been completed.  In these 
circumstances, the JIA could properly have relied on the President's statement as evidence that Woori 
participated in the October 2001 restructuring on the basis of non-commercial considerations. 
366 See Annex 3 (Rebuttals and Surrebuttals), para. 407.  WT/DS336/R 
 Page 127  
 
 
the creditors drew upon an assessment of Hynix's operational strengths and weaknesses provided by 
the Monitor Group on [[BCI]].  Third, the credit ors conducted a valuation exercise, with Anjin 
Accounting estimating the liquidation value of Hynix versus its value as a going concern.367  Korea 
asserts that the analysis prepared by Anjin Accoun ting indicated that Hynix's going-concern value far 
exceeded its liquidation value. 
7.141  We shall examine the JIA's treatment of each of  the external reports referred to by Korea. 
SSB Report 
 
7.142  According to Japan, the JIA found that SSB was Hynix's financial adviser at the time it 
compiled its Report.  Furthermore, the Deputy Prime Minister Chin Nyum stated the creditor banks 
did not consider that the SSB Report was reliable,  and it was expected that a different, objective 
organization would carry out the evaluation.368  The JIA therefore found that the SSB Report was not 
an objective source of information to decide whether to provide credit.  In particular, the JIA found 
that "the SSB Report lacked reliability to serve as  a material to substantiate the validity of the 
financial analysis to participate in the Oct ober 2001 Program from a commercial perspective".369 
7.143  Korea does not challenge the JIA's finding regarding the lack of objectivity of the SSB report.  
Accordingly, there is no basis for us to conclude  that the JIA improperly concluded that "the SSB 
Report lacked reliability to serve as a material to subs tantiate the validity of the financial analysis to 
participate in the October 2001 Program from a commercial perspective".370 
Monitor Group Reports 
 
7.144  There were two Monitor Group Reports on the JIA' s record.  One was dated [[BCI]], the other 
[[BCI]]. 
7.145  According to Japan, the JIA found that the [[BCI ]] Monitor Group Report merely outlined the 
relative position of Hynix in the DRAM market, especially its capabilities in manufacturing and 
technology, as well as its problems, but did not addr ess matters concerning Hynix's financial situation 
or the possibility of debt repayment.  The JIA th erefore found that the [[BCI]] Monitor Group Report 
lacked reliability to substantiate the validity of th e financial analysis from a commercial perspective in 
connection with the participation in the Oct ober 2001 Program.  Regarding the [[BCI]] Monitor 
                                                      
367 In its Final Comments to the Panel, Korea challenges Japan's assertion that Woori Bank had 
informed the JIA that it had relied on the Anjin Accounting Report when deciding to participate in the 
October 2001 restructuring ( see paras. 38 and 39 of Korea's Final Comments).  We note that Japan's assertion 
was made on at least two occasions in its First Written Submission ( see paras. 164 and 169).  We also note 
Article 14 of our Working Procedures, which provides: 
Each party shall submit all factual evidence to the Panel no later than during the first 
substantive meeting, except with respect to ev idence necessary for purposes of rebuttals or 
answers to questions.  Exceptions to this pr ocedure will be granted upon a showing of good 
cause.  The other party shall be accorded a period  of time for comment, as appropriate, on any 
new factual evidence submitted after the first substantive meeting. According to Article 14, therefore,  Korea's challenge to Japan's fact ual assertion (which was supported 
by references to the JIA's Final Determination) should ha ve been made by the end of the Panel's first substantive 
meeting with the parties.  Since Korea has not demonstr ated good cause for failing to challenge Japan's factual 
assertion in good time, we proceed  on the basis that Woori Bank did tell the JIA that it had relied on the Anjin 
Accounting Report when deciding to participate in the October 2001 restructuring.  In any event, Korea's argument would not change our evaluation of the JIA's treatment of Woori's internal analysis, nor of the JIA's 
handling of the Anjin Accounting Report.  It would simply mean that the Anjin issue would not apply in respect 
of Woori Bank. 
368 See Annex 1 (Essential Facts), para. 276. 
369 See ibid .  
370 See ibid. WT/DS336/R 
Page 128  
 
Group Report, the JIA found that this also could not serve as the basis for the decisions of the 
financial institutions to choose one of three options  because this Report was is sued after the resolution 
of the October 2001 restructuring.
371 
7.146  Korea does not dispute the JIA's finding th at the [[BCI]] Monitor Group Report was 
insufficient to justify creditors' participation in  the October 2001 restructuring because it did not 
address matters concerning Hynix's financial situ ation or the possibility of debt repayment.372  
7.147  We note that the Monitor Group's [[BCI]] Report did contain an analysis of Hynix's 
"[[BCI]]", but that report was only completed in [[BCI]], and was therefore not available to the 
creditors at the time they decided to participate in  the October 2001 restructuring.  While Korea does 
not dispute that the [[BCI]] report was not availabl e to creditors in October 2001, Korea asserts that 
the Monitor Group's analysis was already underway at the time the decision to participate in the 
October 2001 restructuring was made, and that Monitor Group officials were in contact with representatives of the creditors.  We are unable to accept this argument, though, since Korea has 
presented no evidence from the JIA's record in support th ereof.  In this regard, Korea complains that 
the JIA refused to accept that the creditors had access to the Monitor Group's analysis before deciding 
to participate in the October 2001 restructuring because "it could not be confirmed whether the … 
report[s] were disclosed at the draft stage".
373  We consider that it was entirely reasonable for the JIA 
to have acted in this manner.  The JIA had eviden ce on its record that the report was dated after the 
restructuring. It allowed the parties to address the issue, at least because  the Essential Facts disclosed 
the JIA's finding and the nature of the evidence which underpinned the finding. One might reasonably 
suppose that there would have been some record of any informal contacts between Monitor Group and 
creditors' officials, such as minut es of meetings, notes to file, or records of telephone conversations, 
and that such evidence would have been submitted to  the JIA pursuant to its requests for all materials 
used by the creditors in deciding whether or not to participate in the restructurings, or in response to 
the Essential Facts.374  Similarly, given the extent of the October 2001 restructuring, one might 
reasonably suppose that creditors would have kept any draft versions of the Monitor Group's [[BCI]] 
Report that were made available to them, in order to maintain a complete internal record of the 
reasons for their participation in that restructuri ng.  In our view, the complete absence of any such 
evidence provides a reasonable basis for the JIA to  conclude that input from the Monitor Group's 
[[BCI]] Report was not available to creditors at the time of the October 2001 restructuring.375 
7.148  Accordingly, there is no basis to conclude that the JIA erred in finding that the [[BCI]] 
Monitor Group Report did not properly establish the commercial reasonableness of the Four 
Creditors' participation in the October 2001 restructuring. 
                                                      
371 See ibid .  
372 At para. 218 of its First Written Submission, Korea asserts that "the independent analyses by Anjin 
Accounting and the Monitor Group had demonstrated that Hynix's going-concern value at the time of the 
October 2001 restructuring far exceeded its liquidation value".  Later in the same paragraph, however, Korea 
clarifies that this statement is made in respect of the [[BCI]] Monitor Group Report.  
373 See JIA Annex 3 (Rebuttals and Surrebuttals), para. 380 ("In the responses to the questionnaire of 
the Government of Japan questionnaire and at the on-the-spot investigations in Korea, it [could] not be 
confirmed whether or not the Anjin Accounting Report and the Monitor Group Report were disclosed during 
their draft stage.  In additi on, there should be some kind of evidence if such drafts would have been obtained. 
No evidence, however, has been presented.  Accordingly,  this rebuttal is not substantiated by any evidence or 
information on the record and cannot be accepted.") 
374 See Japan's reply to Question 25 from the Panel.  Ko rea has not denied Japan's assertion that the JIA 
requested all materials used by the creditors in their examination of the restructurings.  
375 This is supported by the fact that the only internal analysis shown to the Panel that refers to any 
Monitor Group data is the internal analysis conducted by [[BCI]].  Korea confirmed, in response to 
Question 113 from the Panel, that this data  was taken from the [[BCI]] Monitor Group Report.  WT/DS336/R 
 Page 129  
 
 
Anjin Accounting Report 
 
7.149  According to Japan, the JIA found that the Anjin Accounting Report could not have served as 
a basis for creditors to decide to participate in  the October 2001 restructuring because it was issued 
after those decisions to participate were made. 
7.150  In response to Question 66 from the Panel, Kor ea asserted that, although the final version of 
this report was not available at the time the cred itors made their decision to participate in the 
October 2001 restructuring, the Anjin Accounting analysis was already underway at the time the decision was made, and the Anjin Accounting analys ts were in contact with representatives of the 
creditors prior to the approval of the restructuri ng.  In its First Written Submission, Korea also 
suggests that the creditors obtained draft versions of the Anjin Accounting Report, and argues that the 
JIA never explained why the banks would have kept copies of draft reports after they received the 
final versions that supported their decisions in mo re polished form.  In support, Korea submits an 
affidavit to the effect that "it is quite common for drafts of such presentations, reports and analyses to 
be circulated among creditors while a restructuring is being negotiated".
376 
7.151  We note that Korea has not pointed to any record  evidence in support of its argument that the 
Anjin Accounting analysts were in contact with re presentatives of the creditors prior to the approval 
of the restructuring.  In contrast, Woori' s internal analysis states that "[[BCI]]".377  As noted by the 
JIA378, this suggests that Woori had not, at that time,  received any input from Anjin regarding Hynix's 
liquidation value.   
7.152  We recall that, although it has not relied on r ecord evidence, Korea has provided the Panel 
with an affidavit in support of its position.  Japan challenges both the probative value and the 
admissibility of that affidavit.  Regarding admissib ility, Japan asserts that th e affidavit was not on the 
JIA's record.  Korea has not disputed this.  We agree with Japan that the Panel should refrain from 
considering non-record evidence when reviewing the JIA's determination.  Accordingly, it is not 
necessary for the Panel to make any findings regardi ng the probative value of the affidavit.  Moreover 
the affidavit does not attest to the proposition that  the draft Anjin Accounting Report was seen by the 
banks prior to the October 2001 restructuring. 
7.153  Furthermore, (as indicated above in respect of  the Monitor Group Report,) we consider that 
the fact that the report was published after the r estructuring, and the absence of any evidence of 
informal contacts between Anjin an d the creditors, or evidence de monstrating that creditors had 
access to draft versions of the Anjin Report, co nstitutes a sufficient basis for a reasonable and 
objective investigating authority to conclude that An jin's analysis was not made available to creditors 
at the time they decided to participate in the October 2001 restructuring.379 
7.154  In light of the above, there is no basis to conclude that the JIA erred in finding that the Anjin 
Accounting Report did not properly establish the co mmercial reasonableness of the Four Creditors' 
participation in the October 2001 restructuring. 
Internal analyses of the December 2002 restructuring  
 7.155  In considering the individual decisions of the Four Creditors to participate in the 
December 2002 restructuring, the JIA made frequent re ferences to its analysis – and rejection – of a 
                                                     
 
376 See Korea's First Written Submission, note 193. 
377 See [[BCI]]'s internal analysis of the October 2001 restructuring, page 2, Exhibit KOR-27. 
378 See para. 381 of Annex 3 (Rebuttals and Surrebuttals). 
379 Furthermore, we note that there are no references to any Anjin data  in either the [[BCI]]' internal 
analyses of the October 2001 restructuring. WT/DS336/R 
Page 130  
 
report prepared by Deutsche Bank.
380  Indeed, the JIA begins its anal ysis of the creditors' internal 
examination of the December 2002 restructuring by evaluating the Deutsche Bank Report.  The JIA 
does so because: 
In the responses to the questionnaires and the responses at the on-the-spot 
investigation regarding their decision to participate in the December 2002 Program 
under such conditions, the creditor banks allege d that they had determined to provide 
credit after having examined the Deutsche Bank Report. ... 381 
7.156  It is apparent that the JIA fi rst concluded that the Deutsche Bank Report alone did not provide 
a sufficient basis "to substantiate commercial judgments",382 and then analyzed the Four Creditors' 
internal analyses in light of that conclusion.383  If the JIA had reached a different conclusion regarding 
the Deutsche Bank Report, its approach to the inte rnal examinations of the Four Creditors would 
necessarily have been markedly different. 
7.157  We conclude from this that the JIA's considera tion of the adequacy of the internal analyses 
was predicated on its findings concerning the insu fficiency of the Deutsche Bank Report in providing 
a commercial justification for their participa tion in the December 2002 restructuring.   
The December 2002 Restructuring:  Cred itors' Reliance on the Deutsche Bank Report  
 7.158  Korea asserts that the analysis prepared by Deutsche Bank
384 in connection with the 
December 2002 restructuring had shown that Hynix' s going concern value far exceeded its liquidation 
value.  Korea states that the final version of this report had been prepared and circulated to the banks 
before the banks made their decisions to participate in the restructuring.   
7.159  The JIA did not dispute that the Deutsche Bank Report was available to creditors at the time 
that they undertook the December 2002 restructuring.   However, the JIA rejected the Deutsche Bank 
Report as proof of the commercial reasonableness of  the banks' participation in the December 2002 
restructuring for both formal and substantive reasons .  On form, the JIA disputed the independence of 
the Report.  In particular, it found that "the Deut sche Bank Report does not have sufficient third-party 
character to substantiate commercial judgments"385 for two reasons: 
• First, the Deutsche Bank [[BCI]], and theref ore its independence from Hynix's interests 
was questionable.386 
                                                      
380 See, for example, paras. 350, 351, 354, 355, 356, 357, 358, 362 and 363 of Annex 1 (Essential 
Facts). 
381 See Annex 1 (Essential Facts), para. 339. 
382 See Annex 1 (Essential Facts), para. 342. 
383 Furthermore, for KEB and [[BCI]], the JIA applied facts available on the basis of non-cooperation.  
As a result, the JIA proceeded on the basis that these banks had decided to participate in the December 2002 
restructuring "based on the Deutsche Bank Report". ( See Annex 1 (Essential Facts), paras. 349 and 354.)  This 
confirms that the JIA's analysis of th ese banks' participation in the Decemb er 2002 restructuring was necessarily 
premised on its assessment of the Deutsche Bank Report.   In addition, the JIA explicitly rejected Chohung's 
claim that it had relied on an internal examination in addition to the Deutsche Bank Report.  The JIA found instead that Chohung "simply accepted the Deutsche Bank Report" (Annex 3 (Rebuttals and Surrebuttals, 
para. 522). 
384 Korea explains that the Deutsche Bank Report was based on input from [[BCI]].  [[BCI]] is an 
outside consulting firm ( see Korea's Second Written Submission, para. 187). 
 385 Annex 1 (Essential Facts), para. 342. 
386 See Annex 1 (Essential Facts), para. 340.  WT/DS336/R 
 Page 131  
 
 
• Second, the Government of Korea intervened into the process of the preparation of the 
Deutsche Bank Report, …387 
7.160  On substance, the JIA found that the Deutsch e Bank Report contained discrepancies, which 
"should have been easy for a person who engages in the corporate financing business to identify"388, 
and that therefore "the Deutsche Bank Report, reviewed  from the aspect of its content as well, is not a 
sufficient basis for the commercial financing ju dgment of experienced financial institutions."389 
7.161  Korea asserts that each and every one of th e "discrepancies" advanced by the JIA was 
demonstrably wrong.  We shall examine each of  these issues in turn, starting with the JIA's 
conclusions regarding the independe nce of the Deutsche Bank Report. 
The Independence of the Deutsche Bank Report 
 
7.162  The JIA questioned the independence of the De utsche Bank Report, on the basis that [[BCI]], 
and that the Government of Korea had intervened in the preparation of the Report.  This was, in turn, 
one of the factors relied upon by the JIA in its findi ng that the Deutsche Bank Report was not reliable, 
in a commercial sense, and thus that the behaviou r of the Four Creditors in entering into the 
December 2002 restructuring was non-commercial.  "Non-commerciality", in the JIA's view, was an 
indicator that the Four Creditors were entrusted or directed by the Government of Korea to enter into 
that restructuring. 
[[BCI]] contract  
7.163  According to Korea, the evidence before the JIA demonstrated that Deutsche Bank had a 
contractual relationship with [[ BCI]] to pay the fees for any professional services obtained by the 
creditors in connection with the restructuring.  Korea provided the Panel with a Memorandum of 
Understanding between [[BCI]] of which stipulated that: 
[[BCI]] may … seek advice from public ac countants, lawyers or other assessment 
specialists.  In this case, [[BCI]] shall assume the fee expenses paid for them.390 
7.164  Korea submits that [[BCI]] agreement to pa y Deutsche Bank's fees as required by [[BCI]] 
agreement with its creditors does not in any wa y call into question Deutsche Bank's independence. 
7.165  Korea asserts that the panel rejected a simila r argument raised by the European Communities 
in the Korea – Commercial Vessels case: 
We understand the EC to argue that the An jin report should not have been relied on 
by DHI's creditors since the report was commissioned by DHI and KDB, a public 
body, both of whic h had an interest in seeing DHI restructured rather than liquidated. 
Korea submits that Anjin was retained by the KDB, on behalf of all creditors.  Korea 
asserts that, although DHI was mentioned in the retainer agreement, this was only because DHI was responsible fo r paying Anjin's fees…. 
The EC has not challenged these statements by Anjin.  In particular, the EC has not 
disputed that it is standard practice for companies under receivership / workout to pay 
                                                     
 
387 See Annex 1 (Essential Facts), para. 341. 
388 See Annex 1 (Essential Facts), para. 345. 
389 Ibid. 
390 See Memorandum of Understanding, [[BCI]].  See also Memorandum of Understanding, [[BCI]] 
(Exhibit KOR-36). WT/DS336/R 
Page 132  
 
the fees of professional advisors.  Nor has the EC disputed that DHI "was not in a 
position to receive reports and/or updates thereof from Anjin."  We also note that the cover letter accompanying Anjin's report w as addressed exclusively to KDB, and not 
to DHI.  Since we have no reason to believe that DHI was in a position to influence the substance of Anjin's report, there is no reason to discredit the Anjin report merely 
because Anjin's fees were paid by DHI.
391 
7.166  In light of Korea's argument regarding [[BCI]]  of the abovementioned MOU, the Panel asked 
Japan to provide a copy of the contract between  [[BCI]] and Deutsche Bank.  Upon review of the 
document submitted by Japan, we note that the cont ract referred to by the JIA was not between 
Deutsche Bank and [[BCI]] exclusively.  [[BCI]]392, was also party to the contract.  Thus, Deutsche 
Bank was "jointly engaged" by [[BCI]].  Accordingl y, there is nothing of a contractual nature to 
suggest that Deutsche Bank was likely to have prep ared its report in such a way as to favour the 
interests of [[BCI]] over those of the creditors (as represented by [[BCI]]).393  In addition, the contract 
appoints Deutsche Bank "[[BCI]], including the split of [[BCI]] into several entities, other solutions to 
the restructuring of [[BCI]] and any possible sale or transfer of all or some of [[BCI]] semiconductor 
businesses".394  Deutsche Bank's work, therefore, was rest ricted to the restructuring of [[BCI]] 
(whether by refinancing [[BCI]], breaking [[BCI]] up, or trying to sell its businesses).  Accordingly, 
there is nothing to suggest that Deutsche Bank had b een [[BCI]] before then, such that it possibly had 
vested interests resulting from advice that it may have given [[BCI]] in the past.  Nor is there anything 
to suggest that Deutsche Bank had been appointed to act as [[BCI]], to give credence to the view that 
it might have drafted its report in such a way as to favour the continued existence of [[BCI]] as a 
going concern. 
7.167  Finally, we note that the contract refers exp licitly to the appointment of [[BCI]] as "joint 
[[BCI]] with Deutsche Bank for the business and financial restructuring of"395 [[BCI]].  In our view, 
the participation of an additional [[BCI]] also c ontradicts the proposition that Deutsche Bank could be 
expected to have acted in a way that might favour the interests of [[BCI]] over those of the creditors. 
7.168  In its Final Determination, the JIA did not prov ide any analysis of the contents of Deutsche 
Bank's contract with [[BCI]].  The contract was evidence on the JIA's record.  On our review of that 
contract, we do not consider that the JIA could have properly come to the conclusion that it did regarding that contract.  For the reasons given above, we consider that the JIA could not properly have 
called into question the independence of the Deutsc he Bank on the basis of the contract appointing 
Deutsche Bank as (joint) [[BCI]].
396  
                                                      
391 See Korea – Commercial Vessels , paras. 7.440 to 7.443. 
392 See 22 May 2002 contractual document, page 11. 
393 Japan argues that the fact that the Deutsche Bank Report was "[[BCI]]" ( see Deutsche Bank Report, 
[[BCI]] section) indicates that the Re port was prepared [[BCI]].  In fact, [[BCI]] provides that the Report was 
"[[BCI]]".  Since the Report was also pr epared [[BCI]], we do not consider th at the phrase "[[BCI]]" could mean 
that the Report was prepared exclusivel y [[BCI]].  Furthermore, there is no reference to the JIA having referred 
to the phrase "[[BCI]]" in assessing the independence of the Deutsche Bank Report in the Final Determination. 
394 See 22 May 2002 contractual document, page 1.  There is no suggestion by the JIA that this contract 
precluded Deutsche Bank from considering the liquidation of Hynix. 
395 See 22 May 2002 contractual document, page 2. 
396 Japan has sought to rely on the statement by the panel in Korea – Commercial Vessels  that "the 
cover letter accompanying Anjin's report was addressed exclusively to KDB, and not to DHI" ( see para. 7.443).  
Japan asserts that the Deutsche Bank Report was addressed to [[BCI]].  In Korea – Commercial Vessels , the fact 
that the cover letter accompanying the report was not addr essed to the company being restructured was one of 
several factors that led the panel to conclude that the restructured company was not "in a position to influence the substance of" ( ibid.) the relevant report.  While the JIA has not made any findings regarding the addressees 
of the cover letter accompanying Deutsche Bank's Report, we agree with that panel's view  that the critical issue 
is whether or not the restructured company was in a position to influence the substance of the consultant's  WT/DS336/R 
 Page 133  
 
 
Government intervention in the preparation of the Deutsche Bank Report  
7.169  The JIA referred to a number of press reports  (from August, September and October 2002) to 
the effect that the Government of Korea had inte rvened in the preparation of the Deutsche Bank 
Report.397  The JIA relied on this evidence in orde r to impugn the commercial reliability of the 
Deutsche Bank Report, and to therefore find that the decisions made by the Four Creditors to enter 
into the December 2002 restructuring were not comme rcially based.  Although the JIA did not rely on 
this evidence explicitly, Japan asserts398 that the JIA also relied on a finding that NACF had admitted 
that the Government of Korea had intervened in the preparation of the Deutsche Bank Report. 
7.170  Korea submits that the JIA neglected to menti on that it had specifically asked KEB, the lead 
creditor bank, to comment on those reports at verifi cation.  Korea asserts that KEB denied that those 
reports were accurate, and stated that there were no changes between the draft and final report.    
Korea further asserts that even if the press reports relied upon by the JIA had been correct, they did 
not in any way impugn the accuracy of the Deutsc he Bank Report's calculation of Hynix's going-
concern and liquidation values.  Instead, Korea say s that the press reports indicated only that the 
government was encouraging the creditors to consider the sale of Hynix as an alternative to keeping it 
operating as an independent entity, and sought to ha ve the Deutsche Bank consider that alternative. 
7.171  Japan submits that KEB failed to provide evid ence in support of its assertion that there had 
been no changes between the draft and final versions  of the report.  Japan asserts that KEB failed to 
provide the JIA with a draft copy of the report pre-dating the press reports relied on by the JIA.   
7.172  We note that the press reports that the JIA relied on as evidence of intervention by the 
Government of Korea in the preparation of the Deutsche Bank Report are descr ibed in para. 334 of 
Annex 1 (Essential Facts).  We emphasise that these reports were relied on by the JIA as evidence of a 
specific fact, i.e., government involvement in the preparation of the restructuring plan set forth in the 
Deutsche Bank Report.399  We have therefore reviewed these repor ts from that perspective, in order to 
establish whether or not the JIA might properly ha ve relied on them as evidence of government 
intervention in the preparation of the Deutsch e Bank Report.  Although we necessarily begin by 
reviewing the reports individually, we also consider them collectively, in case aspects of different 
reports together might support a finding of gove rnment intervention even where reports taken 
individually do not.400  
7.173  The first report, dated 23 August 2002, quotes the President of KEB referring to creditors 
"having discussion[s] with the government".  We note that this report refers only to "discussion[s]", 
but does not say that such discussions took the form of government involvement in the preparation of 
                                                                                                                                                                     
report.  We do not consider that the JIA could properly have treated the mere fact that the Deutsche Bank Report 
was addressed to [[BCI]] as evidence that [[BCI]] was in a position to influence the substance of that Report. 
397 See Annex 1 (Essential Facts), para. 334. 
398 See para. 94 of Japan's Second Written Submission. 
399 We note that we have accepted that certain of th ese reports could properly have been treated as 
evidence of the Government of Korea's intent to save Hynix ( see para. 7.109 supra ).  This does not necessarily 
mean that the same reports could properly be treated of something far more specific, namely the Government's 
intervention in the preparation of  the Deutsche Bank Report.   
400 The JIA merely referred to the press reports indi vidually.  The JIA did not explain how the reports 
could be read together to support a finding of government intervention in the preparation of the Deutsche Bank 
Report.  Nevertheless, we note the statement by the Appellate Body in US – Countervailing Duty Investigation 
on DRAMS  (para. 150) that "a panel reviewing [] a determination normally should consider that evidence in its 
totality, rather than individually, in order to assess its probative value with respect to the agency's determination.  
Indeed, requiring that each piece of circumstantial evid ence, on its own, establish entrustment or direction 
effectively precludes an agency from finding entrustment or direction on the basis of circumstantial evidence.  
Individual pieces of circumstantial evidence, by their very nature, are not likely to establish a proposition, unless 
and until viewed in conjunction with other pieces of evidence." WT/DS336/R 
Page 134  
 
the Deutsche Bank Report per se.   Furthermore, the relevant "d iscussion[s]" were not between the 
Government of Korea and Deutsche Bank (as an al legation of government intervention in Deutsche 
Bank's Report might suggest), but betw een the Government and creditors. 
7.174  The second report, dated 25 August 2002, refers to the Deutsche Bank restructuring plan 
being "re-evaluate[d]" after "due diligence" by  the "government" and KEB.  This could be 
circumstantial evidence of intervention.  However, this report does not contain any quotes attributed 
to particular individuals or entities, and its ev identiary value could not be said to be strong. 
7.175  The third report, dated 26 August 2002, quotes a mi nority shareholder representative referring 
to media reports of government intervention in th e contents of the Deutsche Bank Report.  We note 
that this is hearsay, in the sense that the relevant mi nority shareholder represen tative him/herself is not 
quoted as stating that the Government had interven ed in the Deutsche Bank Report.  Moreover, we 
note that this report was published the day after th e second report, and that the statements may well 
have been in reaction to that second, non-attributed, report. 
7.176  The fourth report, dated 2 September 2002, re fers to statements by "a spokesperson 
representing the administration and the creditors" to the effect that the FSC had informed creditors 
that they should sell Hynix.  We note that these st atements do not specifically refer to the Government 
interfering in the preparation and contents of the Deutsche Bank Report.  They indicate only that the 
Government of Korea was of the opinion that Hynix should be sold. 
7.177  The fifth report, dated 25 August 2002, refers to statements by unnamed observers to the 
effect that the Government "seems to be sticking to  the option of selling" Hynix.  We note that this 
report does not specifically refer to the Government interfering in the preparation and contents of the 
Deutsche Bank Report. 
7.178  The sixth report, dated 12 September 2002, refers to comments by unnamed Hynix and 
creditor representatives to the effect that "the government asked for several corrections in the 
normalization plan".  Although the comments are not  attributed to named individuals, they are 
attributed to at least one named entity ( i.e., Hynix).  This report refers expressly to government 
intervention in the preparation of what is  referred to as "the normalization plan"
401. 
7.179  The seventh report, dated 13 September 2002, re fers to reports that KEB "was apparently 
dissatisfied with the report, and [that] the governme nt requested Deutsche Bank to review the plan".  
This report is inconclusive, since it suggests that it was KEB, the lead creditor, that was dissatisfied 
with Deutsche Bank's draft Report.  The evidentiary  value of this report is not strong, as it does not 
attribute any statements to named entities or individuals. 
7.180  The eighth report, dated 18 September 2002, quotes a Minister expressing his opinion at a 
seminar that Hynix should not be maintained as a going- concern.  We note that this is not evidence of 
government involvement in the Deutsche Bank Report.  It is simply evidence of the Minister's opinion 
about how Hynix should be treated in the future.   
7.181  The ninth and last report, dated 3 October 2002, quotes a KDB official stating that the 
immediate sale of Hynix was impossible, and that it should be maintained as a going-concern.  We 
note that this is not evidence of Government inte rvention in the preparation of the Deutsche Bank 
Report.  It is simply evidence of KDB's opinion th at Hynix should be maintained as a going concern.  
Furthermore, since KDB was a public body creditor of  Hynix (and therefore directly involved in the 
December 2002 restructuring), there is nothing surprising in the fact that KDB had formed an opinion 
                                                      
401 Neither party addressed the question of whether this reference to "the normalization plan" is a 
reference to the Deutsche Bank Report, or to something else. Whilst it is not clear to the Panel that 
"normalization plan" is a reference to the Deutsche Bank Report, we have assumed that it is such a reference.     WT/DS336/R 
 Page 135  
 
 
on the restructuring.  Accordingly, we fail to see how KDB's statement might properly suggest to the 
JIA some broader government intervention in the Deutsche Bank Report. 
7.182  We recall that the JIA presented the aboveme ntioned press reports as evidence that the 
Government of Korea had intervened in the prepar ation of the Deutsche Bank Report.  However, out 
of the nine reports relied on by the JIA, only one (the sixth) suggests that the government did 
intervene in the Deutsche Bank Report.  The re maining reports are eith er unsubstantiated (by 
reference to quotes from named individuals or entiti es), or do not refer to government intervention in 
the Deutsche Bank Report.402  Some of the reports indicate that the Government of Korea was of the 
opinion that the restructuring sh ould take a particular form ( i.e., sale).  There is no suggestion in any 
of these reports that the Government then acted on its  opinion and intervened in the preparation of the 
Deutsche Bank Report.  In the face of so much reportage about Hynix, and the opinions of people 
concerned about its future, it is difficult to accept th at there would not have been more evidence of 
intervention by the Government in the preparation of the Deutsche Bank Report than the single mention of intervention in "the normalization plan" in  the sixth report. Furthermore, there is nothing 
in the other reports which might add weight to a fi nding of government intervention in the preparation 
of the Deutsche Bank Report, based on the sixth report .  As such, we consider that the reports relied 
on by the JIA - whether read in isolation or as a whole - provide precious little support for a finding that the Government of Korea intervened in  the preparation of the Deutsche Bank Report. 
7.183  Nor do we consider that additional support is provided by the alleged admission of 
government intervention in the preparation of the Deutsche Bank Report by NACF.  The JIA notes that NACF used the phrase "despite the interventi on of the government" in its rebuttal arguments.
403  
According to the JIA: 
NACF thereby admits that the Govern ment of Korea intervened in the 
December 2002 Program. If there were such aw areness, it would serv e to substantiate 
that a detailed examination on the conten ts of the Deutsche Bank Report should have 
been conducted when making a commercial decision concerning the December 2002 
Program.404 
7.184  Korea denies that NACF had made any admission of Government involvement in the 
Deutsche Bank Report.  Korea asserts that NACF had actually argued that: 
despite the intervention of the government, the conclusion of the Deutsche Bank 
Report remained "normalization of operation" of Hynix to be the top priority, and that 
participating in the debt restructuring based  thereon, even if it took some time to 
accomplish, would be a more appropriate op tion than liquidation, because it would be 
impossible for unsecured creditors to recover more than 50% of their claims with the 
                                                      
402 We note Korea's argument regarding KEB's statem ent that there were no ch anges between the draft 
and final versions of the report.  We have examined Exhibit JPN-26, and find that the copy of the allegedly draft 
report provided by KEB in support of this statement was dated November 2002.  That document therefore 
provides no indication of whether or not changes were made to the report at the time that the abovementioned 
press reports were made (August, September and Octobe r 2002).  Accordingly, the JIA could properly have 
disregarded KEB's statement in analysing potential changes to the report during the period covered by the abovementioned press reports. 
403 We note that Japan did not refer to this issue in the context of the alleged intervention of the 
Government of Korea in the preparation of the Deutsche Bank Report.  Japan referred to this issue in the context of the alleged substantive "discrepancies" in the Report ( see para. 368 of Japan's First Written Submission, final 
bullet point).  It is therefore in this  context that we review this issue. 
404 See Annex 3 (Rebuttals and Surrebuttals), para. 528. WT/DS336/R 
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Hynix liquidation value of [   ]%, and the debt-to-equity swap of 50% of unsecured 
claims would cause no losses whatsoever to NACF.
405 
7.185  Korea submits that the JIA and Japan have sei zed upon the phrase "despite the intervention of 
the government" as an alleged admission, whereas the obvious import of the NACF's argument was 
actually that any alleged intervention by the gove rnment had no effect on the analysis presented by 
Deutsche Bank. 
7.186  Japan submits that the abovementioned NACF statement clearly indicates that the 
Government of Korea intervened in the terms a nd conditions of the Decembe r 2002 restructuring, and 
that the terms and conditions of th at restructuring were changed. 
7.187  It is possible that Korea may be correct in arguing that the thrust of NACF's argument was 
that any alleged government involvement did not affect Deutsche Bank's analysis.  However, the 
language used by NACF might also properly have been understood by the JIA to mean that NACF 
was arguing that, although the government did interv ene, it did not affect the substance of Deutsche 
Bank's analysis.  The text employed by NACF is inconclusive. 
7.188  In the absence of any other evid ence of intervention, or evid ence that the Government of 
Korea had the means to exercise influence over Deutsche Bank, we are unable to accept that an 
objective and impartial investigating authority mi ght properly find that the Government of Korea 
intervened in the preparation of  the Deutsche Bank Report on the basis of a single, non-attributed, 
press report indicating that the Government of Korea had done so, read in lig ht of an inconclusive 
statement by one of the creditors.406 
7.189  Furthermore, even if there had been suffici ent evidence of government intervention in the 
Deutsche Bank Report, that should only have suggested to the JIA that creditors might have 
questioned the credibility of the Report, and therefor e approached the substance of the Report with 
circumspection.  Indeed, this was precisely the conc lusion drawn by the JIA in respect of the alleged 
admission by NACF, in the sense that the JIA merely  indicated that NACF should have conducted a 
"detailed examination"407 of (rather than reject outright) the Deutsche Bank Report as a result of its 
possible suspicions of government intervention.  The value of this slight evidence of intervention, as 
an element of establishing the non-commerciality of the Deutsche Bank Report, and then in turn 
establishing entrustment or direction, is made much less significant or irrelevant if the Report itself is 
not shown to have been rendered "non-commercial" by reason of any alleged intervention.   As 
discussed in the following section of our Report, we have reviewed the alleged "discrepancies" in the 
Deutsche Bank Report identified by the JIA.  We find that the JIA erred in identifying those 
"discrepancies".  Without such "d iscrepancies", we see no reason to doubt that creditors could have 
had full confidence in the credibility and integrity of  the Deutsche Bank Report.  Furthermore, if we 
find, as we do, that the JIA was in error in concluding that the Report was not commercially 
reasonable, then the JIA's concern about NACF' s statement, and what NACF should have done, 
necessarily falls away. 
                                                      
405 See Annex 3 (Rebuttals and Surrebuttals), para. 526. 
406 The JIA should benefit from any doubt in our minds regarding the quality of the evidence in the 
abovementioned press reports.  However, those press reports were only capable of suggesting that the JIA 
should consider the issue of government intervention in the preparation of the Deutsche Bank Report, and not 
that such intervention actually occurred.  Most of them do not even deal with the proposition that there was intervention.  Whilst it was not necessary for the JIA to establish the perfect truth, it was also incumbent on the 
JIA to be objective and unbiased in its assessment of the evidence before it.  There is no doubt in our minds that 
the alleged evidence of intervention was an insufficient "building block" in the analysis undertaken by the JIA, either of itself or when considered in the context of the other evidence which we have found to have been 
improperly assessed by the JIA. 
407 See Annex 3 (Rebuttals and Surrebuttals), para. 528.  WT/DS336/R 
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7.190  For the above reasons, we consider that th e JIA could not properly have impugned the 
independence of the Deutsche Bank Report. 
The Substance of the Deutsche Bank Report 
 
7.191  The JIA identified the following alleged "d iscrepancies" in the Deutsche Bank Report: 
• The Deutsche Bank Report does not [[BCI]].408  
• The Deutsche Bank Report concluded that [[BC I]] with respect to Hynix's going-concern 
values.409 
• In comparing the liquidation values with th e going-concern values, the Deutsche Bank 
Report [[BCI]].410 
• Recovery rates [[BCI]].411  
• The Deutsche Bank Report concluded that the proposal to sell off the memory division 
was [[BCI]].412 
7.192  Japan also asserts that, in its rebuttal comment s, Hynix voluntarily admitted that the Deutsche 
Bank Report had an error.  The JIA found that, upon  correction of the error acknowledged by Hynix, 
the collection rates of going-concern values would be [[BCI]] the rates in the Deutsche Bank Report.
413   
7.193  The JIA relied on such "discrepancies" to conclude that the Deutsche Bank Report did not 
establish the commercial reasonableness of the decisions  of the Four Creditors to participate in the 
restructurings.414  We shall examine each of these "discrepancies" in turn. 
Liquidation Value  
7.194  The first such "discrepancy" relates to the De utsche Bank Report's alle ged failure to properly 
support its conclusion about Hynix's liquidation value.  The JIA found that: 
The evaluation of Hynix's liquidation value was made by [[BCI]], but according to 
the report, it evaluated [[BCI]]. The same  report evaluated Hynix's liquidation value, 
[[BCI]]. In other words, the evaluation wa s lower than the asset value, which was 
premised that sales would be made in a cer tain period of time.  The Deutsche Bank 
Report cites the factors that [[BCI]].  The report, however, does not [[BCI]] with regard to these factors.*
415 (* footnotes omitted) 
7.195  The first part of this finding suggests that th e JIA was concerned that [[BCI]] had initially 
opted for a lower liquidation value than it could have done ( i.e., [[BCI]]), and that Deutsche Bank 
                                                      
408 See Annex 1 (Essential Facts), para. 343. 
409 Ibid. 
410 Ibid.       
411 Ibid. 
412 Ibid. 
413 See Annex 3 (Rebuttals and Surrebuttals), paras. 500-01.  
414 See Annex 1 (Essential Facts), para. 345. 
415 See Annex 1 (Essential Facts), para. 343, first bullet point.  The JIA also addressed this issue at 
para. 489 of Annex 3 (Rebuttals & Surrebuttals). WT/DS336/R 
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[[BCI]].  However, since Deutsche Bank [[BCI]]
416, any such concern regarding the liquidation value 
actually applied by Deutsche Bank [[BCI]].   
7.196  Indeed, Japan has confirmed that the JIA was not concerned with the amount of the 
liquidation value applied by Deutsche Bank per se .417  Instead, in respect of the latter part of the above 
finding by the JIA, Japan has explained that the real  problem identified by the JIA was the fact that 
Deutsche Bank "suggested that the actual liquidation value could potentially be either higher or lower 
than the assessed liquidation value", without "[[BCI]]".418 
7.197  First, we note that Deutsche Bank explicitly stat ed that its Report "[[BCI]]".  Deutsche Bank 
therefore "[[BCI]]".419  In addition, Deutsche Bank stated that it was not "[[BCI]]"420 information 
contained in its Report.  Such warnings seem to the Panel to be reasonable in the context of a 
restructuring, where time is of the essence.  In li ght of these warnings, Hynix's creditors were fully 
aware that Deutsche Bank's analysis was not as thorough and complete as it might otherwise have been.
421   
7.198  Second, we have examined the factors422 that, according to the Deutsche Bank Report, could 
[[BCI]] the actual liquidation value realized by H ynix's creditors in the event that Hynix were 
liquidated.  They relate to process ([[BCI]]), exec ution ([[BCI]]), and the fact that a particular 
category of creditors might exercise certain rights against Hynix.  In our view, such factors do not lend themselves to precise quantification.  Given th at the liquidation process might take from [[BCI]], 
and recalling the explicit warnings provided by De utsche Bank, we do not consider that Deutsche 
Bank could reasonably have been expected to quantif y [[BCI]] over such an extended period of time. 
7.199  In light of the above, we find that the JIA ha d no reasonable, objective basis for suggesting 
that the Deutsche Bank's calculation of the liqui dation value was a discrepancy which impugned the 
commerciality of the Report. 
Going-Concern Scenarios
 
7.200  The second alleged "discrepancy" relates to th e Report's treatment of four possible going 
concern scenarios, and which was to be preferred.  The JIA found that: 
with respect to the going-concern value, the report shows [[BCI]].* Among them, 
[[BCI]].  Among those, [[BCI]].  In spite of that, the Deutsche Bank Report [[BCI]].*
423 (* footnotes omitted) 
7.201  Deutsche Bank had calculated [[BCI]] going-conc ern values, based on [[BCI]].  The JIA 
criticised Deutsche Bank for focusing on one scenario ([[BCI]])424, in which the going-concern value 
                                                      
416 Japan acknowledges this point in its reply to Question 82 from the Panel (at para. 10). 
417 In response to Question 82 from the Panel (para. 11 ), Japan stated that the issue raised by the JIA 
did not concern the amount of the liquidation value, but rather the sufficiency of Deutsche Bank's analysis based 
on that liquidation value. 
418 See Japan's reply to Question 78 from the Panel. 
419 See [[BCI]]. 
420 Ibid. 
421 To avoid any misunderstanding, this does not mean that the Panel considers Deutsche Bank's 
analysis to have been incomplete.  It simply mean s that the Panel acknowledge s that, in the pressured 
circumstances of a restructuring, it may not  be realistic to expect the analysis to be as thorough as it might be in 
other circumstances. 
422 The JIA seems to query why Deutsche Bank should  refer to these factors given that they were 
"[[BCI]]".  In our view, Deutsche Banks's reference to the same factors as those identified by [[BCI]] could 
reasonably be explained by the fact that Deutsche Bank used the liquidation value calculated by [[BCI]]. 
423 See Annex 1 (Essential Facts), para. 343, second bullet point.  WT/DS336/R 
 Page 139  
 
 
[[BCI]] identified by Deutsche Bank ([[BCI]]).  Japan asserts that Deutsche Bank should have assessed [[BCI]].  Korea submits that the Deutsche Bank Report had estimated Hynix's going concern value at [[BCI]] billion Won using "conservative" a ssumptions about DRAM pricing and Hynix's past 
track record to predict the likely yields with th e new 15 micron process technology.  However, to 
"stress test" the model, Deutsche Bank also generated separate estimates using a "worst case scenario" 
for pricing, and using yield rates far below Hynix's historical experience.
425  Under these "worst case 
scenarios" to "stress test" the model, Deutsche Bank found that Hynix's "going concern" value would be lower than the liquidation value that had been estimated by [[BCI]].  Korea states that Deutsche 
Bank specifically indicated that its estimate of a going-concern value of [[BCI]] billion Won was 
based on "conservative" projections, and that other,  lower values, were calculated using "worst-case 
scenarios" intended to "stress test" the model.  Korea asserts that an unbiased reader could hardly fail 
to tell which of those scenarios was considered more likely. 
7.202  In order to seek clarification, the Panel a ddressed the following question to Korea:  If 
"[[BCI]] was most likely to occur, why did DB identify [[BCI]]?"
426  Korea provided the following 
response: 
According to the Deutsche Bank report, [[BCI] ] analysis was used as the basis for the 
[[BCI]] projections used to calculate Hynix's going-concern value under the [[BCI]] 
option.*  The Deutsche Bank report refers to two separate scenarios prepared by 
[[BCI]] — a [[BCI]] case and a [[BCI]] case.*  The [[BCI]] case assumed a [[BCI]] in DRAM prices in 2004.  The [[BCI]] case a ssumed that the [[BCI]] would be delayed 
until 2006.*  According to Deutsche Bank, the projected prices under [[BCI]] case 
were [[BCI]]* 
Deutsche Bank's primary calculation of Hynix's going-concern value under the 
[[BCI]] option was based on the [[BCI]] prep ared by [[BCI]].  In addition, Deutsche 
Bank's primary calculation also assumed that  Hynix would be able to implement new 
production technologies to achieve an [[BCI] ] percent yield rate in accordance with 
its historical experience.  Based on these two assumptions, Deutsche Bank calculated 
that Hynix's total going-concern va lue was [[BCI]] billion Won — which 
corresponded to a payout to [[BCI]] creditors of [[BCI]] billion Won.* 
In addition, the Deutsche Bank report also added its own [[BCI]] intended to [[BCI]] 
Hynix's business. These [[BCI]] scenarios differed from the primary calculation in 
two respects:  (1) the [[BCI]] scenario assumed that there would be no [[BCI]] in 
DRAM prices in 2004 or 2006, and (2) the [[BCI]] scenario also assumed that Hynix 
would only achieve a [[BCI]] percent yield ra te (and not the [[BCI]] percent yield rate 
achieved  in the past) when the next generation of technology was implemented.* 
Based on [[BCI]] scenarios, Deutsche Bank calculated [[BCI]] for Hynix's going-
concern value under the [[BCI]] option:   
(1) a calculation that assumed [[BCI]];   
(2) a calculation that assumed [[BCI]];  and (3) a calculation that assumed [[BCI]]. 
                                                                                                                                                                    
 
424 See [[BCI]], together with para. 197 of Korea's Second Written Submission and Korea's reply to 
Question 109 from the Panel.  Japan has not challenged Korea's statement that the yield element of the conservative scenario was based on Hynix's track record. 
425 Korea refers in this regard to page 9 of the Deutsche Bank Report.   
426 See Question 109 from the Panel to Korea. WT/DS336/R 
Page 140  
 
Significantly, the Deutsche Bank Report indicated that the [[BCI]] was intended to [[BCI]].* (* footnotes (referring to Deutsche Bank Report) omitted) 
7.203  Although Japan claimed
427 that Korea had failed to answer Panel Question 109, it did not 
dispute Korea's explanation of the bases for the di fferent scenarios examined by Deutsche Bank.  In 
particular, neither Japan nor the JIA has disputed  that Deutsche Bank proceeded [[BCI]].  Nor have 
Japan or the JIA disputed that Deutsche Bank projected [[BCI]]. 
7.204  Furthermore, we note that [[BCI]].  Much of this information was provided by [[BCI]].  Using 
this information, we consider that Hynix's cred itors had before them a Report which was based on 
[[BCI]], which were one critical factor in the anal ysis undertaken by the Deutsche Bank.  [[BCI]], in 
the Deutsche Bank Report.  [[BCI]].  Hynix's creditors were theref ore able to assess for themselves 
whether the projections were reliable, and what was the likelihood of [[BCI]].  They would also have 
been able to establish for themselves that De utsche Bank chose to base its assessment on one 
particular scenario because that scenario assu med [[BCI]], and was based on [[BCI]].   
7.205  Although [[BCI]] had been prepared by Deutsche Bank, we consider that this was consistent 
with its statement that "[[BCI]]" for Hynix "[[BCI]]".428  In light of this [[BCI]], Deutsche Bank might 
properly have considered itself obliged to prepar e [[BCI]] for the creditors.  However, having access 
to the information [[BCI]] were b ased, the creditors would have been able to establish for themselves 
that [[BCI]] that were less likely to materialize.   Deutsche Bank itself made [[BCI]], and gave the 
creditors [[BCI]], and [[BCI]].  In these circumst ances, the fact that Deutsche Bank [[BCI]], in our 
view does not mean that Hynix's creditors s hould not have trusted Deutsche Bank's analysis. 
7.206  Accordingly, we find that the JIA had no reasonable, objective basis for condemning 
Deutsche Bank's failure to provide a more comprehe nsive explanation of its choice of going-concern 
scenario as a discrepancy which impugned the commerciality of the Report. 
Rate of Recovery of the Liquidation Value  
7.207  The third alleged "discrepancy" relates to the way the Deutsche Bank Report analysed the rate 
of return to creditors under the liquidation scenario.  The JIA found that: 
As the liquidation value to be compared  to the going-concern value ... , Deutsche 
Bank Report used [[BCI]].429 (* footnotes omitted) 
7.208  By way of clarification, Japan stated: 
The IA also pointed out that the denominator of the going-concern value used to 
calculate the recovery rate is not consis tent with the denominator to calculate 
[[BCI]] percent recovery rate upon liquidation. *  In calculating the recovery rate in 
the [[BCI]] scenario, [[BCI]].  However,  the same debts are not included in the 
denominator in calculating the recovery rate  for the [[BCI]] cases.  Accordingly the 
recovery rate of [[BCI]] percent upon liqui dation in the report is the ratio of the 
expected payback amount vis-à-vis [[BCI]]. The recovery rates fo r the [[BCI]] cases 
are the rates for [[BCI]].  When recalculate d the recovery rates for [[BCI]] scenarios, 
these rates in [[BCI]] of the Deutsche Bank Report would be [[BCI]].  Thus, the IA found that, [[BCI]] comparison of the liquidation with the going-concern case could 
                                                     
 
427 See Japan's Comments on Korea's Responses to the Panel's Questions Following the Second 
Substantive Meeting, paras. 4 – 8.  
428 See [[BCI]]. 
429 See Annex 1 (Essential Facts), para. 343, third bullet point.  WT/DS336/R 
 Page 141  
 
 
not properly be made.*  This improper comp arison stems from the fact that [[BCI]] of 
the Deutsche Bank Report is wrong - the correct amount for the liquidation case is KRW [[BCI]] billion, not KRW [[BCI]] billion.    The details of such errors are 
explained in Exhibit JPN-27.  Korea has not addressed this imbalanced comparison of the recovery rates based on the going-con cern value and the liquidation value except 
the background of the addition of the [[BCI]].
430 (* footnotes omitted) 
7.209  In light of the above, we understand that the JIA identified three main errors in Deutsche 
Bank's analysis of the rate of return under the liquidation scenario.  First, Deutsche Bank allegedly 
erred in choosing to apply a rate of [[BCI]] per cen t, instead of [[BCI]] per cent.  Second, Deutsche 
Bank allegedly erred in calculating the absolute amount of return that a rate of [[BCI]] per cent would 
have yielded.  Third, the JIA found that the assumptio ns used to calculate the [[BCI]] per cent rate of 
return in respect of the liquidation value should also  have been applied when calculating the rate of 
return under the going-concern value.  We shall address each of the alleged errors in turn. 
The choice of rate of return 
 7.210  According to Korea, the initial [[BCI]] Report had assumed that the distribution of Hynix's 
liquidation value would be based on the outst anding debts at the time of the December 2002 
restructuring.  Based on that assumption, [[BCI]] ca lculated that the [[BCI]] would recover [[BCI]] 
per cent of the overall liquidation value.  Korea asserts that a [[BCI]] obtained by the creditors 
suggested, however, that [[BCI]]'s assumption was fl awed.  According to this opinion, if Hynix were 
liquidated, [[BCI]] for purposes of distributing H ynix's liquidation value among its creditors.  Korea 
states that after such a reversal of the October 2001  debt-to-equity swap, Hynix would have a larger 
amount of debt outstanding, and the percentage of  the total liquidation value available to [[BCI]] 
would therefore be smaller.  Korea asserts that  under this assumption, [[BCI]] would only recover 
[[BCI]] per cent of the overall liquidation value. 
7.211  According to Korea, both the JIA and Japan have ignored th e fact that the Deutsche Bank 
Report presented its calculations using both the [[BCI ]] per cent figure and the higher [[BCI]] per cent 
recovery rate [[BCI]] on which it provided the co mparison of expected pay-outs [[BCI]].  Korea 
asserts that [[BCI]].  [[BCI]] addressed the calculation of the pay-out under [[BCI]] scenario with the 
assumption of a [[BCI]] per cent recovery rate.  [[BCI ]] addressed the calculation of the pay-out under 
[[BCI]] scenario with the assumption of either  a [[BCI]] or [[BCI]] per cent recovery rate. 
7.212  Japan submits that Korea has misunderstood th e JIA's assessment of the Deutsche Bank's 
estimate of Hynix's liquidation value.  According to Japan, the JIA pointed out that the Deutsche Bank 
Report did not explain why it relied on a recovery rate of [[BCI]] per cent to assess the validity of 
liquidation value instead of the rate of [[BCI]] per cent.  Japan asserts that these recovery rates would 
be the material issue for creditors in examining whether they would be better off, and that the 
Deutsche Bank Report therefore should have explaine d why it was applying the [[BCI]] per cent rate 
instead of the [[BCI]] or [[BCI]] per cent rates, ra ther than merely referring to these alternative rates 
in the[[BCI]].  Japan submits that  the JIA correctly found that "such a material issue relating to 
creditors' interests should ha ve been clearly stated,"
431 which the Deutsche Bank Report failed to do.  
Japan states that the JIA therefore reasonably found that there was a " strange handling of the 
liquidation value of Hynix provided in the Deutsche Bank Report".432 
7.213  On the basis of Japan's argument, we do not understand Japan to contest Deutsche Bank's use 
of the [[BCI]] per cent rate.  Inst ead, we understand that the JIA cha llenged Deutsche Bank's failure to 
                                                      
430 See Japan's oral statement at the Seco nd Substantive Meeting, para. 113. 
431 See Annex 3 (Rebuttals and Surrebuttals), para. 496. 
432 See Annex 3 (Rebuttals and Surrebuttals), para. 499. WT/DS336/R 
Page 142  
 
explain why it applied this rate instead of other, alternative rates.  The JIA addressed this issue at 
para. 496 of Annex 3 (Re buttals and Surrebuttals) in the following terms: 
Hynix states that, because the December 2002 Program comprised restructuring 
measures carried out as part of the CRPA procedures, [[BCI]]. If the [[BCI]] that were extinguished by debt-to-equity swap or debt forgiveness under the 
October 2001 Program [[BCI]], it would s ubstantially harm the interests of all 
creditors.  Such a material issue relating to creditors' interests should have been 
clearly stated. The Deutsche Bank Report, however, did not refer to it. The report of [[BCI]] only states that [[BCI]], but no legal grounds were indicated.
433 
7.214  According to Japan, the JIA ther efore found that the existence of such a [[BCI]] would be a 
"material issue", and that the Deutsche Bank Report ha d failed to discuss such a material issue.  Japan 
asserts that if there were material risks associated w ith a particular valuation, such "should have been 
clearly stated" to permit the creditor banks to make an informed assessment of the risks and ultimately 
a decision.  Japan also disputes Korea's argument that "the [[BCI]] clearly indicated that [[BCI]]"434, 
since Japan states that the [[BCI]] was not submitted to the JIA. 
7.215  In our view, the Deutsche Bank Report would have  been expected to emphasise the existence 
of the [[BCI]] if it had applied one of the altern ative rates (of [[BCI]] and [[BCI]] per cent) provided 
for in the [[BCI]].  However, since the Deutsche Bank adopted a more cautionary approach, and 
actually applied the [[BCI]] per cent rate in the ta ble on page 12 of its Report, there was no "[[BCI]]" 
that creditors should have been inform ed of.  In other words, if they took that table at face value, there 
would be no risks that they were unaware of, since th e risk had already been factored into the applied 
rate of [[BCI]] per cent.  Furthermore, note 5 to th at table refers to "[[ BCI]]" of the Deutsche Bank 
Report.  Section 5 (on page 62) provides a breakdown of the [[BCI]] per cent rate of return, clearly 
indicating that the total amount of debt held by un secured creditors is KRW [[BCI]] billion.  As Japan 
did for the purpose of preparing its Exhibit JPN-27, Hynix's creditors would have readily been able to 
ascertain that this figure included [[BCI]].  The failure435 to spell out (in the Deutsche Bank Report) 
why this debt had been included would not necessarily  have called into question the validity of the 
Report, especially as the JIA found that [[BCI]], wh ich was available to creditors, pointed out the 
nature of [[BCI]] (without pr oviding the precise legal grounds).436  
7.216  Japan also argues that it was not clear that the "[[BCI]] clearly indicated that [[BCI]]" because 
the relevant [[BCI]] had not been submitted to the JI A.  We can find no reference to this issue in the 
JIA's Final Determination.  In other words, there is no indication in the Final Determination that the 
JIA doubted that the [[BCI]] required [[BCI]].437  It would therefore be inappropriate for us to accept 
this argument ex post .  Furthermore, Japan has failed to demons trate that, even if the JIA did have any 
doubts regarding the substance of the [[BC I]], it had requested a copy thereof. 
7.217  In light of the above, we find that the JIA had no reasonable, objective basis for finding that 
the Deutsche Bank's choice of rate of return involved a discrepancy which impugned the 
commerciality of the Report. 
                                                      
433 See Annex 3 (Rebuttals and Surrebuttals), para. 496. 
434 See Korea's Responses to Panel Question 129, para. 67. 
435 On balance, it is not entirely clear to the Panel that [[BCI]] had not been made available to the 
creditors.  At para. 202 of its Second Written Submission, Korea refers to the opinion having been "obtained by 
the creditors".  Japan has not contested the factual accuracy of this statement.  In light of our finding, it is not 
necessary for the Panel to pur sue this matter further.  
436 See Annex 3 (Rebuttals and Surrebuttals), para. 496, including note 91. 
437 Although the JIA stated that "no legal ground [s] were indicated" (Annex 3 (Rebuttals and 
Surrebuttals), para. 496), the JIA di d not register any doubt regarding th e substantive accuracy of the legal 
advice at issue.  WT/DS336/R 
 Page 143  
 
 
The absolute amount of return 
 
7.218  Korea submits that Japan's argument that the Deutsche Bank Report erroneously calculated 
the absolute amount that a [[BCI]] per cent ra te of return would have yielded constitutes ex post  
rationalization that we should reject. 
7.219  Japan asserts that the calculation erro r was "clearly and fully described"438 in the following 
extract from Annex 1 (Essential Facts): 
As the liquidation value to be compar ed to the going-concern value [[BCI]], 
Deutsche Bank Report used [[BCI]].439 
 
7.220  We are unable to accept Japan's argument that th is extract "clearly and fully described" the 
point made by Japan in these proceedings.  The above  extract is concerned primarily with the rate  of 
return applied in the Deutsche Bank Re port, rather than the absolute amount  of return.  While the last 
sentence of the extract does refer to [[BCI]]".  In  other words, it is a complaint that Deutsche Bank 
calculated [[BCI]].  It is not a complaint that, in  applying [[BCI]], Deutsche Bank erroneously arrived 
at [[BCI]].440  Japan's argument regarding the absolute amount of return calculated by Deutsche Bank 
[[BCI]] is not, therefore, "clearly and fully descr ibed" in the manner alleged by Japan.  In these 
circumstances, we find that  Japan's argument constitutes ex post  rationalization that we decline to take 
into account.441 
7.221  In light of the above, we find that the JIA had no reasonable, objective basis for finding that 
the Deutsche Bank used inappropriately different assumptions in calculating the going concern and 
liquidation values, and therefore that this di d not involve a discrepancy which impugned the 
commerciality of the Report. 
The asymmetric application of the assumptions underlying the [[BCI]] per cent rate of return 
 
7.222  This issue concerns the alleged failure by De utsche Bank to use [[BCI]].  Japan asserts that 
Deutsche Bank should have calculated the payout ratio under the [[BCI]] option based on the 
assumption that [[BCI]], as was the case for the cal culation of Hynix's liquidation value.  According 
to Japan, correction of this error would reduce the recovery rates for [[BCI]]. 
                                                      
438 See Japan's Comments on Korea's Responses to the Panel's Questions After the Second Substantive 
Meeting, para. 49. 
439 See Annex 1 (Essential Facts), para. 343, third bullet point. 
440 In its Final Comments to the Panel, Korea argued that  even if this issue had been raised by the JIA, 
it would not provide a basis for rejecting the Deutsche Ba nk Report because Deutsche Bank did not consider the 
returns under [[BCI]] that would accrue to [[BCI]] from th e equity they held as a result of the October 2001 
debt-equity swaps.  In light of our finding that the JIA had not raised this issue, there is no need for us to consider Korea's additional argument. 
441 Japan seeks to have us consider its argument on the basis of a finding by the Appellate Body that 
"Article 22.5 [of the SCM Agreement ] does not require the agency to cite or discuss every  piece of supporting 
record evidence for each fact in the fina l determination" (Appellate Body Report, US – Countervailing Duty 
Investigation on DRAMS , para. 164).  Upon review, we find that the Appellate Body's finding would not require 
us to consider Japan's ex post  rationalization.  The Appellate Body in that case was dealing with a decision by 
the panel not to consider record evidence that was not explicitly included in the investigating authority's final 
determination.  In our view, that factual situation is different from the one before us, where it is a question of the JIA having failed to include a finding , or intermediate factual conclusion , in its Final Determination.  Such 
rationalization falls within the rubric of "reasons" referred to in Article 22.5.  Furthermore, it is well established 
that it is inappropriate for panels to consider ex post rationalization. ( See, for example, Appellate Body Report, 
US – Softwood Lumber VI (Article 21.5 – Canada) :  "A panel's examination of those conclusions must be critical 
and searching, and be based on the information contained in the record and the explanations given by the 
authority in its published report ."  (emphasis supplied)) WT/DS336/R 
Page 144  
 
7.223  Korea submits that the [[BCI]] clearly indicat ed that [[BCI]] for purposes of distributing 
Hynix's liquidation value among its creditors only if Hy nix were liquidated.  The [[BCI]] did not state 
that [[BCI]] in the event that the creditors cho se the [[BCI]] option and Hynix was not liquidated.  
Instead, if the creditors chose the [[BCI]] option, the debt that was swapped for equity in the October 
2001 restructuring would remain as equity.  Furthermore, Korea asserts that the debts that were 
converted into equity in October 2001 were not  debts in December 2002 — they were equity.  
According to Korea, that [[BCI]] into debts unless Hynix were liquidated — which would not occur if 
the creditors opted for the [[BCI]] option. 
7.224  We note Korea's argument that the relevant [[ BCI]] only called for [[BCI]] in the event that 
Hynix were liquidated in December 2002.  Japan has not disputed this.  Nor did the JIA challenge the 
substance of the [[BCI]].  There is no reason for us to doubt that the relevant [[BCI]] did not call for 
[[BCI]] in the event that Hynix were maintained as a going-concern in December 2002.  We therefore 
see no reason why Deutsche Bank should have factored this [[BCI]].  As different legal obligations 
would apparently apply ([[BCI]]) depending on wh ether Hynix were liquidated or maintained as a 
going-concern in December 2002, we see no reason wh y those different obligations should not have 
been reflected in Deutsche Bank's calculation of th e liquidation and going-concern values.  Indeed, we 
consider that such an approach would have distorted Deutsche Bank's [[BCI]]. 
7.225  In light of the above, we find that the JIA had no reasonable, objective basis for finding that 
the Deutsche Bank's calculation of the absolute am ount of return involved a discrepancy which 
impugned the commerciality of the Report. 
Expected Recovery Under the Going-Concern Scenarios
 
7.226  The fourth alleged "discrepancy" involved the relevance of [[BCI]].  The JIA provided the 
following critique of [[BCI]]: 
Further, the recovery rate of unsecured claims at the end of 2006 would be [[BCI]].  
Accordingly, the recovery rate [[BCI]]. In other words, [[BCI]]%, which is the 
recovery rate calculated by [[BCI]]. 442 
7.227  Korea asserts that the JIA's objection is based on a misunderstanding of the Deutsche Bank's 
calculation of the recovery under [[BCI]] scenar io.  Korea submits that the Deutsche Bank Report 
indicated that the December 2002 restructuring was projected to put Hynix in a position where it could service all of its outstanding debts (after th e debt-to-equity swap) and provide an additional 
return to its shareholders.  Korea asserts that the creditors would therefore be expected to recover the 
full amount of any debts they continued to hold after the restructuring plus whatever additional returns 
they earned on the equity they had received for participating in debt-to-equity swaps. 
7.228  Korea submits that since the creditors had to sw ap half of their [[BCI]] into equity in the 
December 2002 restructuring, this meant that they would only be holding half as much [[BCI]] after the restructuring as they had before.  Korea asserts  that, as indicated in the Deutsche Bank report, the 
December 2002 restructuring was projected to put Hynix in a position where it could service all of its 
outstanding debts (after the debt-to-equity swap) and provide an additional return to its shareholders.  
According to Korea, therefore, the creditors woul d be expected to recover the full amount of any 
debts they continued to hold after the restructuring plus whatever additional returns they earned on the 
equity they had received for participating in debt-to- equity swaps.  According to Korea, their recovery 
of the full amount of any [[BCI]] they continued to  hold after the restructuring was, therefore, 
equivalent to the recovery of one-half of the amount of the debts they held before the restructuring.  
Korea states that the creditors could therefore expe ct to recover a minimum of [[BCI]], even if the 
equity they received in the debt-to-equity swaps had no value, plus [[BCI]] (which were not subject to 
                                                     
 
442 Annex 1 (Essential Facts), para. 343, fourth indent.  WT/DS336/R 
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the debt-to-equity swap).  Korea states that if th e equity were projected to have some value, their 
percentage recovery would be ev en higher.  Korea submits that, taking all of these factors into 
consideration, the Deutsche Bank reached the figure of [[BCI]] per cent for recovery by creditors 
under [[BCI]] scenario. 
7.229  Japan objects to Korea's reference to [[BCI]].443  Other than that, however, Japan makes no 
rebuttal of Korea's arguments.444 
7.230  We agree with Japan that the important figur e for present purposes is the recovery rate for 
unsecured debt.  However, this does not resolve th e issue before us, as the Deutsche Bank recovery 
rate was properly limited [[BCI]].  (In other words, Deutsche Bank did not proceed on the basis of the [[BCI]]per cent figure cited by Korea.)  Korea h as provided a reasonable explanation, showing that 
the Deutsche Bank properly calculated the recovery ra tes for [[BCI]] scenarios.  In particular, Korea 
has explained that Deutsche Bank could properly ex clude [[BCI]].  Since Japan has failed to rebut 
Korea's explanation, we uphold Korea's argument that the JIA's criticism of the Deutsche Bank's 
methodology is unwarranted.
445 
7.231  In light of the above, we find that the JIA had no reasonable, objective basis for finding that 
the unsecured claims which had been converted into equity should have been taken up in the recovery 
rate calculations for the going concern scenarios, and th at the JIA should not have considered that this 
impugned the commerciality of the Report. 
Sale Value Versus Liquidation Value  
7.232  The fifth "discrepancy" referred to by the JIA is  a claimed lack of analysis in the Deutsche 
Bank Report of the comparative merits of a sale of  Hynix's memory business and its liquidation.  The 
JIA criticised the Deutsche Bank Report because [[BCI]]446  Japan clarified that the JIA's concern was 
that "Deutsche Bank did not explain reasons that [[BCI]]"447   
7.233  Korea asserts that Japan's argument is based on a misreading of the Deutsche Bank Report.  
Korea asserts that the Report explicitly recognized that [[BCI]], explaining that: 
[[BCI]]  
– [[ BCI]]:  
– [[ BCI]] 
– [[ BCI]] 
– [[ BCI]] 
– [[ BCI]].448 
7.234  Korea submits that, in light of these risks,  Deutsche Bank recommended that the creditors 
pursue [[BCI]].449 
                                                      
443 See para. 115 of Japan's oral statement at the Second Substantive Meeting. 
444 There is a reference to Deutsche Bank's calculation of [[BCI]] at para. 116 of Japan's oral statement 
at the second substantive meeting.  However, that reference was made in respect of a separate "discrepancy" 
identified by the JIA, namely Hynix's alleged admission of an error in the Deutsche Bank Report.  That issue is addressed infra.  
445 We note that the above finding by the JIA referred to [[BCI]].  We recall our finding that Deutsche 
Bank did not err in applying a liquidation recovery rate of [[BCI]].  
446 See Annex 1 (Essential Facts), para. 343, fifth bullet point. 
447 See Japan's oral statement at the seco nd substantive meeting, para. 117. 
448 Korea refers in this regard to [[BCI]] of the Deutsche Bank Report. WT/DS336/R 
Page 146  
 
7.235  Although the JIA asserts that Deutsche Bank "conc luded that the proposal [[BCI]]" we note 
that this was not actually the conclusion reached  by Deutsche Bank.  Instead, [[BCI]].  Having 
reached this conclusion, in our view Deutsche Bank did not specify any [[BCI]]. 
7.236  Instead, Deutsche Bank proposed that [[BCI]].  In the event that [[BCI]], Deutsche Bank 
could have advised whether [[BCI]].  Again, though, that would not have been a [[BCI]].  Since 
Deutsche Bank rejected liquidation in favour of [[B CI]], it makes no sense to talk in terms of sale 
being preferred over [[BCI]];  [[BCI ]] could be pursued [[BCI]]. 
7.237  The JIA has not identified any downside to Deut sche Bank keeping the [[BCI]] option alive in 
this way.  However, as noted by Deutsche Bank, there was an upside to this pro posal, in the sense that 
"[[BCI]]."
450  
7.238  In light of the above, we find that the JIA ha d no reasonable, objective basis for its conclusion 
that Deutsche Bank erred in its treatment of the sale and liquidation options respectively, and that this 
should not have been considered by the JI A as impugning the commerciality of the Report. 
Admission of Error by Hynix  
7.239  The final alleged "discrepancy" identified by the JIA was an error, said to be admitted by 
Hynix, which when corrected would ha ve had [[BCI]].  The JIA found that: 
In its rebuttal, Hynix voluntarily admits th at the Deutsche Bank Report had an error.  
Additionally, when recalculated based on the Hynix's assertion, the recovery rate of 
the unsecured claims comes to [[BCI]]% .* Given that Deutsche Bank states a 
recovery rate in units of [[BCI]]%, th e explanation of Hynix which ignores such 
[[BCI]]% difference stating [[BCI]] is not reasonable. Moreover, if the assertion of 
Hynix were to be correct, the reliability of  the totality of the recovery rate of 
[[BCI]]%, [[BCI]]%, [[BCI]]%, [[BCI]]% as presented in the Deutsche Bank Report 
would be weakened. In either case, even if the rebuttal by Hynix were assumed to be correct, it still could not precisely explain the basis the Deutsche Bank Report used in 
calculating the recovery rate. Therefore, the rebuttal by Hynix cannot be accepted.
451 
(* footnote omitted) 
7.240  Korea denies that Hynix admitted that the Deutsche Bank Report contained any analytical 
errors.  Korea asserts that, in the course of explaining how the Deutsche Bank report calculated the 
expected recovery to the creditors, Hynix noted th at there was a typographical error in one of the 
[[BCI]] set forth in [[BCI]] to the report.  According to Korea, Hynix pointed out that [[BCI]] in question stated that a percentage figure had been calculated by dividing the expected recovery amount 
by total [[BCI]] debts, when it should have indicat ed that the percentage figure was calculated by 
dividing the expected recovery amount by the sum of  [[BCI]] debts.  Korea asserts that nothing in 
Hynix's comment suggested that there was an e rror in the Deutsche Bank Report's calculations or 
results.  Korea submits that, to the contrary, Hynix' s comment was intended to show that there was no 
error in the Deutsche Bank report's calculations .  Korea states that an unbiased and objective 
investigating authority would have easily recogni zed the difference between a typographical error and 
an analytical mistake. 
7.241  Japan asserts that the JIA reviewed Deutsch e Bank's calculations in light of Hynix's 
explanation and found that there were still discrep ancies between the results from the recalculation 
and the recovery rates shown in the Deutsche Ba nk Report.  Japan argues that these discrepancies 
                                                                                                                                                                    
 
449 Korea refers in this regard to [[BCI]] of the Deutsche Bank Report. 
450 See Deutsche Bank Report, [[BCI]]. 
451 See Annex 3 (Rebuttals and Surrebuttals), para. 502.  WT/DS336/R 
 Page 147  
 
 
called into question the reliability of the Deutsc he Bank Report's valuations as of 2006, and would 
have affected the calculation of the recovery rat es under each the going-concern scenarios.  According 
to Japan, the JIA therefore reasonably found that " if the assertion of Hynix were to be correct, the 
reliability of the totality of the recovery rate of [[ BCI]]%, [[ BCI]]%, [[ BCI]]%, [[ BCI]]% as 
presented in the Deutsche Bank Report would be weakened."452 
7.242  We have reviewed carefully the JIA's summary of Hynix's statement regarding this matter.  
According to the JIA, Hynix stated that: 
there is an error [[BCI]] in footnote (5) on page 13 of the report.  It explains that 
[[BCI]].453  (emphasis in BCI supplied) 
7.243  We fail to see how the JIA coul d have concluded from this statement that Hynix had admitted 
that the Deutsche Bank Report contained any analyti cal errors.  According to the JIA's summary of 
Hynix's argument, Hynix merely identified "an erro r [[BCI]]". (emphasis supplied)  An error [[BCI]] 
is not the same as an error in the application of a fo rmula.  On the basis of a plain reading of the JIA's 
own description of Hynix's submission, we conclude  that Hynix was simply stating that Deutsche 
Bank had noted that [[BCI]].  While Deutsche Bank  may therefore have committed an unfortunate 
typographical error, there is no suggestion in H ynix's statement that Deutsche Bank committed the 
more serious analytical error of failing to [[BCI]] when performing the relevant calculation.454  
Deutsche Bank's calculation in this regard included [[ BCI]], as Hynix pointed this out to the JIA in its 
submissions.  
7.244  We note that both the JIA and Japan asserted that  the correction of the error identified by 
Hynix would undermine the reliability of Deutsche Bank's going-concern valuations.  We are not 
persuaded by this assertion as we have established that, in fact, Hynix had not identified any 
analytical error that required correction.  In these circumstances, we are unable to accept that the error 
identified by Hynix– called into question the reliab ility of the Deutsche Bank Report's valuations.  It 
was nothing more than a typographical error. 
Conclusion 
 
7.245  We have found that the JIA could not prope rly have rejected the Deutsche Bank Report on 
formal considerations regarding the independence of Deutsche Bank.  We have also found that the 
JIA erred in its analysis of the substance of the Deutsche Bank Report.  When these two findings are 
combined, we conclude that the JIA's determina tion that the Deutsche Bank Report did not provide 
the existing creditors with a proper commercial basis for participating in the December 2002 
restructuring was not reasonable and objective. 
Conclusion  
 7.246  For the above reasons, we reject Korea's arguments  that the JIA erred in its analysis of the 
internal examinations of the October 2001 restruct uring by the Four Creditors.  However, we uphold 
Korea's arguments in respect of the December 2002 restructuring. 
7.247  We recall that the JIA's rejection of the Deutsche Bank Report played a central role in its 
conclusion that the participation of the Four Cred itors in the December 2002  restructuring was not 
commercially reasonable to the extent that it col oured the JIA's assessment of the Four Creditors' 
internal analyses of the restructuring.  Given our conclusion that an objective and impartial 
                                                     
 
452 See Annex 3 (Rebuttals and Surrebuttals), para. 502. 
453 See Annex 3 (Rebuttals and Surrebuttals), para. 500.  
454 We note that there was no suggestion by either the JIA or Japan that [[BCI]] should not have been 
included by Deutsche Bank. WT/DS336/R 
Page 148  
 
investigating authority could not properly have rejected the Deutsche Bank Report on the grounds 
selected by the JIA, we must also conclude that  the JIA could not properly have relied on the 
Deutsche Bank Report as a basis for concluding that the participation of the Four Creditors in the 
December 2002 restructuring was not commercially reasonable. 
(e) The Participation of Other Creditors In The Same Transactions And On the Same Terms 
(i) Main Arguments of Korea 
7.248  Korea asserts that there were a number of Othe r Creditors who entered into the restructuring 
transactions at the same time and on the same term s as the banks that the JIA found to be acting under 
government entrustment or direction.  The JIA made  no finding that these Other Creditors were acting 
under government entrustment or direction.  Korea notes that the majority of those institutions were 
never investigated or contacted by the JIA.  According to Korea, the willingness of these Other 
Creditors to enter into the sa me transactions as the allegedly government-directed creditors 
completely refutes the JIA's claim that the credito rs only entered into the transactions because of 
government pressure.
 455 
(ii) Main Arguments of Japan 
7.249  Japan submits that Korea's argument is without  merit because it confuses the requirements for 
findings of "entrustment or direction" under Article  1.1(a)(1)(iv) and benefit under Article 1.1(b) and 
because it is based on a misreading of the JIA's factual determination.  Japan asserts that, to the extent 
that Korea's argument suggests that the existence of  other creditors provides evidence of a benchmark, 
which negates the proposition that a benefit was pr ovided by the entrusted or directed creditors, 
Korea's argument is not relevant to the finding of en trustment or direction.  According to Japan, the 
SCM Agreement separates the question of "entrustment or direction" under Article 1.1(a)(1)(iv) and 
benefit under Article 1.1(b).  Japan also submits that  the JIA found, applying facts available, that all 
banks participated in the October 2001 and D ecember 2002 restructurings on the basis of non-
commercial factors. 
(iii) Evaluation by the Panel 
7.250  In light of our conclusion that the JIA's reasoni ng did not properly support the finding that the 
Four Creditors were entrusted or directed to  participate in the December 2002 restructuring,456 we 
only evaluate Korea's argument regarding the role of  Other Creditors in respect of the October 2001 
restructuring.  
7.251  Korea has made essentially the same argument in the context of its claim against the JIA's 
determination of benefit.  In light of our evaluati on of Korea's argument in that context, we reject 
                                                      
455 Korea asserts at note 68 to its oral statement at the Second Substantive Meeting that Citibank's 
participation in the restructuring transactions on the sa me terms as the allegedly "e ntrusted or directed" banks 
provides further evidence that there wa s no entrustment or direction.  Korea notes Japan's assertion that the JIA 
was justified in ignoring Citibank's participation in the restructurings (s ee, e.g., Japan's Second Written 
Submission, para. 107), but states that all of the points raised by Japan were rebutted in the proceedings before 
the JIA.  Korea refers in this regard to paras. 33, 36, 274, 314, 316, 430, and 547 of Annex 3 (Rebuttals and 
Surrebuttals).  We are not prepared to review the JIA's determination in respect of Citibank on the basis of 
Korea's simple reference to arguments made by the Government of Korea and Hynix to the JIA.  Korea has not even endorsed all of these arguments, let alone developed them in the context of Kor ea's claims in the present 
proceedings.  We are not prepared to review the abovementioned section of Annex 3 (Rebuttals and 
Surrebuttals) and make relevant arguments on Korea's behalf.  Accordingly, we make no findings regarding the JIA's determination of entrustment or direction on the basis of Korea's reference to the JIA's treatment of 
Citibank. 
456 See para. 7.254 infra .  WT/DS336/R 
 Page 149  
 
 
Korea's argument that the particip ation of Other Creditors in the October 2001 restructuring precluded 
a finding that the Four Creditors were entrusted or di rected by the Government of Korea.  As we note 
in section E.6 infra , there was no evidence from Other Credito rs on the JIA's record regarding the 
reasons why they participated in the October 2001 restructuring.  There wa s no such evidence because 
Other Creditors failed to respond to the JIA's questionnaire.457  There was, however, evidence 
(applicable through facts available) suggesting th at the Other Creditors had participated in the 
October 2001 restructuring on the basi s of non-commercial considerations,458 just as the Four 
Creditors had done.  Furthermore, given the JIA's finding of extensive government intervention in the 
October 2001 restructuring, the JIA could properly have concluded that there was also a credible 
possibility that the Other Creditors may have been acting under government entrus tment or direction.  
As a result of the failure of certain Other Creditors  to respond to the JIA's questionnaire, it was not 
possible for the JIA to exclude this  possibility.  In these circumstan ces, we do not consider that the 
JIA was required to overlook evidence of entrustm ent or direction of the Four Creditors simply 
because Other Creditors also participated  in the October 2001 restructuring. 
(f) Conclusion 
7.252  For the above reasons, we reject  Korea's claim that the JIA did not have a proper basis for 
finding that the Four Creditors were entrusted or directed by the Government of Korea to participate 
in the October 2001 restructuring, contrary to Article 1.1(a)(1)(iv) of the SCM Agreement . 
7.253  Regarding the December 2002 restructuring, we note that the JIA's determination of 
entrustment or direction was based on "the to tality of numerous items of evidence obtained".459    We 
also note that the JIA began its summary of its dete rmination of entrustment or direction regarding the 
December 2002 restructuring by referring to its finding that the Four Creditors' decisions to 
participate in that restructuring "were not based on commercial consideration[s]".460  Commercial 
reasonableness therefore played an important role in the JIA's finding of entrustment or direction.  As 
noted above, the JIA's finding that the Four Cred itors' participation in the restructuring was not 
commercially reasonable was to a great extent based on its rejection of the Deutsche Bank Report.  
Our finding that the JIA erred in both its formal and substantive analysis of the Deutsche Bank Report 
therefore invalidates the JIA's finding that the Four  Creditors' participation in the December 2002 was 
not commercially reasonable, revealing a fatal flaw  in the JIA's determination of entrustment or 
direction.  While the JIA also based its determinati on of entrustment or direction on evidence that the 
Government of Korea "was in a position to be able  to exercise sufficient influence on" the Four 
Creditors, and that the Government of Korea "had the political intent to have Hynix survive", and 
"had been ascertaining at all times the progress of discussion of the December 2002 Program",461 the 
JIA declined to find that such  evidence in and of itself ( i.e., absent consideration that the restructuring 
was not commercially reasonable) demonstrated that  the Government of Korea gave responsibility to 
the Four Creditors, or actually exercised any authority  over the Four Creditors, in order to effectuate 
the December 2002 restructuring.462  Since the JIA made no such finding, there is no basis for us to 
                                                      
457 One Other Creditor, Kookmin, did reply to the JIA's questionnaire.  Kookmin's reply indicated that 
it had participated in the October 2001 restructuring on the basis of the Anjin Accounting Report.  We find 
elsewhere that the JIA dealt appropriately with evidence regarding the availability of the Anjin Report. 
458 For this reason, we disagree with Korea's asse rtion that there was "no information on the record 
providing any indication that the [Other Creditors] particip ated in the restructuring transactions for any reason 
other than a rational calculation of their own self-int erest" (Korea's Second Writte n Submission, para. 226). 
459 See Annex 3 (Rebuttals and Surrebuttals), para. 20.  See also para. 295 of Japan's First Written 
Submission. 
460 See Annex 1 (Essential Facts), para. 368.  
461 See Annex 1 (Essential Facts), para. 370. 
462  We note that the EC – Countervailing Measures on DRAM Chips  panel referred (at para. 7.131) to 
"the absence of any convincing evidence of the commercial reasonableness of [the] investments" "in 
combination with the very important amount of government shareholding power" in upholding the investigating 
authority's determination of government entrustment or direction, thereby conf irming that circumstantial WT/DS336/R 
Page 150  
 
conclude whether or not the JIA could properly ha ve relied on such evidence (absent consideration 
that the restructuring was not commercially reasonable) to make a determination of government entrustment or direction.
463  It is not our role to conduct a de novo  examination of that issue by asking 
whether such a finding could have been made by the JIA.464 
7.254  Accordingly, we uphold Korea's claim that the JI A did not have a proper basis for finding that 
the Four Creditors were entrusted or directed by  the Government of Korea to participate in the 
December 2002 restructuring, contrary to Article 1.1(a)(1)(iv) of the SCM Agreement . 
E. THE JIA 'S DETERMINATION OF BENEFIT  
1. Introduction 
7.255  The SCM Agreement defines a subsidy as a financial contribution by a government or public 
body that confers a "benefit".  Thus, having established that the October 2001 and December 2002 
restructurings constituted financial contributions, the JIA was required to establish that they conferred 
a "benefit" in order to treat them as subsidies. 
7.256  Although the concept of "benefit" is not defined in the SCM Agreement , it is now well 
established that benefit is determined by reference to  the market.  Thus, a benefit is conferred if the 
recipient receives a financial contribution on term s more favourable than those available to the 
recipient in the market.465 
7.257  Accordingly, the JIA was required to determine whether the public bodies and the Four 
Creditors participated in the restructurings on terms more favourable than the market would have 
done.  Korea claims that the JIA erred in making that determination. 
7.258  In particular, Korea claims that  Japan acted inconsistently with Articles 1.1(b) and 14 of the 
SCM Agreement because the JIA committed a number of errors  in its determinations of the existence 
and amount of benefit conferred to Hynix by the October 2001 and December 2002 restructurings.  
Korea further claims that Japan's imposition of co untervailing duties based on this "flawed analysis" 
was inconsistent with the requirements of 19.4 of the SCM Agreement and Article VI:3 of the 
GATT 1994 . 
                                                                                                                                                                     
evidence of a government's simp le ability to exercise authority over a priv ate body is not sufficient for a finding 
of entrustment or direction.  There must be some additional evidence indicating that the government actually 
exercised that authority in order to effectuate a financial contribution. 
463 We understand Japan to agree with such an approach, as Japan has argued that "it is important to 
note the method in which the [JIA] made its findings of entrustment or direction" ( see Japan's First Written 
Submission, para. 89).  Japan refers in support to the statement of the Appellate Body in US – Countervailing 
Duty Investigation on DRAMS  that a panel cannot "construct a case di fferent from that put forward by the 
investigating authority."  (US – Countervailing Duty Investigation on DRAMS , para. 151).  Although Japan has 
also referred ( see Japan's oral statement at the Second Substantive Meeting, para.  80) to the fact that the panel in 
EC – Countervailing Measures on DRAM Chips  upheld the investigating authority's determination of 
entrustment or direction despite disagr eeing with some element of the investigating authority's analysis, we note 
that it did so in "the absence of any convincing eviden ce of the commercial reasonabl eness of such investments" 
(para. 7.131).  Given our finding that the JIA's determination on commercial reasonableness is unsound, it 
would not be appropriate for us to proceed in the same manner.  
464 Appellate Body Report, United States – Definitive Safeguard Measures on Imports of Certain Steel 
Products , para. 303 ("As we stated above,  because a panel may not conduct a de novo  Review of the evidence 
before the competent authority, it is the explanation  given by the competent authority for its determination that 
alone enables panels to determine whether there has been  compliance with the requirements of Article XIX of 
the GATT 1994 and of Articles 2 and 4 of the Agreement on Safeguards .") 
465 See, for example, Canada – Aircraft , Appellate Body Report, para. 157, and EC – Countervailing 
Measures on DRAM Chips , Panel Report, para. 7.175.  WT/DS336/R 
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7.259  Japan asks the Panel to reject Korea's claim. 
2. Applicable provisions 
7.260  Article 1.1(b) provides that a subsidy shall be deemed to exist only where there is a financial 
contribution by a government or public bod y and "a benefit is thereby conferred". 
7.261  Article 14 contains four sub-paragraphs, whic h set forth guidelines for calculating the benefit 
conferred by different types of fina ncial contributions. Korea's claim pe rtains to paragraphs (a) and (b) 
of Article 14, which read as follows: 
For the purpose of Part V, any method used by  the investigating authority to calculate 
the benefit to the recipient conferred pursu ant to paragraph 1 of Article 1 shall be 
provided for in the national legislation or  implementing regulations of the Member 
concerned and its application to each pa rticular case shall be transparent and 
adequately explained.   Furthermore, any such method shall be consistent with the 
following guidelines:   
(a) government provision of equity capital shall not be 
considered as conferring a benefit, unless the investment decision can 
be regarded as inconsistent with  the usual investment practice 
(including for the provision of risk capital) of private investors in the territory of that Member; 
(b) a loan by a government shall not be considered as conferring 
a benefit, unless there is a difference between the amount that the 
firm receiving the loan pays on th e government loan and the amount 
the firm would pay on a comparable  commercial loan which the firm 
could actually obtain on the market.   In this case the benefit shall be the difference between these two amounts ... 
7.262  Article 19.4 of the SCM Agreement provides: 
No countervailing duty shall be levied
51 on any imported product in excess of the 
amount of the subsidy found to exist, calcula ted in terms of subs idization per unit of 
the subsidized and exported product. 
51 As used in this Agreement "levy" shall mean the definitive or final legal assessment or 
collection of a duty or tax.  
7.263  Article VI:3 of the GATT 1994  provides in part: 
No countervailing duty shall be levied on  any product of the territory of any 
contracting party imported into the territo ry of another contracting party in excess 
of an amount equal to the estimated bounty or subsidy determined to have been 
granted, directly or indirectly, on the manufacture, production or export of such 
product in the country of origin or exportation…. 
3. Main Arguments of Korea 
7.264  Korea has made a number of arguments in support of its claim.  We understand Korea's 
primary arguments to be that the JIA errone ously:  (i) ignored relevant economic evidence 
demonstrating that commercial actors routinely ente r into similar transactions with borrowers in 
Hynix's financial condition;  (ii) improperly faile d to determine whether the alleged government WT/DS336/R 
Page 152  
 
direction of the restructurings made Hynix "bette r off";  (iii) concluded that the terms of the 
restructuring transactions between Hynix and certain  Other Creditors did not constitute valid market 
benchmarks for the benefit analysis;  and (iv) calculated the benefit conf erred by the financial 
contributions without assigning any value to what H ynix exchanged in return and without taking into 
account the creditors' existing claims.  We sh all address each of these arguments in turn. 
4. The relevance of the evidence relied on by the JIA 
(a) Arguments of Korea 
7.265  Korea's first argument is that the JIA ignored relevant economic eviden ce demonstrating that 
commercial actors routinely enter into similar tr ansactions with borrowers in Hynix's financial 
condition.  This argument concerns the evidence relie d on by the JIA in establishing the existence of 
benefit.  It is premised on Korea's economic arguments regarding the differences between the 
investment perspectives of new, outside investor s and existing, inside investors.  These arguments 
have been described more fully above.
466 
7.266  In its First Written Submission, Korea asserted th at the JIA erred by examining whether the 
debt restructurings, rather than the government en trustment or direction of those restructurings, 
conferred a benefit.  Korea argued that transact ions entered into by private bodies — whether 
government directed or not — do not themselves cons titute "financial contributions" under Article 1.1 
of the SCM Agreement .  Korea argued that "[i]nstead, it is the government's action  of 'entrusting or 
directing' the private creditors that constitutes th e 'financial contribution' under Article 1.1(a)."467  
According to Korea, "the issue is whether the alleged government involv ement resulted in better 
restructuring transactions for Hynix than it would ha ve been able to negotiate in the absence of 
government involvement".468 
7.267  In order to seek clarification of Korea's argument, the Panel put Question 70 to Korea: 
At para. 229 of its First Written Submission, Korea argues that "the issue is whether 
the alleged government involvement resulted in better restructuring transactions for 
Hynix than it would have been able to negotiate in the absence of government 
involvement " (emphasis added).  Is this a different way of saying that the JIA was 
required to compare the terms of the governme nt-directed restructurings at issue with 
the terms that would have been available to Hynix in the market ?   
7.268  Korea replied: 
If the relevant "market" is properly defi ned as non-government-directed entities in the 
same position as Hynix's creditors, then it should not matter whether the relevant 
benchmark is defined as "restructuring transac tions for Hynix than it would have been 
able to negotiate in the absence of government involvement"  or as "the terms that 
would have been available to Hynix in the market."    However, if the relevant 
"market" is improperly defined as non-gove rnment-directed entities in a different 
position — for example, investors that do not hold Hynix debt — then the two 
descriptions of the relevant benchmar k would lead to different results. 
7.269  Korea developed this argument further in its  Second Written Submission.  At para. 172, 
Korea states: 
                                                      
466 See para. 7.85 supra . 
467 See Korea's First Written S ubmission, para. 228. 
468 See Korea First Written Submission, para. 229.  WT/DS336/R 
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According to Japan, the JIA's conclusion on this issue was supported by Hynix's "disastrous and ever deteriorating financial state, its bad history of serving debt, the 
collapse of the stock price, and the reality that no new investors were willing to put funds into Hynix."*  But such findings, if th ey ever were made, are simply irrelevant.  
Contrary to Japan's assumption, Hynix did not "raise" funds on the commercial 
market in the October 2001 and December 2002 restructurings.  Instead, its existing 
debts were restructured in those transacti ons.  The only issue is whether Hynix would 
have been able to obtain equivalent de bt restructuring from creditors acting in 
accordance with the "usual prac tice" in the relevant market.  On that issue, the JIA 
made no findings. (* footnote omitted) 
(b) Arguments of Japan 
7.270  Japan responded that, according to Article 1.1 of the SCM Agreement , it is the financial 
contributions resulting from the government entrustmen t or direction that must be found to have 
conferred the benefit, not the gove rnment entrustment or direction per se . 
(c) Evaluation by the Panel 
7.271  We understand Korea's basic argument to be that the JIA should have used non-government-
directed entities in the same position as Hynix's creditors – i.e., "inside" investors holding debt of little 
worth - as evidence that the restructurings at issu e were commercially reasonable, and therefore did 
not confer a benefit.  Korea's argument therefore comprises two elements.  First, Korea complains that 
the JIA applied an outside investor standard, that is not relevant for the purpose of assessing whether a 
benefit was conferred by the actions of Hynix's existing creditors.  Second, Korea complains that the 
JIA determined the existence of benefit without comparing what Hynix's creditors did with evidence 
of what non-entrusted or directed, market-based inside  investors would have done. 
7.272  We have already addressed the first element of Korea's argument.  In particular, we have 
already found that the JIA applied both an inside a nd an outside investor standard when analyzing the 
commercial reasonableness of the decisions by cr editors to participate in the October 2001 and 
December 2002 restructurings.  The JIA did so because it explicitly accepted the "premise that 
existing creditors would possibly provide additional funding in order to maximize the recovery of 
credit."
469  The JIA also accepted that debt forgiveness by creditors might  be "commercial" "[i]f such 
action is reasonably found to be unavoidable  in order to maximize the debt recovery."470   
7.273  The problem identified by Korea in the second element of its argument is that the JIA 
concluded that there was benefit as soon as it found that the actions of Hynix's creditors were not 
commercially reasonable, without verifying that (hypothetical) non-entrusted or directed inside 
investors acting on market principles would have acted any differently.  In other words, Korea complains that the JIA did not establish its own market benchmark by which to ascertain whether or not a benefit was conferred on Hynix by its credit ors.  Korea submits that the JIA should have 
established this benchmark by reference to evidence of what "creditors acting in accordance with the 
'usual practice' in the relevant market"
471 would have done.  Korea asserts that, no matter the creditors' 
motivations for participating in the restructurings , the JIA could only conclude that a benefit was 
                                                      
469 See Annex 3 (Rebuttals and Surrebuttals), para. 141.  Despite references to this statement by Japan 
in its First Written Submission ( see para. 379) and in subsequent submissions to the Panel (insert refs), Korea 
only acknowledged this statement in its final submission to the Panel after the Second Substantive Meeting ( see 
Korea's Final Comments, para. 4).  This statement appears to have been overlooked by Korea during the earlier stages of the Panel proceedings. 
470 See Annex 3 (Rebuttals and Surrebuttals), para. 429. 
471 See Korea's First Written S ubmission, para. 172. WT/DS336/R 
Page 154  
 
conferred if the terms of the restructurings were shown to be more favourable than the terms that 
would have been offered by cred itors following usual market practices.  According to Korea: 
it does not matter whether Hynix's creditors actually made their decisions by flipping 
coins, tossing darts at a board, or consu lting fortune-tellers.  No matter how bizarre 
the JIA may have found the creditors' d ecision-making process, the restructuring 
transactions did not confer a benefit on Hynix as long as Hynix could have received 
equivalent terms from creditors fo llowing usual market practices.
472 
7.274  Korea asserts that a market-based inside investor would have participated in the restructurings 
because (1) it would have acquired an independent anal ysis before deciding what to do;  and (2) that 
analysis would have demonstrated  that Hynix's going concern value exceeded its liquidation value.  
Accordingly, Korea submits that there was no differe nce between what Hynix's creditors did and what 
market-based inside investors would have done.  Fo r this reason, Korea submits that no benefit was 
conferred on Hynix by the restructurings. 
7.275  As noted above, it is now well established that th e concept of benefit is defined by reference 
to the market, such that a financial contribu tion confers a "benefit" within the meaning of 
Article 1.1(b) of the SCM Agreement when it is made available on term s that are more favourable than 
the recipient could have obtained on the market.  While an investigating authority must apply this 
standard on the basis of relevant ev idence, there are no provisions in the SCM Agreement regarding 
the precise nature of the evidence on which an inv estigating authority must rely.  The guidelines set 
forth in Article 14 of the SCM Agreement offer some guidance on the types of evidence that might be 
relevant.  However, the Article 14 guidelines do not cover all eventualities.  For example, 
Article 14(b) does not indicate how an investigating authority should establish the existence of benefit 
conferred by a loan in the event that there are no "comparable commercial loans which the firm could 
actually obtain on the market".473 
7.276  In certain circumstances, an investigating aut hority might examine the existence of benefit by 
gathering available evidence of the terms that the ma rket would have offered, and by comparing those 
terms with those of the financial contribution at issu e.  This is the approach  advocated by Korea in the 
present case.  In other circumstances, an investiga ting authority might rely on evidence of whether or 
not the financial contribution was provided on the b asis of commercial considerations.  This is the 
approach adopted by the JIA in the present case.  In our view, both types of evidence are relevant in 
determining the existence of benefit.  The first,  because such evidence provides a market benchmark 
against which to determine whether or not the terms on offer were more  favourable than those 
available from the market.  The second, b ecause evidence of reliance on non-commercial 
considerations indicates terms more favourable than those available from the market (as the market is 
presumed to operate on the basis of commercial considerations).474  Depending on the particular 
circumstances of a case, an investigating authority might also rely on other types of evidence that 
could be equally relevant. 475 
                                                      
472 See Korea's First Written S ubmission, para. 176. 
473 It is for this reason that the panel in EC – Countervailing Measures on DRAM Chips  recognized that 
"an investigating authority is entitled to considerab le leeway in adopting a reasonable methodology" ( EC – 
Countervailing Measures on DRAM Chips , para. 7.213) for calculating the amount of benefit. 
474 We note that such an approach to determining th e existence of benefit was upheld by the panel in 
EC – Countervailing Measures on DRAM Chips .  That panel upheld the investigating authority's finding of 
benefit in respect of the October 2001 restructuring on the basis that the investigating authority had reasonably 
concluded that none of the non-entrusted / directed creditors had acted "in a commercially reasonable manner". 
(EC – Countervailing Measures on DRAM Chips , para. 7.209)  
475 An investigating authority might also be confronted with both types of evidence described above, 
and one type of evidence might not support the conclusion suggested by the other.  For example, there might be 
evidence that, although the financial contribution was not provided on the basis of commercial considerations, it  WT/DS336/R 
 Page 155  
 
 
7.277  In light of the above, we find that the JIA's determination of the ex istence of benefit was 
based on relevant economic evidence.476  We therefore reject Korea's argument that the JIA 
improperly ignored relevant economic evidence simp ly because it failed to co llect evidence of what 
(hypothetical) market-based inside investors would have done. 
5. Commercial Reasonableness:  Whether The Restructurings Made Hynix "Better Off" 
(a) Arguments of Korea 
7.278  Korea asserts that a financial contribution only  confers a benefit if it makes the recipient 
"better off" than it otherwise would have been.  Korea states that there was no question that the 
economic evidence indicated that it was commercially reasonable for Hynix's creditors to participate 
in the restructurings, since Hynix's going concern va lue exceeded its liquidation value at the time of 
both the October 2001 and December 2002 restructurings .  Korea asserts that market operators would 
have participated in the restructurings under these circumstances.  Accordi ng to Korea, therefore, 
Hynix was not made "better off" by the credito rs than it would have been by the market. 
(b) Arguments of Japan 
7.279  Japan asserts that benefit should be established fro m the perspective of Hynix, the recipient of 
the financial contributions, and not its creditors.  Jap an submits that the fact that Hynix was "better 
off" than it would otherwise have been absent th e financial contribution is demonstrated by the 
evidence.  Japan refers in particular to evidence that Hynix was not able to obtain financing from "a 
normal commercial perspective".477 
(c) Evaluation by the Panel 
7.280  We recall that the JIA assessed the commercia l reasonableness of the October 2001 and 
December 2002 restructurings in the context of its determination of gove rnment entrustment or 
direction.  We have already established that an i nvestigating authority might properly rely on evidence 
of whether or not a financial contribution was comme rcially reasonable in determining whether or not 
that financial contribution confers a benefit in the meaning of Article 1.1(b) of the SCM Agreement .478  
                                                                                                                                                                     
would in fact have been provided by  "creditors acting in accordance with the 'usual practice' in the relevant 
market".  In such cases, the investigating authority would need to weigh the probative value of one type of 
evidence against the probative va lue of the other.  This was not the case in the investigation at issue, however, 
since the JIA was not confront ed with evidence that "cred itors acting in accordance with  the 'usual practice' in 
the relevant market" would have restructured Hynix on the same terms as the Four Creditors did.  Nor, in our 
view (for the reasons set forth above),  was the JIA required to collect such  evidence.  (Korea does not argue that 
the JIA was presented with evidence that  "creditors acting in accordance with the 'usual practice' in the relevant 
market" would have restructured Hynix on the same terms as the Four Creditors did.  Although the Government 
of Korea argued before the JIA that inside an d outside creditors have  different interests ( see Annex 3 (Rebuttals 
and Surrebuttals, para. 136), it did not provide evidence of the terms on which "creditors acting in accordance 
with the 'usual practice' in the relevant market" would have restructured Hynix.  Furthermore, the Government 
of Korea argued during the underlying investigation that the JIA should have regard to "the actual  
circumstances of creditor financial institutions" ( see Annex 3 (Rebuttals and Surrebuttals, para. 136, emphasis 
supplied).  The Government of Korea did not refer, during the underlying investigation, to evidence of what 
hypothetical  market-based inside investors would have done.) 
476 We wish to emphasise that our finding in this regard concerns the JIA's determination of the 
existence  of benefit.  It does not concern the JIA's calculation of the amount  of benefit, for quantification of the 
amount of benefit conferred by a fina ncial contribution necessarily requires more than merely concluding that 
the financial contribution was not commercially reasonable. 
477 See Japan's First Written Submission, para. 412. 
478 As discussed above, we consider that the JIA applied both an outside and inside investor standard in 
considering the commercial reasonableness of the restructurings.  We recall that  the parties agree that the inside 
investor standard is an appropriate one. Accordingly, there is no need for us to make any findings on this issue.   WT/DS336/R 
Page 156  
 
We understand Korea's argument that the restructurings  did not make Hynix "better off" to mean that 
Korea considers that the restructurings were commercially reasonable, and were therefore not made on terms more favourable than those available from the market.  
7.281  The JIA concluded that the Four Creditors ha d failed to participate in the October 2001 
restructuring on the basis of commercial considerations.  We have rejected Korea's arguments 
challenging that conclusion.  Since we uphold the JIA's finding that the October 2001 restructuring 
was not commercially reasonable
479, it follows that we also uphold the JIA's determination that the 
October 2001 restructuring conferred a benefit on Hynix. 
7.282  Regarding the December 2002 restructuring, we  recall our finding that the JIA did not 
properly establish that the participation of the Four Creditors was based on non-commercial 
considerations.  In particular, we found that the JI A's erroneous analysis (in form and substance) of 
the Deutsche Bank Report invalidated the JIA's finding that the Four Creditors' participation in the 
December 2002 was not commercially reasonable.480  Since the JIA determined benefit by reference 
to the market, and commercial reasonableness, it therefore follows that we reject the JIA's 
determination that the December 2002 rest ructuring conferred a benefit on Hynix. 
6. The Use of Hynix's Non-Entrusted or Directed Creditors as Market Benchmarks 
7.283  Korea asserts that a large number of Other Creditors, i.e., creditors that had not been found by 
the JIA to have been entrusted or directed by the Government of Korea, participated in the October 
2001 and December 2002 restructurings on the same terms as the Four Creditors that were found to 
have acted as the result of government entrustment or direction.  Korea submits that private entities 
not acting under the entrustment or direction of th e government constitute the "market", and therefore 
define the market outcome.  According to Korea, the fact that these private en tities participated in the 
transactions on the same terms as the government bod ies and the allegedly government-directed banks 
indicates that the transactions did not confer a benefit on Hynix. 
7.284  We recall that the JIA did not find that th e Other Creditors had conferred any (financial 
contribution or) benefit on Hynix.  Thus, Korea is  not challenging any finding by the JIA that the 
Other Creditors themselves conferred a benefit.  Rather, Korea's argument is addressing the potential 
impact of evidence regarding the Other Creditors on the JIA's determination that the participation of 
the Four Creditors conferred a benefit on Hynix.  Korea's argument is therefore concerned with the 
JIA's treatment of the evidence on its record.  Ko rea's basic argument is that evidence that Other 
(non-entrusted or directed) Creditors also participat ed in the restructurings should have trumped the 
evidence relied on by the JIA to fi nd that the Four Creditors participated in the restructurings on non-
market considerations (leading to a finding that th e restructurings did not confer a benefit on Hynix). 
7.285  In light of our conclusion that the JIA could not properly have determined that the Four 
Creditors participated in the December 2002 restructuring on the basis of non-commercial 
considerations, we only evaluate Korea's argument re garding the role of Other Creditors in respect of 
the October 2001 restructuring.  The JIA made the following findings regarding the participation of 
Other Creditors in the October 2001 restructuring: 
Hynix had been saved from bankruptcy by  the government's subsidies (KEIC's 
insurance on the D/A financing, the KDB Program and the May 2001 Program).  The Investigating Authorities find that th e October 2001 Program was implemented 
standing on the financial situation supported by such subsidies.  As described above, 
it was commonly recognized in Korea at that  time that the Government of Korea 
placed the promotion of normalization of Hy nix, a major semiconductor enterprise, as 
                                                     
 
479 See para. 7.244 supra. 
480 See para. 7.246 supra .  WT/DS336/R 
 Page 157  
 
 
one of its economic policies, and had the po litical intent to have Hynix survive.  
Furthermore, the Investigating Authoriti es find that the Government of Korea was 
deeply involved in the October 2001 Program.  In addition, the selection of Options 2 and 3 had also been made before the rel ease of the Arthur Andersen Report, which 
compares the going-concern value with the liq uidation value that form the basis for 
selecting such options.
362 Therefore, the Investigati ng Authorities find that the 
financial contributions standing on such a situation do not constitute financing from the commercial market ( i.e., the market benchmark), even if the October 2001 
Program included financial contributions wh ich were not found to be a financial 
contribution based on the entrustment or direction of the government.
481 
Note 362 reads: 
Of the interested parties to whom the Investigating Authorities had sent the 
questionnaire, the Investigating Authoriti es received no questionnaire responses from 
commercial banks that selected option 2 or  3 except for Kookmin Bank.  Therefore, 
the Investigating Authorities have no choice but  to rely on the determination of the 
commercial validity in their selection of these options on information from the banks 
that provided their responses, taking the fact of refusal to respond into account.  Kookmin Bank responded at the on-the-spot i nvestigation that "each bank made their 
decision independently whether to take th e bailout measure in accordance with its 
internal rule, referring to the Arthur Ande rsen's material.  Kookmin Bank also made 
its decision in the same manner." This res ponse, however, is contradictory to the 
release date of the Arthur Andersen Repor t.  The Kookmin Bank's response and other 
above-mentioned evidence show that each  bank selected the option under the 
influence of external factors other than comme rcial factors.  It is also reasonable to 
find that, given the fact that no banks relevant to the option 3 submitted their 
responses to the questionnaire, and given the information that the Investigating 
Authorities received from other sources discussed above, external factors were involved in the final repayment conditions of option 3. 
7.286  In light of these findings, we understand that  the JIA discounted the evidence that Other 
Creditors had also participated in the October 2001 restructuring because (1) the JIA found that the 
October 2001 restructuring was based on prior subsid ies, and (2) the JIA found, on the basis of facts 
available, that the Other Creditors had acted on non -commercial considerations.  We shall begin by 
examining the second element relied on by the JIA. 
(a) The "non-commercial nature" of the behaviour of the Other Creditors 
7.287  Korea asserts that Japan has o ffered no evidence to support its assertion that the JIA properly 
found that the Other Creditors' decisions to partic ipate in the October 2001 restructuring were based 
on non-commercial considerations.  Korea asserts th at, when asked for such evidence by the Panel, 
the Japanese delegation actually referred to a passage in the JIA's determination addressing the Four 
Creditors that were found to have been influenced  by government entrustment or direction - and not 
the "other" banks and the hundreds of other financ ial institutions that were never contacted by 
the JIA.
482 
7.288  We note that the JIA's finding regarding th e commercial reasonableness of the decision of 
Hynix's Other Creditors to participate in the Oct ober 2001 restructuring was based on facts available, 
                                                      
481 See Annex 1 (Essential Facts), para. 299.  
482 Korea notes in this regard that the Japanese dele gation directed the Panel to paragraphs 290 to 296 
of Annex 1 (Essential Facts).  Korea asserts that that passage is, however, focused solely on the question 
whether KEB, Woori Bank, Chohung Bank and NACF partic ipated in the restructuri ng transactions as a result 
of government entrustment or direction. WT/DS336/R 
Page 158  
 
as those Other Creditors contacted by the JIA (oth er than Kookmin) had failed to respond to its 
questionnaire.  According to note 362 of Annex 1 (Es sential Facts), set forth above, the available facts 
applied by the JIA pertained to the participation in  the October 2001 restructuring of the banks that 
did reply to the JIA's questionnaire, namely the Four Creditors and Kookmin.  It is for this reason that 
Japan would have referred to evidence regarding the Four Creditors in the circumstances described by 
Korea in the preceding paragraph. 
7.289  We find elsewhere that the JIA was entitled to tr eat the Other Creditors as interested parties, 
and to apply facts available in accordance with Article 12.7 of the SCM Agreement .
483  The JIA was 
required to apply facts available in respect of th e Other Creditors because none of the Other Creditors 
contacted by the JIA (except Kookmin) had responded to  its questionnaire.  In other words, there was 
no direct evidence on the JIA's record regarding the reasons why Other Cr editors (other than 
Kookmin)484 had participated in the October 2001 restructuring.   
7.290  Thus, while there was no direct evidence demonstrating that the Other Creditors had 
participated in the October 2001 restructuring on th e basis of commercial considerations, there was 
indirect evidence (applicable through facts avai lable) suggesting that the Other Creditors had 
participated in that restructuring on th e basis of non-commercial considerations,485 just as the 
Four Creditors had done. 
7.291  Given the JIA's finding of extensive government intervention in the October 2001 
restructuring, there was obviously a risk that th e Other Creditors may also have been acting under 
government entrustment or direction.  As a result of  the failure of Other Creditors to respond to the 
JIA's questionnaire, it was not possible fo r the JIA to exclude this possibility.486  In these 
circumstances, we do not consider that the JIA erre d in the treatment of the evidence before it.  In 
particular, we do not consider that the JIA was ob liged to assume (without evidence in support, and in 
the face of evidence to the contra ry) that the Other Creditors had participated in the October 2001 
restructuring on the basis of commercial considerations, and then use that assumption to trump evidence indicating that the Four Creditors had par ticipated in the October 2001 restructuring on the 
basis of non-commercial considerations.  In these ci rcumstances, the mere participation of Other 
Creditors in the October 2001 restructuring (absen t evidence establishing that their participation was 
based on commercial considerations) should not ha ve precluded a finding by the JIA that the 
participation of the Four Creditors in that  restructuring conferred a benefit on Hynix. 
(b) Prior Subsidies 
7.292  We recall that the JIA found in respect of the October 2001 restructuring that: 
                                                     
 
483 See section VII.I infra.    
484 Note 362 of Annex 1 (Essential Facts) indicates  that the available dir ect evidence regarding 
Kookmin concerned its claim that it had relied on the Anjin Accounting Report as a basis for participating in the October 2001 restructuring.  This di rect evidence was therefore addressed by the JIA in its treatment of the 
Anjin Accounting Report, which the JIA found was only ma de available to creditors after they had already 
decided to participate in the October 2001 restructuring. 
485 For this reason, we disagree with Korea's asse rtion that there was "no information on the record 
providing any indication that the [Other Creditors] particip ated in the restructuring transactions for any reason 
other than a rational calculation of their own self-int erest" (Korea's Second Writte n Submission, para. 226). 
486 In this regard, we note that much of the evidence of entrustment or direction relied on by the JIA in 
respect of the Four Creditors' participation in the October 2001 restructuring might equally have applied to the Other Creditors.  If the JIA had also made a finding of entrustment or direction in respect of the Other Creditors, 
the argument presently being made by Korea would not arise.  Given the non-responsiveness of Other Creditors, 
and the resultant absence of direct evidence regarding the motivations of the participation of Other Creditors in the restructurings, we do not see why Korea's argument should become decisive simply because the JIA decided 
not to make findings of entrustment or direction in respect of those Other Creditors (and thereby allowed Korea 
to make the argument that it is currently presenting).  WT/DS336/R 
 Page 159  
 
 
Hynix had been saved from bankruptcy by  the government's subsidies (KEIC's 
insurance on the D/A financing, the KDB Program and the May 2001 Program).  The Investigating Authorities find that th e October 2001 Program was implemented 
standing on the financial situation supported by  such subsidies. (...) Therefore, the 
Investigating Authorities find that the fi nancial contributions standing on such a 
situation do not constitute financ ing from the commercial market ( i.e., the market 
benchmark), even if the October 2001 Pr ogram included financial contributions 
which were not found to be a financial contribution based on the entrustment or 
direction of the government.
487 
7.293  The Panel addressed Questions 28, 29, and 32 – 37 to Japan in order to clarify the rationale 
behind the JIA's determination.  According to Japan, the facts show that Hynix was saved by prior and 
contemporaneous subsidies.  Japan asserts that b ecause Hynix's financial state was distorted by prior 
subsidies, so too was any benchmar k based on Hynix's financial state.488  Japan asserts that the 
financial state of Hynix was necessarily distorted b ecause the very "existence of Hynix was the result 
of the prior subsidies", in the sense that Hyni x could not have survived until the time of the 
October 2001 restructuring without prior subsidies.  We therefore understand Japan to argue that there 
can be no market price for any fi nancing of Hynix because, but for prior subsidies, there would not 
have been any Hynix debt or equity to be sold on the market.489 
7.294  Korea asserts that past subsidies do not ne gate the commercial nature of subsequent 
transactions by commercial actors.  According to Korea, Article 14 of the SCM Agreement requires 
investigating authorities to look to actual market transactions and practices as the benchmark for 
determining whether a benefit has been confe rred.  Korea submits that nothing in the SCM Agreement 
permits an investigating authority to second guess the market, or to disregard actual market behaviour 
based on the investigating authority's beliefs about wh at should have happened.  Korea asserts that the 
JIA erroneously disregarded actual market transacti ons, because it considered them inconsistent with 
the hypothetical transactions that it believed hypotheti cally would have existed if certain past events 
had hypothetically not occurred. 
7.295  We begin by acknowledging that there may be circ umstances in which the market is distorted 
to such an extent that the pricing in that ma rket may not be used for the purpose of establishing 
benefit.  Thus, the Appellate Body found in US – Softwood Lumber IV that "in certain situations 
where government involvement in the market is subs tantial, the prices of private suppliers may be 
artificially suppressed because of the prices charged for the same goods by the government".490  This 
is "because the government's role in providing the financial contribution is so predominant that it 
effectively determines the price at which private su ppliers sell the same or similar goods, so that the 
comparison contemplated by Article 14 would become circular".491  Furthermore, several panels have 
recognised that private participation in restructur ing programmes might be influenced by government 
/ public participation in those pr ogrammes.  Thus, the panel in EC – Countervailing Measures on 
DRAM Chips found that "the behaviour of (...) market players [could be] so distorted by the 
government's intervention that they can no longer se rve as the benchmark against which to measure 
                                                      
487 See Annex 1 (Essential Facts), para. 299. 
488 In response to Question 29 from the Panel, Japan asserted that "there was no 'non-distorted' market, 
i.e., Hynix's financial situation without the distortion of subsidies".   
489 In response to Question 29 from the Panel, Japan asserted that "[t]he scale of the subsidies provided 
by the government may have an impact on the nature and extent of the distortion, as well as on the evidence 
required to demonstrate such distortion. In some cases, su ch as this one, the scale and timing of the subsidies is 
such that it is not just a question of impacting on the terms of the financing for example, but actually allowing 
the existence of such financing itself. In such cases, th e evidence of distortion is clearly shown."  Thus, Japan 
does not argue that the prior subsidies merely affected the terms of the restructurings.  Rather, Japan asserts that 
there would not have been any restructurings but for the prior subsidies. 
490 US – Softwood Lumber IV , para. 94. 
491 US – Softwood Lumber IV , para. 93. WT/DS336/R 
Page 160  
 
the alleged government distortion".
492  Similarly, the panel in Korea – Commercial Vessels  found 
(with express reference to the Appellate Body's findings in US – Softwood Lumber IV ) that "there 
could be circumstances in which a government influen ces the market to such an extent that it becomes 
distorted, so that private entities no longer ope rate pursuant to purely commercial principles".493 
7.296  Japan has referred to the US – Softwood Lumber IV  case in support of the JIA's reliance on 
prior subsidization.  However, none of the Appe llate Body or panel fi ndings referred to above 
concerned the role of prior subsidization in distor ting markets.  Instead, they were concerned with 
distortion caused by present, or contemporaneous,494 government involvement and intervention in 
markets.  These cases therefore do not provi de support for the JIA's determination. 
7.297  In our view, prior subsidization of an object does not necessarily mean that the market price 
for that object is distorted.  A buyer may be said to have paid a market price even though the object 
only exists because of prior subsidies.  Indeed, this is the basic premise of consistent WTO rulings to 
the effect that the payment of fair market value for privatized entities does not confer a benefit.  In  US 
– Countervailing Measures  on Certain EC Products , the Appellate Body confirmed that "[p]rivatization 
at arm's length and for fair market valu e may result in extinguishing the benefit."495  Implicit in this 
finding is the notion that a privatization might take pl ace "for fair market value".  The fact that a state-
owned entity, which only exists becau se of prior subsidization, may be privatized, or sold, "for fair 
market value" undermines Japan's argument that ther e can be no (fair) market price for an entity that 
existed, in the JIA's view, only because of prior subsidization.496 
(c) Conclusion 
7.298  While we have found that the JIA improperly relied on prior subsidization as a basis for 
discounting the participation of Other Creditors in th e October 2001 restructuring, we have found that 
the JIA properly discounted the participation of Othe r Creditors on another basis.  In particular, we 
have found that the JIA properly determined, on the basis of the available ev idence, that the mere 
participation of Other Creditors in the October 2001 restructuring should not outweigh the evidence 
directly concerning the Four Creditors that indicated that they participated in the restructuring on the 
basis of non-commercial considerations.  For these reasons, we uphold the JIA's determination that 
                                                      
492 EC – Countervailing Measures on DRAM Chips , note 171. 
493 Korea – Commercial Vessels , para. 7.434. 
494 We note that Japan's arguments refer to both "prior" and "contemporaneous" subsidization.  
However, we have not been able to locate, and Japan has not identified, any finding by the JIA regarding the role of "contemporaneous" subsidies.  Japan's argumen ts on contemporaneous subsidization therefore constitute 
ex post rationalization which we decline to consider.  Japan explicitly acknowledged that it had not made the 
type of analysis envisaged in the abovementioned Appellate Body and panel reports in response to Question 104, in which the Panel asked whether the JIA' s reasoning was based in any way on the theory that 
Hynix's non-entrusted "financiers may have only joined in because of the predominant position of the primary 
financiers".  Japan replied that "[t]he IA ... did not make [any] finding that par ticipation by Hynix's other 
creditors in the October 2001 Prog ram and the December 2002 Program was precondition[ed] on the financial 
contributions from four entrusted or directed banks in these Programs".  Japan has not argued, for example, that 
Hynix's private creditors only particip ated in the restructurings because the participation of public bodies 
signalled to them that the Government of Kor ea was prepared to save Hynix at all costs. 
495 US – Countervailing Measures on Certain EC Products, para. 126.  
496 Furthermore, the JIA's acceptance of the inside inve stor standard implies that the JIA accepted that 
Hynix's existing creditors might behave in a commercia lly rational way, irrespective of the reasons why they 
were "inside" Hynix in the first place.  Thus, the JIA a ppears to have accepted that Hynix's creditors may have 
acted in a commercially rational way, and forgiven debt or restructured loans, even though (according to the 
JIA) they had only previously lent money to Hynix in the form of subsidies.  If this were not the case, there 
would have been no point in the JIA conducting a detailed examination of the commercial reasonableness of the Four Creditors' decisions to participate in the restructuri ngs (by reference to their inte rnal analyses and external 
reports).  Accordingly, the JIA's reliance on prior subsidies to impugn the commercial rationale of the decisions 
of Other Creditors is inconsistent with the JIA' s acceptance of the inside investor standard.    WT/DS336/R 
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the participation of the Four Creditors in the October 2001 restructuring could confer a benefit on 
Hynix notwithstanding the participation of Other Creditors in the restructuring. 
7. Calculation of the Amount of Benefit 
(a) Main Arguments of Korea 
7.299  Korea claims that the JIA erroneously calculated the benefit conferred by the financial 
contributions without assigning any value to what H ynix exchanged in return and without taking into 
account the creditors' existing claims.  According to  Korea, a proper analysis of these transactions 
requires consideration of all parts of the exchang es — not only the value of whatever the recipient 
received, but also the value of whatever the recipien t gave in return.  Korea suggests that the panel in 
EC – Countervailing Measures on DRAM Chips found that an investigating authority's analysis of a 
debt-to-equity swap cannot look only at the forgiveness of debt, and ignore the value of the equity 
provided in return. 
7.300  Furthermore, Korea asserts that the JIA's bene fit calculation in this case was flawed because 
the JIA analyzed the benefit from "deemed" tran sactions.  Korea asserts that the JIA thereby 
overlooked Hynix's inability to repay at least part of its debts, and instead assumed that the 
restructuring involved transactions in which Hynix w as able to, and actually did, repay its debts in 
full.  Korea submits that the JIA then used the pr actices of investors considering transactions that did 
not and could not have occurred — i.e., transactions in which the investors received full repayment of 
outstanding debts — as the benchmark for its be nefit analysis.  According to Korea, the JIA 
determined the value of the debt that the creditors  exchanged in the debt equity swaps by multiplying 
the number of shares received by each creditor by the unit value assigned to each share in the debt-to-
equity swaps.  Korea asserts that the JIA took a different approach when it came to calculating the 
benefit of the equity infusions.  In particular, it did not use the unit value assi gned to each share in the 
debt-to-equity swaps in order to determine the valu e of the shares that Hynix issued to the banks.  
Korea asserts that, instead, the JIA took the posi tion that those shares were worthless, because 
"Hynix's equity value was zero."497  Korea submits that the JIA's approach was contradictory.  
According to Korea, if the JIA assumed that the shares had value for purposes of calculating the value 
of the loans given up by the creditors in the debt-to- equity swaps, then it had to assume that the shares 
had the same value for purposes of calculating the bene fit of the debt-to-equity swap.  Alternatively, 
Korea asserts that if the shares had zero value for purposes of the benefit calculation, and the value of 
the loans was determined from the value of the shares, then the valu e of the loans before they were 
swapped also had to be zero. 
(b) Main Arguments of Japan 
7.301  As a preliminary matter, Japan asserts that Kore a's argument that Hynix's debts were at least 
in part worthless falls outside the terms of reference of the Panel because it was not an argument made before the JIA.
498 
7.302  Further, Japan asserts that none of the evidence on the JIA's record showed that the value of 
any loans was devalued at the time of the Oct ober 2001 and December 2002 restructurings.  Japan 
asserts that Korea's arguments are therefore w ithout supporting evidence.  Regarding Korea's 
argument that the JIA incorrectly calculated the amount of benefit by reference to "deemed" 
transactions that, in reality, did not  occur, Japan asserts that Korea fails  to distinguish between the fact 
itself, i.e., the nature of transactions, and the JIA's assessment of facts, i.e., how to measure the benefit 
based on that fact.  
                                                      
497 See Japan's Response to Second Panel Questions, para. 74. 
498 See Japan's oral statement at the Seco nd Substantive Meeting, para. 83. WT/DS336/R 
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7.303  Regarding Korea's argument that the JIA calculated the amount of benefit without regard to 
the "usual practices"' of market participants, Japan asserts that the Government of Korea and 
interested parties refused to provide relevant inform ation of financial restructuring of other companies 
similarly situated with Hynix, namely companies subj ect to the CRPA.  Japan relies in this regard on a 
finding by the Appellate Body that, "when assessing an investigating author ity's determination, a 
panel may not fault the agency for failing to take into account facts that it could not reasonably have 
known."
499  Japan also relies on Article 12.2 of the SCM Agreement to argue that an  investigating 
authority's determination "can onl y be based on…. information and arguments" on its record.  Japan 
asserts that Korea's complaint that the JIA should have made factual conclu sions regarding benefit 
based on a potential "usual practice" in the absence  of the necessary information is tantamount to a 
request to speculate in finding a "usual or norma l practice" without any evidence on the record, and 
inconsistent with the provis ions of Article 12.2 of the SCM Agreement . 
(c) Evaluation by the Panel500 
7.304  Regarding Japan's claim that Korea's argument that the relevant debts were worthless falls 
outside the Panel's terms of reference, we reca ll that a complaining party is not precluded from 
making arguments in WTO dispute settlement pr oceedings that it did not make before the 
investigating authority in the underlying investigation.501 502  
7.305  On substance, we note that Korea argues that the JIA failed to properly take account of the 
fact that Hynix was unable to repay all of its debt.503  Korea also challenges the JIA's finding that the 
value of Hynix's equity was zero.  In light of  Korea's extensive argumentation regarding the 
differences between the investment perspectives of in side and outside investors in respect of insolvent 
                                                      
499 Appellate Body Report, US – Countervailing Duty Investigation on DRAMS ,  para. 175. 
500 In light of our finding regarding the JIA's determin ation of the existence of benefit in respect of the 
December 2002 restructuring, it is not strictly necessary for us to consider  the JIA's calculation of the amount of 
benefit conferred by that restructuring.  We shall do so, though, for the sake of completeness. 
501 See Appellate Body Report, US – Lamb , para. 113. 
502 Japan cited Egypt – Steel Rebar  in its submissions and answers given to the Panel as authority for 
the contrary proposition.   In that re port the Panel stated (at para. 7.105): 
It is not within our mandate to reverse through the dispute settlement process the consequences of those respondent's decisions made during the course of the investigation as to 
which arguments they would present. 
However the context in which that statement was made  is quite different to th e context in which Japan 
sought to use it in these proceedings.  In Egypt – Steel Rebar , Turkey argued before th e Panel that the Egyptian 
investigating authority was obliged to undertake further fact-finding than the fact-finding it had actually 
undertaken in its investigation in order to meet the "positive evidence" standard in its determination of injury.  The other factual evidence that Turkey argued the investigating authority should have taken into account had not 
been submitted by Turkey to the investigating authority, and was not on the investigating authority's record.  
Turkey did not seek to place that ot her factual evidence before the Panel,  and would have been precluded from 
doing so.  Instead Turkey argued that the investigating authority should have found that evidence itself, and that 
the failure to find that evidence meant that the positive standard had not been met.  However the Panel found 
that the investigating authority had met the positive standard on the basis of the evidence on its record;  that the evidence was properly directed toward s the matters identified as being relevant to such a decision under the 
Anti-Dumping Agreement;  and that the other factual evidence was not necessar ily required to be considered in 
applying the relevant tests of injury under the Anti-Dumping Agreement.  It was in those circumstances that the 
Panel declined to allow Turkey to argue against the merits of the investigating authority's decision on the basis 
submitted by Turkey.   
503 Korea's argument that the JI A calculated the amount of bene fit on the basis of "deemed" 
transactions is related to its claim that the JIA impr operly treated the October 2001 and December 2002 loan 
maturity extensions and debt-to-equity swaps as "d irect transfers of funds"  within the meaning of 
Article 1.1(a)(1 )(i) of the SCM Agreement .  We rejected that claim for th e reasons set forth at section K infra .  
However, our upholding of the JIA's treatment of these transactions as "direct tran sfers of funds" does not 
necessarily mean that we accept the JIA's calculation of the benefit resulting from those transactions.  WT/DS336/R 
 Page 163  
 
 
companies (especially Korea's argument that outside investors would only invest if they expect to get 
all of their money back, whereas inside investors in insolvent companies alread y know that their debts 
will not be paid in full), we understand that Kor ea is essentially arguing that the JIA calculated the 
amount of benefit from the perspective of outside investors. 
7.306  We note that the JIA calculated the amount of benefit resulting from the October 2001 
restructuring in Section 2.8.5 of Annex 1 (Essential Facts).  The JIA adopted the same approach for 
both new loans and extensions of loan maturities,504 finding that: 
at the time of the October 2001 Program, there were no normal commercial loans that 
would be comparable to the loans gran ted by the creditor banks. Moreover, as 
examined above, the Investigating Authorities find that there were no investors who 
would additionally invest in or make loans to Hynix from a normal commercial 
perspective. Therefore, the Investigating Au thorities calculate the benchmark interest 
rate in accordance with Formula 1 in 2.3. 2.2.1 hereof, and obtain the difference 
between this amount and the actual interest amount paid for the new loan.505 
7.307  On the basis of Japan's reply to Question 31  from the Panel, we understand that the JIA's 
reference to the "normal commercial perspective"  relates to the perspective of new, outside 
investors.506  Furthermore, Section 2.3.2.2.1 of Annex 1 (Essential Facts) describes the interest rate 
calculated using Formula 1 as the rate for "uncred itworthy companies".  The creditworthiness of a 
company is established by reference to new, outside  investors, on the basis of input from credit rating 
agencies.507  Thus, having found that there were no new, outside investors who would invest in or 
make loans to Hynix, the JIA applied Formula 1, wh ich is a market benchmark for outside investors.  
The JIA adopted the same approach in respect of  the December 2002 extensions of loan maturities.508 
7.308  The JIA similarly calculated the amount of  benefit resulting from the October 2001 and 
December 2002 debt to equity swaps by reference to an outside investor standard: 
As described above, the Investigating Au thorities find that at the time of the 
October 2001 Program, there were no investors who would additionally invest in or 
make loans to Hynix from a normal commercia l perspective, and thus, there were no 
normal investments by private investors that can be reasonably compared to the equity infusions granted by the creditor banks .  An investment under such a situation 
is not consistent with the usual investment  practice of the private investors in Korea 
at that time. Because the situation at th e time was such that a return on such 
investment could not be expected within a reasonable period of time, the amount of 
the subsidy is the full amount of the investment.
509  
7.309  Again, therefore, the JIA approached the i ssue from the "normal commercial perspective", 
i.e., the perspective of the outside investor. 
                                                      
504 See Annex 1 (Essential Facts), paras. 103 and 306. 
505 See Annex 1 (Essential Facts), para. 302. 
506 We note Japan's assertion that the phrase "normal commercial perspective" has the same meaning as 
the equivalent phrase ("normal commercial point of view") discussed in Question 31 from the Panel. 
507 For example, the JIA referred to Hynix's "questionable" creditworthiness at para. 265 of Annex 1 
(Essential Facts).  On the basis of this, and other, considerations, the JIA found that there were no investors from 
"a normal commercial perspective", i.e., from the outside investor perspective.  This demonstrates that the 
concept of creditworthiness relates to the perspec tive of outside, rather than inside, investors. 
508 See para. 382 of Annex 1 (Essential Facts). 
509 See Annex 1 (Essential Facts), para. 310.   See Annex 1 (Essential Facts), paras. 379 and 381, for the 
same approach in respect of the D ecember 2002 debt-to-equity swaps. WT/DS336/R 
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7.310  We recall that the JIA explicitly accepted "the premise that existing creditors would possibly 
provide additional funding in order to  maximize the recovery of credit".
510  In response to Question 98 
from the Panel, Japan confirmed th at, in accepting this premise, the JIA accepted "the notion that 
existing creditors might engage in restructuring meas ures that potential, outside investors would not".  
The JIA accepted that debt forgiv eness by creditors might be "commercial" "[i]f such action is 
reasonably found to be unavoidable in or der to maximize the debt recovery".511  There is therefore no 
dispute between the parties that the inside investor  standard constitutes a valid market benchmark in 
the context of the present case.512  Nor is there any dispute between the parties that the investment 
perspectives of inside and outside investors di ffer.  We find that an objective and impartial 
investigating authority, which itself has accepted that existing  creditors might engage in restructuring 
measures that new, outside  investors would not, could not properly calculate the amount of benefit 
conferred by restructurings undertaken by inside  creditors on the basis of an exclusively outside 
investor benchmark.513  Such an approach is premised on an  internal inconsistency that undermines 
the validity and credibility of the JIA's benefit determination.514 
7.311  Korea has also argued, and Japan has not denied, that the formula used by the JIA to calculate 
the amount of benefit of the debt-to-equity swaps is the formula used in other jurisdictions to calculate 
the subsidy benefits from outright grants.515  Korea asserts that the panel in EC – Countervailing 
Measures on DRAM Chips found that an investigating authority's analysis of a debt-to-equity swap 
cannot look only at the forgiveness of debt, and ig nore the value of the equity provided in return. 
7.312  At para. 7.212 of the EC – Countervailing Measures on DRAM Chips  report, the panel found 
that: 
there is a basic problem with the EC's grant methodology, and that is, simply put that 
a loan, a loan guarantee, a debt-to-equity sw ap that requires the recipient to repay the 
money or to surrender an ownership share in the company is not the same as a grant 
                                                      
510 See para. 141, Annex 3 (Rebuttals and Surrebuttals). 
511 See Annex 3 (Rebuttals and Surrebuttals), para. 429. 
512 Accordingly, there is no need for us to make any findings on whether or not the inside investor 
perspective constitutes a valid market benchmark for the purpose of Articles 1.1(b) and 14 of the 
SCM Agreement .  We shall instead consider whether or not the JIA applied that standard in an appropriate 
manner. 
513 Regarding the equity infusions, the JIA explained th at it found that the situation at the time did not 
allow a return on investment within a reasonable period  because of the finding "t hat the major issue in the 
October 2001 Program and December 2002 Program was not to recover the equity infusion, but to maximize the 
recovery of the credit remaining afte r the reduction and forgiveness" (Annex 3 (Rebuttals and Surrebuttals), 
para. 170).  We have already noted the JIA's explicit acceptance of "the premise that existing creditors would 
possibly provide additional funding in or der to maximize the recovery of cred it".  Having accepted that premise, 
we fail to see how the JIA could properly have assigned a value of zero to equity infused by Hynix's existing  
creditors on the basis that "the major issue in the October 2001 Program and D ecember 2002 Program was not 
to recover the equity infusion, but to maximize the recove ry of the credit."  Indeed, the JIA itself acknowledged, 
and Japan confirmed, that an investment of zero value to outside  investors might not necessarily have zero value 
to inside  investors ( see section E.7.(c)  infra .). 
514 Japan submits that Korea's arguments overlook the discretion accorded to each WTO Member in 
having "considerable leeway in adopting a reasonable  methodology" ( EC – Countervailing Measures on DRAM 
Chips , para. 7.213).  While we agree with the panel in EC – Countervailing Measures on DRAM Chips  that 
investigating authorities do have considerable leeway in adopting methodologies for calculating benefit, the 
present issue does not concern the choice of methodologie s.  The JIA itself chose to determine benefit on the 
basis of an inside investor standard.  The present issue concerns the consistency of the JIA's application of that 
standard.  There is nothing  in the report of the EC – Countervailing Measures on DRAM Chips   panel to suggest 
that an investigating authority, having applied a particular benchmark when establishing the existence of benefit, may overlook that benchmark when calculating the amount of benefit (with the result that the amount of benefit 
is inflated). 
515 See Korea's First Written S ubmission, para. 132.  WT/DS336/R 
 Page 165  
 
 
and can not reasonably be considered to have conferred the same benefit as the 
provision of funds without any such obligation. For the recipient, a loan clearly has a different value than a grant as it involves a debt that is owed to someone and will appear as such in a company's balance sheet.  It is thus obviously less beneficial for a company to be given a loan than it is to be  given a grant.  Similarly, the issuance of 
new equity, directly or through a debt-to-equi ty swap dilutes the ownership claims of 
existing shareholders.  We note that, in a benefit analysis, it is the perspective of the 
recipient that is important, not that of the provider of the financial contribution.  In 
that sense, we find erroneous the starting point of the EC's calculation of the amount of benefit, which focuses on the expectation of the provider of the funds to see his 
money back.  The question of benefit is not  about the cost to the provider of the 
financial contribution, it is about the benefit to the recipient.   (emphasis supplied) 
7.313  We agree with this reasoning of the EC – Countervailing Measures on DRAM Chips  panel.  
We note that the JIA did not explicitly treat the debt -to-equity swaps as grants.  Nevertheless, the JIA 
did conclude that the value of the equity was zero .  We recall that the JIA did so because "the major 
issue in the October 2001 Program and December  2002 Program was not to recover the equity 
infusion, but to maximize the recovery of the credit."
516  In doing so, the JIA addressed the issue from 
the perspective of Hynix's creditors, rather than from the position of Hynix itself.  (It was Hynix's 
creditors that sought to maximize the recovery of their credit, not Hynix).  Guided by the panel in EC 
– Countervailing Measures on DRAM Chips , we consider that such an approach erroneously 
overstates the amount of benefit conferred on the r ecipient, for it overlooks the perspective of the 
recipient, i.e., Hynix, which must dilute the ownership of existing shareholders in return.  We 
therefore find this to have been a further flaw in the JIA's calculation of the amount of benefit. 
7.314  Before concluding, we note Japan's argument that the JIA did not have the information 
needed to apply an inside investor standard b ecause the Government of Korea and other financial 
institutions failed to provide information regardin g the financial restructuring of other companies 
under the CRPA.  Given the calculation formula applied by the JIA, which (as shown above) focused 
entirely on the perspective of the outside investor, we are not persuaded that the JIA was forced to 
calculate the amount of benefit in the way it did because of a lack of information regarding the actions of inside investors in other restructurings.  In pa rticular, Japan has failed to identify any reference in 
the Final Determination to any need by the JIA to calculate the amount of benefit on the basis of facts 
available, i.e., using an outside investor standard, because of  a failure by interested parties to provide 
information regarding other restructurings under the CRPA.   
7.315  For the above reasons, we uphold Korea's argum ent that the JIA improperly calculated the 
amount of benefit conferred by the Oct ober 2001 and December 2002 restructurings. 
8. Conclusion 
7.316  To conclude, we reject Korea's claim that the JIA's determination of the existence of benefit 
conferred by the October 2001 restructuring was inc onsistent with Articles 1.1(b) and 14 of the 
SCM Agreement.   However, we uphold Korea's claim that th e JIA's determination of the existence of 
benefit conferred by the December 2002 restructuring was inconsistent with Articles 1.1(b) and 14 of 
the SCM Agreement.  We also uphold Korea's claim that the JIA's calculation of the amount of benefit 
conferred by the October 2001 and December 2002 restructurings was inconsistent with 
Articles 1.1(b) and 14 of the SCM Agreement.  
7.317  We note that Korea also made a claim under Article 19.4 of the SCM Agreement and 
Article VI:3 of the GATT 1994.  That claim is dependent on its clai ms under Articles 1.1(b) and 14 of 
the SCM Agreement .  To the extent that we reject those cl aims, there is no basis to find that Japan 
                                                     
 
516 See Annex 3 (Rebuttals and Surrebuttals), para. 170. WT/DS336/R 
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violated SCM  Article 19.4 and GATT 1994  Article VI.3.  To the extent that we uphold those claims, 
we do not consider it necessary to make a finding under those provisions. 
F. A
RTICLE 14 CHAPEAU / BENEFIT CALCULATION METHOD  
7.318  Korea claims that Japan acted  inconsistently with the chapeau  of Article 14 of the 
SCM Agreement , which provides that: 
For the purpose of Part V, any method used by  the investigating authority to calculate 
the benefit to the recipient conferred pursu ant to paragraph 1 of Article 1 shall be 
provided for in the national legislation or implementing  regulations of the Member 
concerned and its application to each pa rticular case shall be transparent and 
adequately explained. 
7.319  Japan asks the Panel to reject Korea's claim. 
1. Main Arguments of the Parties 
7.320  Korea submits that the JIA calculated the amount of benefit conferred by the October 2001 
and December 2002 restructurings using "methods" that  were not properly "provided for" in Japan's 
national legislation or implementing regulations, i.e., Japan's Guidelines for Procedures Relating to 
Countervailing and Anti-dumping Duties  (the " Guidelines "). 
7.321  Japan argues that any complaint under the firs t of the three requirements set out in the 
chapeau  of Article 14 is, by definition, an "as such" challenge to Japanese law.  Japan submits that 
Korea has failed to meet the standards for an "as such" challenge set by the Appellate Body.517  
7.322  Japan argues that Korea's claim is base d on an erroneous interpretation of the chapeau  of 
Article 14.  According to Japan, the drafters of the SCM Agreement were careful not to be overly 
prescriptive about the methods by which Members can make a subsidy calculation.  Japan argues that:  
(i) Korea's claim confounds the "method", which is set forth in the Guidelines , with the "application" 
of that method in this particular case;  (ii) the methods provided for in the Guidelines  are actually 
more detailed than the requirements of the SCM Agreement ;  (iii) the dictionary definition of the term 
"method" is broad, i.e. "a mode of procedure;  a (defined or systematic) way of doing a thing", and the 
term "method" thus refers to "a ge neral, systematic way of doing things  rather than a specific detailed 
calculation program";  (iv) if the "guidelines" set forth in paragraphs (a) through (d) of Article 14 
should not be interpreted as "rigid rules that purport to contemplate every conceivable factual 
circumstance,"518 then it logically follows that the me thods adopted by Members under Article 14 
similarly cannot be "rigid rules";  (v) as the panel in EC – Countervailing Measures on DRAM Chips 
stated, an investigating authority "is entitled to  considerable leeway" in adopting a reasonable 
methodology under Article 14;519 and (vi) if the SCM Agreement did not provide for any flexibility in 
the methods to be provided in national legislati on or implementing regulati ons, any novel subsidies 
                                                      
517 Japan refers to Appellate Body Report, United States –Oil Country Tubular Goods Sunset Reviews, 
paras. 172-73 ("In our view, 'as such' challenges against a Member's measures in WTO dispute settlement 
proceedings are serious challenges. [...]  We would therefore urge complaining parties to be especially diligent 
in setting out 'as such' claims in their panel requests as clear ly as possible. In particular, we would expect that 'as 
such' claims state unambiguously the specific measures of municipal law challenged by the complaining party 
and the legal basis for the allegation that those measures are not consistent with particular provisions of the covered agreements. Through such straightforward presentations of 'as such' claims, panel requests should leave 
respondent parties in little doubt that , notwithstanding their own considered views on the WTO-consistency of 
their measures, another Member intends to challenge those measures, as such, in WTO dispute settlement proceedings." (emphasis original))  
518 Japan refers to Appellate Body Report, US – Softwood Lumber IV, para. 92. 
519 Japan refers to Panel Report, EC – Countervailing Measures on DRAM Chips , para. 7.213.  WT/DS336/R 
 Page 167  
 
 
for which no authorities have any experience w ould not be subject to the disciplines of the 
SCM Agreement . 
2. Is This an "As Such" Claim? 
7.323  Japan asserts that Korea's claim under the chapeau to Article 14 is inadmissible, since it is an 
"as such" claim that was not included in  Korea's Request for Establishment. 
7.324  We agree with Japan that any claim against Japan's Guidelines  "as such" would fall outside 
the Panel's terms of reference, since the Guidelines  were not identified as a measure to be challenged 
in Korea's Request for Establishment.  In our view, however, Korea's claim is not against the 
Guidelines  "as such".  Although Japan appears to have  interpreted Korea's argument that "Japan's 
legislation and implementing regulations utterly fail to meet th[e] requirement"520 (set forth in the 
chapeau to Article 14 of the SCM Agreement ) as a claim against the legislation and implementing 
regulations per se , Korea has confirmed that the claim concerns the JIA's alleged use – in the 
investigation at issue - of a method not provided for in Japan's Guidelines .  Thus, Korea stated at 
para. 40 of its Second Written Submission that "[t]he  issue (...) is whether the methods actually 'used 
by' the JIA to calculate the alleged subsidy benefits  in this case were provided for in Japan's 'national 
legislation or implementing regulations'."  This is consistent with the description of this claim in 
Korea's Request for Establishment, which referred to the JIA "utiliz[ing] methods for calculating the 
benefit to the alleged recipient of the alleged financ ial contributions that were not specified in Japan's 
national legislation or implementing regulations."521 
7.325  In light of the above, we reject Japan's argum ent that Korea has made  an inadmissible claim 
against Japan's national legislation and implementi ng regulations "as such", because an "as such" 
claim has not been made. 
3. Were the Methods Used by the JIA Provided For in Japan's Guidelines? 
7.326  As a preliminary matter, we wish to address Jap an's argument that the provisions of the 
Guidelines  constitute "methods", and that th e methods provided for in the Guidelines  are actually 
more detailed than the requirements of the SCM Agreement .  We do not consider that this argument 
resolves the issue presently before us, since Korea's claim is focused  on the methods actually used by 
the JIA.  Korea asserts th at certain of the methods actually used by the JIA were provided for in the 
Final Determination, but not the Guidelines.   If Korea were correct, then  the use of those methods 
would be inconsistent with the prea mble of Article 14, irrespective of whether or not the JIA also used 
other  methods that were, or might have been, provided for in the Guidelines .  
7.327  We recall that the panel in EC – Countervailing Measures on DRAM Chips  found that "an 
investigating authority is entitled to considerable  leeway in adopting a reasonable methodology" for 
calculating the amount of benefit.522  In order to maintain the discretion that investigating authorities 
should properly enjoy when calculating benefit,  the chapeau of Article 14 should not be 
misinterpreted to be overly stringent.  In other words, investigating authorities should not be required 
to spell out all possible approaches to calculating be nefit to the recipient in excessive detail.  If they 
were, they might be prevented from adjusting their calculation methods to nove l situations of alleged 
subsidization that had not been foreseen at the time they prepared their national legislation or 
implementing regulations.  On the other hand, the ch apeau of Article 14 provides for transparency and 
predictability.  The level of detail required in setti ng forth "methods" must, therefore, be sufficient to 
satisfy the interests of transparency and predictability. 
                                                      
520 See Korea's First Written S ubmission, para. 138. 
521 See document WT/DS336/5 (attached as Annex A-1), page 2, indent 8. 
522 EC – Countervailing Measures on DRAM Chips , para. 7.213. WT/DS336/R 
Page 168  
 
7.328  We note that Japan has proposed a dictionary definition indicating that the word "method" 
means "a mode of procedure;  a (defined or systematic) way of doing a thing".
523  Korea has not 
opposed the dictionary definition of the term "method"  proposed by Japan.  Since the parties agree on 
the definition proposed by Japan, we shall consider this definition in addressing Korea's claim. 
7.329  We recall that the JIA calculated benefit am ounts in respect of debt forgiveness, equity 
infusions and loans.524  According to the JIA's Final Determination,525 debt forgiveness is a non-
recurring subsidy, the amount of which is allocated over several years, with interest.  In the Final 
Determination, the JIA states that the total amount of  benefit allocated to a given year was calculated 
using "Formula 2", whereby: 
Ak = y/n + [y-(y/n)(k-1)]d  
                    1+d 
[where] A
k:  the amount of subsidy allocated to year k 
y:   the amount of subsidy n:   the useful life (year) d:   the discount interest rate 
k:   the year the subsidy is allocated to. The year of receipt=1, and 1<k<n 
7.330  In applying a "formula", the JIA essentially app lied a mathematical rule.  In doing so, we 
consider that the JIA applied "a mode of procedure;  a (defined or systematic) way of doing a thing".  
Accordingly, we find that the JIA calculated the amount of subsidy resulting from debt forgiveness 
using a "method" in the meaning of the chapeau of Article 14.
526  That method was not provided for in 
Japan's Guidelines , which merely provide that "[i]n the case of forgiveness of a company's debt 
obligation, the amount of subsidy is the amount of th e principal and/or interest that the government has 
forgiven." 527  The Guidelines contain no reference to the integers used  in that Formula either in specific 
or broad terms.  The JIA therefore used a method of calculating the amount of benefit that was not 
                                                      
523 See Japan's First Written Submission, para. 528, citing the New Shorter Oxford Dictionary, 
page 1759. 
524 We recall our earlier finding that the JIA was en titled to treat debt-to-equity swaps as comprising 
new infusions of equity and loan maturity extensions as comprising new loans. 
525 See Annex 1 to the Final Determination, para. 102. 
 526 We find support for this approach in the Report of the Appellate Body on US – Countervailing 
Measures on Certain EC Products.   In that case, the Appellate Body considered the gamma  and 'same person' 
methods to be "methods" within the meaning of the first sentence of the chapeau  of Article 14: 
"...  The Members of the WTO have anticipated in Article 14 of the SCM Agreement that the 
investigating authorities of WTO Members will use di fferent "method[s]" to "calculate the benefit to 
the recipient" when determining the amount of countervailing duties that are imposed on an imported 
product to offset a subsidy. One such method  used by the USDOC for the purpose of determining 
whether a "benefit" continues to exist following a change in ownership—the gamma method—was the 
subject of a previous dispute and a previous appeal. Another method  is the "same person" method, 
which gives rise to this dispute and this appeal." (para. 128, underline emphasis supplied) 
527 See Article 13(1)(ii)A of the Guidelines.   WT/DS336/R 
 Page 169  
 
 
provided for in its national legisl ation or implementing regulations, contrary to the chapeau of 
Article 14. 
7.331  The JIA also applied Formula 2 to calculat e the amount of benefit resulting from equity 
infusions.528  We recall that Formula 2 is not provided for in the Guidelines.529  Thus, for the reasons 
set forth above, we find that the JIA calculated the amount of benefit caused by equity infusions using 
a method not provided for in its national le gislation or implementing regulations.  
7.332  Regarding loans and loan maturity extensions, the JIA calculated the amount of benefit using 
a benchmark interest rate for non-creditworthy companies.  The JIA did so on the basis of 
"Formula 1", whereby: 
ib = (1+ if)[(1-qn)/(1-pn)]1/n - 1 
[where] n:  the repayment term of the loan 
i
b:  the interest rate for uncreditworthy companies (the benchmark 
interest rate) 
if:  the interest rate for creditworthy companies 
pn:  the default rate of uncreditworthy companies within n years 
qn:  the default rate of creditworthy companies within n years 
7.333  Consistent with the analysis above in respect Formula 2, we find that Formula 1 is a "method" 
for the calculation of the amount of subsidy.  This method was not provided for in Japan's 
Guidelines .530  All that the Guidelines  say, in relation to loans, is that if no actual comparable loan is 
available (to calculate the amount of the benefit) an "a dequate amount of subsid y will be determined" 
after examining reasonably comparable commercial loans which are available in the market.  
However, as can be seen from Formula 1 (as set out above), the method used was quite different to the 
simplistic explanation in the Guidelines .  Thus, we find that the JIA calculated the amount of benefit 
from loans and loan maturity extensions using a method that was not provided for in its national legislation or impl ementing regulations. 
                                                     
 
528 See, for example, para. 312 of Annex 1 (Essential Facts). 
529 Regarding equity infusions, Article 13(1)(iii)A provides that: 
(a) In the case of a government-provided equi ty infusion, where a benefit is considered 
to have existed to the extent that the investment decision is inconsistent with the usual investment practice of private investors (e.g. private investors would not be able to invest 
under such investment conditions), including the practice for the provision of risk capital, the 
amount of subsidy is the amount of the balance of the government's investment over and 
above that of private investors under the similar investment conditions. 
(b)  If actual investment by private investors which is comparable to government investment is not available, an adequate amount of subsidy will be determined after examining 
circumstances whereby the government may make a reasonable return on the investment 
within a reasonable period, etc. 
530 Article 13(iv)A(b) of the Guidelines  provides that "[i]f an actual commercial loan to the company 
which is comparable to a government-provided loan is not available, an adequate amount of subsidy will be 
determined after examining reasonably comparable comm ercial loans available in  the domestic market". WT/DS336/R 
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7.334  For the above reasons, we uphold Korea's claim th at, in calculating the amount of benefit, the 
JIA used methods that had not been provided for in Japan's national legislation or implementing 
regulations, contrary to the chapeau to Article 14 of the SCM Agreement . 
G. A
LLOCATION / CONTINUED EXISTENCE OF BENEFIT  
7.335  Korea submits that Japan improperly levied a countervailing duty on imports entering in 2006 
because, by Japan's own calculations, the allege d subsidies from the October 2001 restructuring had 
ceased to provide any benefit after 2005.  Korea co ntends that Japan's im position of countervailing 
duties was, therefore, inconsistent with the requirements of Articles 19.4 and 21.1 of the 
SCM Agreement . 531 
7.336  Article 19.4 of the SCM Agreement provides that: 
No countervailing duty shall be levied on any imported product in excess of 
the amount of the subsidy found  to exist , calculated in terms of 
subsidization per unit of the subsidized and exported product. 532 
7.337  Article 21.1 of the SCM Agreement provides that:   
A countervailing duty shall remain in fo rce only as long as and to the extent 
necessary to counteract subsidization which is causing injury. 
1. Main Arguments of Korea 
7.338  Korea asserts that the subsidies allegedly receive d by Hynix in 2001 were all allocated by the 
JIA to the five-year period from 2001 to 2005.  Ko rea states that the benefit from the October 2001 
restructuring had therefore already expired at the time that countervailing duties were imposed in 
2006. 
7.339  Korea asserts that Article 19.4 of the SCM Agreement limits the duties to the subsidies that 
are found "to exist" — it does not permit duties to be imposed based on past subsidies that no longer 
"exist."  Thus, a finding that subsidies existed at  some time in the past (for example, during the 
investigation period) does not justify the impositi on of countervailing duties, where those subsidies 
(or their benefits) no longer exist in the present. 
7.340  Korea asserts that this conclusion is reinfor ced by the provisions of Article 19.1, which 
provides that an investigating authority "may impose a countervailing duty in accordance with the 
provisions of this Article unless the subsidy or subsidies are withdrawn."  In other words, even if a 
subsidy was found to exist during the investigation period, no duty may be imposed if the subsidy is 
withdrawn, and thus ceases "to exist," prior to the final determination.  According to Korea, the clear implication is that a countervailing duty may be im posed only where the subsidy — and its benefit — 
continues to exist at the time the decision to impo se the duty is made.  Korea argues that Article 21.1 
of the SCM Agreement makes this requirement explicit, since it provides that "[a] countervailing duty 
shall remain in force only as long as and to the exte nt necessary to counteract subsidization which is 
causing injury."  Korea asserts that  once the benefit of the subsidy has ceased, the duty is no longer 
"necessary to counteract subsidization," and may therefore not remain in force. 
                                                     
 
531 While Korea's Request for Establishment, Firs t Written Submission and Second Written Submission 
refer to violations of Articles 19 and 21 of the SCM Agreement  generally, para. 92 of its oral statement at the 
first substantive meeting explicitly states that Korea is a lleging violations of Article 19.4 and 21.1 specifically.  
Korea confirmed the more restrictive scope of its cl aim in response to Question 127 from the Panel. 
532 Footnote omitted, emphasis added.  WT/DS336/R 
 Page 171  
 
 
7.341  Korea denies that it has claimed that the imposition of countervailing duties requires a 
separate and distinct calculation of subsidies, apar t from the determination of  subsidization made by 
the investigating authority in its investigation.  Korea submits that, instead, it contends only that the 
imposition of the duties must be consistent with th e previous calculation that resulted in the subsidy 
determination. 
2. Main Arguments of Japan 
7.342  According to Japan, Korea's argument on th e imposition period of c ountervailing duties does 
not follow from the SCM Agreement and should be rejected.  Japan argues that the JIA found and 
calculated the amount of subsidies that existed at th e time of the period of investigation, as required 
under Articles 19.1 and 19.4.  Japan argues that there is no provision in the SCM Agreement that 
requires a determination of the imposition period in ad vance, or provides that an "allocation period" of 
a subsidy defines such imposition period.  Accord ing to Japan the provision of Article 19.2 — "all 
requirements for imposition have be en fulfilled" — clarifies that the imposition of countervailing 
duties under Article 19 is a separate and distinct  phase that occurs after the determination of 
subsidization.  Japan argues that an investig ating authority may impose a countervailing duty only 
after it determines that the countervailable subsidy "was bestowed" during the period of investigation, 
from the information gathered with respect to a peri od of investigation, and that there is no additional 
obligation, as Korea insists, to determine that th e subsidy "is being bestowed" at the time of the 
imposition of the duties.  
7.343  Japan submits that Article VI:3 of the GATT 1994 , which authorizes the imposition of duties 
on a "subsidy determined to have been granted,"  further clarifies that an imposition of countervailing 
duties shall be based on a determination which necessarily precedes the imposition of the duty.  
Articles 10 and 11.1 of the SCM Agreement recognize that investigating authorities must conduct an 
investigation following multiple steps to determine th e subsidization and injury;  as a corollary of the 
time that is necessary to comply with these re quirements, the imposition of countervailing duties 
concern the amount of subsidy found to exist in the period of investigation.  According to Japan, the 
Appellate Body has confirmed533 that the investigating authority's determination of the conditions for 
the imposition of a trade remedy may be based on a past period, i.e., the period of investigation.534 
7.344  Japan submits that Korea's alleged determinati on method is practically impossible to apply, 
and would, therefore, render inutile  the right of importing Members to have recourse to Part V of the 
SCM Agreement . 
7.345  Japan notes that Article 10 of the SCM Agreement provides that countervailing duties may 
only be imposed pursuant to investigations.  Japan contends that, recognizing the inherent period of 
time necessary to conduct a countervailing inves tigation in accordance with the terms of the 
SCM Agreement , the SCM Agreement provides the investigating authorities up to eighteen months 
after initiation of the investigation to confirm the existence of a countervailable subsidy and injury 
caused by it.535  Japan asserts that the SCM Agreement also recognizes the need to confirm the 
accuracy of the information collected  by the investigating authorities,536 including through 
investigations in the territory of the Member under investigation.537  Japan asserts that investigating 
authorities must comply with multiple procedural formalities to ensure th e transparency of the 
                                                      
533 Japan refers to Appellate Body Report, Mexico-Anti-Dumping Measures on Rice.  
534  Japan also refers to Panel Report, EC – Tube or Pipe Fittings , para. 7.102, "[w]e are of the view that 
a finding that dumping exists during a recent past IP is a finding of 'present' dumping for the purposes of the Agreement." 
535 Japan refers in this regard to SCM Agreement , Article 11.11. 
536 Japan refers in this regard to SCM Agreement , Article 12.5 ("[T]he authorities shall during the 
course of an investigation satisfy themselves as to the accuracy of the information supplied by the interested 
Members or interested parties upon which their findings are based."). 
537  Japan refers in this regard to SCM Agreement , Article 12.6. WT/DS336/R 
Page 172  
 
investigation and to ensure that parties are affo rded due process through the provision of a summary 
of the "essential facts which form the basis for the decision whether to apply definitive measures,"
538 
the provision of opportunities for the presentation of  evidence considered relevant by interested 
Members and all interested parties539, and the provision of formal public notice and written reports 
explaining the investigating authorities' decision.540  Japan states that investigating authorities must 
also provide multiple opportunities for consulta tions with the Member being investigated.541  
7.346  According to Japan, it is a corollary of the ti me that is necessary to comply with these 
requirements, that the imposition of countervailing duties under Article 19.4 of the SCM Agreement  
would concern the amount of subsid y found to exist during the period of investigation.  Japan asserts 
that if Korea's interpretation of Article 19 were a ccepted, investigating authorities would not be able 
to conduct investigations and issue determinations as required under the SCM Agreement .  Japan 
argues that if the investigating authorities had to determine the existence and degree of the subsidies 
as of the date of the final determination, the author ities technically would not be able to issue the final 
determination in compliance with these procedural requirements.   
7.347  Japan also asserts that, to determine the exis tence of the countervailable subsidy, including 
the consideration of de minimis  subsidization levels, for example, the investigating authorities must 
measure the degree of the subsidy per unit of the im port.  Japan asserts that, in order to do so, the 
investigating authority must collect the information of the total value of products to which the subsidy 
was conferred (to calculate the denominator), and th e amount of subsidy (to calculate the numerator).  
Japan submits that to collect such information and make the necessary calculation as of the date of the 
final determination would be virtually impossible. 
7.348  Japan asserts that Article 21.1 of the SCM Agreement is not applicable in the present case, as 
it applies only to reviews of existing count ervailing measures, not the imposition of new 
countervailing measures. 
3. Evaluation by the Panel 
7.349  Korea's claim concerns the imposition of counter vailing duties to offset the injurious effects 
of non-recurring542 subsidies resulting from the October 2001 restructuring.  In order to evaluate 
Korea's claim, we must determine whether the JI A was precluded by Articles 19.4 and 21.1 of the 
SCM Agreement from relying on its determination that the October 2001 subsidies conferred a benefit 
during the 2003 period of investigation as a justification for imposing543 countervailing duties on 
imports in 2006. 
7.350  At the outset, we reject Korea's claim insofar as it is based on Article 21.1 of the 
SCM Agreement .  In our view, this provision applies once countervailing duties have been imposed.  
                                                      
538  Japan refers in this regard to SCM Agreement , Article 12.8. 
539 Japan refers in this regard to SCM Agreement , Article 12.1. Japan also refers to SCM Agreement , 
Article 12.10 ("The authorities shall provide opportunities fo r industrial users of the product under investigation 
. . . to provide information which is relevant to the investigation . . . ."). 
540 Japan refers in this regard to SCM Agreement , Article 22. 
541  Japan refers in this regard to SCM Agreement , Articles 13 and 19.1. 
542 Japan acknowledges that the October 2001 restructuring provided non-recurring subsidies at 
para. 154 of its Second Written Submission.  The JIA itself referred to eq uity infusions and debt forgiveness as 
non-recurring subsidies ( see Annex 1 (Essential Facts), paras. 98 and 102).  Although Japan argued that 
subsidies resulting from loan maturity extensions an d new loans are recurring subsidies (in response to 
Question 96 from the Panel), in our view one-off loan s are more properly treated as  non-recurring subsidies. 
543 We note that Article 19.4 of the SCM Agreement  refers to the levy of countervailing duties, rather 
than the imposition thereof.  In a prospective countervailin g duty system, such as that applied by Japan, we see 
no need to distinguish between the levy and imposition of co untervailing duties.  Furthermore, Japan has not 
denied that it levied countervailing duties in 2006.  WT/DS336/R 
 Page 173  
 
 
It does not govern duty imposition per se .  Consistent with the title of Article 21, which reads 
"Duration and Review of Countervailing Duties and Undertakings ", Article 21.1 concerns the 
duration of countervailing measures, ensuring that th ey "remain in force" only as long as, and to the 
extent, necessary.  The focus, therefore, is on the amount of time that a duty may remain in force, 
rather than the circumstances under which that duty initially entered into  force.  We therefore agree 
with the Appellate Body's analysis of this provi sion as imposing disciplines regarding the "continued 
application" of countervailing duties, wh ich apply "after the imposition" thereof.544 
7.351  Regarding Article 19.4 of the SCM Agreement , there is no disagreement between the parties 
that an investigating authority must establish th e existence of subsidization before levying any 
countervailing duties.  This is because Article 19.4 refers explicitly to a s ubsidy having been "found to 
exist".  The question is whether subsidization must be "found to exist" at the time of imposition, or 
whether a determination that a subsidy was "found to exist" during some prior period suffices.  In our 
view, the ordinary meaning of the phrase "found to ex ist" does not resolve this issue.  We therefore 
turn to relevant context for guidance. 
7.352  We consider that Article 19.1 provides relevant  context for resolving this issue, since it 
provides that countervailing duties may be imposed on ce it is established that "subsidized imports are 
causing injury".  In light of the present tense used in this provision, we understand this to mean that 
countervailing duties may be impo sed if subsidized imports, i.e., imports that are presently subsidized, 
are presently causing injury.  This interpretation is entirely consistent with the purpose of 
countervailing duties, which is to "offset[] any su bsidy bestowed directly or indirectly upon the 
manufacture, production or export of any merchandise".545  There would be no subsidy to offset, and 
therefore no basis for imposing countervailing duti es, if the imports at the time of duty imposition 
were not found to be subsidized. 
7.353  Japan asserts that a finding of subsidization in respect of a past period of investigation 
suffices for the imposition of countervailing duties.  Japan  refers in this regard to Article VI:3 of the 
GATT 1994 , which refers to the subsidy " determined to have been granted , directly or indirectly, on 
the manufacture, production or export of [the impor ted] product" (emphasis supplied).  Japan also 
refers to a statement by the panel in US – Lead and Bismuth II  that "a countervailing duty may only be 
imposed on an imported product if it is demons trated that a (countervailable) subsidy was bestowed  
directly or indirectly on the manufacture, produc tion or export of that merchandise" (emphasis 
supplied).  While Japan relies on these sources because of their use of the past tense, we do not 
consider that the use of the past  tense is necessarily at odds with a finding that countervailing duties 
are imposed to offset the injurious effects of present subsidization.  This is because the fact that a non-
recurring subsidy was formally bestowed  in the past does not necessarily mean that that subsidy does 
not continue to confer a benefit  in the present.546 
                                                      
544 At para. 70 of its Report in United States – Carbon Steel , the Appellate Body found: 
Turning to the immediate context of Article 21.3, we observe the title to Article 21 of the 
SCM Agreement  reads "Duration and Review of Countervailing Duties and Undertakings". 
The first paragraph of Article 21 stipulates that a countervailing duty "shall remain in force 
only as long as and to the extent necessary to counteract subsidization which is causing 
injury". We see this as a general rule that, after the imposition  of a countervailing duty, the 
continued application  of that duty is subject to certain disciplines. These disciplines relate to 
the duration of the countervailing duty ("only as  long as … necessary"), its magnitude ("only 
… to the extent necessary"), and its purpose ("to counteract subsidization which is causing 
injury"). Thus, the general rule of Article 21.1 underlines the requirement for periodic review 
of countervailing duties and highlights the factors that must inform such reviews. (emphasis 
supplied) 
545 SCM Agreement , note 36. 
546 We note that the term "countervailing duty" is similarly defined using the past tense, in the sense 
that note 36 to the SCM Agreement  refers to "a special duty levied for the purpose of offsetting any subsidy WT/DS336/R 
Page 174  
 
7.354  We note that Article VI of the GATT 1994  was referred to by the panel in EC – Tube or Pipe 
Fittings  when it found, in the context of anti-dumping, that "the point [of anti-dumping duties] 
is to 
offset present dumping."547  Likewise, the Appellate Body found in Mexico – Anti-Dumping 
Measures on Rice  that "the conditions to impose [an anti-dumping duty] are to be assessed with 
respect to the current situation".548  In light of the Declaration On Dispute Settlement Pursuant to 
the Agreement On Implementation of Article VI of  the General Agreement on Tariffs and Trade 1994 
or Part V of the Agreement on Subsidies and Countervailing Measures , which provides for "the 
consistent resolution of disputes arising from anti-dumping and countervailing duty measures", it is 
entirely reasonable and appropriate to interpret Article VI:3 of the GATT 1994 , and the provisions of 
the SCM Agreement , in a way that recognizes that the point of countervailing duties is to offset 
present subsidization. 
7.355  In light of these contextual considerations , we conclude that Article 19.4 of the 
SCM Agreement provides that countervailing duties may only be imposed if there is present 
subsidization at the time of duty imposition.  
7.356  The obligation to establish present subsidization does not mean that investigating authorities 
are prevented from establishing the existence of subsid ization (and injury and causing) by reference to 
data taken from a past period of investigation.  To the contrary, given the need for investigating 
authorities to issue questionnaires, collect reliable  and verifiable data, process and verify that 
data, and safeguard the due process rights of intere sted parties, investigating authorities have no 
choice but to establish the existence of subsidization (and injury) on the basis of past periods of 
investigation.  Thus, countervailing duties may be imposed on the basis of the investigating 
authority's review of a past period of investigati on.  We are not suggesting that an investigating 
authority is somehow required to conduct a new inv estigation at the time of imposition, in order to 
confirm the continued existence of the subsidization found to exist during the period of investigation.  
That would defeat the very purpose of using periods of investigation in the first place.  
7.357  However, the use of a past period of inv estigation does not negate the need for an 
investigating authority to be satisfied that there is  present subsidization.  Rather, the historical data 
from the period of investigation "is being used to  draw conclusions about the current situation,"549 
"[b]ecause the conditions to impose [a duty] ar e to be assessed with respect to the current 
situation".550  In this sense, the situation during the period  of investigation is used as a proxy for the 
situation pertaining "current[ly]", at the time  of imposition.  In the case of non-recurring551 subsidies, 
if the review of the period of investigation indicates th at the subsidy will no longer exist at the time of 
imposition, the existence of subsidization during the period of investigation will not suffice to 
demonstrate "current" subsidiza tion at the time of imposition.  
7.358  In the present case, the JIA used a past period of  investigation to establish the existence of 
subsidization.  That period of investigation c overed the year 2003.  The JIA's determination of 
subsidization in 2003 was made ba sed on an allocation of the benef it conferred by certain of the non-
recurring subsidies provided by the October 2001 restructuring from 2001 to 2005.  If the JIA had imposed countervailing duties in 2004, or 2005, its  determination in respect of the period of 
                                                                                                                                                                    
 
bestowed directly or indirectly upon the manufacture, production or export of any merchandise".  Again, 
though, the fact that the fo rmal bestowal of a subsidy occurred in th e past does not necessarily preclude the 
possibility that imports continue to benefit from this subsidy in the present. 
547 EC – Tube or Pipe Fittings , para. 7.102. 
548 Mexico – Anti-Dumping Measures on Rice , Report of the Appellate Body, para. 165. 
549 Mexico – Anti-Dumping Measures on Rice , Report of the Panel, para. 7.58. 
550 Mexico – Anti-Dumping Measures on Rice , Report of the Appellate Body, para. 165. 
551 We recall that the present case concerns non-recurring subsidies provided through the October 2001 
restructuring.  Our findings would not necessarily apply to investigations of recurring subsidies, which by nature 
lend themselves to a different type of analysis.  WT/DS336/R 
 Page 175  
 
 
investigation would have established that there was "c urrent[ly]" subsidization in either of those two 
years, as benefit from those subsidies was still being c onferred in those years.  This is because, in 
investigating the period of investigation, the JIA had allocated the benefit of 2001 subsidies over the 
period 2001 to 2005.  Once the JIA sought to impose countervailing duties in 2006, however, its 
finding of subsidization in respect of those subs idies for the period of investigation no longer 
demonstrated that there was "current[ly]" subsidiza tion.  This is because one important element of the 
JIA's determination in respect of the period of i nvestigation was that certain of the 2001 subsidies 
needed to be allocated, and would no  longer confer any benefit in 2006.  
7.359  Japan denies that, in analyzing the period of  investigation, the JIA made any finding 
regarding the existence of subsidi zation in 2006.  In particular, Japan denies that the JIA had fully 
allocated the benefit from certain non-recurring subs idies over the period 2001 to 2005.  Japan asserts 
that the JIA determined that the amount of the Oct ober 2001 subsidy to be allocated to the period of 
investigation was one-fifth of the originally gran ted amount of the non-recurring subsidy, and nothing 
more.  
7.360  On our review of the JIA's determination, we do not think that it is correct to say that the JIA 
did not find that the subsidy would be of a certain amount, each year, for five years.  We note that the 
JIA allocated the benefit conferred by certain of the non-recurring subsidies provided by the October 
2001 restructuring using the formula set forth in sec tion 2.3.2.2.2 of Annex 1 (Essential Facts).  One 
of the integers in that formula is "n", which co rresponds to "the useful life" of the subsidized 
production facilities.  The JIA had determined that the duration of "n" should be five years, in 
accordance with certain provisions of Korean tax law.552  In our view, the use of a five-year allocation 
period is a finding (even if only implicit) that th e benefit will expire after a period of five years.553  
The JIA's determination does not suggest that there might continue to be a subsidy after the period 
over which the benefit conferred by that  (non-recurring) subsidy has expired.554 
4. Conclusion 
7.361  In light of the above considerations, and having regard to the JIA's decision to allocate the 
benefit conferred by certain of the non-recu rring subsidies resulting from the October 2001 
restructuring from 2001 to 2005, we find that Japan  imposed countervailing duties in 2006 on imports 
which the JIA itself had found were not subsidized at the time of imposition.  Accordingly, in respect 
of those non-recurring subsidies whose benefit was allocated using the abovementioned Formula 2, 
we conclude that Japan levied countervailing duti es "in excess of the amount of the subsidy found to 
exist", contrary to Article 19.4 of the SCM Agreement . 
                                                      
552 See Annex 1 (Essential Facts),  para. 99 and footnote 96. 
553 For this reason, we are not persuaded by Japa n's arguments regarding the practical difficulties 
resulting from an obligation on investigating authorities to determine the existence of subsidization at the time 
of imposition.  We have already noted that investigating authorities may use past periods of investigation, and that their findings in respect of such periods of investigation may be used for a proxy the situation at the time of 
imposition.  The point, though, is that an investigatin g authority's determination in respect of subsidization 
during the period of investigation may indicate that there will not be (or is not) subsidization at the time of 
imposition.  If that is the case, countervailing duties may not be imposed on the basis of the investigating 
authority's determination of subsidization during the period of investigation. 
554 We note Japan's argument that the useful life of production facilities may change over time, such 
that the allocation factor ("n") might also change, thereby affecting the calculation of the residual amount of 
benefit.  While we do not exclude the possibility that the allocation factor might change, Japan has not presented any evidence to suggest that the five-year allocation period initially applied by the JIA had changed by the time 
that Japan imposed countervailing duties in 2006.  In the ab sence of any such evidence, the JIA's finding that the 
benefit conferred by the October 2001 restructuring would expire at the end of 2005 remained valid. WT/DS336/R 
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H. S
PECIFICITY  
7.362  Korea claims that Japan acted inc onsistently with Article 2 of the SCM Agreement because 
the JIA improperly failed to consider whether th e October 2001 and December 2002 restructurings 
were made using the same procedures and on the same  terms that were generally available to other 
companies in a similar condition.  
7.363  Article 1.2 of the SCM Agreement provides that a subsidy is only countervailable if "such a 
subsidy is specific in accordance with the provisions of Article 2".  Although Korea does not specify 
the paragraph(s) or sub-paragraph( s) of Article 2 forming the basis of its claim, Japan confirmed in 
response to Question 48 from the Panel that the JIA had made a finding of de jure  specificity within 
the meaning of Article 2.1(a) of the SCM Agreement .  Article 2.1(a) provides: 
2.1 In order to determine whether a s ubsidy, as defined in paragraph 1 of 
Article 1, is specific to an enterprise or industry or group of enterprises or industries 
(referred to in this Agreement as "certain en terprises") within the jurisdiction of the 
granting authority, the following principles shall apply:  
(a) Where the granting authority, or the legislation pursuant to 
which the granting authority opera tes, explicitly limits access to a 
subsidy to certain enterprises, su ch subsidy shall be specific. 
 
1. Main Arguments of Korea 
7.364  Korea asserts that the JIA failed to consider  whether the restructuring transactions "were 
made using the same procedures and on the same terms that were genera lly available to other 
companies in a similar condition".
555  According to Korea:  (i) th e same basic rules that governed 
Hynix's restructurings — as embodied in the Workout Agreement and later in the Corporate Restructuring Promotion Act — were the same as th e rules that governed the restructuring of other 
Korean companies;  (ii) the type of reports by financial experts that were relied upon in the Hynix 
restructurings were also relied upon in the restructur ings of other Korean companies;  (iii) there is no 
evidence that the terms of the Hynix restructuri ng transactions were any more favourable to Hynix 
than the terms of other restructurings involving simi larly situated companies in Korea;  and (iv) there 
is no evidence that the role of the government and the government-directed banks in the Hynix 
restructuring was any different from their role in the thousands of similar situations occurring in 
Korea at the same time.  Korea contends that, by  focusing microscopically on Hynix, the JIA missed 
the broader picture.  Korea submits that, in the ab sence of evidence that the role of the government 
and the government-directed banks in the Hynix rest ructuring was any different from their role in the 
thousands of similar situations occurring in Korea at the same time, the JIA' s determination cannot be 
upheld. 
7.365  According to Korea, the JIA's determination is not saved by the fact that the JIA considered 
the restructurings, and not the CRPA, to be the relevant programme for purposes of the specificity 
analysis.  Neither Japan nor the JIA presente d "positive evidence" demonstrating why the 
restructurings, and not the CRPA, constituted th e relevant programme.  If the restructuring 
programmes reflected only the normal operation of the CRPA, then the JIA should have considered the CRPA, and not the restructurings, as the rele vant programme.  By focusing on the specific 
restructurings to find specificity, the JIA assu med what it was supposed to "substantiate" with 
"positive evidence". 
7.366  Furthermore, Korea asserts that the approach taken by the JIA in this case would effectively 
read the specificity requirement out of the SCM Agreement .  Korea states that investigating authorities 
                                                     
 
555 See Korea's First Written Submissi on, para. 283, sixth indent.  WT/DS336/R 
 Page 177  
 
 
would, for example, no longer need to show that  government-provided loan programmes were limited 
to specific enterprises in law or in fact, as Article 2 of the SCM Agreement might appear to require.  
According to Korea, the investigating authorities c ould simply state that their focus was on "specific 
transactions with a specific corporation," and avoid any discussion of the overall programme under which the loans were made. 
2. Main Arguments of Japan 
7.367  Japan relies on the finding of the panel in EC – Countervailing Measures on DRAM Chips 
that the May 2001 and October 2001 Programs conferred subsidies specific to Hynix.  According to 
Japan, that panel's findings on this issue are pers uasive and apply with equal force in the present 
dispute, and that panel's analysis appli es equally to the December 2002 restructuring.
556  With respect 
to Korea's argument that the "legal  framework" that governed Hynix's restructurings w as the same as 
the rules that governed the restructuring of other Korean companies, Japan notes that the JIA did not 
find that the CRPA was itself a government subsidy programme, and argues that whether or not other 
companies might have availed themselves of the CRPA is therefore irrelevant.  Japan also disputes the relevance of Korea's argument that Hynix was not tr eated any more favourably than any other Korean 
companies going through restructuring.  Accordin g to Japan, whether or not Hynix received more 
favourable treatment than other companies going th rough restructuring may be relevant to the 
question of whether the measures conferred a benef it, but not to whether the measures were specific 
under Article 2.  Japan considers that statements made  by certain interested pa rties in their responses 
to the JIA's subsidy questionnaire demonstrate that the October 2001 and December 2002 Programs 
were specific to Hynix.  Japan also alleges that during the investigation, the Government of Korea and 
other interested parties refused to submit in formation on other companies subject to CRPA. 
3. Findings of the JIA 
7.368  The JIA made the following finding of specificity in respect of the October 2001 
restructuring: 
The Investigating Authorities find that the October 2001 Program is specific within 
the meaning of Article 2 of the SCM Agreement because the October 2001 Program 
was a bailout measure for a specific company, i.e., Hynix.
557 
7.369  The JIA made an identical finding in r espect of the December 2002 restructuring.558  I n  
response to comments by KEB, JIA made the followi ng additional statement on the specificity of the 
October 2001 restructuring: 
The October 2001 Program was a specific me asure by the government for the support 
of Hynix, and clearly has specificity as provided in Article 2 of the SCM Agreement . 
Additionally, the rebuttal by KEB cannot be accepted unless the CRPA itself is considered as a government subsidy system .  Because the Investigating Authorities 
have not found that the CRPA itself qualifi es as a governmental subsidy system, the 
rebuttal cannot be accepted.
559 
4. Evaluation by the Panel 
7.370  The main issue raised by Korea is whether or  not the JIA properly assessed specificity at the 
level of the individual restructurings, rather than at  the level of the CRPA.  Korea argues that "[i]f the 
                                                      
 556 Japan refers to Panel Report, EC – Countervailing Measures on DRAM Chips , para. 7.231. 
557 See Annex 1 (Essential Facts), para. 301. 
558 See Annex 1 (Essential Facts), para. 378. 
559 See Annex 3 (Rebuttals and Surrebuttals), para. 444. WT/DS336/R 
Page 178  
 
restructuring programs reflected only the normal operation of the CRPA, then the JIA should have considered the CRPA, and not the restructurings, as the relevant program".
560 
7.371  Faced with a very similar argument, the EC – Countervailing Measures on DRAM Chips  
panel made the following finding in respect of the finding by the European Communities that inter 
alia the October 2001 restructuring was specific: 
With respect to the May and October 2001 R estructuring Programmes, we fail to see 
the relevance of Korea's arguments, as the EC determination did not relate to the 
CRA or the CRPA as such, but rather to the specific restructuring operations 
undertaken under this general framework.  The EC never made any findings with respect to the CRA or the CRPA as such, but its determination related to the unique 
bail-out operation for Hynix.  These restructuring operations were not simply the 
application of a generally available su pport programme.  Rather, the CRA and the 
CRPA provide merely a procedural framework for restructuring and do not themselves involve any financial contributions.  What is relevant is that the EC found 
that, under the May and October 2001 Restructuring Programmes, and taking into 
account our earlier findings concerning financ ial contribution and benefit, a specific 
restructuring exercise was undertaken for Hynix .  Hynix received financial 
contributions which were specifically given to Hynix  as the banks granted new loans 
or rolled-over debt and swapped debt-to-equity of Hynix .  In our view, and given the 
arguments made by Korea, the EC determina tions of specificity with regard to the 
specific contributions to Hynix  in the May and October 2001 Restructuring 
Programmes are consistent with the Articles 1.2 and 2 of the SCM Agreement .
561 
(emphasis in original) 
7.372  We agree with this finding.  In our view, th ere was sufficient evidence on the JIA's record 
indicating that the CRPA merely provided the pro cedural framework within which the October 2001 
and December 2002 restructurings took place, rather  than actually determining the terms of those 
restructurings.  In other words, the restructuri ngs did not "reflect only the normal operation of the 
CRPA", as alleged by Korea.  Thus, at note 303 to  Annex 1 (Essential Facts), the JIA observed that, 
according to Article 1 of the CRPA, the purpose of the CRPA is "to facilitate the ordinary corporate restructuring under the market functions by (1) e nhancing the accounting transparency of enterprises 
and setting the systems for efficiently managing cred it risks by the financial institutions, while (2) 
prescribing matters necessary to make the corporat e restructuring facilitated swiftly and smoothly."  
While Article 1 refers to procedural matters such as enhanced transparency and facilitation,
562 there is 
no indication that the purpose of the CRPA was to  determine the substantive terms under which 
companies are to be restructured.  Instead, evidence on the JIA's record  indicated that the substantive 
terms of restructurings were the prerogative of the Councils for Creditor Financial Institutions, which 
were set up for each restructured company separately.563  Korea has not identifie d any record evidence 
indicating that the terms of the restructurings were determined by the provisions of the CRPA 
per se .564  For this reason, we are not persuaded by Korea's argument that the October 2001 and 
December 2002 restructurings "reflected only the normal operation of the CRPA". 
                                                      
560 See Korea's Second Written Submission, para. 250. 
561 See EC – Countervailing Measures on DRAM Chips , Panel Report, para. 7.231. 
562 Accordingly, the JIA referred to the CRPA as providing the "institutional framework" for the 
restructurings.  See, for example, para. 271 of Annex 1 (Essential Facts). 
563 We refer in this regard to the record evidence set forth at paras. 446 and 447 of Japan's First Written 
Submission. 
564 To the contrary, Korea emphasises  the company-specific nature of th e restructuring process.  Thus, 
Korea notes the complex nature of the analysis of whether or not the going concern value of the relevant 
company exceeds its liquidation value, necessitating recourse to outside consultants ( see, for example, Korea's 
First Written Submission, paras. 99 and 100), and requ iring creditors to assess the company's operational  WT/DS336/R 
 Page 179  
 
 
7.373  Furthermore, we recall that we have upheld the JIA's determination of entrustment or 
direction in respect of the October 2001 restructuri ng.  The JIA's determination was based, in part, on 
an intermediate factual conclusion that the Govern ment of Korea had the political intent to save a 
single company, Hynix, from insolvency.  In general, subsidies which are provided pursuant to government entrustment or direction motivated by an  intent to save a single company from insolvency 
might reasonably be found to be specific to that company.   
7.374  In reviewing Korea's claim, we have given caref ul consideration to Korea's argument that the 
JIA's approach to specificity would mean that inv estigating authorities would no longer need to show 
that programmes were specific, but could focu s instead on specific transactions under those 
programmes.  As a general matter, though, if an investigating au thority were to focus on an individual 
transaction, and that transaction flowed from a ge nerally available support programme whose normal 
operation would generally result in financial contributions on pre-dete rmined terms (that are therefore 
not tailored to the recipient company), that individual transaction would not, in our view, become "specific" in the meaning of Article 2.1 simply because it was provided to a specific company.  An 
individual transaction would be "specific", though, if it resulted from a framework programme whose 
normal operation (1) does not generally result in financial contributions, and (2) does not pre-
determine the terms on which any resultant financia l contributions might be provided, but rather 
requires (a) conscious decisions as to whether or not to provide the financial contribution (to one 
applicant or another), and (b) conscious decisions as to how the terms of the financial contribution 
should be tailored to the needs of the recipient company. 
7.375  For the above reasons, we conclude that the JIA properly found that the October 2001 and 
December 2002 restructurings were tail ored for, and therefore specific to, Hynix.  We therefore reject 
Korea's claim accordingly. 
I. I
NTERESTED PARTIES  
1. Arguments 
(a) Korea 
7.376  Korea claims that the JIA acted inconsistently with Article 12 of the SCM Agreement by 
treating a number of financial institutions that prov ided financing to Hynix as "interested parties" and 
then making findings on the basis of facts available,  rather than creditor-specific information for the 
individual financial institutions, when some of those institutions failed to provide information 
requested by the JIA.  Korea argues that, by its terms, Article 12.7 of the SCM Agreement applies only 
when an "interested party" fails to provide necessar y information, and does not permit the use of facts 
available when parties who are not "interested parties" fail to provide requested information.  
According to Korea, only parties with an interest in  the outcome of an investigation can be treated as 
"interested parties".   
7.377  According to Korea, an "interested party" must by definition have an "interest" in something.  
The fact that an investigating authority is "inter ested" in a particular entity might make the entity a 
"party of interest", but does not make that entity an  "interested party" in ordinary English usage.  
Korea notes that the SCM Agreement does not explicitly define the types of "interests" that would be 
sufficient to treat an entity as an "interested pa rty."  Nevertheless, Korea argues, the scope of 
                                                                                                                                                                     
strengths and weaknesses ( see Korea's First Written Submissi on, para. 93).  Korea also explains that, once the 
decision to restructure debt is made, the creditors must decide how the loss will be distributed ( see Korea's First 
Written Submission, para. 22).    Thereafter, Korea note s that "further complications" arise when shareholder 
and management interests enter the equation ( see Korea's First Written Submission, para. 40).  In the absence of 
any evidence from Korea, it is simply untenable that all of these variables are governed by the "normal 
operation" of the CRPA. WT/DS336/R 
Page 180  
 
cognizable "interests" is readily apparent from the SCM Agreement .  Korea submits that all of the 
entities that are specifically identified as "i nterested parties" in Article 12.9 of the SCM Agreement are 
directly affected by the outcome of investigations , and therefore have a clear "interest" in the conduct 
of the proceedings.  Korea argues that the langua ge of the second sentence of Article 12.9 permitting 
investigating authorities to "allow" certain entities to participate in investigations as interested parties 
makes sense only where the entities have requested to participate in the proceeding.  Korea contends 
that Articles 12.3 of the SCM Agreement , which presupposes that "interested parties" must have a 
"case" to present to the investigati ng authorities, and Article 12.8 of the SCM Agreement , which 
requires that investigating authorities provide "inter ested parties" with an adequate opportunity to 
"defend their interests", would make no sense if the te rm "interested parties" were defined to include 
entities that had no "interests" in the proceeding, a nd thus no "case" to present.  Finally, Korea argues 
that the provisions of the SCM Agreement regarding "facts available" would be patently unfair and 
violate procedural due process if the parties who do have an interest in the outcome of the case could have their interests prejudiced by the non-respons iveness of entities that have no interest in the 
outcome of the case.   
7.378  Korea contends that while the financial ins titutions that were creditors of Hynix had a 
financial interest in Hynix at one point, it is not cl ear that any of those institutions had a continuing 
financial interest in Hynix at the time of the JIA's investigation, and it is also not clear that whatever 
interest they may have had in Hynix translated into an interest in the outcome of the JIA's 
investigation.  In these circumst ances, Korea argues, the JIA failed to establish a factual foundation 
for concluding that any of the financial institutions  to which it sent questionnaires had an interest in 
the outcome of the investigation.   
(b) Japan 
7.379  Japan claims that Kor ea has failed to present a prima facie  case that the inclusion of Hynix's 
creditors was inconsistent with any provision of the SCM Agreement or the GATT 1994 , and that 
Korea's claim should be rejected.   
7.380  According to Japan, "interested parties" in clude any parties "having an interest or 
involvement in matters which are subject to the investigation".
565  Japan contends that Korea's 
argument that a party must have an interest in the outcome of the investigation in order to be 
designated as an "interested party" cannot be sustaine d in light of the provisions of Article 12.9 of the 
SCM Agreement and the context of the entire SCM Agreement .  Japan agues that the ordinary meaning 
of "interested parties" is broad enough to encompass  any party "having an interest or involvement;  
not impartial."566  Japan submits that the definition of "interest ed parties" in Article 12.9(i) and (ii) is 
indicative and not exhaustive, and the last sentence of Article 12.9 clarifies that the investigating 
authorities in a countervailing duty investigation re tain the discretion to include domestic or foreign 
parties as interested parties.  According to Japan, Korea's interpretation would actually exclude 
entities specifically listed in Article 12.9 from being included as "interested parties" in certain 
circumstances.  Japan claims that Article 23 of the SCM Agreement implies that there may be 
interested parties that are not "directly and indivi dually affected by the administrative actions". Japan 
argues that Korea's interpretation would lead to  investigating authorities facing unreasonable 
difficulty in collecting information and finding facts.  
2. Evaluation by the Panel 
7.381  The JIA considered that it was reasonable to include sixteen financial institutions that 
provided financing to Hynix as "interested parties" in the investigation.567  The JIA sent 
                                                      
565 See Japan's First Written Submission, para. 551. 
566 Japan refers in this regard to the Concise Oxford Dictionary, p. 737. 
567 See Annex 3 (Rebuttals and Surrebuttals), paras. 29 and 39.    WT/DS336/R 
 Page 181  
 
 
questionnaires to these financial institutions.568  When some of those institutions failed to respond to 
the questionnaires or otherwise did not provide the information requested, the JIA made certain 
findings in the Final Determination on the basis of facts available.569   
7.382  The use of facts available in countervailing duty investigations is governed by Article 12.7 of 
the SCM Agreement , which provides that:   
In cases in which any interested Member or interested party  refuses access to, or 
otherwise does not provide, necessary info rmation within a reasonable period or 
significantly impedes the investigation, preliminary and final determinations, 
affirmative or negative, may be made on th e basis of the facts available.  (emphasis 
supplied) 
7.383  The circumstances under which an investigating authority may make its determination on the 
basis of facts available are limited, by the terms of Article 12.7, to cases in which an interested 
Member or "interested party" refuses access to, or  otherwise does not provide, necessary information 
within a reasonable period or significantly impedes the investigation.   
7.384  Article 12.9 of the SCM Agreement provides that:     
For the purposes of this Agreement, "interested parties" shall include: 
(i)  an exporter or foreign producer or the importer of a product subject 
to investigation, or a trade or busin ess association a majority of the members 
of which are producers, exporters or  importers of such product;  and 
(ii)  a producer of the like product in the importing Member or a trade and 
business association a majority of the members of which produce the like 
product in the territory of the importing Member. 
This list shall not preclude Members from allowing domestic or foreign parties other 
than those mentioned above to be included as interested parties. 
7.385  This claim raises two issues.  First, must an investigating authority establish that a party has 
an interest in the outcome of an investigation in or der to include that party as an "interested party" in 
the investigation? If so, did the JIA properly estab lish that the financial institutions it included as 
"interested parties" had an interest, or may have had an interest, in the outcome of the investigation?  
We will address these issues in turn.   
7.386  We note at the outset that neither Article 12.9 nor any other provision of the SCM Agreement 
states that an investigating authority must establish th at a party has an interest in the outcome of an 
investigation in order to include that party as an "i nterested party".  The lack  of any such requirement 
in the text of the SCM Agreement serves, in our view, as an indication that no such requirement exists.  
However, we recognize that such silence does not exclude the possibility that such a requirement 
might exist by necessary implication, and it is s till necessary for us to give meaning to the term 
"interested party".570   Korea argues such a requirement arises by implication from the ordinary 
meaning of the term "interested party", from the typ es of parties specifically listed in Article 12.9(i) 
and (ii), from the use of the term "allowing" in the second sentence of Article 12.9, from the nature of 
                                                      
568 See Annex 1 (Essential Facts), para. 12.  The JIA onl y treated the 16 creditors to which it sent its 
questionnaire as "interested parties".   
569 The JIA did not apply facts available in respect of any creditors that it had not defined as "interested 
parties". 
570 Appellate Body Report, US – Carbon Steel , para. 65.   WT/DS336/R 
Page 182  
 
the rights provided for in Articles 12.3 and 12.8, and from Article 12.7.   We will examine these 
contentions in turn.   
7.387  According to Korea, an "interested party" must by definition have an "interest" in something.  
Korea also submits that the fact that an investiga ting authority is "interested" in a particular entity 
might make the entity a "party of interest", but does not make that entity an "interested party" in 
ordinary English usage.  We note that the term "interested" means, among other things, "having an 
interest or involvement".
571  We agree that an interested party mu st by definition have an "interest" or 
"involvement" in something in order to be an "int erested party".  However, we do not believe that 
"something" must, by definition, be the outcome of th e investigation.  We consider that a party may 
be an interested party when it was engaged, or in volved, in the matter under investigation to such an 
extent that it has an interest in that matter.  It is entirely plausible, therefore, that the "something" 
might instead be the alleged subsidies at issue in a countervailing duty investigation, in the sense that 
a party was involved in the provision of such subsidies.572   
7.388  Korea argues that all of the entities that are spec ifically identified as "interested parties" in 
Article 12.9(i) and (ii) are directly affected by the outcome of investigations, and therefore have a 
clear interest in the conduct of the proceedings.  As suming that Article 12.9(i) and (ii) identify certain 
categories or classes of parties that would be directly  affected by the outcome of investigations, there 
is nothing in Article 12.9 to suggest that the meaning of "interested parties" should be restricted to the 
types of parties identified in Article 12.9(i) and ( ii).  The first sentence of Article 12.9 provides that 
"interested parties" "shall include" those parties referred to in Article 12. 9(i) and (ii), and thus 
establishes certain minimum requirements.  The second sentence of Article 12.9 then immediately 
clarifies that "[t]his list shall not preclude Member s from allowing domestic or foreign parties other 
than those mentioned above to be included as interest ed parties."  We do not think that Articles 12.9(i) 
and (ii) are an exclusive list of parties who can be taken to be "interested parties".  In our view, the 
fact that sub-paragraphs (i) and (ii) identify the most obvious instances where parties will be 
"interested" does not mean that other forms of interest should be excluded from the category of 
"interested parties".  One cannot derive from a selec tion (in sub-paragraphs (i) and (ii)) of the most 
obvious examples of "interested party" that less obvious examples should not also be treated as 
"interested parties".  We are therefore unable to accept Korea's argument that Article 12.9(i) and (ii) give rise to the necessary implication that "interested parties" must by definition have an interest in 
the outcome of an investigation.  
7.389  Furthermore, we note that the interest of any particular party in the outcome of an 
investigation can be specific to it, and that parti es have diverse "interests".  Nor do we appreciate how 
Korea's formulation of the test, viz that a party must have an interest in the outcome of the 
investigation to be an "interested party", is capab le of differentiating between parties with different 
interests.  One might try to overcome this by applyi ng adjectives such as "direct" or "significant" to 
the word "interest", however that only underlines th e proposition that one party's interest can be 
different to that of another party. 
7.390  In response to a question from the Panel, Korea suggested that the use of the word "allowing" 
in the second sentence of Article 12.9 implies that th ere must be a request from a party before it can 
be included as an "interested party".  We disagr ee.  The term "allowing" in the second sentence of 
Article 12.9 could be understood as referring to a Me mber allowing, through national legislation or 
implementing regulations, certain parties to participat e in investigations as interested parties.   The 
                                                     
 
571 Concise Oxford Dictionary, p. 737. 
572 In this connection we note that footnote 9 of the Tokyo Round Subsidies Code  defined the term 
"interested party" as follows:  "Any 'interested signatory' or  'interested party' shall refer to a signatory or a party 
economically affected by the subsidy in question ." (emphasis added)  The fact that the drafters of the 
SCM Agreement  decided not to include this definition may reflect an intent of the drafters to define the term 
"interested parties" more broadly for the purposes of the SCM Agreement.  WT/DS336/R 
 Page 183  
 
 
term "allowing" could equally be understood as refe rring to an investigating authority allowing such 
entities to be included as interested parties following  a request or suggestion to that effect from an 
applicant.    In addition, as Japan noted in response to the same question from the Panel, there are a 
variety of provisions in the SCM Agreement which include the phrase "upon request,"573 and given 
that the drafters of the SCM Agreement explicitly used the phrase "upon request" where a request is 
required or contemplated, the lack of the use of th is phrase in Article 12.9 supports the interpretation 
that the inclusion of a party as an inter ested party is not predicated on a request.574 
7.391  Korea argues that Articles 12.3575 and 12.8576 of the SCM Agreement presuppose that 
"interested parties" must have a "case" to present and "interests to defend", which would make no sense if the term "interested parties" were defined to include entities that had no "interests" in the 
proceeding.  In our view, Articles 12.3 and 12.8 relate to interested parties participating in an 
investigation .  Interested parties participating in an investigation will generally have a "case" to 
present and "interests to defend".  However, Articles 12.1.2
577 and 12.2578 of the SCM Agreement 
presuppose that there are interested parties that do not participate in an investigation.  Following the 
logic of Korea's argument, such interested partie s would not be "interested parties".  This is 
inconsistent with the terms of Articles 12.1.2 a nd 12.2.  We are therefore unable to accept Korea's 
argument that Articles 12.3 and 12.8, which relate  to interested parties participating in an 
investigation, give rise to the implication that "int erested parties" must by definition have an interest 
in the outcome of an investigation.   
7.392  Moreover, we believe that prior Appellate Body and panel reports relating to Article 12.7, the 
provision of the SCM Agreement governing the use of facts available, undermine rather than support 
Korea's contention that only parties with an inte rest in the outcome of the investigation may be 
included as "interested parties".  In Mexico – Anti-Dumping Measures on Rice , the Appellate Body 
                                                      
 573 For example, Article 21.2 of the  SCM Agreement, first sentence, provides that:  "The authorities 
shall review the need for the continued imposition of the duty, where warranted, on their own initiative or, 
provided that a reasonable period of time has elapsed since the imposition of the definitive countervailing duty, 
upon request by any interested party  which submits positive information substantiating the need for a review." 
(emphasis added) 
574 As regards Article 12.9, we would further note that, if only parties with an interest in the outcome of 
an investigation may be included as "interested parties", the second sentence of Article 12.9 would instead read:   
This list shall not preclude Members from allowing domestic or foreign 
parties known to the investigating authorities to have an interest in the 
investigation other than those mentioned above to be included as interested 
parties. 
This is not how Article 12.9 was drafted. 
575 Article 12.3 provides that:  "The authorities sh all whenever practicable provide timely opportunities 
for all interested Members and interested parties to see all information that is relevant to the presentation of their 
cases, that is not confidential as defined in paragraph 4,  and that is used by the authorities in a countervailing 
duty investigation, and to prepare presentations on the basis of this information." 
576 Article 12.8 provides that:  "The authorities shall, before a final determination is made, inform all 
interested Members and interested parties of the essentia l facts under consideration which form the basis for the 
decision whether to apply definitive measures. Such disclosure should ta ke place in sufficient time for the 
parties to defend their interests." 
577 Article 12.1.2 provides that:  "Subject to the requirement to protect confidential information, 
evidence presented in writing by one interested Member or interested party shall be made available promptly to 
other interested Members or interested parties participating in the investigation ."  (emphasis added) 
578 Article 12.2 provides that:  "I nterested Members and interested parties also shall have the right, 
upon justification, to present information orally. Wher e such information is provided orally, the interested 
Members and interested parties subsequently shall be  required to reduce such submissions to writing. Any 
decision of the investigating authorities can only be based on such information and arguments as were on the written record of this authority and which were available to interested Members and interested parties 
participating in the investigation , due account having been given to the need to protect confidential 
information." (emphasis added) WT/DS336/R 
Page 184  
 
explained that Article 12.7  "is intended to ensure that the failure  of an interested party to provide 
necessary information does not hinder an agency's investigation."
579  I n  EC – Countervailing 
Measures on DRAM Chips , the panel observed that "Article 12.7 of the SCM Agreement is an 
essential part of the limited investigative powers of an investigating authority in obtaining the 
necessary information to make proper determinations ."580  Thus, previous Appellate Body and panel 
reports have underscored the importa nt role that Article 12.7 serves in ensuring that investigating 
authorities are able to obtain the information necessa ry to make proper determinations.  Requiring an 
investigating authority to establish that a party has an  interest in the outcome of an investigation as a 
precondition for treating that party as an "interested  party" could preclude investigating authorities 
from making proper determinations.    In our view, the scope of the right of investigating authorities 
to include parties as "interested parties" in investigat ions must be interpreted with a view to ensuring 
that investigating authorities are able to obtain the "necessary information" needed to arrive at a 
determination.581   Therefore, we do not believe that Article 12.7 gives rise to the necessary 
implication that an investigating authority must estab lish that a party has an interest in the outcome of 
an investigation in order to include that party as an "interested party" in the investigation. 
7.393  Korea argues that the provisions of the SCM Agreement governing the use of facts available 
would be patently unfair and violate procedural due  process if the parties who do have an interest in 
the outcome of the case could have their interests prejudiced by the non-respon siveness of entities that 
have no interest in the outcome of the case.  We do not see how this argument supports Korea's 
contention that only those parties with an interest in the outcome of the investigation can be included 
as "interested parties".  Rather, we see this argum ent as relating to the circumstances under which an 
investigating authority may use facts available to make findings in respect of one interested party 
based on the failure of a third party to provide  necessary information.  In certain cases, an 
investigating authority might be required to seek in formation from third parties that are not designated 
as "interested parties".  In the event that such third parties do not respond to the investigating 
authority's enquiries, the investigating authority wo uld still need to reach its conclusions on the basis 
of the evidence on the record.  The use of facts on the re cord in such cases is not punitive.  It is simply 
reflective of the investigating authority' s need to complete its investigation. 
7.394  For the foregoing reasons, we are not persuaded that  only those parties with an interest in the 
outcome of an investigation can be included as "interested parties" in an investigation.582  
Accordingly, we do not consider it necessary or a ppropriate to rule on whether the JIA properly 
                                                      
579 Appellate Body Report in Mexico – Anti-Dumping Measures on Rice, para. 293. 
580 Panel Report in EC – Countervailing Measures on DRAM Chip , para. 7.61. 
581 In our view, this consideration carries considerable weight in cases involving entrustment or 
direction, where the relevant information may be held only by the third parties who have been allegedly been 
entrusted or directed.   
582 Even if the phrase "interested part y" were interpreted to mean parties with an interest in the outcome 
of the investigation, we recall that the JIA had identified the relevant Other Creditors as interested parties at the 
very beginning of its investigation, for the purpose of identifying entities to which it should send its 
questionnaire.  At that time, the JIA had information in dicating that the relevant Other Creditors were, or had 
been, creditors of Hynix, and could possibly have become shareholders in Hynix through the debt-to-equity 
swaps in the two restructurings at issu e.  As Korea itself argues, the exact st atus of the Other Creditors was "not 
clear" ( see para. 161 of Korea's First Written Submission).  In these circumstances, at the very least the JIA was 
entitled to treat these Other Creditors as interested partie s for the purpose of distributing its questionnaire.  The 
Other Creditors might then, in their responses, have prov ided the JIA with information indicating that they no 
longer had an interest in the outcome of the investiga tion.  They did not do so.  In these circumstances, we 
consider that the JIA could properly have continued to treat these Other Creditors as interested parties for the 
remainder of the investigation.  Furthermore, the Other Creditors may be said to be interested in the outcome of the investigation in less direct ways, in the sense that the matters under investigation, which included the 
commercial reasonableness of their investment decisions, could potentially impugn their commercial 
reputations.  WT/DS336/R 
 Page 185  
 
 
established that the financial institutions it included as "interested parties" had an interest, or may 
have had an interest, in the outcome of the investigation.   
7.395  Korea has not challenged the JIA's inclusion of th e financial institutions as "interested parties" 
on any other grounds.  Nor has Korea made a claim in  respect of the JIA's choice of the 16 creditors 
selected to receive the questionnaire (and sub sequently treated as "interested parties").583 
7.396  Korea has argued that the JIA improperly a pplied facts available, and improperly made 
adverse inferences due to inadequate cooperation by in terested parties.  Regarding adverse inferences, 
the Panel asked Korea to "indicate precisely, with  citations, which 'adverse inferences' Korea is 
referring to in this claim."584  In response, Korea submitted a list identifying the JIA's use of "facts 
available."585  The phrase "adverse inference" is not used in Part V of the SCM Agreement .  In using 
that term, we understand Korea to be referring to a situation where an investigating authority applies 
facts available in a way that is deliberately detrimen tal to the interests of the party at issue.  Making 
an adverse inference is therefore not the same as applying facts available.  Thus, citing instances of 
the application of facts available is not the same as  referring to adverse inferences.  Since Korea made 
no attempt to explain how the JIA allegedly derived adverse inferences from the use of facts available 
identified by Korea, we consider that Korea has fa iled to substantiate any claim regarding the JIA's 
alleged use of adverse inferences.586 
7.397  Regarding the JIA's allegedly improper use of f acts available, Korea has not substantiated any 
arguments as to why the use of facts available in an y given instance was improper.  We presume that 
Korea therefore relies on a general argument that the use of facts available was improper because the entities in respect of which facts available were appl ied did not constitute "interested parties".  This 
argument fails, for we have already rejected Korea' s argument that the relevant Other Creditors did 
not constitute "interested parties".   
7.398  Accordingly, we find that Korea has failed to est ablish that the JIA acted  inconsistently with 
Article 12 of the SCM Agreement by including certain financial institutions as "interested parties", and 
using facts available for those financial institu tions that failed to provide information.  
J. C
AUSATION OF INJURY  
1. Arguments 
(a) Korea 
7.399  Korea claims that the JIA acted inconsis tently with Articles 15.5 and 19.1 of the 
SCM Agreement by failing to demonstrate that the allege dly subsidized imports were, "through the 
effects of subsidies", causing inju ry within the meaning of the SCM Agreement .  Korea argues that it 
is not sufficient for an investigating authority to demonstrate that the volume of subsidized imports 
has increased, or that the subsidized imports ha ve caused prices to decrease, or even that the 
subsidized imports have caused material harm to  the domestic industry. According to Korea, 
Article 15.5, read together with footnote 47, requir es a demonstration that the volume or price of the 
                                                      
583 Although Korea did make a number of references to the manner in which the 16 creditors were 
selected during the course of these proceedings, there is no separate claim (under Article 12.1, for example) 
regarding this matter in our terms of reference. 
584 See Question 56 from the Panel. 
585 See Attachment 2 to Korea's Second Written Submission. 
586 Korea referred to other alleged adverse inferences  at note 144 of its First Written Submission.  For 
the most part, those references concern measures other than the two restructur ings at issue in these proceedings.  
Furthermore, where those references do concern the Octo ber 2001 or December 2002  restructurings, they are 
simple references to instances where th e JIA applied facts available.  As noted  above, applying facts available is 
not the same as drawing adverse inferences. WT/DS336/R 
Page 186  
 
subsidized imports, and the resulting impact on the domestic industry, was affected by the alleged 
subsidies in a manner sufficient to  cause injury.  If an investigating authority cannot demonstrate on 
the basis of positive evidence that the alleged subsid ies alter the volume or price of the imports, then 
there is no basis for finding that the injury caused  by the imports occurred "through the effects of the 
subsidy."   
7.400  Korea argues that since footnote 47 appears after the word "effects", and not after the phrase 
"of the subsidies", footnote 47 cannot be used to defi ne the entire phrase "the effect of the subsidies".  
Korea submits that the "through the effects of subsidies" language in Article 15.5 should be 
interpreted as requiring the same type of causation analysis that has been developed under the "effect 
of the subsidy" language in Article 6.3 of the SCM Agreement .  According to Korea, an interpretation 
of Article 15.5 that does not require a causal link be tween the subsidies and the volume or price of the 
subsidized imports would improperly render the "thr ough the effects of subsidies" language in that 
provision inutile.  Korea argues that the Panel should not follow the approach taken in the US – 
Norwegian Salmon (CVD) case, in which a GATT panel rejected a similar argument based on similar 
text of the Agreement on Interpretation and Application of Articles VI, XVI and XXIII of the General 
Agreement on Tariffs and Trade  (hereinafter the " Tokyo Round Subsidies Code ").   
7.401  Korea notes that the JIA did not dispute Ko rea's interpretation of the requirements of 
Article 15.5 during the course of the JIA investigatio n.  Korea argues that the JIA failed, however, to 
demonstrate that the effect of the imports woul d have been any different in the absence of the 
subsidies.  Korea recalls the JIA's conclusion that  any harm caused by Hynix's exports was necessarily 
a result of the subsidy, because Hynix would not have  been in operation, and thus would not have 
been able to export, in the absence of subsidies.  Korea argues that the JIA's conclusion was, however, 
based on a "fundamental legal error".
587  According to Korea, there is no reason to believe that, if 
Hynix had filed for bankruptcy, it would have ceased operations.  Korea argues that in all likelihood, 
the bankruptcy of Hynix would simply have resulte d in corporate reorganization proceedings before 
the Korean courts. 
(b) Japan 
7.402  Japan claims that the JIA dem onstrated that the allegedly s ubsidized imports were, "through 
the effects of subsidies", causing in jury within the meaning of the SCM Agreement , and that Korea's 
claims under Articles 15.5 and 19.1 should be rejected.   
7.403  Japan argues that footnote 47 defines the m eaning of the term "through the effects of 
subsidies" by reference to the analyses of subsid ized imports conducted unde r Articles 15.2 and 15.4 
of the SCM Agreement .  Japan argues that the second and third sentences of Article 15.5 equate the 
terms "effects of subsidies" with "effects of the subsidized imports".  Japan submits that Korea's 
interpretation of Article 15.5 is contradicted by A ppellate Body and panel repor ts clarifying that there 
are no specific methodologies for investigating author ities to determine effects of subsidized imports 
under Articles 15.2 and 15.5.   Japan argues that this interpretation does not render Article 15.5 
redundant.  According to Japan, there are funda mental differences between Article 6.3 and 
Article 15.5 that preclude the "through the effects of subsidies" language in Article 15.5 from being 
interpreted as requiring the same type of causation analysis that has been developed under the "effect 
of the subsidy" language in Article 6.3 of the SCM Agreement .  Japan submits that Korea's 
interpretation is contradicted by Article 11.2 of the SCM Agreement , which also refers to the "effects 
of the subsidies".   
7.404  Japan further argues that, in an y event, the JIA concluded that any harm caused by Hynix's 
exports was necessarily a result of the subsidy, becau se Hynix would not have been in operation, and 
thus would not have been able to export, in the absence of subsidies.   
                                                      
587 See Korea's First Written S ubmission, para. 279.  WT/DS336/R 
 Page 187  
 
 
2. Evaluation by the Panel 
7.405  The JIA found that there was material injury as provided in Article 15.1 of the 
SCM Agreement and that the subsidized imports had caused such material injury  to the domestic 
industry "through the effects of subsidies" as provided in Article 15.5 of the SCM Agreement .588  With 
respect to the issue of the "effects of subsidies", the JIA found, under the heading "The Effects of the 
Subsidies on Imports of the Subject Products", as follows: 
As examined in Chapter 2, Hynix was in a financial situation such that it could not 
raise funds from the commercial market.  The subsidies provided by the Government of Korea to Hynix enabled Hynix to main tain and continue its production and export 
of DRAM products. As the result, the Investigating Authorities find that Hynix 
significantly increased its volume of the expor ts to Japan of the subject products, sold 
large volumes of products at low prices in Japan's domestic market, and thereby caused the price of domestic products to fall.
589 
7.406  The assessment of causation of injury in count ervailing duty investigations is governed by 
Article 15.5 of the SCM Agreement , which provides that: 
It must be demonstrated that the subs idized imports are, through the effects47 of 
subsidies, causing injury within the meani ng of this Agreement.  The demonstration 
of a causal relationship between the subsidized  imports and the injury to the domestic 
industry shall be based on an examination of all relevant evidence before the authorities.  The authorities shall also ex amine any known factors other than the 
subsidized imports which at the same time  are injuring the domestic industry, and the 
injuries caused by these other factors must not be attributed to the subsidized imports.  
Factors which may be relevant in this respect include, inter alia, the volumes and prices of non-subsidized imports of the produc t in question, contraction in demand or 
changes in the patterns of consumption, tr ade restrictive practices of and competition 
between the foreign and domestic producers,  developments in technology and the 
export performance and productivity of the domestic industry.  
_____________________  
47 As set forth in paragraphs 2 and 4. 
 
7.407  Article 19.1 of the SCM Agreement provides that:   
If, after reasonable efforts have been made to complete consultations, a Member 
makes a final determination of the existe nce and amount of the subsidy and that, 
through the effects of the subsidy, the s ubsidized imports are causing injury, it may 
impose a countervailing duty in accordance w ith the provisions of this Article unless 
the subsidy or subsidies are withdrawn. 
7.408  This claim raises two issues.  First, do Artic les 15.5 and 19.1 require that an investigating 
authority demonstrate that the volume and price eff ects of the subsidized imports and the consequent 
impact on these imports on the domestic industry, as set forth in Articles 15.2 and 15.4, are "the 
effects of subsidies"?  If so, did the JIA properly de monstrate that the volume and price effects of the 
                                                      
588 Annex 1 (Essential Facts), para. 609.       
589 Annex 1 (Essential Facts), para. 550.  In respons e to comments, the JIA reiterated its finding:  
"Hynix had been saved from bankruptcy because of subsidies.  Thus, the subsidies enabled Hynix to continue production and continue exporting. … the importation of subject products itself was due to the effect of 
subsidies." (Annex 3 (Rebuttals and Surrebuttals), para. 740)   WT/DS336/R 
Page 188  
 
subsidized imports were the effects of the subsidies received by Hynix?   We will address these issues in turn.   
7.409  The issue of whether an assessment of causation of  injury should relate  to injury caused by 
"subsidization" or to injury caused by "subsidized  imports" is a methodological issue with significant 
implications.
590  We will begin by examining the ordinary meaning of the first sentence of 
Article 15.5 and footnote 47.  Next, we consider the context of that provision, which includes the 
second and third sentences of Article 15.5, the othe r provisions of Article 15, as well as Articles 11.2 
and Article 6.3 of the SCM Agreement .  After having considered the ordinary meaning and context of 
the first sentence of Article 15.5, we proceed to address Korea's argument that an interpretation of 
Article 15.5 that does not require a causal link between the subsidies and the volume or price of the 
subsidized imports would improperly render the "thr ough the effects of subsidies" language in that 
provision inutile.   
7.410  We begin with the ordinary meaning of th e terms at issue.  The first sentence and 
accompanying footnote of Article 15.5 state that: 
It must be demonstrated that the subs idized imports are, through the effects47 of 
subsidies, causing injury within the meaning of this Agreement.   
_____________________ 
 
47 As set forth in paragraphs 2 and 4. 
 
7.411  Article 15.2591 of the SCM Agreement requires consideration of whether there has been a 
significant increase in subsidized imports, and the effect of the subsidized imports on prices.  
Article 15.4592 of the SCM Agreement requires an examination of the impact of the subsidized imports 
on the domestic industry.  In our view, the ordinary  meaning of the first sen tence of Article 15.5 and 
its accompanying footnote is to define the phrase "through  the effects of subsidies" to mean the effects 
of subsidized imports ("[a]s set forth in Articles 15.2 and 15.4").  Korea argues that the term "through 
the effects of subsidies" in Article 15.5 read in conjunction with the accompanying footnote requires a 
demonstration that the volume and price effects of th e subsidized imports (as set forth in Article 15.2) 
and the consequent impact on these imports on the dom estic industry (as set forth in Article 15.4), are 
"the effects of subsidies".  Thus, Korea argues that it must be demonstrated that the subsidies  have 
caused the increased volume and/or price effects of th e subsidized imports (Article 15.2) that have in 
turn had an impact on the domestic industry.  In  other words, Korea contends that it must be 
demonstrated that the subsidies  are causing injury through the effects of subsidized imports .  In our 
                                                      
590 Panel Report, Brazil –Desiccated Coconut, para. 251.  
591 Article 15.2 provides that:  "With regard to the volume of the subsidized imports, the investigating 
authorities shall consider whether there has been a significa nt increase in subsidized imports, either in absolute 
terms or relative to production or consumption in the importing Member.   With regard to the effect of the 
subsidized imports on prices, the investigating authorities shall consider whether there has been a significant 
price undercutting by the subsidized imports as compar ed with the price of a like product of the importing 
Member, or whether the effect of such imports is otherwis e to depress prices to a sign ificant degree or to prevent 
price increases, which otherwise would have occurred, to a significant degree.   No one or several of these 
factors can necessarily give decisive guidance." 
592 Article 15.4 provides that:  "The examination of the impact of the subsidized imports on the 
domestic industry shall include an evaluation of all relevant economic factors and indices having a bearing on the state of the industry, including actual and potential decline in output, sales, market share, profits, 
productivity, return on  investments, or utilization of ca pacity;  factors affecting domestic prices;  actual and 
potential negative effects on cash flow, inventories, employment, wages, growth, ability to raise capital or investments and, in the case of agriculture, whether there has been an increased burden on government support 
programmes.  This list is not exhaustive, nor can one or several of these factors necessarily give decisive 
guidance."  WT/DS336/R 
 Page 189  
 
 
view, Article 15.5 cannot be read in this way, as paragraphs 2 and 4 of Article 15 drive the reader 
towards a consideration of the effects of the subs idized imports, and not the effect of the subsidy.593 
7.412  We note that the GATT panel in US – Norwegian Salmon CVD594 examined the first sentence 
and accompanying footnote of Article 6:4 of the Tokyo Round Subsidies Code, which were virtually 
identical to the first sentence and accompanying footnote of Article 15.5.595  In that case, Norway 
argued that the "through the effects of the subsidy"  language in Article 6:4 required a demonstration 
that the volume and price effects of the subsid ized imports and the consequent impact on these 
imports on the domestic industry, as set forth in Articles 6:2 and 6:3 of the Tokyo Round Subsidies 
Code , were "the effects of the subsidy".  The panel re jected Norway's argument.  The panel found that 
the virtually identical terms of the Tokyo Round Subsidies Code  "made it clear that 'the subsidized 
imports' were at the centre of the causation analysis required under this provision."596  Korea claims 
that in US – Hot-Rolled Steel , the Appellate Body rejected the "gen eral approach to causation issues" 
adopted by the US – Norwegian Salmon CVD  panel.597  We find nothing in the Appellate Body Report 
in US – Hot-Rolled Steel  rejecting the US – Norwegian Salmon CVD  panel's findings with respect to 
the "through the effects of the subsidy" language.  
7.413  The context of the first sentence of Article 15.5 confirms that the focus of the causation 
analysis under Article 15.5 is on "the effects of the subsidized imports", and not the "subsidies".  The 
second sentence of Article 15.5 requires that "[t]he demonstration of a causal relationship between the 
subsidized imports  and the injury to the domestic industry shall be based on an examination of all 
relevant evidence before the authorities." (emphasis supplied)   The third sentence of Article 15.5, 
which concerns non-attribution, pr ovides that "[t]he authorities shall also examine any known factors 
other than the subsidized imports  which at the same time are injuring the domestic industry, and the 
injuries caused by these other factors must not be attributed to the subsidized imports ." (emphasis 
supplied)  
7.414  We find further contextual support for our read ing of the first sentence of Article 15.5 in 
Article 15.1 of the SCM Agreement .  Article 15.1 contains the "overarching provision that sets forth a 
Member's fundamental, substantive obligation" in resp ect of injury determinations that "informs the 
more detailed obligations in succeeding paragraphs".598  Article 15.1 provides that: 
A determination of injury for purposes of Article VI of GATT 1994 shall be based on 
positive evidence and involve an objective examination of both (a) the volume of the 
subsidized imports  and the effect of the subsidized imports on prices in the domestic 
market for like products and (b) the consequent impact of these imports  on the 
domestic producers of such products." (emphasis added, footnote omitted). 
                                                      
593 On one view, Korea's interpretation would eff ectively reverse the sequence of the terms "the 
subsidized imports" and "subsidies" in this provision, so as to read: 
It must be demonstrated that subsidies  are, through the effects47 of the subsidized imports , 
causing injury within the meaning of this Agreement. 
_____________________ 
47 As set forth in paragraphs 2 and 4. 
594 We do not refer to this GATT  case as binding precedent.  We refer to it because the discussion of the 
issues in that case sheds light on the substance of the issue presently before us. 
595 Article 6:4 used the term "through the effects of the subsidy" while Article 15.5 uses the term 
"through the effects of subsidies". Apart from the different enumeration of the SCM Agreement and the Tokyo 
Round Subsidies Code, the accompan ying footnotes are identical.   
596 GATT Panel Report, US – Norwegian Salmon CVD, para. 335.  
597 Korea refers to US –Hot-Rolled Steel, para. 226 
598 Appellate Body Report, Thailand – H-Beams , para. 106;  Panel Report, US – Softwood Lumber VI , 
para. 7.27;  Panel Report, US – Countervailing Duty Investigation on DRAMS , para. 7.217;  Appellate Body 
Report, US – Softwood Lumber VI (Article 21.5 – Canada) , para. 96.  WT/DS336/R 
Page 190  
 
7.415  As noted, Article 15.2 refers to "the effect of the subsidized imports  on prices".   
Article 15.3,
599 which concerns cumulation, refers again to "the effects of the  imports " .   A s  n o t e d ,  
Article 15.4 requires an examination "of the impact of the subsidized imports  on the domestic 
industry".  Article 15.6600 addresses the issue of how "[t]he effect of the subsidized imports " is to be 
assessed.    With respect to Article 15.7, the Appellate Body considers that "Article 3.7 of the Anti-
Dumping Agreement and Article 15.7 of the SCM Agreement combine positive requirements—that 
such a determination 'be based on facts' and show how a 'clearly foreseen and imminent' change in 
circumstances would lead to further dumped/ subsidized imports  causing injury in the near future—
with an express prohibition of a determination b ased 'merely on allegation, conjecture or remote 
possibility'."601 
7.416  Article 11.2 of the SCM Agreement provides further contextual support for our interpretation 
of the "through the effects of subsidies" language in Article 15.5.  Article 11.2 provides that an 
application for the initiation of a countervailing dut y investigation "shall include sufficient evidence 
of the existence of (a) a subsidy and, if possible, its amount, (b) injury within the meaning of 
Article VI of GATT 1994  as interpreted by this Agreement, and (c) a causal link between the 
subsidized imports and the alleged injury ."   (emphasis added)  Article 11.2 then provides that the 
application shall contain such information as is r easonably available to the applicant on the following:  
(iv) evidence that alleged injury to a domestic industry is caused by subsidized 
imports  through the effects of the subsidies ;  this evidence includes 
information on the evolution of the volume of the allegedly subsidized imports, the effect of these imports  on prices  of the like product in the 
domestic market and the consequent impact of the imports  on the domestic 
industry, as demonstrated by relevant factors and indices having a bearing on the state of the domestic industry, such as those listed in paragraphs 2 and 4 of Article 15. (emphasis added) 
 
7.417  Thus, according to Article 11.2, information relating to the volume effects, the price effects, 
and the consequent impact of the subsidized imports  serves as evidence that in jury is caused by the 
subsidized imports through the effects of subsidies .   
7.418  Korea submits that the "through the effects of s ubsidies" language in Article 15.5 should be 
interpreted as requiring the same type of causation analysis that has been developed under the "effect 
of the subsidy" language in Article 6.3602 of the SCM Agreement .  We do not see how the terms of 
                                                      
599 Article 15.3 states:  "Where imports of a pro duct from more than one co untry are simultaneously 
subject to countervailing duty investigations, the inves tigating authorities may cumulatively assess the effects of 
such imports only if they determine that (a) the amount of subsidization established in relation to the imports 
from each country is more than de minimis  as defined in paragraph 9 of Article 11 and the volume of imports 
from each country is not negligible an d (b) a cumulative assessment of the e ffects of the imports is appropriate 
in light of the conditions of competition between the imported products and the conditions of competition 
between the imported products and the like domestic product." 
600 Article 15.6 states:  "The effect of the subsid ized imports shall be assessed in relation to the 
domestic production of the like product when available data  permit the separate identification of that production 
on the basis of such criteria as the production process, producers' sales and profits.  If such separate 
identification of that production is not possible, the eff ects of the subsidized imports shall be assessed by the 
examination of the production of the narrowest group or range of products, which includes the like product, for 
which the necessary information can be provided." 
601 Appellate Body Report, US – Softwood Lumber VI (Article 21.5 – Canada) , para. 96. 
602 Article 6.3 provides that: 
Serious prejudice in the sense of paragr aph (c) of Article 5 may arise in any 
case where one or several of the following apply: 
(a)  the effect of the subsidy is to displace or impede the imports of a 
like product of another Member into th e market of the subsidizing Member;  WT/DS336/R 
 Page 191  
 
 
Article 6.3 or prior panel reports interpreting this provision support Korea's interpretation of 
Article 15.5.   As the Panel in US – Upland Cotton stated: 
In view of the contrast in the text, context,  legal nature and rati onale of the provisions 
in Part III of the SCM Agreement relating to a multilateral assessment as to whether a 
Member is causing, through the use of any subsidy, "adverse effects" in the form of 
"serious prejudice to the interests of another Member" and Part V of the Agreement 
relating to obligations of a Member in  conducting a unilateral countervailing duty 
investigations, we decline to transpose directly the quantitative focus and more 
detailed methodological obligations of Part V into the provisions of Part III of the 
SCM Agreement .603 
7.419  That panel further found, on the basis of an analysis similar to our own, that "[t]hese 
references in Articles 5(c) and 6.3(c) to the "effect of the subsidy" contrast with the language used in 
the countervailing duty provisions in Part V of the Agreement."604 
                                                                                                                                                                     
(b)  the effect of the subsidy  is to displace or impede the exports of a 
like product of another Member  from a third country market; 
(c)  the effect of the subsidy  is a significant price undercutting by the 
subsidized product as comp ared with the price of a like product of another 
Member in the same market or significant price suppression, price 
depression or lost sales in the same market; 
(d)  the effect of the subsidy is an increase in the world market share of 
the subsidizing Member in a particul ar subsidized primary product or 
commodity as compared to the average share it had during the previous 
period of three years and this increas e follows a consistent trend over a 
period when subsidies have been granted. (emphasis added) 
603 Panel Report, US – Upland Cotton , para. 7.1177.   
604 Panel Report, US – Upland Cotton , para. 7.1227.  The Panel in US – Upland Cotton  noted:   
"For example, Article 15 of the SCM Agreement deals with the 
determination of injury in a countervailing duty investigation. Article 15.1 
requires a determination of injury to be based "on positive evidence and involve an objective examination of both (a) the volume of the subsidized 
imports and the effect of the subsidized imports on prices in the domestic 
market for like products and (b) the consequent impact of these imports on 
the domestic producers of such products." (emphasis added, footnotes 
omitted). Article 15.2 states, in part:  "... With regard to the effect of the 
subsidized imports on prices, the investigating authorities shall consider 
whether there has been a significant price undercutting by the subsidized 
imports as compared with the pri ce of a like product of the importing 
Member, or whether the effect of such imports is otherwise to depress prices 
to a significant degree or to preven t price increases, which otherwise would 
have occurred, to a significant degree." (emphasis added) Similar additional 
references to the "effects of the im ports";  "impact of the subsidized 
imports", "the effect of the subsidized imports" also exist in Article 15. 
Article 15.5 stipulates: 
"It must be demonstrated that the subsidized imports are , through the effects 
of subsidies , causing injury within the meaning of this Agreement. The 
demonstration of a causal relationship between the subsidized imports and the injury to the domestic industry shall be based on an examination of all 
relevant evidence before the authorities." (emphasis added, footnotes 
omitted). 
Other provisions in Part V of the SCM Agreement contain similar references to 
"through the effects of the subsidy, subsidized im ports are causing injury.. ." e.g. Article 19.1." 
(Panel Report, US – Upland Cotton , footnote 1346) WT/DS336/R 
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7.420  Finally, we disagree with Korea's contention that  our interpretation of Article 15.5 renders the 
"effects of subsidies " language in Article 15.5 inutile.  Article VI:6(a) of the GATT 1994  provides 
that: 
No Member shall levy any anti-dumping or  countervailing duty on the importation of 
any product of the territory of another Member unless it determines that the effect of 
the dumping or subsidization , as the case may be, is such as to cause or threaten 
material injury to an established domestic indus try, or is such as to retard materially 
the establishment of a domestic industry. (emphasis added) 
7.421  We first note that one of the purposes of the SCM Agreement is to interpret and clarify 
concepts in Article VI of the GATT 1994 .
605  As the Panel in Brazil – Desiccated Coconut  explained: 
It is significant, however, that Article 32.1 refers to the SCM Agreement as 
interpreting  Article VI of GATT 1994. Article VI of GATT 1994 sets forth a series of 
core concepts central to WTO regulation of countervailing measures (e.g., subsidy, 
material injury, domestic industry). These concepts are, however, expressed in only 
the most general terms, and are thus susceptib le of a wide range of interpretations. In 
our view, the Tokyo Round SCM Code and its successor the SCM Agreement were 
developed in part to lend greater preci sion and predictability to the rights and 
obligations under Article VI.606 (emphasis original)  
7.422  We also note that Article VI of the GATT 1994  (including but not limited to Article VI:6(a) 
thereof) and the SCM Agreement establish cumulative  obligations.    Article 10 of the SCM Agreement 
requires that Members take all necessary steps to  ensure that the imposition of a countervailing duty  
on any product of the territory of any Member import ed into the territory of another Member is in 
accordance "with the provisions of Article VI of GATT 1994  and the terms of this Agreement." As the 
Appellate Body explained in Brazil – Desiccated Coconut :   
From reading Article 10, it is clear that countervailing duties may only be imposed in 
accordance with Articl e VI of the GATT 1994 and  the SCM Agreement .  A 
countervailing duty being a sp ecific action against a subs idy of another WTO Member, 
pursuant to Article 32.1, it can only be impo sed "in accordance with the provisions of 
GATT 1994, as interpreted by this Agreem ent".  The ordinary meaning of these 
provisions taken in their context leads us to  the conclusion that the negotiators of the 
SCM Agreement clearly intended that, under the integrated WTO Agreement , 
countervailing duties may only be imposed in accordance with the provisions of Part V 
of the SCM Agreement and Article VI of the GATT 1994, taken together.607 
                                                      
605 We note that the full title of the Tokyo Round Subsidies Code was the " Agreement on Interpretation 
and Application of Articles VI, XVI and XXIII of the General Agreement on Tariffs and Trade ".  The preamble 
to the Code clarified that the parties to the Code had agreed to its terms desiring, inter alia , "to apply fully and 
to interpret the provisions of Articles VI, XVI and XX III" of the GATT, and to "elaborate rules for their 
application in order to provide greater uniformity and ce rtainty in their implementation".    The full title of the 
SCM Agreement  was shortened from the " Agreement on  Interpretation  and Application of Articles VI, XVI 
and XXIII of the General Agreement on Tariffs and Trade " to the " Agreement on Subsidies and Countervailing 
Measures ".  As the Appellate Body explained in Brazil – Desiccated Coconut , the reason for the change was 
that the SCM Agreement  "contains a set of rights and obligations that go well beyond merely applying and 
interpreting  Articles VI, XVI and XXIII of the GATT 1947" (Appellate Body Report, Brazil – Desiccated 
Coconut , page 17).  We note that Article 11.2 of the SCM Agreement refers to injury "within the meaning of 
Article VI of GATT 1994 as interpreted by this Agreement ", (emphasis supplied) and that Article 32.1 of the 
SCM Agreement  refers to the provisions of GATT 1994 " as interpreted by this Agreement ". (emphasis supplied)   
606 Panel Report, Brazil – Desiccated Coconut , para. 238.   
607 Appellate Body Report, Brazil – Desiccated Coconut , p. 16.    WT/DS336/R 
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7.423  With all of the foregoing in mind, we believe  that the "through the effects of subsidies" 
language in Article 15.5 serves the function of clarifying that " the effect of … subsidization " language 
in Article VI:6(a) of the GATT 1994  means the effect of subsidized imports (as set forth in 
Articles 15.2 and 15.4 of the SCM Agreement ).  We believe that, in the absence of such clarification, 
i.e., if the words "through the effects of subsidies" were not included in Article 15.5 and defined in 
footnote 47, the cumulative application of Article VI:6(a) and Article 15.5 of the SCM Agreement 
may have led to a certain degree of uncertainty as to  whether or not a separate "through the effect of 
subsidization" analysis was required by virtue of Article VI:6(a) of the GATT 1994 .608   
7.424  For these reasons, we find that Article 15.5 does not require that an i nvestigating authority 
demonstrate that the volume and price effects of the subsidized imports and the consequent impact on 
these imports on the domestic industry, as set forth in Articles 15.2 and 15.4, are "the effects of 
subsidies".  Neither party has made any separate argum ents in respect of Article 19.1.  Neither party 
has suggested that the phrase "through the effects of the subsidy" in Article 19.1 could be interpreted 
differently from the phrase "through the effects of subs idies" in Article 15.5, and we see no basis for 
doing so.  We therefore find that Article 19.1 does not require that an investigating authority 
demonstrate that the volume and price effects of the subsidized imports and the consequent impact on 
these imports on the domestic industry, as set forth in Articles 15.2 and 15.4, are "the effects of 
subsidies".  It is therefore unnecessary for us to rule on the issue of whether the JIA properly 
demonstrated that the volume and price effects of the subsidized imports a nd the consequent impact 
on these imports on the domestic industry were the "effects of subsidies" allegedly received by Hynix.   
7.425  We therefore find that Korea has failed to estab lish that the JIA acted inconsistently with 
Articles 15.5 and 19.1 of the SCM Agreement by failing to demonstrate that the allegedly subsidized 
imports were, "through the effects of subsidi es", causing injury within the meaning of the 
SCM Agreement .      
K. DIRECT TRANSFER OF FUNDS  
1. Arguments  
(a) Korea 
7.426  Korea claims that the JIA acted incons istently with Article 1.1(a) of the SCM Agreement by 
improperly finding that the October 2001 and Dece mber 2002 restructuring transactions involved a 
"direct transfer of funds".  Kor ea recalls that the JIA treated the modification of the terms of pre-
existing loans (including extensions of the maturities of existing loans, reductions of the interest rates 
on existing loans, and conversion of interest to pr incipal) and debt-to-equity swaps as transactions 
involving a "direct transfers of funds".  Korea argues that transactions that merely change the terms of 
existing claims, and do not involve the provision of money to the alleged subsidy recipient, cannot be 
characterized as transactions involving a  "direct  transfer of funds" within the meaning of 
Article 1.1(a)(1)(i).    
7.427  Korea argues that a "direct tr ansfer of funds" under Article 1.1(a)(1)(i) requires, at a 
minimum, that there be a "transfer" of "funds".  In  this regard, Korea relies on dictionary definitions 
of the term "transfer" as meaning a "conveyance from one person to another of property"  and of the 
term "funds" as meaning "money."  Korea argues that in  order for there to be a "transfer" of "funds," 
                                                      
608 As the Panel in Brazil – Desiccated Coconut  observed, "it is evident to the Panel that Article VI of 
GATT 1994 in isolation could be interpreted differently from Article VI in conjunc tion with either the Tokyo 
Round SCM Code or the SCM Agreemen t. Further, the application of Article VI of GATT 1994 in isolation 
with respect to this issue could result in obligations on an investigating country which are more stringent than 
those imposed by Article VI in conjunction with eith er the Tokyo Round SCM Code or the SCM Agreement." 
(Panel Report, Brazil – Desiccated Coconut , para. 251).   WT/DS336/R 
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money must therefore change hands, and that if m oney does not change hands, there is not "a direct 
transfer of funds".   According to Korea, this conc lusion is reinforced by an analysis of the language 
of the French and Spanish texts of Article 1.1(a)(1)(i).   
7.428  Korea argues that the examples of direct transf ers of funds included in sub-paragraph (i) of 
Article 1.1(a)(1) do not imply that any and all tran sactions that involve debt or equity constitute 
"direct transfers of funds" in the absence of an actua l "transfer of funds."  Rather, the reference to 
"grants, loans, and equity infusion" in Article 1.1(a)(1)(i) serves only to clarify that all "direct 
transfers of funds" by a government constitute "fin ancial contributions," regardless of what the 
recipient gives back to the government in return. 
7.429  Korea argues that there is no "transfer" of "funds" when a creditor agrees only to modify 
terms of existing loans or to exchange existing loan s for equity in the borrowe r.   Korea argues that 
there is "no conveyance of money" when a lender ag rees to extend the maturities of existing loans, or 
to reduce the interest rates on existing loans.  A ccording to Korea, in t hose transactions, a creditor 
holding existing claims against the borrower agrees to modify the nature of those claims, without 
providing any money to the borrower.  Korea submits that the same logic applies to debt-to-equity 
swaps:  in such transactions, the lender exchanges one set of claims on the company (as embodied in 
the loan agreement) for a different set of claims (as embodied in share-ownership).   
7.430  Korea rejects Japan's argument that a broad de finition of the term "transfer of funds" is 
needed to prevent circumvention of the SCM Agreement 's disciplines on subsidies.  According to 
Korea, that argument is based on the false assumpti on that extensions of loan maturities and debt-to-
equity swaps could never be considered "financial contributions" if they are not classified as "direct 
transfers of funds."  Korea argues that the modifi cation of the terms of existing loans and debt-to-
equity swaps that provide a "financial contribution" to the recipient might be classified as "foregone revenue" within the meaning of paragraph (ii) of Arti cle 1.1(a)(1).  In response to a question from the 
Panel, Korea submits that althoug h sub-paragraph (ii) concerns " government  revenue", a decision by a 
private creditor to forego revenue as a result of gove rnment entrustment or direction would fall under 
paragraph (iv), because the private creditors' acti on would be a "type of function illustrated in 
paragraph (ii)" of Article 1.1(a)(1).  In other wo rds, if the private creditors had been government 
bodies, the extensions of loan maturities and debt-t o-equity swaps undertaken by the private creditors 
would have fallen in the category of "government re venue that is otherwise due is foregone or not 
collected".  Korea submits that in this case, however, the JIA did not make the factual findings 
required to support a determination that the transact ions resulted in any reve nue being "foregone" by 
the creditors. 
7.431  Korea further argues that no revenue otherwise due  was in fact "foregone" in the restructuring 
transactions at issue in the investigation for two r easons.  First, the creditors' decision to allow Hynix 
to delay payment, as long as Hynix agreed to pay additional interest on the outstanding amounts for the additional period, did not constitute revenue "for egone".  Second, the modification of the terms of 
existing loans and debt-to-equity sw aps, and debt forgiveness agreed to by Hynix's creditors in the 
restructurings, did not result in the creditors receivi ng a lesser amount than they would have if Hynix 
had been liquidated, and there was therefore no revenue "foregone".   
7.432  Korea recalls that for the purpose of calculati ng the amount of the subsidy when the maturity 
of a loan is extended, the JIA deemed that the exis ting liability is repaid and a new loan is granted at 
the time the extension is made, and that for the pu rpose of calculating the amount of the subsidy when 
a debt is swapped for equity, the JIA deemed that  the existing liability is repaid and a new equity 
infusion is provided at the time of the debt-to-e quity swap.  According to Korea, the JIA's entire 
analysis was premised on its finding that Hynix was insolvent and could not repay  its existing debts, 
and given that premise, it was plainly inconsistent for the JIA also to assume that Hynix had, in each transaction, repaid all of its existing debts in full,  before receiving new "tra nsfers of funds" from its 
creditors.    WT/DS336/R 
 Page 195  
 
 
(b) Japan 
7.433  According to Japan, Korea's rest rictive interpretation of the term "transfer of funds" in 
Article 1.1(a)(1)(i) is inconsistent with the ordinary  meaning of the term "funds", is at odds with the 
meaning to be given to that term in its contex t, and would frustrate the object and purpose of the 
SCM Agreement .  Japan recalls that the panel in Korea – Commercial Vessels  rejected a very similar 
argument by Korea in that case.609   
7.434  Japan submits that dictionary definitions610 of the word "funds" support the conclusion that 
the ordinary meaning of the term "funds" encompasses more than just "money".  Japan adds that even 
the term "money" itself is not limited to "real cash", but includes as well "property, possessions, resources, etc., viewed as having exchangeable va lue or a value expressible in terms of monetary 
units" or more directly, "financial gains."  Thus, according to Japan, the ordinary meaning of "funds" 
includes not only money, but all financial resources, which have monetary or exchangeable value or 
provide financial gains.  
7.435  Japan argues that the broader reading of the term "funds" to include "financial resources" 
having "monetary or exchangeable value" is confir med by the illustrative list of direct transfers of 
funds included in Article 1.1(a)(1)(i), which includes "grants, loans, and equity infusion."  Japan relies 
upon the statement by the panel in Korea-Commercial Vessels  that "[t]he fact that the listed kinds of 
direct transfers of funds (grants, loans and equi ty infusions) are identified as only examples clearly 
indicates that there may well be other types of instruments that would equally constitute direct transfers of funds in the sense of Article 1.1(a)(1)(i)".
611  As context, Japan also relies on the 
Appellate Body's conclusion that "the concep t of subsidy defined in Article 1 of the SCM Agreement 
captures situations in which something of economi c value is transferred by a government to the 
advantage of a recipient".612   
7.436  Japan argues that an overly restrictive reading of the terms of Article 1.1(a)(1)(i) would 
frustrate the object and purpose of the SCM Agreement .  Japan argues that an interpretation which 
would restrict the terms "transfer of funds" to acts of "conveying money", excluding extension of 
credit through the substantial modification of terms of existing loans or an exchange into equity of the 
monetary value equivalent to the existing debt, would open the door to abuse and offer an easy way of 
circumventing the disciplines of the SCM Agreement .  
7.437  Japan submits that transactions modifying the te rms of existing loans fall squarely within the 
scope of "direct transfers of funds" contemplated under Article 1.1(a)(1)(i).  Japan submits that as a 
practical matter, such changes to the terms of loans amount to a re-i ssuance of the loan as the terms of 
the original loan are extinguished and replaced with new terms.  Japans submits that a debt-to-equity 
swap also clearly involves a "transfer of funds",  since Article 1.1(a)(1)(i) specifically provides for 
"equity infusion" as an example of a direct transfer of funds, and a debt-to-equity swap is one method of making an equity infusion.   
7.438  In the light of foregoing, Japan considers Ko rea's arguments regardi ng "government revenue 
foregone" irrelevant.   
                                                     
 
609 Japan refers to Panel Report, Korea-Commercial Vessels , para. 7.413. 
610 Japan refers to definitions taken from the Concise Oxford English Dictionary (10th ed. 2002) and the 
Oxford English Dictionary (2nd ed. 1989). 
611 Japan refers to Panel Report, Korea-Commercial Vessels , para. 7.412. 
612 Appellate Body Report, US – Softwood Lumber IV , para. 51. WT/DS336/R 
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2. Evaluation by the Panel 
7.439  This claim raises the issue of whether the modi fication of loan repayment terms (including 
extensions of the maturities of existing loans, reduc tions of the interest rates on existing loans, and 
conversion of interest to principal) and debt-to- equity swaps can be characterized as transactions 
involving a "direct transfers of funds" within the meaning of Article 1.1(a)(1)(i).  In addressing this 
claim, we do not exclude that certain of the rele vant transactions might be covered simultaneously by 
different sub-paragraphs  of Article 1.1(a)(1).
613  The issue before us, though, is not whether the 
modification of loan repayment terms and debt-to-equi ty swaps might also be treated, for example, as 
government revenue foregone.  The issue is whether the JIA erred in treating such transactions as 
"direct transfers of funds". 
7.440  The parties have presented a number of dictionary  definitions regarding the ordinary meaning 
of the terms "transfer" and "funds".  On the ba sis of Korea's Final Comments to the Panel, we 
consider that there is ultimately no dispute betw een the parties regarding the basic meaning of the 
word "funds".  In particular, we understand Korea to accept that the term "funds" might be defined 
more broadly than it initially suggested in its Fi rst Written Submission, to mean the "money or other 
financial assets that might be counted in a person's 'capital'".614  This is very similar to the definition 
proposed by Japan.  We do not disagree that this  is the ordinary meaning of the term "funds".615 
7.441  Korea acknowledges the basic agreement between  the parties on the meaning of the term 
"funds", and argues that "the critical question is whether the transaction in question involves a 'transfer' of money or other monetary assets from the government or government-directed entity to the 
recipient."
616  According to Korea, "in debt forgiveness, de bt-to-equity swaps, or extensions of loan 
maturities, there is no transfer of money or other monetary resources from the government or 
government-directed entity to the recipient.  Instead , there is only a relinquishment or modification of 
the claims that were held by the government or  government-directed entity by virtue of a prior 
loan."617 
7.442  We do not accept that the relinquishment or modification of claims may not, in certain 
circumstances, be treated as the transfer of new claims, giving rise to new rights and obligations.  For 
example, once one analyses what ac tually occurs in the transaction,  the modification of an existing 
loan may properly be treated as the transfer of new rights to the recipient of the modified loan.  The 
borrower's old rights no longer exist.  They have been replaced by new rights.  In this sense, the 
modified loan may properly be treated as a new loan.  Thus, the modification of a loan through debt forgiveness involves the transfer of new rights to th e borrower, who is now liberated of the obligation 
to repay the debt, and instead has the right to use th e money for free.  Similarly, the modification of a 
loan through an extension of the loan maturity i nvolves the transfer of new rights to the borrower, 
who is now entitled to borrow the money for a longer  period of time.  Since the new rights that are 
transferred in such transactions have monetary valu e, and may be counted in a (legal or natural) 
person's capital, we consider that such transactions  may properly be treated as "direct transfers of 
                                                     
 
613 In this regard, we note that the Appellate Body stated at para. 113 of its Report in US – 
Countervailing Measures on Certain EC Products  that:  "[A] transfer of funds could be provided directly from 
the government to the legal person that is the producer of the subsidized product, or it could be provided 
indirectly, say, through an income tax concession to the natural persons that own the firm (inasmuch as they 
invest in the legal person's productive activities).  In both cases, the cost of raising capital for the legal person 
that is the producer would be reduced."  This would app ear to suggest that an income tax concession could, in 
certain circumstances, be treated both as a direct  transfer of funds an d as revenue foregone. 
614 See Korea's Final Comments, para. 22. 
615 We note that the Appellate Body has similarly found that subsidies generally involve transactions 
where "something of economic  value" is transferred.  See, for example, Appellate Body Report, US – Softwood 
Lumber IV , para. 51. 
616 See Korea's Final Comments, para. 23. 
617 See Korea's Final Comments, para. 23.  WT/DS336/R 
 Page 197  
 
 
funds" in the meaning of Article 1.1(a)(1)(i) of the SCM Agreement .  We apply the same analysis to 
debt-to-equity swaps, for the relinquishment and modi fication of claims inherent in such transactions 
similarly results in new rights, or claims , being transferred to the former debtor. 
7.443  Furthermore, we note that in Korea-Commercial Vessels , Korea advanced essentially the 
same argument that it advances here.  In that case, Ko rea argued that the debt-to-equity swaps, interest 
rate reductions, interest forgiveness and interest deferral at issue did not constitute "financial 
contributions" because there was "no transfer of pecuniary value" to the companies under workout or corporate reorganization.
618  The panel rejected Korea's argu ment, and found that all of those 
transactions involved a "direct transfer of funds" within the meaning of Article 1.1(a)(1)(i):   
7.411  We are not persuaded by Korea's arguments that debt-for-equity swaps and 
interest reductions and deferrals are not fina ncial contributions. In the first place, we 
recall that there is a financial contribution in the sense of Article 1.1(a)(1)(i) of the SCM Agreement if there is a "direct transfer of funds", and that grants, loans and 
equity infusions are listed only as three possi ble examples of such transfers. Thus, we 
view Article 1.1(a)(1) as identifying in its  respective subparagraphs the kinds of 
instruments or transactions that could be c onsidered to be "financial contributions". 
Of course these instruments would only be covered by the Agreement if they were made "by a government or public body", and they would only be subsidies covered 
by the Agreement if they both conferred a benefit and were specific.  Thus, the 
concept of financial contribution is but one  in a set of cumulative, and independent, 
elements all of which must be present for a measure to be regulated by the SCM Agreement. 
7.412  We find the examples listed in Ar ticle 1.1(a)(1)(i) to be illuminating in 
respect of the scope of the term "direct  transfer of funds". Most importantly, 
considering the "medium of exchange" in th e listed examples, we note that all of the 
examples involve transfers of money ("funds"), as opposed to in-kind transfers (of 
goods or services, in the sense of Article 1.1(a)(1)(iii)). The fact that the listed kinds 
of direct transfers of funds (grants, loans and equity infusions) are identified as only examples clearly indicates that there may well be other types of instruments that would equally constitute direct transfers of funds in the sense of Article 1.1(a)(1)(i). 
 7.413 Turning to the particular cases of the transactions involved in the 
restructuring, we find that all of them are of the same nature as those explicitly listed 
in Article 1.1(a)(1)(i). First we note that in terest reductions and deferrals are similar 
to new loans, as they involve a renegotiation / extension of the terms of the original 
loan.  We see no reason why loans would co nstitute financial c ontributions while 
interest reductions and deferrals  would not. Further, we cons ider that interest / debt 
forgiveness is comparable to a cash grant, as funds that were previously provided as a 
loan, against interest, are now provided for free, given the removal of the repayment 
obligation. All of these transactions therefore constitute direct transfers of funds in 
the sense of Article 1.1(a)(1)(i) of the SCM Agreement .  Regarding debt-for-equity 
swaps, we note that equity infusions are exp licitly listed as a type of direct transfer of 
funds in Article 1.1(a)(1)(i). Since we have also found that debt forgiveness 
constitutes a direct transfer of funds, we  see no reason why a combination of equity 
infusion and debt forgiveness should fall outsi de the scope of that provision.  The 
reason why creditors agree to such transactions ( i.e., whether or not it is in order to 
preserve going concern value) is not releva nt to the issue of whether or not the 
transactions constitute financial contributions.  Rather, it rela tes to the issue of benefit 
                                                     
 
618 Korea-Commercial Vessels , para. 7.408.   WT/DS336/R 
Page 198  
 
(in the sense of whether or not creditors operating on market principles would have undertaken such transactions on the same terms).  ….  
7.420 ... Equity infusions and debt-for-equity  swaps have the same effect, in the 
sense that equity changes hands against c onsideration in both cases (and subsidization 
arises if the amount of consideration is less than the market would have provided). Also, a debt/equity swap comprises an element of equity infusion. 
7.444  We agree with this analysis by the panel in Korea – Commercial Vessels .  We agree in 
particular that it is appropriate to look beyond the si mple form of a transaction, and analyze its effects, 
in determining whether or not a transaction constitutes a "direct transfer of funds".
619 
7.445  Finally, we note that a central element in Ko rea's claim is its argument that the JIA's finding 
of "direct transfers of funds" was based on a "legal fiction"620 that did not exist.621  Korea asserts that 
                                                      
619 We note that the Appellate Body would appear to agree that, in establishing the existence of a 
financial contribution, investigating authorities may pr operly consider the consequences of the relevant 
transactions:  [W]e disagree with Canada's submission that  the granting of an intangible right to harvest standing 
timber cannot be equated with  the act of providing that standing timber.  By granting a right to harvest, the 
provincial governments put particular stands of timber at the disposal of timber harvesters and allow those enterprises, exclusively, to make use of those resources.  Canada asserts that governments do not supply felled 
trees, logs, or lumber through stumpage transactions.
   In our view, this assertion misses the point, because felled 
trees, logs and lumber are all distinct  from the "standing timber" on which the Panel based its conclusions.  
Moreover, what matters, for purposes of determining whether a government "provides goods" in the sense of 
Article 1.1(a)(1)(iii), is the consequence of the transaction ." (US – Softwood Lumber IV , para. 75, emphasis 
supplied, footnote omitted.) 
620 See Korea's Second Written Submission, para. 55. 
 621 We note that the "legal fiction" alleged by Kor ea actually reflected the way that Hynix itself viewed 
the transactions:    [Hynix] With regard to the debt-to-equity sw ap in the December 2002 Program, upon reasonable 
interpretation of the accounting standards of the country subject to the investigation, the 
SCM Agreement, Guidelines, etc., e ither the timing of receipt of the subsidy should be considered as 
having been in 2002, or it should be found that a subsidy does not exist.  In the unlikely event that the 
December 2002 Program is found to be  subsidy, it would be appropriat e that the Govern ment of Japan 
treated the benefit from the debt-to- equity swap resulting from the pr ogramme, as having been received 
in 2002.  Micron's opinion is in appropriate because it lacks underst anding of the fact that the debt-to-
equity swap encompasses the concept of disappearance of debt , not the issuance of stocks itself;  it is 
an incorrect assertion for the sole  purpose of extending the effective period of the subsidy and is not 
based on either the SCM Agreement or Japanese dom estic law.  In other words, in this case, Hynix 
would not be receiving any benefit from the issuance of stocks, bu t conversely, it would have to bear 
the obligation of paying dividends to shareholders in conjunction with the issuance of stocks.  
According to the Guidelines  13(1)(iii), in this case, it can be said  that the investment is being provided 
by transferring , so to speak, existing claims to debtor, and the transfer of claims  itself was established 
in the resolution that was made by  the Council for Creditor Financia l Institutions in December 2002.  
As the transfer  was reflected in the FY 2002 financial statements of Hynix,  the Government of Japan 
should maintain its finding of fact in the Essential Facts that the debt-to-equity swap pertaining to the 
December 2002 Program wa s received in 2002. 
• On 30 December 2002, the creditor financial institutions made a reso lution on a debt restructuring 
proposal that included converting 50 per cent of unsecured claims to equity.  As it was enforceable by 
the law, CRPA, the resolution took immediate eff ect.  After that resolution was made, the creditor 
financial institutions could do no more than simply  choose the method of the debt-to-equity swap.  
With adoption of the plan set forth in the resolution, the obligations borne by Hynix in connection with 
the subject claims disappeared , and even the creditor financial institutions could no longer exercise 
their rights as creditors against Hynix.  Particularly , as section 2. (e) (2) in 30 December 2002 proposal 
by the Council for Creditor Financial Institutions states that "interest on claims subject to the debt-to- WT/DS336/R 
 Page 199  
 
 
the JIA simply "deemed" the relevant transactions to constitute (1) repayments followed by (2) new 
transfers to the borrower, thereby ignoring the fact that, in reality, Hynix was insolvent and could not 
repay its debts.  This argument suggests that the real problem underlying Korea's Article 1.1(a)(1)(i) 
claim is the fact that the JIA failed to consider the substance of the transactions from the perspective 
of the inside investor, i.e., the investor who could not expect full repayment of its debt.  This issue is 
properly addressed elsewhere, in the context of our evaluation of the JIA's calculation of the amount 
of benefit.622 
7.446  For the above reasons, we find that the JIA c ould properly characterize the modification of 
loan repayment terms (including extensions of th e maturities of existing loans, reductions of the 
interest rates on existing loans, and conversion of in terest to principal) and debt-to-equity swaps as 
transactions involving a "direct transfers of fund s" within the meaning of Article 1.1(a)(1)(i).623 
L. CHANGE IN OWNERSHIP  
1. Claim 
7.447  Korea claims that Japan acted  inconsistently with Articles 10, 14, 19, and 21 of the 
SCM Agreement , on the basis that Japan imposed and maintained countervailing duties without 
determining whether a benefit contin ued to exist following the changes in the ownership of Hynix that 
resulted from the October 2001 and December 2002 restructurings.   
7.448  Japan submits that the Panel should reject Korea's claim and argument. 
2. Arguments 
(a) Korea 
7.449  Korea claims that the debt-to-equity swaps undertaken in the October 2001 and 
December 2002 restructurings worked a fundament al change in the ownership of Hynix.   
                                                                                                                                                                     
equity swap generated after the date of this re solution shall be exempted," the creditor financial 
institutions that agreed to the debt-to-equity swap could no longer exercise any rights whatsoever in 
connection with their claims after the date of the resolution. 
• The fact that debt disappeared after the debt-to-equity swap  is also shown from the fact that debt 
decreased by a total of approximately KRW 2.2 trillion as a result of the posting of the amount of the 
debt-to-equity swap based on the December 2002  Program into a capital adjustment item on its 
balance sheet as of 2002 , and also as a result of a reduction of short-term loans, long-term loans, 
corporate bonds, and other loans on the 2002 balance sheet .  After the resolution on the 
December 2002 Program, there existe d absolutely no appende d conditions that coul d modify the debt-
to-equity swap.  The series of procedures that were taken after the date of the resolution as referred to 
in the Micron opinion all relates to the stock issuance  format, which has no effect to the debt-to-equity 
swap effective as of December 2002.  The reso lution by the creditor financial institutions in 
December 2002 itself is an agreement by the creditor financial institutions  to convert 50 per cent of the 
value of unsecured claims to Hynix stocks.  Because of this agreement,  Hynix was able to eliminate the 
debt from its 2002 audited financial statements and simultaneously post the corresponding amount as a 
capital adjustment item.  Then, the existing debt of the creditor financial institutions was posted as 
repaid as of 30 December 2002, an d posted in a capital adjustment  item in the acc ounting treatment.   
(Annex 3 (Rebuttals and Surrebuttals), para. 555, emphasis supplied). 
We further note that the parties' replies to Question 128 from the Panel indicate that both Hynix and the 
creditors recorded the debt-to-equity swaps as debt repayments and equity infusions, consistent with the 
JIA's treatment of these transactions.  
622 See section VII.E.7(c) supra . 
623 Whether a benefit was thereby conferred, and measuring the amount of that benefit, are separate 
issues subject to separate disciplines in the SCM Agreement . WT/DS336/R 
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7.450  Korea recalls the Appellate Body's finding, in US – Countervailing Measures On Certain EC 
Products, that where there is a change in the ownershi p of a company at fair market value, the 
investigating authorities must consider whether the subsidies received before the change in ownership 
continued to provide a benefit afte r the ownership change.  Korea recalls that the Appellate Body also 
held that a change in ownership in a transac tion at "fair market value" creates a rebuttable 
presumption that the benefits of the subsidy have been extinguished.   Korea recalls the Appellate 
Body's finding that the failure of  the investigating authorities in that case to consider whether the 
subsidies received before the cha nge in ownership continued to provi de a benefit after the ownership 
change was inconsistent with  Articles 10, 14, 19, and 21. 
7.451   Korea argues that the JIA failed to consider  whether the subsidies allegedly provided to 
Hynix continued to provide benefits "following  the change in ownership wrought by the debt-to-
equity swaps", and that the JIA's determination wa s therefore inconsistent with Articles 10, 14, 19, 
and 21. 
(b) Japan 
7.452  Japan argues that Korea's change in ownership argument is presented without any analysis or 
explanation on how Articles 10, 14, 19, and 21 suppor t its conclusion, and that Korea has thus failed 
to establish a prima facie  case.  
7.453  Japan disputes the relevance of the Appellate Body's findings in US – Countervailing 
Measures On Certain EC Products , arguing that the present case is completely different from the 
specific situation in which a subsidy was presumed to  extinguish through a change in ownership from 
another perspective.  Japan argues that the debt-to-equity swaps under the October 2001 and 
December 2002 debt restructurings do not meet a ny of the conditions established by the Appellate 
Body.  Japan argues that Korea has presented no  argument or evidence regarding a change in 
ownership after the findings of benefit under each Progr am.  According to Japan, the issue of a change 
in ownership is whether a subsidy continues to provide  a benefit after a transfer of all or substantially 
all the property of the recipient of the subsidy ( i.e., through privatization) through an arm's length 
transaction at fair market value.   
7.454  Japan further submits that Korea is repeating an  argument which has already been rejected by 
the panel in Korea – Commercial Vessels .
624   
7.455  Japan also argues that the provisions of Articles 1.1(a)(1)(i) and 14(a) of the SCM Agreement 
clearly contradict an interpretation that an equi ty infusion that amounts to a subsidy simultaneously 
extinguishes the benefit therein.  
3. Evaluation by the Panel 
7.456  We consider that the application of WT O case law regarding the pass-through of 
pre-privatization subsidies would be  inapposite in the present case.  Ko rea argues that "where there is 
a change in the ownership of a company at fair market value, the investigating authorities must 
consider whether the subsidies received before the change in ownership  continued to provide a benefit 
after the ownership change."625  Since the change in ownership alluded to by Korea took place as a 
result of the October 2001 and December 2002 restructurings respectively, Korea's argument would therefore concern benefit conferre d by subsidies allegedly received before the changes in ownership.  
The present case, though, concerns the countervailabil ity of subsidies that were allegedly provided by 
                                                     
 
624 Japan refers to Panel Report, Korea – Commercial Vessels , para. 7.419. 
625 See Korea's First Written Submission,  para. 261, emphasis supplied.  WT/DS336/R 
 Page 201  
 
 
the changes of ownership themselves.  This issue was not addressed by the WTO case law on pass-
through of pre-privatization subsidies.626 
7.457  The only possible significance of the WTO case law regarding pass-through during 
privatization concerns the principle that th e presumption against pass-through arises when a market 
price  is paid for the privatized entity.627  In other words, this case law indicates that benefit is to be 
assessed by reference to the market, and that no benef it is conferred when a market price is paid.  If 
the October 2001 and December 2002 restructurings we re made on market terms, those restructurings 
would not have conferred a benef it (and there would be no need for Korea to rely on the WTO case 
law on change in ownership).  If the restructurings were not made on market terms, they would have 
conferred a benefit (and the WTO case law on change in ownership would not change that result, for 
the presumption against pass-through of benef it from prior subsidies only applies when the 
privatization takes place on market terms). 
7.458  For the above reasons, we reject Korea's cl aim that Japan acted inconsistently with 
Articles 10, 14, 19, and 21 of the SCM Agreement , on the basis that Japan imposed and maintained 
countervailing duties without determining whether a benefit continued to exist following the changes 
in the ownership of Hynix that resulted from th e October 2001 and December 2002 restructurings. 
M. ARTICLE 32.1 
1. Claim 
7.459  Korea claims that, as a consequence of Japan 's violation of other provisions of the 
SCM Agreement , Japan's imposition of countervailing duties on imports of DRAMS from Korea was 
not consistent with the requir ements of Article 32.1 of the SCM Agreement .  
7.460  Japan submits that the Panel should reject Korea's claim and argument. 
2. Applicable provision  
7.461  Article 32.1 provides that: 
"No specific action against a subsidy of another Member can be taken except in 
accordance with the provisions of GATT 1994,  as interpreted by this Agreement." 
(footnote omitted) 
3. Arguments  
(a) Korea 
7.462  Korea does not present any independent arguments in respect of its claim under Article 32.1. 
                                                      
626 We agree with the treatment of a similar argument by the panel in Korea – Commercial Vessels  
("Korea relies on WTO case-law concerning the changes in ownership in the context of privatizations to argue 
that a financial contribution, like benefit, must be co nferred on a legal or natural person, rather than on 
productive operations / assets.  We are not persuaded that such case-law is relevant, however, since this is not a 
case involving privatization. In those privatization cases, the alleged subsidy took place prior to privatization, 
and the question was whether the benefit from those earlier subsidies was extinguished upon the change in-ownership. The change in ownership in those cases was undertaken at arm's length, and for fair market value. In 
the present case, however , the change in ownership is the alleged subsidy." (para. 7.419)) 
627 The Appellate Body has confirmed that "[p]rivatization at arm's length and for fair market value may 
result in extinguishing the benefit.  Indeed, we find that there is a rebuttable presumption that a benefit ceases to 
exist after such a privatization."  ( US – Countervailing Measures on Certain EC Products, para. 127 (emphasis in 
original)). WT/DS336/R 
Page 202  
 
(b) Japan 
7.463   Japan notes that Korea did not present an i ndependent argument on the inconsistency with 
Article 32.1.  Japan finds support in  several Appellate Body reports for the proposition that a violation 
of Article 32.1 is necessarily dependent on a finding that the Member otherwise acted inconsistently 
with its obligations under the SCM Agreement .  Japan submits that, as the alleged inconsistency under 
Article 32.1 is entirely consequential to the other e rrors alleged but not substa ntiated by Korea, this 
allegation should also be dismissed.    
4. Evaluation by the Panel 
7.464  This claim is dependent on other claims made  by Korea.  Given our finding regarding the 
inconsistency of the JIA's determin ation of government entrustment or direction and the existence of 
benefit in respect of the December 2002 restructur ing, and the JIA's calculation of the amount of 
benefit in respect of both the October 2001 and December 2002 restructurings, and in the absence of any independent argumentation by Korea in this r espect, we do not find it necessary for the resolution 
of the dispute to address this Korean claim con cerning the inconsistency with Article 32.1 of the 
SCM Agreement . 
VIII.  CONCLUSIONS AND RECOMMENDATION  
8.1 In light of the above findings, we reject  Korea's claims that: 
a. Japan improperly found government "entrustment  or direction" of the Four Creditors 
to participate in the October 2001 restructuring, contrary to Article 1.1(a)(1)(iv) of the SCM Agreement ; 
b. Japan improperly found that the October 2001 restructuring conferred a benefit on 
Hynix, contrary to Articles 1.1(b) and 14 of the SCM Agreement ; 
c. Japan improperly treated certain Hynix creditors as "interested parties", and 
improperly applied facts available and ma de adverse inferences, contrary to 
Articles 12.7 and 12.9 of the SCM Agreement ; 
d. Japan improperly found that the October 2001 and December 2002 restructurings 
constituted "direct transfer[s] of funds", contrary to Article 1.1(a)(1)(i) of the 
SCM Agreement ; 
e. Japan improperly determined that the October 2001 and December 2002 
restructurings were specific, contrary to Article 2 of the SCM Agreement ; 
f. Japan improperly failed to determine whethe r or not a benefit continued to exist 
following changes in the ownership of  Hynix as a result of the October 2001 and 
December 2002 restructurings;  and 
g. Japan's determination imprope rly failed to demonstrate that the subsidized imports 
were, through the effects of subsidies, causi ng injury, contrary to Article 15.5 of the 
SCM Agreement ; 
8.2 In light of the above findings, we uphold
 Korea's claims that: 
a. Japan improperly found government "entrustment  or direction" of the Four Creditors 
to participate in the December 2002 restructur ing, contrary to Article 1.1(a)(1)(iv) of 
the SCM Agreement ;  WT/DS336/R 
 Page 203  
 
 
 
b. Japan improperly found that the December 2002 restructuring conferred a benefit on 
Hynix, contrary to Articles 1.1(b) and 14 of the SCM Agreement ; 
 
c. Japan improperly calculated the amount of be nefit conferred by the October 2001 and 
December 2002 restructurings, contrary to Articles 1.1(b) and 14 of the 
SCM Agreement ; 
 
d. Japan improperly used methods to calculate th e amount of benefit to the recipient that 
were not provided for in its national legisl ation or implementing regulations, contrary 
to the chapeau  of Article 14 of the SCM Agreement ;  and 
 
e. Japan improperly levied countervailing duties in  2006 to offset some of the subsidies 
provided by the October 2001 restructuring, even though the JIA only found that some of those subsidies applied from 2001 through to 2005, contrary to Article 19.4 
of the SCM Agreement ; 
 8.3 In light of the above findings, we decline to rule separately on Korea's claims that: 
a. Japan acted inconsistently with Articles 1 and 2 of the SCM Agreement by reversing 
the burden of proof and basing its findings of  "financial contribution" and "benefit" 
on the absence of evidence; 
b. Japan improperly imposed countervailing duties on the basis of a flawed analysis of 
benefit, contrary to Article 19.4 of the SCM Agreement and Article VI:3 of the 
GATT 1994 ;  and 
c. Japan improperly imposed countervailing du ties contrary to Article 32.1 of the 
SCM Agreement . 
8.4 Under Article 3.8 of the DSU , in cases where there is infringement of the obligations assumed 
under a covered agreement, the action is considered prima facie  to constitute a case of nullification or 
impairment of benefits under that agreement.  Accordingly, we concl ude that to the extent Japan has 
acted inconsistently with the provisions of the SCM Agreement , it has nullified or impaired benefits 
accruing to Korea under that Agreement.  
8.5 Article 19.1 of the DSU is explicit concerning the recommenda tion a panel is to make in the 
event it determines that a measure is in consistent with a covered agreement: 
[i]t shall recommend that the Member concerned bring the measure into conformity 
with that agreement. (footnotes omitted) 
8.6 We therefore recommend that the Dispute Settleme nt Body request Japan to bring its measure 
into conformity with its obligations under the SCM Agreement .
 628 
                                                      
628 Korea initially submitted (at para. 48 of its Second Written Submission, and in response to 
Question  54 from the Panel) that, since the JIA did not use methods that are consistent with the first sentence of Article 14 to calculate the benefit to Hynix, the requir ements of Article 1.1 were not met and no countervailing 
duties should have been imposed.  Korea stated that the Panel should therefore recommend that Japan 
immediately rescind the countervailing duties it has imposed.  At the Second Substantive Meeting, and in response to Question 119 from the Panel, Korea clarifie d that it was only asking the Panel to recommend that 
Japan bring its measures into conformity.  Accordingly, th ere is no need for us to address Korea's initial request 
that we recommend that Japan immediately rescind the countervailing duties it has imposed. WT/DS336/R 
Page 204  
 
8.7 Korea has asked the Panel to suggest that th e countervailing duty measures imposed by Japan 
on imports of DRAMS from Korea be immediatel y rescinded, and that any countervailing duties 
collected by Japan on such imports be refunded fort hwith.  In this regard, we note that Article 19.1 
goes on to provide that: 
[i]n addition to its recommendations, the pa nel or Appellate Body may suggest ways 
in which the Member concerned c ould implement the recommendations. 
8.8 We thus consider that Article 19.1 would a llow us to make the suggestion requested by 
Korea.  However, we have found various vi olations of Japan's obligations under the SCM Agreement , 
which may necessitate differing responses in order to  bring the measure concerned into conformity 
with Japan's obligations under the SCM Agreement .  In our view, the modalities of the implementation 
of our recommendation are, in the first place, for Japan to determine.  We therefore decline to make 
the suggestion requested by Korea. 
_______________ 
 
  WT/DS336/R 
 Page A-1 
 
 
  
 
ANNEX A 
 
 
REQUEST FOR THE ESTABLISHMENT  
OF A PANEL BY KOREA 
 
 
 WORLD TRADE  
ORGANIZATION  WT/DS336/5 
19 May 2006 
 (06-2460) 
 Original:   English 
  
JAPAN – COUNTERVAILING DUTIES ON 
DYNAMIC RANDOM ACCESS MEMORIES FROM KOREA 
 
Request for the Establishment of a Panel by Korea
 
 
 
 The following communication, dated 18 May 2 006, from the delegation of Korea to the  
Chairman of the Dispute Settlement Body, is circulated pursuant to Article 6.2 of the DSU.  
_______________ 
 
  
On 27 January 2006, the Government of Japan  ("Japan") imposed countervailing duties on 
imports of Dynamic Random Access Memories ("DR AMS") from Korea, as announced in Cabinet 
Order No. 13 and Ministry of Finance Notice No. 35, published respectively in Issue No. 4264 and Special Issue No. 17 of the Official Gazette dated 27 January 2006.  
 
The Government of Korea ("Ko rea") considers the countervailing duties imposed by Japan 
against DRAMS from Korea to be inconsistent with  Japan’s obligations under the relevant provisions 
of the GATT 1994, and the Agreement on S ubsidies and Countervailing Measures ("SCM 
Agreement").  As a result, Korea requested c onsultations with Japan regarding these measures 
pursuant to Article 4 of the Understanding on Ru les and Procedures Governing the Settlement of 
Disputes ("DSU"), Article 30 of the SCM Agre ement, and Article XXII of the GATT 1994.  
Consultations were requested on 14 March 2006 concerning the c ountervailing measures of Japan.  
The consultations were held with Japan in Geneva  on 25 April 2006.  These consultations failed to 
resolve the dispute between the parties.   
As a result of the failure to resolve the dis pute, Korea requests the establishment of a panel 
pursuant to Article 6 of the DSU, Article XX III of the GATT 1994, and Article 30 of the SCM 
Agreement regarding Japan’s countervailing measures against DRAMS from Korea.  Korea requests that the panel make findings that Japan has acted inconsistently with its obligations under Articles 1, 
2, 10, 11, 12, 14, 15, 19, 21, 22 and 32 of the SC M Agreement, as well as Articles VI:3 and X:3 of the 
GATT 1994.  Specifically, Korea makes claims under the following: WT/DS336/R 
Page A-2  
 
 1.    Article 1.1 of the SCM Agreement because, inter alia, Japan failed to demonstrate the 
existence of a financial contribution by Kor ea with respect to each distinct financial 
transaction at issue in its anti-subsidy investigation.  
2.    Article 1.1 of the SCM Agreement because, inter alia, Japan failed to demonstrate that 
every private financial institution involved in its subsidy investigation was under the 
direction or entrustment of Korea.   
3.    Articles 1.1 and 14 of the SCM Agreement because, inter alia , Japan failed to demonstrate 
that a benefit was conferred upon the responde nt Hynix Semiconductor, Inc., ("Hynix"), 
given available market benchmarks and the circumstances of financial restructuring.  
4.    Articles 1.1 and 14 of the SCM Agreement because, inter alia , the analyses of the 
"commercial rationality" of loans and other i nvestments in Hynix, and the other analyses 
related to the determination of  the financial contribution and benefit to Hynix, that were 
undertaken by Japan are inconsistent with Jap an’s obligations under the SCM Agreement.  
5.    Article 2 of the SCM Agreement because, inter alia , Japan did not properly establish that all 
of the alleged subsidies were specific to Hynix on the basis of positive evidence.  
6.    Articles 1 and 2 of the SCM Agreement because, inter alia , Japan imposed an improper 
burden of proof on Hynix and Korea; reached conclusions without adequate evidentiary 
basis, and thereby failed to base its decisions  on affirmative, objective, and verifiable 
evidence.   
7.    Article 12 of the SCM Agreement because, inter alia , Japan improperly treated entities that 
had no interest in the investigation as "int erested parties," improperly applied "facts 
available" instead of considering the info rmation on the record, and improperly made 
adverse inferences against the interests of Hy nix due to allegedly inadequate cooperation 
by other interested parties or by other entities that were not under Hynix’s control and that were not obligated to participate in the investigation. 
8.    Article 14 of the SCM Agreement because, inter alia , Japan utilized methods for calculating 
the benefit to the alleged recipient of the a lleged financial contribu tions that were not 
specified in Japan’s national legislation or implementing regulations  and that were not 
applied in a manner that was transp arent and adequately explained.  
9.    Articles 14 and 19.4 of the SCM Agreement and Article VI:3 of the GATT 1994 because, 
inter alia , Japan failed to properly measure the benefit in accordance with the principles of 
the SCM Agreement, which resulted in countervailing duties levied in excess of the 
amount allowed under the SCM Agreement and the GATT 1994.   
10. Article 15 of the SCM Agreement because, inter alia , Japan improperly found material 
injury caused by the allegedly subsidized imports without proper evidentiary or legal foundations.    
11. Article 15.5 and 19.1 of the SCM Agreement because, inter alia , Japan’s determination 
failed to demonstrate that the allegedly subsid ized imports were, through the effect of the
 
alleged subsidies, causing injury within the meaning of the SCM Agreement.   
12. Articles 10 and 32.1 of the SCM Agreement because, inter alia , the countervailing duties 
imposed by Japan against DRAMS originating in Korea were not in accordance with the 
relevant provisions of the SCM Agreement or  the relevant provisions of GATT 1994.    WT/DS336/R 
 Page A-3 
 
 
 13. Articles 10, 14, 19, and 21 of the SCM Agreement because, inter alia , Japan imposed and 
maintained countervailing duties without determ ining whether a benefit continued to exist 
following changes in the ownership of Hynix.   
14. Articles 19 and 21 of the SCM Agreement because, inter alia , Japan improperly levied a 
countervailing duty on imports when there was no longer a benefit from the alleged 
subsidies, and the duty was not necessar y to counteract subsidization.  
15. Articles 10, 11, 12, 14, 15, 22, and 32.1 of the SCM Agreement and Articles VI:3 and X:3 
of the GATT 1994 because Japan, inter alia,  failed to conduct a thorough and complete 
investigation, and failed to conduct its i nvestigation and make determinations in 
accordance with fundamental substantiv e and procedural requirements.  
The Government of Korea requests that the pane l be established with the standard terms of 
reference set forth in Article 7 of the DSU.   
The Government of Korea further requests that this request be placed on the agenda for the 
special  meeting of the Dispute Settlement Body on 30 May 2006.  
 
__________