WT/DS296/R 
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ANNEX A 
 
 
SUBMISSION OF PARTIES AND THIRD PARTIES FOR THE 
FIRST SUBSTANTIVE MEETING 
 
 
Contents Page 
Annex A-1 Executive Summary of the Submission of Korea  A-2 
Annex A-2 Executive Summary of the Submission of the United States A-11 
Annex A-3 Executive Summary of the Third Party Submission of China A-20 
Annex A-4 Executive Summary of the Third Party Submission of the 
European Communities A-25 
Annex A-5 Executive Summary of the Third Party Submission of Japan A-29 
 
 WT/DS296/R 
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ANNEX A-1 
  
EXECUTIVE SUMMARY OF THE 
FIRST WRITTEN SUBMISSION 
BY THE REPUBLIC OF KOREA  
 
28 April 2004 
  I. ITC INJURY INVESTIGATION – CLAIMS OF ERROR  
A. OVERVIEW OF THE US DRAM INDUSTRY 
 
1. The US DRAM industry has a number of dis tinctive and unique conditions of competition.  
Understanding and taking into account these distinctiv e conditions of competition should have been a 
critical part of the competent authorities’ objectiv e examination required by Article 15 of the SCM 
Agreement.  Understanding these features will also be  an important part of this Panel’s “objective 
assessment” of the ITC determinations in this dispute. 
 
2. There are four key conditions.  First, the DR AM market is highly cyclical, with regular well-
known boom and bust periods.  Sec ond, the trend toward even more extreme boom-bust cycle is 
another feature of the DRAM market that compet ent authorities must take into account.  Third, 
DRAM product pricing is extremely volatile based on worldwide, not regional, supply and demand 
phenomena.  Fourth, most of the largest computer companies as well as DRAM suppliers have moved 
a substantial part of their manufacturing operations to countries outside the United States.  This trend 
toward global production of DRAMs has reinforced the trend toward global pricing and attenuates the 
volume and price effects in the United States.  The ITC incorrectly argued for significant price effects 
of subject imports in the US market and ignored th e economic reality that subject imports by a single 
company like Hynix into the US market have at most a very limited ability to have any effect on 
price.  Moreover, both the ITC and the DOC failed to  undertake serious analysis to show whether and 
how these factors was being taken into account  in violation of US WTO obligations. 
 
B. ARTICLE 15.1 STANDARDS 
 3. Article 15.1 requires that the competent aut hority have “positive evidence,” and that evidence 
receive “objective examination”.  The Appellate Body has confirmed that evidence supporting a 
finding of injury must be affirmative, objective, verifiable and credible and be based on an unbiased 
investigation.  Further, Article 15.1 is an overarc hing provision rather than a stand-alone provision 
requiring each of the substantive provisi ons of Article 15 to be read in light of Article 15.1.  Thus, all 
aspects of the injury investigati on must be based on positive evidence and an objective examination of 
the facts.  
C. SIGNIFICANT INCREASE IN SUBJECT IMPORTS  
 
4. In this case, the ITC mechanically cited impor t statistics, but largely ignored any meaningful 
analysis of the significance of those figures.  The da ta showed that the Hynix brand lost market share 
over the period of investigation, and that subject imports changed only slightly in reaction to the 
temporary shutdown of the Hynix US operations in Eugene, Oregon.  Because the shift in market 
share was so small – regardless of how it is measured - the ITC instead cited a variety of other 
statistics without putting any of them in proper context. 
  WT/DS296/R 
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5. Given the unique nature of the DRAMs pr oduct – the continual movement to higher and 
higher densities of chips and the ever-increasing tota l bits supplied and consum ed, an actual increase 
in imports (on a billion bit basis) is meaningless.  Rather, what is important in analyzing the volume 
of DRAMs shipments is to examine the increased sh ipments relative to consumption and relative to 
other suppliers.  Thus, as the ITC itself acknowledged,  the best measure of any volume effects of the 
subsidized imports is to examine market share  data.   
 6. The data before the ITC demonstrates the fo llowing important facts about trends in market 
share based on US shipments from these different sources:  
• The market share of Hynix’s imported DRAMs was 6.7 per cent in 2000, increased to 9.0 per 
cent in 2001, decreased to 8.9 per cent in 2002 and decreased again to 5.8 per cent in 2003. 
 
• The consistently small volume of Hynix’s impor ts was dwarfed by both domestic production 
and non-subject imports.  In 2002 non-subject impor ts were more than six-and-a half times 
larger than Hynix’s imports. 
 
• Although the market share of Hynix’s imports did increase over the three year (2000-2002) 
period, the increase was only two percentage points.  
 
• The increase in market share by non-subject imports from 2000 - 2002 was nearly five times 
larger  than the increase in market share by Hynix’s imports.   
 7. Taken as a whole, any objective assessment of  this evidence would find that any increase in 
the volume of allegedly subsidized imports was not “significant.”  
 8. The absolute level of imports might well have  been increasing, but in this particular industry 
where the measure of imports (billions of bits) is always increasing dramatically, this particular 
measure alone cannot establish significance.  More importantly, the market share of Hynix brand 
DRAMs fell consistently over the period, while othe r suppliers expanded over the same period.  Even 
if one focus exclusively on Hynix imports, the Hy nix share remained modest throughout the period, 
and fell in 2002 and the beginning of 2003.  Any sm all increase in market share over the full period 
can be explained by the shutdown of the Hynix facility in Oregon, requiring a modest increase in imports simply to replace those sales previously made  from the Hynix US facility.  Korea submits that 
a careful and critical examination of the ITC expl anation of the volume effects in this case reveals 
insufficient positive evidence to jus tify the ITC findings.  To the contrary, the evidence shows that the 
volume effects of subject imports by Hynix were in significant, at least to any objective decision-
maker, and the ITC finding was incons istent with Articles 15.1 and 15.2. 
 
D. SIGNIFICANT PRICE EFFECTS BY SUBJECT IMPORTS 
 9. In this case, the ITC created the illusion of an alyzing price effects, without really doing so in 
any meaningful way.  The ITC dutifully identified certain particular and unique competitive dynamics of the DRAM market, but then largely ignored th ose dynamics in its mechanical invocation of its 
traditional methodologies.  In particular: 
 
• The ITC made factual findings about pricing at odds  with the facts of this case, and with basic 
economic logic.  Hynix was losing market share in 2002 and the beginning of 2003, was not the lowest cost supplier, and therefore had limited ability and incentive to drive down the price.  It defies logic to blame Hynix pricing, when Hynix was losing market share. 
 WT/DS296/R 
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• The ITC largely ignored the important fact that  no customer identified Hynix as the “price 
leader”, calling into serious doubt whether Hyni x could be the source of “significant” price 
effects. 
 
• The ITC undertook two types of pricing analysis, but then inexplicably chose to focus on the 
method that considered only subject imports, and ignored the effect of other non-subject 
imports on pricing trends. 
 
• The ITC brushed aside any discussion of other factors that affect pricing by simply 
acknowledging they “played some role,”  but without any further analysis. 
 10. The ITC’s traditional underselling analysis, whic h compares the weighted-average prices of 
domestic producers only with wei ghted-average prices of subject imports, was not an objective 
examination for the ITC’s pricing analysis in this case because it ignored prices of non-subject 
imports.  Prices of non-subject imports should have been  considered particularly  in this case because 
(i) DRAMs are a commodity product with virtual complete interchangeability; (ii) non-subject 
imports constituted the majority of the US marke t; (iii) the nature of DRAMs market has become 
increasingly global; and (iv) the traditional underselli ng analysis disguised pricing dynamics reflected 
in the evidence before the ITC, such as the frequency of the lowest price of respective imports.   
 11. The ITC’s reliance on a traditional underselli ng analysis disguised the following important 
pricing dynamics reflected in the evidence before th e ITC.  Overall, Hynix subject imports were the 
lowest price in only a small number of instances.  Put differently, an overwhelming per cent of the 
time, other suppliers  were offering lower prices than Hynix.  Over time, the record shows that the 
frequency of non-subject imports being the lowest price source grew.  On a wei ghted basis, to reflect 
the relative importance of different products, the frequency of non-subject imports being the lowest 
price source almost doubled.   12. The ITC’s dismissal of the role of non-s ubject import pricing glosses over two fundamental 
flaws: (i) that the average non-subject price may be  higher than domestic prices does not mean very 
much if there is an individual non-subject supplier that is underselling and offering the lowest price; 
and (ii) if these patterns of underselling were consider ed together with trends in market share, the non-
subject imports were having a significantly greater impact on the market.    
13. The ITC had available considerable evidence that a variety of factors can influence the 
prevailing market price of DRAMs.  This evidence before the ITC demonstrated that DRAM market 
prices are affected by: (1) changes in worldwide demand growth; (2) changes in worldwide supply; 
(3) how quickly competitors can climb the learni ng curve for new DRAM products, and (4) erratic 
swings in inventory levels caused by the inability to have longer term reliable forecasts.  Yet the ITC did not adequately address any of these f actors when explaining price declines. 
 
14. As with the volume effects, any objective ass essment of this pricing evidence taken as a 
whole would find that the price effects of allegedl y subsidized imports were not “significant”.  If it 
had an open and objective mind, the ITC should have r ealized that low priced non-subject imports that 
were rapidly gaining market share caused the dominant price effects, and that any remaining effects of 
subject imports could not reasonabl y be considered “significant”.  The ITC finding was inconsistent 
with Articles 15.1 and 15.2.  
E. CONDITION OF THE DOMESTIC INDUSTRY -- INCONSISTENT WITH ARTICLES 15.1 AND 
15.4 OF THE SCM AGREEMENT. 
 
15. Article 15.4 requires an evaluation of a ll relevant economic factors and indices and 
appreciates the fact that relevant economic factors and the weight to be given each of those factors will differ from case to case.  The evidence before the ITC in this case of global scale, strong capital  WT/DS296/R 
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spending and R&D spending, all funded by strong cash flow and access to capital markets 
demonstrates overall strength, not weakness.  The IT C, however, largely ignored all this evidence in 
its analysis of the condition of the domestic industry.   Even more egregiously, the ITC failed to even 
attempt to address the public statements that Micr on and Infineon made to the financial community 
and their investors that they were doing quite fi ne, within the context of the business cycle and 
relative to their competitors, which contradicted th e doom and gloom assessment adopted by the ITC.  
Such an approach does not amount to an objective ex amination of the key facts, and thus violates 
Articles 15.1 and 15.4.  
F. CAUSATION 
 16. Pursuant to the first and the second sentences of Article 15.5, Members must demonstrate an 
explicit “causal relationship” between the subsidized imports and any material injury suffered by the 
domestic industry.  In this case, the evidence be fore the ITC demonstrated that there was no 
correlation between the trends in subject imports a nd the condition of the domestic industry.  First, 
Hynix was losing market share while the domestic industry gained market share, which proves the 
absence of any correlation between the trend of subject imports and the market shares of US producers.  Second, after the “boom” year of 2000 , Micron and Infineon lost more and more money 
even as Hynix suffered eroding market share.  The IT C never even attempted to address this lack of 
correlation.  Further, the ITC should have considered  the fact that Hynix trends in imports correlate 
much more strongly with the shutdown of the Or egon facility than with the trends in domestic 
industry performance.   17. Moreover, the non-attribution requirement in the third sentence of Article 15.5 obligates an 
investigating authority not to impute to subsidized  imports any injury caused by other factors.  
According to the plain meaning of Article 15.5 as well as the unambiguous guidance of the Appellate 
Body in the previous safeguards and anti-dumping c ontexts, the competent authority must “separate” 
and “distinguish” the injurious effects of factors othe r than subsidized imports to ensure they are not 
attributed to the subsidized imports, and thus to ensure it complies with the non-attribution 
requirement.  With respect to a number of key issues, the ITC provided either no analysis or insufficient analysis: 
 
• The ITC improperly dismissed the adverse effects of the increasing and much larger volume 
of non-subject imports, when the evidence before it demonstrated that non-subject imports accounted for 6 to 7 times greater share of the US market as do subject imports from Hynix.  The large and growing volume of non-subject imports cannot be so easily dismissed. 
 
• The ITC completely ignored the arguments about changes in relative capacity that confirmed 
the dominant role of non-subject suppliers who increased their capacity much more than Hynix. 
 
• The ITC dismissed the role of the drop in de mand for 2001, but ignored compelling evidence 
by every industry observer than the demand drop was a critical factor for understanding 2001 prices. 
 
• The ITC completely ignored the arguments a bout Micron’s own technical shortfallings, and 
how the absence of certain products at certain times hurt Micron. 
 18. The ITC at least tried to address the role of non-subject imports
, but either ignored or 
distorted the key evidence.  It is not objective to dismiss contrary evidence without discussion.  It is 
not objective to average  and thus obscure the prices of individual domestic and non-subject suppliers.  
Particularly in a case where the individual supplier da ta is available and could be easily used, there is WT/DS296/R 
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no persuasive reason for an objective competent aut hority to present the data in such a way that 
obscures rather than reveals.  19. In addition to this methodological flaw, the ITC finding had no sense of perspective.  It is 
simply not credible to find this small amount of additional underselling is significant when applied to 
a small subject import volume averaging about 8 per cent market share over the 2000-2002 period, 
compared to comparable levels of underselling by non-subject import volume averaging about 56 per 
cent market share over the same period.  For a commodity market, non-subject market share roughly 
seven
 times as large would dwarf any price effects from a much smaller volume of subject imports. 
 
20. Moreover, although the ITC recei ved substantial inform ation and data that demonstrated other 
suppliers increased DRAM production capacity  much more than did Hynix during the period 
examined, there is no discussion of this informati on in the ITC Report.  The two types of data 
presented to the ITC – wafer starts data and data me asured by both wafers and die shrinks – evinced 
that Hynix’s Korean operations played a relatively trivial role in capacity expansions that occurred 
during the period examined, while other suppliers, most notably, Infineon and Samsung have been the 
most aggressive in expanding total DRAM output.  21. Further, the ITC improperly dismissed the unprecedented drop in underlying demand
 for 
computer and telecom equipment and the fact th at 2001 was the worst y ear in decades for these 
industries.  Thus, to the extent that DRAM prices ri se or fall because of the changing level of demand, 
subject Hynix imports from Korea has not caused those price changes.  There are two principal 
problems with this casual brushing aside of demand.  First, the alleged lack of correlation is just 
wrong.  In making its assertion, the ITC cites only a discussion in the Micron brief about trends in DRAM output, which is an issue of growing supply , and says nothing about the underlying intrinsic 
demand .  In fact, the decline in demand growth in 2001  played a major role in the price decline in 
2001.  Second, the ITC ignored statements by many industry experts pointing to the decline in 
demand as a key explanation of the 2001 downturn in price.  Most noteworthy, of course, are the statements by Micron and Infineon themselves.  Micron’s own annual report for 2001 gave the 
following explanation for disappointing 2001 earnings:  22. Lastly, the ITC completely ignored the technological and production difficulties
 of Micron 
during the claimed period of injury.  Specific information about Micron, the largest US producer of 
DRAMs, and its successes and failure presented to the ITC had particular significance for understanding the overall situation of the US DRAM  industry.  However, the ITC ignored this 
important information in its analysis of other factors, and thus failed to provide an objective 
examination.  The ITC findings were in consistent with Articles 15.1 and 15.5. 
 
G. THE ITC REPORT OF ITS INVESTIGATION 
 
23. As one of the most important procedural obligations, Article 22.3 requires authorities to 
explain their determination in sufficient detail.  In this case, however, the ITC failed to provide 
sufficient detail on several important issues such as volume effects, price effects, and causation, as explained above.  This sparse and inadequate discussion by the ITC of these key issues triggers two 
independent violations as recognized  and applied by previous WTO panels:  one vi olation of the 
underlying substantive obligation, a nd other violation of the procedural obligation to explain the basis 
of a particular decision.  Thus, the discussion of findings must be directly discernable from the ITC 
decision, yet inconsistent with Article 22.3.   WT/DS296/R 
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II. DOC SUBSIDY INVESTIGATION – CLAIMS OF ERROR  
 
A. OVERVIEW OF FINANCIAL RESTRUCTURING 
 
24. The underlying investigation emerged from the commercially-driven financial restructuring of 
a company, Hynix Semiconductor Inc., in the afte rmath of Korea’s 1997 financial crisis. Hynix’s 
financial restructuring took place at a time of ex tensive and fundamental corporate and financial 
sector reform within Korea. This structural reform  sought to create independence for Korean banks to 
make their own decisions, and to eliminate governme nt interference in individual lending decisions. 
 25. Like many Korean companies, Hynix incu rred substantial debt during the 1997 financial 
crisis.  As a result, the Hynix management reta ined both Citibank and Salomon Smith Barney (SSB) 
in September 2000 to embark on a restructuring process. Hynix’s financial restructuring and recapitalization consisted of several separate transa ctions over two very distinct periods: the period 
through June 2001 and the peri od after June 2001.     
 26. The intersection of these two events -- Hynix’ s financial restructuring on the one hand and 
Korean corporate and financial reform on the ot her -- has essentially been misconstrued by the 
United States as evidence of entrustment or directio n by the Government of Korea to save Hynix at 
any cost.  The facts of the case show that nothing could be further from truth.  Rather, this case 
illustrates the wisdom of the demanding standard  in the SCM Agreement for demonstrating a 
financial contribution through private bodies -- a standard not met by the United States -- that protects innocent and fundamentally sound commercial co nduct from the reach of improper countervailing 
duty actions.  
B. FINANCIAL CONTRIBUTION  
 27. Under Article 1.1.(a)(1)(iv) of the SCM Agre ement, “entrustment” or “direction” can be 
established only where there is government action so clear and unambiguous that the actions of 
private bodies can be imputed to the government itself.  Moreover, the text of Article 1.1 requires that 
each alleged government delegation or co mmand be examined with respect to each
 party, and with 
respect to each  task or duty.  
 28. According to the US – Export Restraints  case, the act of entrusting and that of directing carry 
with them the following three elements:  (i) an ex plicit and affirmative action, be it delegation or 
command;  (ii) addressed to a particular party;  and (iii) the object of which action is a particular task 
or duty.  The panel in US – Export Restraints  also made it clear that generalized statements of 
government intent or desire, or even general interv entions in the market itself, are insufficient to 
establish a financial contribution through a private body.    
29. Authorities cannot meet this sta ndard with generalized findings of entrustment or direction.  It 
is insufficient to conclude that if some  connection exists between government, certain  events and 
certain  actors, then financing by all lenders to a particular party, no matter when or how it occurs, is 
the result of entrustment or direction.  Yet this is  exactly what the DOC did in this case.  It brought 
together a patchwork of evidence, much of it based on press accounts, and much of it from early in the 
period investigated, and determined that all lending to Hynix by Korean banks over a ten-month 
period was directed by the GOK.    30. In light of the plain meaning of “entrustmen t or direction”, this finding of guilt by vague 
association does not pass muster under Article 1.1(a )(1)(iv).  Given the many commercial creditors 
involved at various stages of Hynix’s financial rest ructuring, and the different ways in which they 
participated, it makes no sense to find government “direction”.   
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31. The DOC’s “directed credit” findings in the underlying case, however, do not meet this standard.  In particular , nowhere in its 140-page Decision Memorandum  does the DOC identify an 
explicit and affirmative action of delegation or command by the GOK to all of Hynix’s commercial 
creditors to engage in a ten-month long process of financial restructuring.  Indeed, the only evidence 
(i.e. the Economic Ministers meetings) offered by  the DOC allegedly establishing or suggesting an 
explicit and affirmative action by  the GOK relates to narrow circ umstances that do not support the 
DOC’s broad theory of entrustment or direction.  32. The additional evidence relied upon by the DOC to support its directed credit finding falls short of establishing explicit GOK direction. For inst ance, the fact that the Financial Supervisory 
Commission (FSC) granted waivers to certain Korean  banks in connection with certain restructuring 
transactions involving Hynix does not explain those ba nks’ decisions actually to participate in those 
transactions, or the participation of any other ba nks therein, over the course of 2001. Moreover, 
nothing in the Korea Development Bank (KDB) fast track programme involved any specific GOK direction of any specific lender to participate. Al so, the presence of the Financial Supervisory Service 
(FSS) official at the March 2001 creditors  meeting is hardly a smoking gun of GOK 
entrustment/direction, as clearly evidenced by th e contemporaneous FSC/FSS press release. In the 
same vein, nothing in the Kookmin prospectus est ablishes an affirmative and explicit GOK action to 
direct commercial bank lending to Hynix.  Lastly, contrary to the DOC findings, the unverified statements of anonymous experts secretly intervie wed by the DOC actually suggest the lack of GOK 
control over Korean banks.   
 
33. Furthermore, under Article 1.1(a) of the SCM Ag reement, it is insufficient to find simply that 
the government commanded a particular result.  The private body to which that government delegation or command was addressed must also be ascertained, as well as the object of that delegation or command.  There is not a single instance in the DOC’s analysis where it could point to 
any credible evidence linking all of Hynix’s creditors  to its alleged “directed credit” conspiracy.  
Rather, the evidence relied upon by DOC at best points to GOK interaction  with certain banks at 
certain times with respect to a particular financial transaction.    34. This absence of evidence is particularly egre gious for the financing transactions later in the 
period of investigation (i.e. the October 2001 r estructuring).  With respect to the October 
restructuring, the only
 evidence the DOC provides to link the motives of all the banks involved in that 
restructuring measure to its alleged GOK action is the unverified  assertions of a single anonymous 
“expert” interviewed by the DOC in Seoul.  Moreover , with respect to the October restructuring, the 
DOC determined that all banks participating in the programme were directed by the GOK no matter what each bank did.  Yet it defies both reason and co mmonsense to find that banks deciding to extend 
new loans and banks deciding not
 to extend new loans were both directed to “save Hynix”.  
 35. As regards the May 2001 restructuring, the DOC  paid inadequate heed to the fact that the 
restructuring was expressly contingent upon a successful equity offering on global markets. 
Moreover, in its quest for the conclusion that  the GOK was behind the May programme, the DOC 
effectively disregarded the active particip ation by private banks, including a foreign
 private bank (i.e., 
Citibank) in the restructuring process.  
 36. Perhaps the most troubling piece of “evidence” relied upon by the DOC to justify its finding of entrustment or direction are the anonymous statem ents of certain so-called “experts” interviewed in 
Korea.  The DOC seriously distorted this evidence,  and reached a conclusion without any evidentiary 
support.  A general finding of  “influence”, or “some  influence”, over certain commercial banks could 
not be more ambiguous.  It is even telling that out of the eight “experts” interviewed by DOC, the 
DOC can cite only one
 for the observation that the GOK could still influence banks with less than 
majority GOK ownership.   WT/DS296/R 
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37. Moreover, on balance, the report of the eight “experts” actually suggests the lack  of 
meaningful GOK control over Korean banks.  Indeed, the DOC’s treatment of the experts’ views as discussed above is highly disingenuous.  Nowhere addressed in the DOC’s decision are the several 
statements found in the “experts” report indicating the extremely improbable nature of the DOC’s 
grand directed credit theory, whether genera lly or with respect to specific banks.  
38. The discrepancy between what the experts said and the conclusion drawn by the DOC is 
simply breathtaking.  The DOC sei zed upon the rather unsurprising view that the GOK continued to 
have some influence over those banks in which it w as the majority shareholder.  But in seizing upon 
this point, the DOC conveniently ignored several far more relevant points:  (1) that even for the GOK-owned banks, the GOK role is primarily influence, not control or specific direction;  (2) that the GOK 
had no control and much less influence over the privat ely held banks, particularly those like Kookmin 
with substantial foreign investment;  and (3) that sev eral of the experts specifically indicated that the 
GOK had nothing to do with the Hynix financial restructuring.  39. This last point is perhaps the most significan t.  The DOC focused on the statements that the 
GOK still has influence with GOK-owned banks, but then  ignored the repeated statements that the 
GOK “was unable to stop” banks from walking away  from Hynix, that the Hynix workout “had 
nothing to do with the government”, or that any GOK influence “could not have been a major factor 
in the bank’s decisions”.  Indeed, the DOC dete rmination to find evidence of GOK control over the 
Hynix restructuring obscured the reality of what the experts told the DOC.  As a result, the 
United States simply believed what it wanted to belie ve regardless of the evidence.  Taken as a whole, 
the DOC has not justified with obj ective evidence its decision to imput e to the GOK the profit-driven 
actions of various individual commercial banks.    
C. FINDING AND MEASUREMENT OF “BENEFIT” 
 40. The second requirement under the SCM Agreem ent for establishing a countervailable subsidy 
is that the competent authority must demonstrate that  a “benefit is thereby conferred”. As noted by the 
Appellate Body in Canada – Aircraft , a benefit analysis under Articles 1.1(b) and 14 requires a 
comparison of what was received by an entity versus what was available on the market.    
41. Moreover, the SCM Agreement defines benefit in the context of the experience of private 
actors in the market of the Member under investig ation.  In this regard, the Appellate Body in US-
Lumber  recently decided that an investigating author ity should not discard a primary benchmark (i.e. 
those in the market under investigation) in favour  of some other benchmark, unless it (1) proves the 
market distortion necessary to take such action;  and (2) demonstrates the other benchmark is 
connected with the prevailing market conditio ns in the market under investigation.  
 42. The DOC analysis of “benefit” provides a part icularly egregious example of results-oriented 
analysis.  Notwithstanding the need to find the mo st appropriate market-based benchmark to meet 
WTO obligations, the DOC systematically dismisse d every single possible benchmark.  The DOC 
dismissed every single commercial bank in Korea,  even though DOC also found that the GOK no 
longer “directs” credit on an economy-wide basis.   Basically the DOC found that because some 
evidence hinted at some influence over some ba nks, then all Korean commercial banks should be 
disregarded.  43. Even more egregious, the DOC rejected the use of Citibank as a benchmark.  As a foreign 
commercial bank operating in Korea, Citibank should have been the pe rfect commercial benchmark.  
Yet the DOC labored mightily to reject Citibank, offering a host of reasons that made little sense 
under US law and WTO jurisprudence alike.  44. In this case, the DOC had a wide range of possible commercial benchmarks.  Hynix creditors 
included a wide mix of public bodies, Korean ba nks with some government shareholding, other 
Korean banks with little or no government sharehol ding, and even foreign commercial banks.  These WT/DS296/R 
Page A-10  
 
various lenders participated in different stages of  the restructuring transactions, participated in 
different ways, and showed varying degrees of inde pendence in their decisions.  One would certainly 
think that an objective decision-maker could find so me commercial bank out of this mix that could 
serve as a valid benchmark.  
45. But the DOC approached the situation differe ntly.  Rather than acknowledge the range of 
facts, and search for the best possible benchmark,  the DOC instead searched for reasons to disregard 
all of the banks -- every last one.  Thus, the DOC  took its flawed conclusions about “financial 
contribution” (that the GOK had “directed” all the Korean banks), and used this conclusion as an 
excuse not even to examine the particular circum stances of each Korean commercial bank.  So every 
Korean bank was treated the same, whether governme nt owned or not, whether foreign investors 
controlled the bank or not, or whether the bank lent to Hynix or not.  Every Korean bank was rejected 
out of hand.  This assessment ignored  the facts, and was not objective. 
 46. With respect to foreign private bodies, in bo th its preliminary and final determination, the 
DOC specifically concluded that Citibank’s particip ation was not directed by the GOK.  Nonetheless, 
the DOC improperly rejected Citibank as an approp riate benchmark for the financing in which it 
engaged.  The DOC finding that the extent of Citib ank’s participation in the Hynix restructuring was 
too small is erroneous with respect to both loans that Citibank made to Hynix in the earlier phases of 
the restructuring (December 2000 and May 2001), and the equity infusion that was done as part of the October 2001 restructuring.  The record evidence clearly indicates that Citibank was an integral 
participant in each of these restructuring measures,  thereby contradicting the DOC benefit findings.  
In addition, the evidence including sworn testim ony by Citibank, unequivocally refutes the DOC 
determination that Citibank’s decision to partic ipate in the Hynix restructuring was somehow 
influenced by the GOK.   
47. In terms of measuring the a lleged benefit, the DOC also neve r explained how it justified the 
use of US data on companies that have defaulted as a fair proxy for a Korean company that had not 
defaulted.  The Korean financial markets seek to a void bankruptcy.  Hynix never declared bankruptcy.  
In fact, Hynix stock remained actively traded thr oughout this period.  Investors were continuing to 
“bet” on the future upturn in DRAM prices, hardly th e sign of a company in default.  The reality is 
that the DOC did not even attempt to identify Ko rean bond default rate data  once it had determined 
that Hynix was “uncreditworthy”.  The DOC’s rati onale for rejecting the data was unreasonable, as it 
made no attempt to satisfy any doubts or concerns it expressed regarding the data. 
 
D. SPECIFICITY 
 48. Korea submits that the DOC finding of specific ity is inconsistent with  Articles 1.2 and 2 of 
the SCM Agreement.  Under these provisions, a finding of  specificity must be “clearly substantiated” 
on the basis of “positive evidence”.  The DOC specif icity findings, on the cont rary, do not rise of the 
level of precision required under the SCM Agreement.    
E. PROCEDURAL ISSUES  
 49. In the underlying investigation, the DOC im posed an improper burden of proof with respect 
to financial contribution and specificity, inconsistent  with Articles 1 and 2 of the SCM Agreement.  In 
addition, the DOC’s finding of financial contribut ion and specificity was effectively predisposed, 
based on prior findings concerning different sectors and periods unrelated to the investigation at hand.  
Also, inconsistent with Article 12.6 of the SCM Agreement, the DOC conducted private verification 
meetings in Korea, at which the GOK had no repr esentatives, over the explicit objection of the GOK.  
Lastly, Korea submits that the DOC imposed countervailing duties in excess of the value of the alleged subsidies, inconsistent with Article 19. 4 of the SCM Agreement and Article VI:3 of GATT 
1994.  WT/DS296/R 
 Page A-11 
 
 
 ANNEX A-2 
 
 
EXECUTIVE SUMMARY OF THE 
FIRST WRITTEN SUBMISSION 
OF THE UNITED STATES  
 
28 May 2004 
 
 
I.  GENERAL ISSUES  
 
1. The Panel’s task is to determine whether a reasonable, unbiased person, looking at the same 
evidence as the DOC and the ITC, could have – not would have – reached the same conclusions as did 
those agencies.  Even though Korea spends a good deal  of time talking about “positive evidence”, at 
its core, Korea’s argument is not really about th e nature of the evidence on which the DOC and ITC 
determinations were based.  Instead, Korea implores the Panel to reweigh the evidence in the hope of 
obtaining a different outcome.  Korea also asserts th at the investigating authority bears the burden of 
proof.  This is a remarkable assertion for which Ko rea offers no citation to authority, and for which 
there is none.  The determinations of the DOC a nd the ITC – including those aspects that are not 
subject to a requirement of positive evidence – were based upon evidence that was “affirmative”, 
“objective”, “verifiable” and “credible”. 
 
II.  THE DOC SUBSIDY DETERMINATION WAS PROPER 
 A.  The DOC’s Finding of a Financial Contributions Was Proper  
 
2. The DOC determined that the GOK entrusted and directed Hynix’s creditors to provide 
financial contributions to Hynix  The DOC ma de this determination based upon an objective 
examination of all of the record evidence, which was, in Korea’s words, “complex and extensive”.  
The totality of this evidence amply supports the DOC’s determination that the GOK entrusted and 
directed Hynix’s creditors to provide financial contributions to Hynix.  
 
3. The GOK’s policy with respect to Hynix was more  than just some general interest in Hynix’s 
prospects.  Rather, the GOK’s policy was specific:  do whatever necessary to prevent the failure of a 
particular company – Hynix.  As context for its policy, the GOK’s support of Hynix as a member of a designated “strategic” industry predates the DOC’s period of investigation.   
 
4. Following the 1997 financial crisis, the GOK engineered a merger between Hynix (then Hyundai Electronics) and LG Semicon that exacerba ted Hynix’s financial problems.  As early as 
November 2000, the GOK began pursuing a policy (and ta king specific actions) to prevent the failure 
of Hynix.  Economic Ministers “[s]ignaled the GOK’ s determination that Hyni x would not be allowed 
to fail”.  A Hynix executive stated:  “We won’t be going bankrupt.  The Korean government won’t let 
us fail.”  5. The GOK took affirmative actions to entrust a nd direct Hynix’s creditors to provide financial 
contributions to Hynix.  The GOK did so by exerci sing control over Hynix’s creditors in its multiple 
roles as lender, owner, legislator and regulator.  
 
6. The GOK’s Role as Lender:   Financial contribu tions provided to Hynix by “public bodies”, 
such as the KDB, were direct.  These “public” Hyni x creditors played a significant role in the GOK’s WT/DS296/R 
Page A-12  
 
 direction of the “private” Hynix creditors.  Th e KDB’s presence as a lender was a signal to Korean 
“private” banks that a particular investment d ecision had the GOK’s blessing, and that a company was 
backed by the GOK.  7. The GOK’s Role as Owner:   The GOK’s role as owner was crucial in its exercise of control 
over Hynix’s creditors.  In each of the major Hyni x restructuring and recapitalization transactions, 
these government-owned and -controlled banks accounted  for a major portion of either new loans or 
debt that was swapped for equity.  Through its in fluence over government-owned banks and its direct 
control over specialized banks, the GOK was able  to establish its dominant position over Hynix’ 
Creditors’ Councils, influence the outcome of the c ouncil meetings, and entrust the continuation of its 
policies to the council.  The GOK also demonstr ated control over banks with relatively small 
government ownership shares.  Kookmin Bank,  which had less than 10 per cent government 
ownership, admitted in sworn submissions to the US  SEC that it had been, and still was, subject to 
government influence in its lending decisions.  
8. The GOK’s Role as Legislator:   The GOK took legislative action that enhanced its ability 
and the ability of Hynix’s creditors to effectuate  the GOK’s policy to save Hynix.  Prime Minister 
Decree No. 408 legalized the GOK’s rights to inte rvene under the guise of stabilizing financial 
markets or exercising its shareholder rights to el ect and appoint the banks’ decision makers and to 
make credit policy decisions.  The Public Fund Over sight Act required Korean private banks to sign 
MOUs with the GOK in exchange for the mass ive recapitalizations they received from the 
government.  These MOUs provided the GOK with a cont ractual right to intervene in the day-to-day 
business and credit decisions of Korean banks.  The CRPA permitted a handful of Hynix’s creditors, most of whom were majority owned by the GOK, to dictate restructuring terms to other Hynix 
creditors.  Record evidence show s that the GOK used these legislative measures during the period of 
investigation to effectuate its Hynix policy. 
 
9. The GOK’s Role as Regulator:   The FSC approved three credit limit increases for Hynix’s 
creditors “to allow them to participate in the Hy nix restructuring process”.  The record evidence 
shows that, far from applying “market principles”, the FSC waived the credit ceiling for three of 
Hynix’s creditors participating in the December  2000 syndicated loan for economic, social and 
political reasons.  The FSS requested all creditor ba nks “to refrain from exercising [liquidation] rights 
until 4 September 2001”.  Without this intervention, Hynix’s creditors could have sought to liquidate 
the company, thereby ending its prospects for restructuring.   10. The DOC assessed several instances in which the GOK threatened Hynix’ s creditors to coerce 
compliance with its policy to prevent the failu re of Hynix, such as the GOK’s pressure on KFB 
(which was, at that time, 51 per cent owned by Newb ridge Capital, a US company) to participate in 
the Fast Track Programme”.  Through the FSC and FSS, the GOK also threatened to terminate banks’ 
relationships with either the govern ment or their existing customers. 
 11. The totality of the evidence supports the DOC’s  findings that the GOK entrusted and directed 
Hynix’s creditors to provide financial contributi ons to Hynix.  The GOK’s policy to prevent the 
failure of Hynix and its actions to effectuate that  policy were in evidence throughout the entire period 
of investigation.  Although the DOC was not require d to do so, much of this evidence can be tied to 
the various specific phases of the Hynix bailout; i.e., the 800 billion won syndicated loan, the KDB 
Fast Track Bond programme, the May 2001 restructur ing package, and the October 2001 restructuring 
package. 
 
12. Based on the ordinary meaning of the terms us ed in Article 1.1(a)(1)(iv), when a government 
“gives responsibility to”, “orders”, or  “regulates the activities of” a private body such that one or more 
of the type of functions re ferred to in subparagraph (iv)  is carried out, there is entrustment or direction 
by the government.  Korea is wrong to suggest th at there is a special ev identiary standard for  WT/DS296/R 
 Page A-13 
 
 
 entrustment or direction distinct from the general evidentiary standard that applies in any dispute 
governed by Article 11 of the DSU, which is whet her there is a “reasoned and adequate” explanation 
of how the facts support the investigating authority’ s determination.  Likewise, there is no obligation 
that the DOC have express proof of bank-by-bank,  transaction-by-transaction government direction.  
As an evidentiary matter, any piece of evidence or  fact can be relevant, provided it demonstrates, 
either individually or in conjunction with other ev idence, whether or not a government entrusted or 
directed private bodies to provide financial contribu tions.  The evidentiary question in this dispute, 
therefore, is whether a reasonable,  objective decision-maker, looking at all the evidence on the record, 
could have concluded that the GOK’s actions in toto  evince entrustment or direction.  It was 
eminently reasonable for the DOC, based on the ev idence before it, to conclude that the GOK’s 
actions did evince entrustment and direction of pr ivate bodies to provide financial contributions to 
Hynix.     13. Korea attempts to find textual support fo r its bank-by-bank, transaction-by-transaction 
standard by citing the use of the singular “a” financia l contribution in the text of Article 1.1(a)(1).  
Korea’s “a”/singular argument overlooks the fact that  use of the singular does not rule out a meaning 
that encompasses the plural of that term.  In particul ar, the definition of the term “body”, as used in “a 
private body” in subparagraph (iv), provides that the term “body” may refer to a singular entity or 
more than one entity.  14. Korea’s reliance on Export Restraints for its bank-by-bank, transaction-by-transaction 
evidentiary standard also is misplaced.  Export Restraints addressed a very different issue; i.e., 
whether a hypothetical restriction on exports co uld constitute entrustm ent or direction under 
Article 1.1(a)(1)(iv).  Thus, the cited portion of the Export Restraints  report is of limited (if any) 
relevance to the instant dispute, in which there is a voluminous body of evidence that the GOK affirmatively caused, and gave respons ibility, to private entities to provide loans, equity infusions, and 
debt forgiveness to save Hynix from bankruptcy.  
 15. Subparagraph (iv) requires that the financial contribution at issue “would normally be vested in the government and the practice, in no real sense, differs from practices normally followed by 
governments”.  The functions at issue in this dis pute are financial restructuring and recapitalization 
measures (all falling within subpara graph (i), transfer of funds) to bail out a major company that is 
failing.  As Korea acknowledges, governments “gen erally try to avoid the collapse of major 
companies in their countries”.  That is exactly wh at this case is about – a government’s orchestrated 
and directed multibillion dollar bailout of one of its largest and most important manufacturers, i.e., the 
GOK’s actions to effectuate the bailout of Hynix.  
16. In sum, there is no distinct evidentiary st andard for government entrustment or direction 
found in Article 1.1(a)(1)(iv) or elsewhere in the SCM Agreement.  Rather, the evidentiary standard 
in this dispute, as in any similar dispute where Article 11 of the DSU furnishes the standard, is 
whether there is a “reasoned and adequate” explan ation of how the facts support the investigating 
authority’s determination.   B. The DOC’s Determination of “Benefit” Was Proper  
 
17. All financial contributions (i ncluding loans, equity infusions, and debt forgiveness) received 
by Hynix during the period of investigation were  provided either directly by the GOK through 
“public” Hynix creditors, such as KDB and IBK, or i ndirectly by “private” Hynix creditors that were 
entrusted and directed by the GOK to provide fundi ng to Hynix (with the exception of Citibank, the 
only Hynix creditor that was wholly foreign-owned).  18. The DOC rejected loans from Hynix’s priv ate creditors for use as a benchmark because it 
found those loans to be government financial contributi ons.  It is axiomatic that loans determined to WT/DS296/R 
Page A-14  
 
 be government financial contributions cannot them selves serve as benchmarks for determining the 
benefit from such financial contributions.    19. The DOC also concluded that it was not appropriate to use loans from Citibank as 
benchmarks due to certain unusual asp ects concerning the extension of these loans.  In its analysis, the 
DOC looked at the circumstances surrounding Citibank’ s extension of financing to Hynix.  The DOC 
concluded that Citibank’s risk assessment, like that of other Hynix creditors, was influenced by the 
continuing and significant involvement of the GOK in  propping up Hynix.  The DOC’s findings are 
supported by record evidence.  
20. Finally, the DOC also considered Citibank’ s dual role as lender and financial advisor in 
analyzing whether Citibank loans were appropriate for use as benchmarks.  The DOC concluded that 
Citibank was not only motivated by the fees that  it stood to earn as Hynix’ s exclusive investment 
advisor, but also by its desire to serve a broade r advisory role.  The DOC reasonably concluded that 
neither the incentive provided by potential fees as inv estment advisor to Hynix, nor the interest in 
being positioned to provide advisory services more broadly in the Korean economy, was 
demonstrative of commercial considerations typical of a lending institution independent of 
government involvement.  Furthermore, both factors significantly affect assessment of the risk attendant to participation as a lender in the restru cturing measures and made the loans “problematic 
for purposes of comparability”.  
21. The DOC found that Hynix was not creditworthy during the period of investigation, and 
calculated the amount of the benefit based on a formul a that factors in a “risk premium” to account for 
the higher probability that the borrower will defa ult on repayment of the loan.  Korea is not 
challenging, per se, the DOC’s finding that Hyni x was uncreditworthy at the time it received the 
government-directed loans.  Rather, Korea argues th at the DOC improperly ignored available data on 
Korean default rates as part of its creditworthy analysis.  
 22. For purposes of determining the probability of default, the DOC relied on the average 
cumulative default rates reported in Moody’s Investor s Service study of historical default rates for 
corporate bond issuers, including international issu ers.  The Moody’s data relied upon by the DOC is 
comprehensive, reflecting the experience of 14,400  issuers of long-term debt over the cumulated 
period, with non-US issuers accounting for up to 38 per cent of the companies included in the 
statistics.  Korea claims that the DOC should have used Korean default rates, but the guidelines in 
subparagraph (b) of Article 14 require only that  a benefit calculation be based on comparable 
commercial loans that the Hynix could actually obtai n “on the market”.  Nothing in this provision 
indicates that the definition of the term “market” should be limited to the “Korean” market, or the 
market “in the country of provision”.  Furthermor e, the DOC found that Hynix failed to provide all 
necessary information during the inves tigation regarding Korean default rates.  The data provided by 
Hynix were unreliable on their face, as the data sugg ested that the default rate for lowest rated debt 
was lower than the default rate of the highest rate d debt.  By contrast, in the Moody’s data, lower 
rated bonds had higher default rates in every instance.  
23. The DOC found that Hynix was not equityworthy in October 2001, and, therefore, treated the 
entire amount of the equity infusions received by Hynix in October 2001 as a grant.  Korea does not challenge the DOC’s equityworthiness methodology.  Instead, Korea claims that the DOC ignored 
contemporaneous equity purchases and “third part y enthusiasm” and improperly rejected existing 
(insider) creditor versus new (outside) creditor motiv ations.  The DOC determined that no significant, 
reasonably concurrent purchases of newly issued H ynix shares by private investors existed, and that 
Hynix’s June 2001 GDS offering provided no indication as to whether Hynix was equityworthy almost five months later.  The DOC also examined Hynix’s financial indicators and performance as part of its equityworthiness analysis.  The DOC  found that Hynix had been in poor condition 
throughout the late 1990s and through 2001.   WT/DS296/R 
 Page A-15 
 
 
  
24. The DOC also determined that the SSB a nd Monitor Group studies were not prepared to 
answer the question of whether Hynix was equitywort hy.  Moreover, Hynix’s creditors could not have 
relied upon the Arthur Anderson report, because, as the DOC noted, the report was not finished until two months after the creditors agreed to the October 2001 restructuring package.  Finally, in 
considering the usual investment practice of priv ate investors, the DOC explained its reliance upon a 
rational investor standard, as opposed to the economic model advanced by Korea. 
 
C. The DOC’s Finding of Specificity Was Proper 
 
25. Because the subsidy programme is directed at  a particular company – Hynix – it is specific 
within the meaning of Article 2 of the SCM Agreement.  Moreover, the DOC confirmed the 
specificity of the Hynix bailout through an analys is of corporate usage of the CRA/CRPA.  With 
respect to the CRA/CRPA, the data, which was provi ded by the GOK, demonstrates that the Hyundai 
Group companies received an extraordinarily larg e percentage of financial restructuring and 
recapitalization aid and that Hynix alone received a very high percentage of such aid.  Ironically, 
having stressed the requirement for positive eviden ce, Korea then asserts that its own objective, 
credible data on use of the CRA/CRPA is irrelevant to  the specificity analysis.  In the face of positive 
evidence that the government specifi cally directed and entrusted the banks to bail out Hynix, Korea 
argues that evidence of specificity for purposes of Article 2.1(c) must  come from a “broader 
examination” of the “benefits”.  There is absolutely  no support in the text of the SCM Agreement for 
that assertion.  As Korea itself acknowledges, the pr inciples that govern specificity findings are set 
forth in Article 2.  Article 2.1(c) contains explic it references to “quantitativ e” factors related to use, 
and there is no requirement in Article 2.1(c) to  “temper” those quantitative factors based on 
“qualitative distinctions”, as suggested by Korea.  III.  THE ITC’S INJURY DETERMINATION WAS PROPER  
 
A. The ITC’s Volume Analysis Was Proper  
 
26. While the ITC made it very clear that it re lied on a single consistent set of data from 
questionnaire responses for its examination of the volu me of subsidized subject imports, Korea refers 
to a varying set of data sources.  Also, Korea’s first submission contains only selective confidential 
data.  For several reasons, the United States urges the Panel not to rely on the selective confidential 
information that Korea has provided in this disp ute.  The data “trends” described in Korea’s 
submission are wrong and contradict those described in the ITC’s determination.  
27. While there is no requirement in Article 15.2 that an authority find that the increase in 
subsidized subject import volume relative to consum ption is significant, the ITC found not only that 
the increase in subsidized subject import volume relative to US consumption was significant, but also found that the volume of subsidized subject imports was significant both absolutely and relative to US 
production.  The ITC explained why subsidized subj ect import volume was significant stating that its 
“findings about the volume of subject imports are reinforced by the substantial degree of 
substitutability between subject im ports and domestic shipments”.  It also noted that “[t]he 
commodity-like nature of domestic and subject im ported DRAM products magnifies the ability of a 
given volume of imports to impact the domestic ma rket and industry”.  Korea does not contest the 
high degree of substitutability between subs idized subject and domestic DRAM products. 
 
28. The ITC specifically acknowledged in its opinion that “the use of bits as a unit of 
measurement [could] present difficulties for [its] anal ysis, as total bits are a function of chip density 
and product mix, both of which changed over the peri od of investigation”.  In a portion of the opinion 
omitted from Korea’s submission, the ITC explained that it nevertheless  found the volume of WT/DS296/R 
Page A-16  
 
 subsidized subject imports on an absolute basi s and the increase in that volume relative to US 
production and consumption was “significant”.  29. Korea does not dispute or even address the ITC’s conclusion that the increase in the volume 
of subsidized subject imports was si gnificant relative to US production.  
 
30. Finally, the ITC’s finding of a significant in crease in subsidized subject imports’ market share 
is based on positive evidence and is consistent wi th US obligations under the SCM Agreement.  
Subject imports gained market share between 2000 and 2001, while the domestic industry was losing 
market share.  Both subsidized subject imports and the domestic i ndustry lost market share between 
2001 and 2002, but during this time of increasing, but slowing demand, subsidized subject imports 
maintained  their market position better than domestic producers .  In addition to using a table 
(figure 9) that is rife with errors, Korea focuses  on the percentage-point increase over the period of 
investigation, ignoring the magnitude of this per centage increase.  By putting the volume data in 
context, the ITC reasonably concluded that the in crease in subsidized subject imports’ market share 
was significant in light of subsidized subject im ports’ high substitutability with the domestic like 
product and the price effects of subsidized subject imports.  31. Korea argues that the increased subject imports  were entering the US market to replace other 
Hynix-brand products while Hynix’s Eugene facility was being upgraded.  Even if this explanation 
were accurate, the fact remains that a domestic producer was losing sales to subsidized subject 
imports.  More importantly, however, the ITC in its final determination explicitly identified a missing 
factual predicate that explained why, in the DRAM s investigation, any declines in Hynix’s Eugene 
production of DRAM products or in the Hynix- brand US market share were inapposite.  Confidential 
Figure US-1  identifies and explains this problem. 
 
32. Another flaw with Korea’s argument is that  it is premised on the notion that the ITC should 
have examined the impact of subsidized subject imports on a “brand-name” basis.  The brand names 
of DRAM products did not indicate their country source, and did not correspond to the relevant 
inquiry under the SCM Agreement.  On the facts of the DRAMs investigation, the brand-name 
approach suggested by Korea would not be consistent  with the SCM Agreement.  The approach by the 
ITC in this investigation is consistent with th e SCM Agreement and with the approach endorsed in 
reports by other reviewing panels.  
 33. Korea asserts that the ITC used “inconsiste nt definitions of domestic industry, subject 
imports, and non-subject imports” that “prevented an objective examination of subject import volumes”.  Korea does not contest the ITC’s definiti on of subject imports.  Instead, Korea would have 
the ITC define the domestic industry for certain purposes as “producers of the domestic like product”, 
but then abandon that definition when calculating indu stry shipments.  The ap proach used by the ITC 
here, which throughout the determ ination defined the domestic i ndustry as companies engaged in 
domestic production of the domestic like product, is  consistent with the SCM Agreement.  Its 
methodology was objective because it avoided double-counting data.  B. The ITC’s Analysis of the Price Effects Was Proper  
34. The ITC found significant underselling by subsidized subject imports based on an analysis of 
8 different representative pricing products that co mpared the weighted-average price of domestic 
shipments with the weighted-average price of s ubsidized subject imports for each month between 
January 2000 and March 2003.  Korea does not ch allenge the data underlying the ITC’s pricing 
analysis, nor is there any basis to do so.  35. A finding of underselling, let alone significan t underselling, is not a prerequisite to an 
affirmative injury determination.  Article 15.2 prov ides that “[n]o one or several of these factors can  WT/DS296/R 
 Page A-17 
 
 
 necessarily give decisive guidance”.  Nevertheless, it is clear that, under the analysis the ITC 
conducted in this investigation, there was significant  underselling by subsidized subject imports.  
Korea merely asserts that the ITC’s analysis was “wrong for this industry”, but  there is no requirement in the Agreement to analyze price ef fects on a brand-name basis.  The disaggregated 
analysis by brand name urged by Korea would not  reflect the source country of the DRAM products 
and would be utterly inconsistent with the re quirement under the SCM Agreement to examine the 
effect “of the subsidized imports” on the “like product”, the product produced by the domestic industry.  Moreover, Korea ignores that the ITC also examined  the pricing data on a disaggregated 
basis (broken down both by brand-name and by so urce).  The ITC found that even a disaggregated 
analysis showed that subsidized subjec t imports were the lowest-priced product “ more often than 
DRAM products from any other source ”.  (emphasis added).  There is no requirement in the SCM 
Agreement that subsidized subject imports be th e lowest-priced product throughout the investigation 
based on a weighted-average pricing analysis, let alone based on a disaggregated analysis by brand 
name.  Low-priced subsidized subject imports, non etheless, were the lowest-priced product more 
often than any other source even on a disaggregated b asis.  Even when not priced lowest, they helped 
purchasers pressure other suppliers on price. 
 36. Other than its argument that the ITC did not ad equately consider other factors in its analysis 
of subject imports’ price effects, Korea does not ch allenge the ITC’s finding that there was significant 
price depression by subject imports, evident in substa ntial price declines for nearly every product and 
channel of distribution.  Regarding price leadersh ip, Korea fails to identify any requirement under 
Article 15 to find price leadership, because there is none.  The ITC reasonably relied on the evidence 
it had of lost sales and revenues to support its advers e price effects findings, and the fact that any were 
confirmed in an investigation of a fungible good is noteworthy, even if Korea would weigh them 
differently.  C. The ITC’s Analysis of the Impact of  Subsidized Subject Imports Was Proper 
 
37. Although a “checklist” approach is not required, it is also clear from the text of the ITC’s 
narrative views (not to mention the accompanying data tabulations) that the ITC evaluated the 
enumerated SCM Agreement Article 15.4 factors.  The ITC concluded that “[i]n sum, the domestic 
industry’s performance declined over the period of i nvestigation with respect to many indicators, and 
its financial performance worsened precipitously.  Declining prices are the primary reason for the 
industry’s large operating losses, and as discussed above, subject imports contributed materially to the 
steep price declines that occurred over the period”.  The ITC’s evaluation of injury factors and its 
consideration of the conditions of competition and business cycle distinctive to this industry 
permeates its entire final determination.  In its narrative views, for example, the ITC explicitly 
incorporated its findings in other sections of its narrative views and frequently cited to the 
accompanying data tabulations.  38. Korea does not dispute the positive evidence supporting the ITC’s conclusions.  Instead, 
Korea argues that the ITC should have weighed the f actors differently, and asserts that in this industry 
there are only five key indicia.  While Kor ea focuses on selective criteria, the ITC’s final 
determination reflects evaluation of positive ev idence concerning a variety of factors showing 
changes in the industry’s condition.  Korea uses diffe rent time periods depending  on the point that it 
seeks to make, as illustrated in Figure US-2, and al though Korea cites bits of data about individual 
producers, the ITC examined the domestic industry,  as well as the record, as a whole.  Furthermore, 
even the criteria that Korea asserts are important show ed declines during at least part, if not the entire, 
period of investigation. 
 WT/DS296/R 
Page A-18  
 
 D. The ITC’s Causation Analysis Is Proper  
 
39. Korea fails to identify any requirement in the plain text of the SCM Agreement to support its 
argument that the investigating authority is to “t ake the added step of examining other factors to 
ascertain their role in injury to the domestic indus try” in order to “isolate” subject imports or the 
effects of the subject imports and other known factors on the domestic industry.  Neither in US – Hot-
Rolled Steel  nor in subsequent reports has the Appe llate Body found any requirement for the 
investigating authority to “isolate” the injurious e ffects of the unfair imports.  Instead, the standard 
articulated has been whether the investigating au thorities provided a satisfactory explanation of the 
nature and extent of the injurious effects of tho se other factors, as distinguished from the injurious 
effects of the unfair imports. 
 40. In the DRAMs investigation, the ITC integrated  into its analysis of the volume, price effects 
and impact of subject imports the causation discussi on and its discussion of how it ensured that it did 
not attribute material injury from other factors to the subject imports.  The ITC clearly analyzed trends 
in both impact factors and the volume and price eff ects of the subsidized subject imports.  The ITC 
evaluated the absolute volume of subsidized subj ect imports, the trends in subject import volumes, 
and the relative increases in these volumes.  The IT C evaluated the rate and extent of underselling and 
price depression by subsidized subj ect imports.  It also examined changes in the injury factors in 
reaching its conclusion as to injury and causatio n.  More specifically, the ITC explored the 
relationship between the factors indicative of the vo lume and price effects of the subject imports and 
the movements in injury factor s.  This evaluation was central  to its causation analysis and 
determination.  The ITC demonstrat ed an “overall” temporal relati onship or coincidence between the 
subsidized subject imports and the material injury of the domestic industry, and in demonstrating a 
causal link between the subsidized subject imports a nd the injury to the domestic industry, the ITC 
evaluated the relevant factors in the context of the business cycle and conditions of competition 
distinctive to this industry. 
 41. The ITC also examined other factors to ensure that it did not attribute injury from those factors to subject imports.  With respect to non-s ubject imports, the ITC determined that a significant 
portion of non-subject imports were Rambus an d specialty DRAM products for which domestic 
producers had no significant production.  Moreover,  even those non-subject imports consisting of 
“standard” products did not have the price effects that subsidized subject imports did during the 
period of investigation.  Thus, the ITC reasonably fo und that non-subject imports  had less impact than 
their absolute and relative volumes might otherwise have indicated.  Furthermore, it also found that, 
while non-subject imports’ market share grew, the “primary negative impact” on the domestic industry was due to lower prices.  On this point , the ITC found that subsidized subject imports, 
themselves, were large enough and priced low enough to have a significant impact, regardless of the 
adverse effects caused by non-subject imports.  Thus, the ITC evaluated the nature and the extent of 
the injurious effects of non-subject imports in a “comprehensive” way to ensure that it did not 
attribute injury to subsidized subject imports.  Its findings are based on positive evidence and an 
objective examination.  Korea wants this Panel to reweigh the evidence or ignore the ITC’s analysis. 
 
42. Korea argues that the price declines during th e period of investigation were due to other 
factors (such as product life cycles and business cycl e changes in demand and supply that lead to 
“boom” and “bust” periods characteris tic of this industry).  Although Korea asserts otherwise, the ITC 
explicitly evaluated these factors in its determination.  It concluded that the substantial price declines 
were far greater than what would be expected, ev en according to Hynix, an d that in the absence of 
significant quantities of subsidized subject imports competing in the same product types at relatively 
low prices, domestic prices would have been substantially higher. 
 43. The ITC also examined the domestic industry’ s actions to ensure that it did not attribute 
injury to the subsidized subject imports.  Its affi rmative findings in this investigation are based on a  WT/DS296/R 
 Page A-19 
 
 
 factual record that sharply contrasts with the fact ual record in its previous investigation of DRAMs 
from Taiwan that resulted in a negative determination.  44. Not only does Korea fail to prove any subs tantive violation of Article 15 of the SCM 
Agreement, but it also fails to prove any inconsistency with Article 22.3. 
 
IV.  OTHER ISSUES  
 
45. With respect to other issues raised by Korea’ s first submission:  (a) the United States has not 
acted inconsistently with Article 19.4 of the SC M Agreement or Article VI:3 of GATT 1994 because 
it has not levied any countervailing duties;  (b) Ko rea’s claims regarding the DOC countervailing duty 
order should be rejected because Korea failed to co mply with Article 4.4 of the DSU and Korea has 
failed to demonstrate an inconsistency with  the SCM Agreement or GATT 1994;  (c) the 
recommendation requested by Korea is inconsistent w ith Article 19.1 of the DSU;  and (d) the DOC’s 
meetings with financial experts were not inconsistent with Artic le 12.6 of the SCM Agreement. WT/DS296/R 
Page A-20  
 
 ANNEX A-3 
 
 
EXECUTIVE SUMMARY 
THIRD PARTY SUBMISSION OF CHINA 
 
4 June 2004 
 
 
I. INTRODUCTION 
 
1. China concentrates in its third part y submission on the following legal issues: 
 
 (1) Indirect financial contribution entrusted or directed by a government; 
  (2) Selection of market benchmarks in th e establishment and calculation of benefits to 
the recipient of a subsidy; 
 
 (3) Determination of speci ficity under Article 2 of the SCM Agreement . 
 
II. INDIRECT FINANCIAL CONTRIBUTION UNDER ARTICLE 1.1(A)(1)(IV) OF THE 
SCM AGREEMENT 
 
2. With respect to the issue of indirect  financial contribution as provided for by 
Article 1.1(a)(1)(iv) of the SCM Agreement , China has the following views.   
 3. First, from the ordinary meaning of the words “entrust” and “direct”, the Panel in US – Export 
Restraint  held that the act of entrusting and that of directing “necessarily carry with them the 
following three elements:  (i) an explicit and a ffirmative action, be it delegation or command;  
(ii) addressed to a particular party;  and (iii) the objec t of which action is a particular task or duty”.  
China believes that these three elements establish a stringent  standard for treating a financial 
contribution directly out of the pocket of a private entity as one indirectly from the government.  China also believes that the first requirement of an  “explicit and affirmative”  action of delegation or 
command manifestly dictates that the action of the gov ernment must be conducted in such an explicit 
and affirmative way that justifies the imputation of a private action to the government.   
 4. Second, the negotiating history of the SCM Agreement  supports the strict reading of the words 
“entrust or direct”.  A financial contribution is in cluded as one of the requisite elements of a subsidy 
in order to limit the applicable scope of the defin ition of subsidy.  Although Article 1.1(a)(1)(iv) was 
intended as an anti-circumvention provision, it should not be carried too far so as to result in a far-
reaching finding of a financial contribution with  respect to every instance where government 
involvement exists.  Furthermore, the fa r-reaching interpretation and application of 
Article 1.1(a)(1)(iv) may lead to the abuse of  countervailing duties that the negotiators of the SCM 
Agreement endeavoured to prevent during the Uruguay Round.   
 
5. In the respect of the evidentia ry standard for entrustment or direction, China believes that an 
investigation authority must set out a “reasoned a nd adequate” explanation of how the facts support 
the finding of the three elements of entrustment or direction, which is not a special evidentiary 
standard.   WT/DS296/R 
 Page A-21 
 
 
 6. Consequently, China is of the view that the words “entrust” and “direct” should be read 
strictly in the process of finding an indirect financ ial contribution by the government through a private 
entity.    
III. SELECTION OF A MARKET BENCHMARK UNDER ARTICLE 14(A) and (B) OF 
THE SCM AGREEMENT 
 
7. In China’s view, by analogy to the Appellate Body report of US – Lumber CVDs Final (AB)  
and on the basis of Article 14(a) and (b), the acts of Citibank may constitute a primary market 
benchmark in the establishment of benefit.  As su ch, in the current dispute, the key issues would 
become:  (1) whether an authority may abandon a prim ary market benchmark;  (2) if yes, under what 
circumstances it can do so;  and (3) after rejecti ng the primary benchmark, whether the alternative 
benchmark used by DOC is consistent with Article 14(a) and (b).  In US – Lumber CVDs Final (AB) , 
similar legal issues also arose.  China thinks the reasoning and finding of the Appellate Body in that 
dispute may be helpful for this Panel in its assessment of the current dispute.  
 
8. On the basis of the understanding of the Appellate Body’s ruling in US – Lumber CVDs Final 
(AB) , China believes that an investigating authority may use alternative benchmarks other than the 
primary ones provided in Article 14(a) and (b) to est ablish and calculate the benefits to the recipient 
of a subsidy on the condition that such a method is  consistent with Article 14(a) and (b).   
 
9. However, the Appellate Body in US – Lumber CVDs Final (AB)  emphasized that “the 
possibility under Article 14(d) for investigating auth orities to consider a benchmark other than private 
prices in the country of provision is very limited ”.  In China’s view, these statements demonstrate a 
very high threshold for abandoning a primary benchmark.  In this respect, China believes that the actual and available private prices in the country of provision should be the more appropriate market 
terms under normal circumstances.  Although there may be some factors that may affect such 
comparison, adjustments may be made for the factors to the actual private prices.  In contrast, if the 
private prices are rejected due to certain factors of  incomparability and a “market price” is constructed 
accordingly, it is also not easy to take into account every key factors and ensure that such constructed 
“market terms” fully reflect the real market situation.    
10. Similarly, in the cases of equity infusion a nd loans provision, if there are investment activities 
conducted by a private entity to the same company unde r investigation, it is preferable to use such 
activities as the primary market benchmark instead of to reject the readily available and actual market 
benchmark and to construct an add itional set of “market terms”.   
 
11. In the current proceeding, both parties disput ed whether on the basis of the three key factual 
factors, the decision of Citibank should be abando ned.  After analyzing two of these factors, China 
thinks that they are not necessarily conclusive ev idence to support the rejection of Citibank’s decision 
as primary market benchmark.  12. Further to the above views, China also have th e opinion that even if a readily available market 
benchmark is properly rejected, due regard shou ld be given to mainta ining consistency with 
Article 14(a) and (b) when constructing a market  benchmark.  In China’s view, the specific 
requirements set out in Article 14(a) and (b) have th e function of ensuring that only the advantage of a 
subsidy is calculated through the application of gui delines contained therein.  This understanding is 
supported both by the Appellate Body report in US – Lumber CVDs Final (AB) and by the well 
accepted interpretation of the term “benefit” in Article 1.1 by the Appellate Body in Canada – 
Aircraf t.  Therefore, China believes that Article 14(a)  and (b) impose an obligation of excluding any 
factor that affects comparability of the terms that are being constructed by an authority.    WT/DS296/R 
Page A-22  
 
 IV. DETERMINATION OF SPECIFICITY UNDER ARTICLE 2 OF THE SCM 
AGREEMENT 
 
13. With respect to Article 2.1(c) of the SCM Agreement , it provides for a three-layer requirement 
in the determination of de facto  specificity: first, there shall be facts indicating the possible existence 
of de facto  specificity; second, consideration may then be turn ed to any or all of the four factors; third, 
when looking at factual factors, one shall  take into account two circumstan tial factors, i.e. the extent 
of diversification of economic activities and the le ngth of time of the application of the subsidy 
programme.   
14. China notes that DOC in its Decision Memorandum  adopted various evidence to show the 
intention of the GOK to rescue Hynix which, in China’s view, at best only shows the “reason to 
believe” that there may be de facto  specificity.  The panel in US – Lumber CVDs Final  held that 
“Article 2 [of] SCM Agreement is concerned with the distortion that is created by a subsidy which 
either in law or in fact is not broadly available”.  China thinks this is a proper statement of the purpose 
and function of the element of specificity.  The four factual factors and two contextual factors 
contained in Article 2.1(c) serve to guarantee a justif iable finding of limited availability of a subsidy.   
 15. In short, China believes that the intent of  a government does not necessarily prove that the 
actual application of a subsidy or subsidies is of de facto  specificity.   
 
16. With respect to “the granting of dispropor tionately large amounts of subsidy to certain 
enterprises”, Article 2.1(c) of the SCM Agreement clearly lists it as one of the factors that may be 
considered in the determination of de facto  specificity.  China would like to put forward the following 
opinion in the context of the current dispute.  
17. First, DOC seemed to ignore the qualifier of “ disproportionate” on largeness of the amount 
of subsidy in Article 2.1(c) of the SCM Agreement .  The fact that a company accounted for a big share 
in the debt restructuring provided by the government does not by itself conclusively establish that the amount of granted subsidy is disp roportionate.  In China’s view, th e disproportionate largeness should 
be determined on the basis of comparison with othe r participants in the restructuring programme.  
Such comparison should be conducted not only from th e perspective of the absolute amount of debt, 
but also, more importantly , from the perspective of the scales and needs of financing of all 
participants in the same programme.    18. Second, China shares the same view with Kor ea that, as manifestly required by Article 2.1(c) 
of the SCM Agreement , the “extent of diversification of economic activities” and the “length of time” 
have to be taken into account in th e determination of specificity.   
 19. Third, in China’s view, though Article 2.1(c)  does not require an authority to consider each 
and every factual factor listed therein, when taking into account of the particular settings of the debt 
restructuring, the consideration of the third factor , amount of subsidy, should be combined with the 
fourth factor, the manner of exercising discretion.   The authority should have looked into whether 
there were other applications for debt restructuring by other companies of scale similar to Hynix and 
in similar needs of financing and whether such appli cations were refused despite situations similar to 
those of Hynix.    20. Therefore, China thinks that the DOC’s appr oach to find disproportionately large amount of 
subsidies does not seem well founded pursuant to Article 2.1(c) of the SCM Agreement . 
 21. As a third key point, it is s ubmitted by China that Article 2 of the SCM Agreement  requires 
that specificity of subsidy programmes be dete rmined with respect to each separate subsidy 
programme.  Accordingly, an investigating au thority should refrain from taking a particular financial  WT/DS296/R 
 Page A-23 
 
 
 contribution  out of the context of the subsidy programme and considering it in isolation, or combining 
various separate subsidy programmes  as a whole and reviewing them as a single programme.   
 22. First, China believes that specificity should be examined on the basis of a subsidy programme, instead of any individual financial c ontribution granted under the same programme.  If 
specificity is to be determined on the basis of any particular financial c ontribution under the subsidy 
programme, there will be no subsidy programme that is  not specific.  One may not be wrong to argue 
that a particular financial contribution under a subsid y programme is specific given the fact that it is 
specifically made to a company.  However, this is the specificity of the financial contribution instead 
of that of the subsidy .  Hence, the specificity of a financial contribution does not follow that the 
subsidy programme, as a whole, is specific by nature.   
 23. Second, in China’s understanding of Article 2 of the SCM Agreement , China thinks that 
specificity should be examined in relation to each separate and distinct subsidy programme  that is 
under investigation by the authority of a member.  This understanding is supported by the following 
grounds.  First, within the legal framework of the SCM Agreement , specificity is a pre-condition for a 
subsidy to be subject to countervailing duties.  Consequently, the benefit of a subsidy could be 
counted into the total amount of subsidies only afte r its specificity is confirmed.  Practically, a 
countervailing duty investigation may involve mu ltiple subsidy programmes.  A finding of the 
specificity of a subsidy under investigation does not necessarily extend to other subsidies 
programmes.  Second, as an explicitl y provided requirement, Article 2.4 of the SCM Agreement  
provides that, “[a]ny determination of specificity under the provisions of this Article shall be clearly 
substantiated  on the basis of positive evidence.  In Chin a’s view, this provision imposes an obligation 
on the investigating authority to clearly inquire in to and demonstrate the specificity of each of the 
subsidy programmes under investigation.    
24. In the current dispute, DOC seemed to make no effort to establish that the various 
programmes under the heading of “Direction of Cred it and Other Financial Assistance” are financial 
contributions made pursuant to one single subsidy programme.  If the “single programme” theory is 
not substantiated by relevant facts, the finding of  specificity of the “programme” as a whole would be 
flawed, and therefore, no natural and logical conclu sion could be drawn that each individual subsidy 
programme under this big “programme” is specific.  If there is no such “single programme”, an 
investigating authority shall establish the specifi city of each separate subsidy programme under 
investigation.    25. In summary, China is of the opinion that Article 2 of the SCM Agreement  requires an 
investigating authority to enquire into and decide on the existence of specificity with respect to each 
of the subsidy programmes under investigation.   
 
V. CONCLUSION 
 
26. In conclusion, China is of the opinion that, 
 
 (1) The words “entrust” and “direct” in Article 1.1(a)(1)(iv) of the SCM Agreement  
should be read strictly in the process of finding an indirect financial contribution by the government through a private entity. 
  (2) In establishment and calculation of the bene fit of a subsidy pursuant to Article 14(a) 
and (b) of the SCM Agreement , an investigating authority may only use an alternative 
benchmark other than the primary one with good cause and under very limited 
situations; Article 14(a) and (b) impose an obligation of excluding any factor that 
affects comparability of the terms that are being constructed by an authority.   
 WT/DS296/R 
Page A-24  
 
  (3) With respect to establishment of specif icity, the intent of a government does not 
necessarily prove that the actual applica tion of a subsidy or subsidies is of de facto  
specificity; in the current dispute, the DOC finding of disproportionate granting of subsidies does not seem well founded under Article 2.1(c) of the SCM Agreement ; 
Article 2 of the SCM Agreement  requires that an investigating authority inquire into 
and decide on the existence of specificity  with respect to each of the subsidy 
programmes under investigation.   WT/DS296/R 
 Page A-25 
 
 
 ANNEX A-4 
 
 
EXECUTIVE SUMMARY OF THE THIRD PARTY 
SUBMISSION BY THE EU ROPEAN COMMUNITIES 
 
14 June 2004 
 
  The European Communities concentrates in its written submission on the following issues, 
 
• the notion of “ entrustment ” and “ direction ” under Article 1.1.(a)(1)(iv) of the SCM 
Agreement; 
 
• the description of the DRAM market an d the conclusions drawn by Korea; 
 
• the application of Article 15.2 of the SCM Agreement  in the context of a transparent market 
for a homogenous product; 
 
• and it submits that establishing a correlation be tween import volume and decline in domestic 
industry performance is, depending on the facts of th e case at hand, no more than a useful tool 
for the  determination of injury causation. 
 
I. THE NOTION OF “ENTRUSTMENT” AND DIRECTION” UNDER 
ARTICLE 1.1.(A)(1)(IV) OF THE SCM AGREEMENT  
 
1. The EC disagrees with the interpretation of the notion of “entrustment” or “direction” in 
Korea’s First Written Submission.  Korea firstly essentially argues that these notions must be 
interpreted in a very narrow sense and ca n only refer to an action which is “ so specific and compelling 
that the private body is not really making the d ecision at all – the private body has become the 
instrumentality of the government ”.  Korea interprets this to mean that “ any discretion left to the 
private body transforms the situation, and the ac tion can no longer properly be imputed to the 
government ”.  Against the background of this standa rd, Korea submits that the DOC should have 
examined each alleged government delegation or  command with respect to each party and with 
respect to each transaction, in order to establish whether there was an “ explicit and affirmative ” 
government action of delegation or command.  2. The EC submits that an interpretation requi ring a delegation or command in respect of each 
individual measure is too narrow in respect of its scope  and is not covered either by the wording of the 
SCM Agreement , nor by the findings of the US – Export Restraints  panel quoted by Korea.  Secondly, 
evidence of the nature and quality suggested by Kor ea, i.e. evidencing that each support measure is 
the result of an affirmative and explicit inst ruction by the government is not required. 
 
3. Firstly, in respect of the notion of entrustment, the EC recalls the wording of 
Article 1.1(a)(1)(iv) of the SCM Agreement , and that the terms “entrust” and “direct” are not defined 
in the SCM Agreement.   The EC also recalls that in the US – Export Restraints  case, the ordinary 
meaning of “entrust” was defined and submits that on the basis of that definition, a situation of a 
government entrusting one or more private body (i es) with the responsibility of executing a more 
general task such as a public policy objective or to act in the public interest would be covered.  In 
such case it is submitted that there is no need to sh ow a specific entrustment or direction with respect 
to each specific act leading to a financial contribution. WT/DS296/R 
Page A-26  
 
  
4. Secondly, in respect of the degree of evidence required for proving a government direction, the EC submits firstly that the US - Export Restraints  panel did not expressly address this point.  
Secondly the EC submits that a government can express an “ affirmative and explicit action of 
delegation or command ” in a more subtle way than to issue a sp ecific instruction.  This could be done, 
e.g. by providing for the implementation of a genera l policy.  Hence, it is in accordance with the 
special circumstances and the totality of the fact ual elements of the case at hand that the actual 
delegation or command woul d have to be shown. 
 5. The EC also submits that it is  very unusual in practice for an investigating authority to be able 
obtain evidence that proves beyond reasonable doubt government direction of a private company.  
The EC recalls the investigating authorities’ limit ed powers of investigation and their dependence on 
information received from companies under investig ation and foreign governments.  The EC submits 
that, if the standard of proof to demonstrate govern ment direction or entrustment of a private party, 
required conclusive documentary evidence, any government could easily circumvent 
Article 1.1(a)(1)(iv) of the SCM Agreement  by giving instructions e.g. over the phone, by exercising 
other forms of pressure or by simply wit hholding documents during the investigation. 
 6. In practice, the information and evidence available to the institutions is most often 
circumstantial.  The relevant test, in the EC’s subm ission, is whether the tota lity of facts shows that 
there was government entrustment or direction.  
 
7. This interpretation, the EC submits , is supported by the fact that the SCM Agreement  allows, 
on the basis of its Article 12.7, for findings to be made  on the basis of facts available, and this article 
would become meaningless if, for the finding of govern ment direction, explicit documentary evidence 
were necessary.  
 
8. The EC submits that this in terpretation is in line with the US-Exports Restraints  panel which 
referred to the need to analyse the elements of action in the general context.  The EC also submits that 
the US - Export Restraints panel  must be understood in the context of the special circumstances of 
that case in which the notions to “ direct ” and “ entrust ” were interpreted only to the extent needed in 
order to decide the particular issues of that case.   Accordingly, the findings in this case cannot be 
transferred to cases with completely different facts ra ising completely different issues; the EC submits 
that the present factual situation differs fundamentally from the one in US - Exports Restraints.  
 9. Furthermore, the EC refers to the reports by the Panel in Australia - Automotive Leathe r and 
Appellate Body Canada Aircraft.  These reports concern the standard of proof required for a finding 
whether a subsidy is export contingent in the sense of Article 3.1 of the SCM Agreement, a notion that 
is comparatively precise to the one of “entrustment”  or “direction”.  In that context the panel and 
Appellate Body have held that such a finding has to be based on all the facts taken together, whilst 
abstaining from stipulating that particular facts must necessarily be considered.  This shows by 
analogy, the EC submits, that an analysis of the tota lity of the facts is also  warranted when examining 
government direction. 
 
10. Finally, the EC makes the following genera l observations.  The threshold for demonstrating 
entrustment or direction must take account of  
the government’s degree of involvement in the private 
body.  If a private body has no government shareholding and operates at arms length from government, it is defendable to expect a more ex plicit demonstration of government direction.  
However, when the government is a shareholder, it is reasonable to expect the government to have a 
more direct possibility to intervene in the undert aking’s decisions.  Ther efore an investigating 
authority should be entitled to take account of a gove rnment’s participation and influence in a private 
bank as an important factor in establishing government direction.    WT/DS296/R 
 Page A-27 
 
 
 II. THE DESCRIPTION OF THE DRAM MARKET AND THE CONCLUSIONS 
DRAWN BY KOREA 
 
11. Firstly, the EC submits that the particularities of the DRAM market, on which there is agreement between the parties in ge neral terms, lead however to di fferent interpretations of their 
implications for the injury finding. EC would subm it that in this market, contrary to the Korean 
submission, injury can be caused particularly quick ly even be relatively few imports.  The EC also 
submits that the assumptions Korea draws from the f unctioning of the DRAM market partly leads it to 
stretch the interpretation of provisions of the SCM Agreement . 
 
12. The EC would submit that the Korean assertion that in the cyclical DRAM market, downturns 
are not a sign of injury is, only part of the pictur e.  The DRAM market, is essentially a world market 
on which DRAMS are traded as a fungible commodity with highly transparent prices.  The EC would 
submit that precisely because of this fact, even  comparatively small quantities of sales with 
temporarily lower prices can exacerbate more ge neral industry downturns.  Hence, in the DRAM 
market comparatively low volumes of sales undercu tting the market level can have a major negative 
impact on the situation of competitors.  From the particularities of the DRAM market structure follow 
a number of consequences; negative impacts from subs idized sales can possibly be felt in more than 
just the US market, this implying that they are also  felt in the US; in a hypothetical example of ten 
transactions it is possible that two undercutting tran sactions had the most significant effect on prices, 
e.g. if they were made at comparatively lower pr ices than the eight remaining ones; it is conceivable 
that offering lower prices does not necessarily result in higher market shares, as this will depend on 
the reaction of competitors.  13. The EC recalls that the wording of Article 15.2 of the SCM Agreement  stipulates that the 
investigating authority shall consider three asp ects when determining injury, two of which are 
alternatives, but also clarifies that no one or sev eral of these factors can necessarily give decisive 
guidance.  The EC submits that this provision right ly provides for the flexib ility to analyse each case 
according its particular characteristics, and that the present type of market s hows that this flexibility 
can be required as here neither of the factors nece ssarily give decisive guidance.  The EC rejects 
Korea’s questioning of the “ so called traditional underselling ” analysis and submits that Article 15.2 
SCM Agreement  requires investigating authorities to “consider” a comparison on this basis.  
 
14. The EC submits that Korea overstates the requirement for, and indicative value of, a 
correlation between the import volume and the de cline in domestic industry performance as an 
indicator of injury causation.   III. CONCLUSION 
 
15. Therefore the European Communities i nvites the panel to conclude that : 
 
• the notion of government direction does not require this direction to have been 
affirmatively and explicitly expressed in respect of every transaction and every 
bank analysed; 
• government direction can be established on the basis of the totality of facts 
available and does not necessarily have to be  established on the basis of explicit 
documentary evidence of the direction;  
• in the case of homogenous products traded  on a transparent market, significant 
injury can be caused by relatively small quantities and relatively minor undercutting; and WT/DS296/R 
Page A-28  
 
 • Article 15.2 of the SCM Agreement  requires an undercutting analysis including a 
comparison between subsidized imports a nd the price of the like product in the 
territory of the importing Member, whilst none of the factors mentioned in it are 
necessarily decisive for a determination of  injury. In that context, a correlation 
between import volume and decline in domestic industry performance is no more 
than a potential indicator of injury causation.  WT/DS296/R 
 Page A-29 
 
 
 ANNEX A-5 
 
 
EXECUTIVE SUMMARY OF THE 
THIRD PARTY SUBMISSION OF 
THE GOVERNMENT OF JAPAN 
 
4 June 2004 
 
 I. INTRODUCTION 
 
1. The Government of Japan (“Japan”) wishes to  address crucial systemic issues raised by the 
Government of the Republic of Korea (“Korea”) rela ting to the material injury determination by the 
United States International Trade Commission (“ ITC”) and the subsidy determination by the 
United States Department of Co mmerce (“DOC”).  While Japan do es not take any position with 
respect to the factual aspects of th is case, Japan respectfully requests that this Panel carefully review 
both legal and factual aspects of this  case in light of this submission. 
 
II. ARGUMENT 
 A. THE INJURY DETERMINATION BY THE ITC 
 
1. The ITC Appears to Have Based Its Injury  Determination on Evidence Inconsistent 
with Article 15.1 and Footnote 46 of the SCM Agreement 
 2. According to Korea, the ITC applied a wafe r fabrication control approach to identify the 
scope of imports from Korea, and an assembly control approach to identify the domestic like 
products.
1  Therefore, the ITC applied different criteri a to identify domestic like products and imports 
from Korea.  3. Footnote 46 of the SCM Agreement defines th at the scope of the “like product” must be 
identical “in all respects” to the scope of the produc t under consideration.  The phrase “in all respects” 
encompasses all features and details of the product u nder consideration.  Thus, the application of the 
different criteria to define the scope of the product under consideration and the like product is 
inconsistent with Footnote 46.    
4. Article 15.1 requires that the authorities shall base its injury determination on positive 
evidence of effects on price in a domestic market for the “like product” and the consequent impact of 
subsidized imports on the domestic producers of the “like products”.  Review of import data, which 
were prepared on a different basis from domestic like product data, would not provide meaningful 
analysis, rendering the injury determination incons istent with the requirement under Article 15.1 and 
other provisions of Article 15. 
 
                                                     
 
1 See Korea’s First Written Submission  (19 April 2004), paras. 123 - 124. WT/DS296/R 
Page A-30  
 
 2. The ITC Appears to Have Failed to Demonstrate that Subsidized Imports Injured the 
Domestic Industry 
 
5. In its final injury determination, the ITC app ears to have failed to demonstrate that subsidized 
imports caused material injury to the domestic i ndustry in accordance with Articles 15.1 and 15.5 of 
the SCM Agreement. 
 6. In US–Lumber ITC Investigation
2, the panel stated that “increases in imports proportional to 
the increase in demand would seem to be without any injurious effect” 3 where a situation of strong 
and improving demand exists.  Korea presented to this dispute the data which are similar to that those 
presented in US-Lumber ITC Investigation  case.  This Panel should carefully review the evidence to 
decide whether the ITC demonstrated that the subs idized imports caused the injury to the domestic 
industry, taking into account the panel report in US –Lumber ITC Investigation . 
 
3. The ITC Appears to Have Failed to Separa te and Distinguish Injury Caused by Other 
Known Factors from Injury Caused by the Subsidized Imports 
 
7. The ITC appears to have made no attempt to  separate and distinguish effects of other known 
factors on the domestic industry from effects of dumping of the subsidized imports thereon in 
accordance with Article 15.5 of the SCM Agreement.  
8. In EC–Pipe Fittings
4, the Appellate Body reconfirmed th at the authorities need to separate 
and distinguish the injury caused by dumped imports from injury caused by other factors when determining injury under Article 3.5 of the AD Agreemen t, which is equivalent to Article 15.5 of the 
SCM Agreement.  In this case, the ITC knew that  three other factors actually or potentially 
contributed to the material inju ry.  It is not clear from the ITC Report  how the ITC separated and 
distinguished these known factors from the effects of the subsidized imports.  Japan thus respectfully 
requests that this Panel carefully review the ITC’s determination on this aspect.  B. THE SUBSIDY DETERMINATION BY DOC  
1. The Panel Should Carefully Review DOC’s Fact Findings on Financial Contributions 
within the Meaning of Article1.1 (a)(1) of the SCM Agreement 
 
(a) Certain Financial Contributions Appears to  Have Been Made by Public Bodies under 
Article 1.1(a)(1)(i) 
 
9. The authorities may find that a subsidy was gr anted to a recipient, only when a financial 
contribution within the meaning of Article 1.1(a)(1 ) was made, and a benefit within the meaning of 
Articles 1.1(b) was conferred to a recipient.  Ar ticle 1.1(a)(1) of the SCM Agreement provides that 
loans, loan guarantees and equity infusion are financ ial contributions under Article 1.1(a)(1)(i) if they 
are provided by a public body.  This Panel thus  should review whether a bank of the public body 
made any financial support to Hynix.  Such financia l support, if any, is a “financial contribution” 
under Article 1.1(a)(1) regardless of the gove rnment’s entrustment or direction.   
 (b) The Panel Should Apply Correct Evidentiary Standards to Review the Existence and the 
Extent of Entrustment or Direction by the G overnment of Korea under Article 1.1(a)(1)(iv) 
                                                     
 
2 Panel report, United States -- Investigation of the International Trade Commission in Softwood 
Lumber from Canada (“US – Lumber ITC Investigation”) , WT/DS277/R, adopted 26 April 2004. 
3 Id., para. 7.95. 
4 Appellate Body report, European Communities - Antidumping Duties on Malleable Cast Iron Tube or 
Pipe Fittings from Brazil (“EC – Pipe Fittings”) , WT/DS219/AB/R, adopted 18 August 2003.  WT/DS296/R 
 Page A-31 
 
 
  
10. Article 1.1(a)(1)(iv) of the SCM Agreement se ts forth that the authorities may determine that 
a privately-controlled bank provided a financial c ontribution thereunder, if the bank provided the 
financial supports in compliance with entrus tment or direction by the government.    
 
11.  The panel in US–Export Restraints5 analyzed the meaning of terms “entrust or direct” 
in Article 1.1(a)(1)(iv) that acts of entrusting an d directing comprise the following three elements:  
“(i) an explicit and affirmative action, be it delega tion or command;  (ii) addressed to a particular 
party; and (iii) the object of which action is a particular task or duty.6”  Its analysis shows that 
Article 1.1(a)(1)(iv) provides elements, which the au thorities must find to determine that the financial 
contribution was granted through a privately controlled bank.  It also clarified that the Article does not 
require that the government’s delegation or command mu st be so detailed to instruct every step that 
the bank must follow.    12. The existence of these three elements may be shown by direct evidence such as the 
governmental letter to a commercial bank, or circ umstantial or secondary evidence.  It would be 
sufficient for the authorities to find a financial contri bution, if the evidence is such that the authorities 
can reasonably conclude that the government dele gated or commanded a privately-controlled bank to 
provide certain financial supports to a specific company.   13. As Korea argues, the standard of review of th is Panel is set forth in Article 11 of the Dispute 
Settlement Understanding.  This Article requir es that this Panel review the DOC’s subsidy 
determination based on “an objective assessment  of the matter before it, including an objective 
assessment of the facts of the case”.
7  Thus, this Panel must find that the facts are established 
consistently with the WTO rules so far as an obj ective assessment of evidence on the record would 
reasonably allow this Panel to reach the conclusion that the authorities reached .  There are no further 
requirements of the evidentiary standards. 
 
2. The Panel Should Apply the Correct Legal Standards under Article 2 of the SCM 
Agreement to Review Issues of Specificity in This Case 
 
14. It appears that the DOC’s finding of the “entrust or direct” by the Government of Korea 
sufficiently covers the issue of the specificity unde r Article 2.1(a).  DOC stated that “[t]he objective 
of this programme was the complete financial r estructuring of Hynix in order to maintain the 
company as an ongoing concern”.8  This statement indicates that DOC found that the programme was 
limited to Hynix and that the programme was speci fic under the terms of Article 2.1(a) of the SCM 
Agreement.   
 
III. CONCLUSION 
 
15. For the reasons set forth above, Japan respect fully requests this Panel carefully review the 
consistency of the injury determination by the IT C with Articles 15.1, 15.5 and Footnote 46 and the 
consistency of the subsidy de termination by DOC with Articles 1.1(a)(1) and 2.1.  
 
 
                                                      
5 Panel report, United States -- Measures Treating Ex port Restraints as Subsidies (“US – Export 
Restraints”),  WT/DS194/R, adopted 23 August 2001. 
6 Id., para. 8.29. 
7  Article 11 of the DSU. 
8 Korea’s First Submission , para. 387, citing Decision Memorandum,  at 48 (GOK 
Exhibit 5).