WORLD TRADE  
ORGANIZATION  WT/DS336/AB/R 
28 November 2007 
 (07-5231) 
 Original:   English 
 
 
     
 
    
 
     
 
JAPAN – COUNTERVAILING DUTIES ON 
DYNAMIC RANDOM ACCESS ME MORIES FROM KOREA 
   
AB-2007-3 
   
 
    
 
   
Report of the Appellate Body 
  WT/DS336/AB/R 
 Page i 
 
 
 
I. Introduction................................................................................................................... ..............1  
II. Arguments of the Participants and the Third Participants ..........................................................5  
A. Claims of Error by Japan – Appellant ...........................................................................5  
1. The JIA's Determination of Entrustment or Direction with respect to 
the December 2002 Restructuring ....................................................................5  
2. The JIA's Determination of Benefit with respect to the December 2002 
Restructuring.....................................................................................................9  
3. Calculation of the Amount of Benefit...............................................................9  
4. Benefit Calculation Methods ..........................................................................12  
5. Allocation of Benefit ......................................................................................14  
B. Arguments of Korea – Appellee ...................................................................................16  
1. The JIA's Determination of Entrustment or Direction with respect to 
the December 2002 Restructuring ..................................................................16  
2. The JIA's Determination of Benefit with respect to the December 2002 
Restructuring...................................................................................................18  
3. Calculation of the Amount of Benefit.............................................................18  
4. Benefit Calculation Methods ..........................................................................21  
5. Allocation of Benefit ......................................................................................23  
C. Claims of Error by Korea – Other Appellant ..............................................................24  
1. The JIA's Determination of Benefit with respect to the October 2001 
Restructuring...................................................................................................24  
2. Interested Parties.............................................................................................26  
3. Direct Transfer of Funds.................................................................................27  
4. Causation of Injury .........................................................................................28  
D. Arguments of Japan – Appellee ...................................................................................31  
1. The JIA's Determination of Benefit with respect to the October 2001 
Restructuring...................................................................................................31  
2. Interested Parties.............................................................................................32  
3. Direct Transfer of Funds.................................................................................34  
4. Causation of Injury .........................................................................................35  
E. Arguments of the Third Participants ............................................................................37  
1. European Communities...................................................................................37  
2. United States...................................................................................................39  
III. Issues Raised in This Appeal ................................................................................................... .40 
IV. The JIA's Determination of Entrustment or Direction with respect to the 
December 2002 Restructuring ..................................................................................................41  
A. The Panel's Review of the JIA's Determination of Entrustment or Direction ..............47  
B. The Panel's Conclusion under Article 1.1(a)(1)(iv) of the SCM Agreement ...............51  WT/DS336/AB/R 
Page ii  
 
V.
 The JIA's Determination of Benefit with r espect to the December 2002 Restructuring...........52  
A. The Panel's Review of the JIA's Analysis of Commercial Reasonableness ..................53  
1. The Independence of the Deutsche Bank Report............................................54  
2. The Substance of the Deutsche Bank Report..................................................56  
B. Conclusion ...................................................................................................................57  
VI. Calculation of the Amount of Benefit.......................................................................................58  
VII. Benefit Calculation Methods .................................................................................................... 64 
VIII. Allocation of Benefit.......................................................................................................... .......70  
1. Article 19.4 of the  SCM Agreement ...............................................................71  
2. Article 11 of the DSU .....................................................................................72  
IX. The JIA's Determination of Benefit with r espect to the October 2001 Restructuring ..............74  
X. Interested Parties............................................................................................................. ..........78  
XI. Direct Transfer of Funds....................................................................................................... ....83  
XII. Causation of Injury ............................................................................................................ .......86  
XIII. Business Confidential Information ...........................................................................................93  
XIV. Findings and Conclusions....................................................................................................... ..94 
 
 ANNEX 1 Notification of an Appeal by Japan under Article 16.4 and Article 17 of the  
  Understanding on Rules and Procedures Governing the Settlement of Disputes   
  (DSU), and under Rule 20(1) of the Working Procedures for Appellate Review  
 
ANNEX II Notification of an Other Appeal by Korea under Article 16.4 and Article 17 of the 
  Understanding on Rules and Procedures Governing the Settlement of Disputes   
  (DSU), and under Rule 23(1) of the Working Procedures for Appellate Review   WT/DS336/AB/R 
 Page iii 
 
 
TABLE OF CASES CITED IN THIS REPORT 
 
Short Title Full Case Title and Citation 
Canada – Aircraft  Appellate Body Report, Canada – Measures Affecting the Export of Civilian 
Aircraft , WT/DS70/AB/R, adopted 20 August 1999, DSR 1999:III, 1377 
EC – Countervailing 
Measures on DRAM Chips Panel Report, European Communities – Countervailing Measures on Dynamic 
Random Access Memory Chips from Korea , WT/DS299/R, adopted 
3 August 2005 
Japan – Alcoholic Beverages II  Appellate Body Report, Japan – Taxes on Alcoholic Beverages , WT/DS8/AB/R, 
WT/DS10/AB/R, WT/DS11/AB/R, adopted 1 November 1996, DSR 1996:I, 97  
Japan – DRAMs (Korea) Panel Report, Japan – Counterva iling Duties on Dynam ic Random Access 
Memories from Korea , WT/DS336/R, circulated to WTO Members 
13 July 2007  
Korea – Commercial Vessels Panel Report, Korea – Measures Affecting Trade in Commercial Vessels , 
WT/DS273/R, adopted 11 April 2005 
Mexico – Anti-Dumping 
Measures on Rice Appellate Body Report, Mexico – Definitive Anti-Dump ing Measures on Beef 
and Rice, Complaint with Respect to Rice , WT/DS295/AB/R, adopted 
20 December 2005 
US – Countervailing Duty 
Investigation on DRAMS Appellate Body Report, United States – Countervailing Duty Investigation on 
Dynamic Random Access Memory Semiconductors (DRAMS) from Korea , 
WT/DS296/AB/R, adopted 20 July 2005 
US – Countervailing Measures on Certain EC Products  Appellate Body Report, United States – Countervailing Measures Concerning 
Certain Products from the European Communities , WT/DS212/AB/R, adopted 
8 January 2003, DSR 2003:I, 5 
US – Hot-Rolled Steel  Appellate Body Report, United States – Anti-Dumping Measures on Certain Hot-
Rolled Steel Products from Japan , WT/DS184/AB/R, adopted 23 August 2001, 
DSR 2001:X, 4697 
US – Lead and Bismuth II  Appellate Body Report, United States – Imposition of Countervailing Duties on 
Certain Hot-Rolled Lead and Bismuth Carbon Steel Products Originating in the United Kingdom , WT/DS138/AB/R, adopted 7 June 2000, DSR 2000:V, 2595 
US – Norwegian Salmon CVD  GATT Panel Report, Imposition of Countervailing Duties on Imports of Fresh 
and Chilled Atlantic Salmon from Norway , SCM/153, adopted 28 April 1994, 
BISD 41S/576 
US – Softwood Lumber IV  Appellate Body Report, United States – Final Countervailing Duty Determination 
with Respect to Certain Softwood Lumber from Canada , WT/DS257/AB/R, 
adopted 17 February 2004, DSR 2004:II, 571 
US – Softwood Lumber VI 
(Article 21.5 – Canada) Appellate Body Report, United States – Investigation of the International Trade 
Commission in Softwood Lumber from Canada – Recourse to Article 21.5 of the DSU by Canada , WT/DS277/AB/RW and Corr.1, adopted 9 May 2006  
US – Steel Safeguards Appellate Body Report, United States – Definitive Safeguard Measures on 
Imports of Certain Steel Products , WT/DS248/AB/R, WT/DS249/AB/R, 
WT/DS251/AB/R, WT/DS252/AB/R, WT /DS253/AB/R, WT/DS254/AB/R, 
WT/DS258/AB/R, WT/DS259/AB/R , adopted 10 December 2003, 
DSR 2003:VII, 3117 
US – Upland Cotton Panel Report, United States – Subsidies on Upland Cotton , WT/DS267/R, and 
Corr.1, adopted 21 March 2005, as modified by Appellate Body Report, WT/DS267/AB/R 
 WT/DS336/AB/R 
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TABLE OF ABBREVIATIONS USED IN THIS REPORT 
 
Abbreviation Definition 
Anti-Dumping Agreement Agreement on Implementati on of Article VI of the General Agreement 
on Tariffs and Trade 1994 
BCI Business confidential information 
Deutsche Bank Report A restructuring plan prepared by Deutsche Bank that was made 
available to Hynix's creditors at the time they undertook the December 2002 Restructuring (Exhibit KOR-20 submitted by Korea to the Panel) 
DRAMs Dynamic random access memories 
DSB Dispute Settlement Body 
DSU Understanding on Rules and Procedures Governing the Settlement of 
Disputes  
Elpida Elpida Memory, Inc. 
Final Determination The JIA's final dete rmination of the investigation, dated 
20 January 2006, as provided for in paragraph 6 of Article 7 of Japan's Customs Law (Law No. 54 of 1910), with respect to DRAMs originating in the Republic of Korea (Notification No. 352 of the 
Ministry of Finance dated 4 August 2004) (Exhibit JPN-1(b)) 
Four Creditors Four of Hynix's privat e creditors—KEB, Woori Bank, Chohung Bank, 
and NACF  
GATT 1994 General Agreement on Tariffs and Trade 1994 
GOK Government of Korea 
Guidelines  Japan's Guidelines for Procedur es Relating to Countervailing and 
Anti-dumping Duties 
Hynix Hynix Semiconductor, Inc. 
JIA Japan's investigating authorities  
JIA's Final Determination, Annex 1 (Essential Facts) 
 The essential facts forming the basis of the JIA's final determination 
regarding the countervailing duty investigation with respect to DRAMs from Korea (Exhibit JPN-2(b);  Exhibit KOR-3) annexed to the JIA's Final Determination 
JIA's Final Determination, Annex 3 (Rebuttals and 
Surrebuttals) The JIA's response to the comment s and rebuttals that had been 
submitted (Exhibit JPN-4(b);  Exhibit KOR-4) annexed to the JIA's 
Final Determination 
KDB Korea Development Bank 
KEB Korea Exchange Bank 
KEIC Korea Export Insurance Corporation  WT/DS336/AB/R 
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Abbreviation Definition 
Micron Micron Japan, Ltd. 
NACF National Agriculture Cooperative Federation 
Other Creditors The private creditors (apa rt from the Four Creditors) that also 
participated in the October 2001 and December 2002 Restructurings  
Panel Report Panel Report, Japan – DRAMs (Korea)  
Restructurings Debt-restructuring programmes entered into by Hynix and its creditors 
in October 2001 and December 2002 
SCM Agreement Agreement on Subsidies and Countervailing Measures 
Tokyo Round Subsidies Code   Tokyo Round Agreement on Inte rpretation and Application of 
Articles VI, XVI and XXIII of the General Agreement on Tariffs and 
Trade  
Vienna Convention Vienna Convention on the Law of Treaties , done at Vienna,  
23 May 1969, 1155 UNTS 331;  8 In ternational Legal Materials 679 
Working Procedures Working Procedures for Appellate Review , WT/AB/WP/5,  
4 January 2005 
WTO World Trade Organization 
WTO Agreement  Marrakesh Agreement Es tablishing the World Trade Organization  
 
  WT/DS336/AB/R 
 Page 1 
 
 
WORLD TRADE ORGANIZATION  
APPELLATE BODY 
 
 
 
Japan – Countervailing Duties on Dynamic 
Random Access Memories from Korea 
 
Japan, Appellant/Appellee  
Korea, Other Appellant/Appellee  
 European Communities, Third Participant  
United States, Third Participant 
  
 AB-2007-3   
 Present: 
  Unterhalter, Presiding Member  Ganesan, Member  Sacerdoti, Member 
 
 
  
I. Introduction 
1. Japan and Korea each appeals certa in issues of law and legal interpretation developed in the 
Panel Report, Japan – Countervailing Duty Investigation on Dynamic Random Access Memories from 
Korea  (the "Panel Report").
1  The Panel was established to consider a complaint by Korea concerning 
the imposition of countervailing duties by Japan on imports of dynamic random access memories ("DRAMs") from Korea. 
2. The countervailing duty investigation in this case was initiated by Ja pan on 4 August 2004, in 
response to an application submitted by Elpida Memory, Inc. ("Elpida") and Micron Japan, Ltd. 
("Micron").  The Korean company investigated wa s Hynix Semiconductor, Inc. ("Hynix").  Japan's 
investigating authorities (the "JIA") sent ques tionnaires to a number of parties, including the 
Government of Korea (the "GOK"), Hynix, and certain Korean financial institutions.
2  The period of 
investigation for determining the existence of s ubsidies was 1 January to 31 December 2003, while 
the period of investigation for determining injury was 1 April 2001 to 31 March 2004. 
3. On 21 October 2005, the JIA informed the GOK a nd the parties involved in the proceeding of 
the essential facts under consideration (the "Essen tial Facts"), pursuant to Article 12.8 of the  
Agreement on Subsidies and Countervailing  Measures  (the " SCM Agreement ").  In the Essential 
Facts, the JIA found that certain debt-restructur ing programmes entered into by Hynix and its 
creditors (the "Restructurings") in October 2001 and December 2002 were c ountervailable subsidies 
                                                      
1WT/DS336/R, 13 July 2007. 
2Panel Report, para. 2.1. WT/DS336/AB/R 
Page 2  
 
and calculated a countervailing duty rate of 27. 2 per cent on imports of DRAMs from Korea, 
manufactured by Hynix.
3   
4. The JIA provided the GOK and the parties involve d in the proceedings with the opportunity 
to submit comments and rebuttals on the Essentia l Facts.  In the JIA's final determination 
dated 20 January 2006 (the "Final Determination")4, the JIA confirmed the findings set out in the 
Essential Facts.  Annexed to the Final Determ ination were these Essential Facts ("JIA's Final 
Determination, Annex 1 (Essential Facts)") and the JIA's response to the comments and rebuttals that 
had been submitted ("JIA's Final Determinati on, Annex 3 (Rebuttals  and Surrebuttals)").5 
5. Japan gave public notice of the Final Dete rmination and announced the imposition of 
countervailing duties in Cabinet Order Relating to Countervailing Duty Levied on Dynamic Random 
Access Memory, Etc. , (Cabinet Order No. 13)6 and Announcement by the Ministry of Finance No. 357, 
published in Issue No. 4264 and Special Issue No. 17 of the Official Gazette , respectively, both 
dated 27 January 2006. 
6. Before the Panel, Korea alleged that Japan had acted inconsistently with  its obligations under 
Articles 1, 2, 10, 11, 12, 14, 15, 19, 21, 22, and 32 of the  SCM Agreement , as well as under 
Articles VI:3 and X:3 of the  General Agreement on Tariffs and Trade 1994   (the "GATT 1994").8 
7. On 7 May 2007, a confidential version of the Panel Report, containing business confidential 
information ("BCI"), was issued to the parties to the dispute.  The Panel Report, excluding the BCI, 
was circulated to Members of the World Trade Organization (the "WTO") on 13 July 2007.  The 
Panel concluded that the JIA had im properly found government "entrustme nt or direction" of four of 
Hynix's private creditors—Korea Exchange Bank (the "KEB"), Woori Bank, Chohung Bank, and 
National Agriculture Cooperative Federation (the " NACF") (collectively, the "Four Creditors")—to 
participate in the December 2002 Restructuring, contrary to Article 1.1(a)(1)(iv) of the  SCM 
Agreement .9  In addition, the Panel found that the JIA had improperly determined that the 
                                                      
3Panel Report, para. 2.2.  See also Final Determination, para. 19. 
4Final determination of the investigation, as provided for in paragraph 6 of Article 7 of the Customs 
Tariff Law (Law No. 54 of 1910), with respect to DR AMs originating in the Republic of Korea (Notification 
No. 352 of the Ministry of Finance dated 4 August 20 04) (Exhibit JPN-1(b) submitte d by Japan to the Panel). 
5Panel Report, para. 2.3. 
6Exhibit KOR-1 submitted by Korea to the Panel;  Exhi bit JPN-7 submitted by Japan to the Panel.  See 
also Panel Report, para. 2.4.   
7Exhibit KOR-2 submitted by Korea to the Panel;  Exhi bit JPN-7 submitted by Japan to the Panel.  See 
also Panel Report, para. 2.4.   
8Panel Report, para. 3.1. 
9Ibid., paras. 7.254 and 8.2(a). WT/DS336/AB/R 
Page 3 
 
 
December 2002 Restructuring conferred a "benefit" on Hynix, contrary to Articles 1.1(b) and 14 of 
the  SCM Agreement .10  With respect to both the October 2001 and December 2002 Restructurings, 
the Panel found that the JIA had improperly calcula ted the amount of benefit conferred on Hynix, 
contrary to Articles 1.1(b) and 14 of the  SCM Agreement .11  The Panel also found that the JIA had 
used methods to calculate the amount of benefit that were not provided for in Japan's national 
legislation or implementing re gulations, contrary to the chapeau of Article 14 of the  SCM 
Agreement .12  Finally, the Panel found that Japan had acted inconsistently with Article 19.4 of the 
SCM Agreement   by levying countervailing duties in 2006 to offset some of the subsidies provided by 
the October 2001 Restructuring, even though the JI A had found that the relevant subsidies applied 
only from 2001 to 2005.13 
8. The Panel rejected Korea's claims that the JIA had improperly found government 
"entrustment or direction" of the Four Creditors  to participate in the October 2001 Restructuring, 
contrary to Article 1.1(a)(1)(iv) of the  SCM Agreement14, and that the JIA had improperly found that 
the October 2001 Restructuring conferred a "benefit" on Hynix, contrary to Articles 1.1(b) and 14 of 
the  SCM Agreement .15  In addition, the Panel disagreed with Korea that the JIA had improperly 
treated Hynix's creditors as "interested parties", and improperly applied "facts available" and made 
adverse inferences, contrary to Articles 12.7 and 12.9 of the  SCM Agreement .16  The Panel also 
rejected Korea's claim that the JIA had acted in consistently with Article 1.1(a)(1)(i) of the  SCM 
Agreement  by improperly finding that the October 2001 and December 2002 Restructurings involved 
"direct transfer[s] of funds".17  Finally, the Panel rejected Korea's claim that the JIA had failed to 
demonstrate that the subsidized imports were, "through the effects of subsidies", causing injury, 
contrary to Articles 15.5 and 19.1 of the  SCM Agreement .18 
                                                      
10Panel Report, paras. 7.282 and 8.2(b). 
11Ibid., paras. 7.316 and 8.2(c). 
12Ibid., paras. 7.334 and 8.2(d). 
13Ibid., paras. 7.361 and 8.2(e). 
14Ibid., paras. 7.252 and 8.1(a). 
15Ibid., paras. 7.298 and 8.1(b). 
16Ibid., paras. 7.398 and 8.1(c). 
17Ibid., paras. 7.446 and 8.1(d).  The Panel also dismissed Korea's claims that the JIA had failed to 
properly determine the specifi city of the October 2001 and December 2002  Restructurings, contrary to Article 2 
of the  SCM Agreement , and that the JIA had failed to determine whether a benefit had continued to exist 
following changes in the ownership of Hynix, contrary to Articles 10, 14, 19, and 21 of the  SCM Agreement . 
(Ibid., para. 8.1(e) and 8.1(f))  However, these findings of the Panel are not subjects of this appeal. 
18See ibid., paras. 7.425 and 8.1(g). WT/DS336/AB/R 
Page 4  
 
9. In the light of its findings, the Panel reco mmended that Japan bring its measure into 
conformity with its obligations under the  SCM Agreement .
19 
10. The Panel declined to rule on certain additio nal claims made by Korea under Articles 1, 2, 
19.4, and 32.1 of the  SCM Agreement   and Article VI:3 of the GATT 1994.20  The Panel also declined 
a request by Korea, under Article 19.1 of the DSU,  that the Panel suggest that the countervailing 
duties imposed by Japan on imports of DRAMs from Hynix be immediately rescinded, and that any 
countervailing duties collected by Japan on such im ports be refunded.  Th e Panel held that the 
modalities of implementation of its recommendation ar e, in the first place, for Japan to determine.21 
11. On 30 August 2007, Japan notified the Dispute Settlement Body (the "DSB"), pursuant to 
paragraph 4 of Article 16 of the Understanding on Rules and Procedures Governing the Settlement of 
Disputes  (the "DSU"), of its intention to appeal certa in issues of law covered in the Panel Report and 
certain legal interpretation developed by the Panel and filed a Notice of Appeal22 pursuant to 
Rule 20 of the Working Procedures for Appellate Review  (the " Working Procedures ").23  
On 10 September 2007, Japan filed an appellant's su bmission.  On 11 September 2007, Korea notified 
the DSB, pursuant to paragraph 4 of Article 16 of the DSU, of its intention to appeal certain issues of 
law covered in the Panel Report a nd certain legal interpretation deve loped by the Panel and filed a 
Notice of Other Appeal24 pursuant to Rule 23(1) of the Working Procedures .  On 14 September 2007, 
Korea filed an other appellant's submission.25  On 24 September 2007, Korea and Japan each filed an 
appellee's submission.26  On the same day, the European Communities and the United States each 
filed a third participant's submission.27 
12. By letter dated 12 September 2007, Japan request ed authorization from the Appellate Body 
Division hearing the appeal to correct certain "cleri cal errors" in its appellant 's submission, pursuant 
to Rule 18(5) of the Working Procedures .  On 14 September 2007, the Division invited all 
participants and third participants to comment on Ja pan's request.  None of th e participants or third 
                                                      
19Panel Report, para. 8.6. 
20Ibid., para. 8.3.  Although Korea made certain arguments under Article 22 of the  SCM Agreement  
and Article X:3 of the GATT 1994, the Panel did not make any findings in respect of these provisions. 
21Ibid., paras. 8.7 and 8.8. 
22WT/DS336/8 (attached as Annex I to this Report). 
23WT/AB/WP/5, 4 January 2005. 
24WT/DS336/9 (attached as Annex II to this Report).   
25Pursuant to Rule 23(3) of the Working Procedures . 
26Pursuant to Rules 22 and 23(4) of the Working Procedures . 
27Pursuant to Rule 24(1) of the Working Procedures .   WT/DS336/AB/R 
Page 5 
 
 
participants objected to Japan's request.  On 18 September 2007, the Division authorized Japan to 
correct the "clerical errors" in its appellant's submission.  
13. The oral hearing in this appeal was held on 11 October 2007.  The participants and third 
participants presented oral arguments and respond ed to questions posed by the Members of the 
Appellate Body Division hearing the appeal. 
II. Arguments of the Participants  and the Third Participants 
A. Claims of Error by Japan – Appellant 
1. The JIA's Determination of  Entrustment or Direction with respect to the 
December 2002 Restructuring  
14. Japan argues that the Panel committed several errors  in its review of the JIA's finding that the 
GOK "entrusted or directed" the Four Creditors to pa rticipate in the December 2002 Restructuring.  In 
particular, Japan submits that the Panel acted inc onsistently with Article 11 of the DSU by limiting 
the scope of its analysis to only a restructuri ng plan prepared by Deutsche Bank that was made 
available to Hynix's creditors at the time they  undertook the December 2002 Restructuring (the 
"Deutsche Bank Report")28 and by considering that the Deutsche Bank Report played "a central role" 
in the JIA's determination of "entrustment or direction".29  In so doing, the Panel disregarded the fact 
that the JIA's determination was based on the tota lity of the evidence on r ecord, including various 
other pieces of circumstantial evidence and intermed iate findings made by the JIA based on that 
evidence.  According to Japan, the JIA's assessmen t of the Deutsche Bank Report constituted "only a 
part of the JIA's intermediate findings of commercia l reasonableness, which in turn was only a part of 
the overall entrustment or direction determination."30  Japan argues that other intermediate findings 
relied upon by the JIA and allegedly accepted by th e Panel include the JIA's findings that the 
GOK:  (i) had an intent to save Hynix from financia l collapse;  (ii) had prev iously provided subsidies 
to Hynix through various subsidy programmes, includi ng the October 2001 Restructuring;  (iii) had 
the ability to influence the Four Creditors through, inter alia , its shareholding power;  and (iv) was 
directly involved in the December 2002 Restructuring.31  In Japan's view, the Panel's failure to 
consider these other pieces of evidence and findings by  the JIA is inconsistent with the standard of 
review articulated by the Appellate Body in  US – Countervailing Duty Investigation on DRAMS .  In 
particular, Japan argues that, "if ... an inves tigating authority relies on individual pieces of 
                                                      
28Exhibit KOR-20 submitted by Korea to the Panel.  See also Panel Report, paras. 7.158 and 7.159. 
29Japan's appellant's submission, para. 44. 
30Ibid., para. 45. 
31Ibid. WT/DS336/AB/R 
Page 6  
 
circumstantial evidence viewed toge ther as support for a finding of entrustment or direction, a panel ... 
normally should consider that evidence in its tota lity ... in order to assess its probative value with 
respect to the investigating authority's determination."
32  Japan further asserts that the Panel's 
approach would make it impossible for an investiga ting authority to rely on the totality of evidence, 
because "a flaw in its assessment of one of many pieces of evidence would necessarily invalidate the entire determination."
33 
15. In addition, Japan contends that the Panel erred in its examination of certain findings made by 
the JIA regarding the Deutsche Bank Report.  In pa rticular, the Panel failed to properly analyze a 
number of press reports relied upon by the JIA as evidence "to impugn the commercial reliability of the Deutsche Bank Report."
34  Instead, the Panel "required that an  individual piece of evidence, in and 
of itself, establish the JIA's intermediate factua l finding of the intervention by the GOK in the 
preparation of the Deutsche Bank Report."35  Japan asserts that a part of  the context relied upon by the 
JIA "consisted of the countervailing duty investig ations that both the European [Communities] and 
the United States had commenced at the time."36  For Japan, the Panel's failure to consider this context 
is another example of how "the Panel did not review  the JIA's determination, but rather made its own  
de novo   determination of how strong  it considered an item of evidence in isolation."37 
16. Japan also argues that the Pane l reviewed each of the nine press reports relied upon by the JIA 
in isolation, and examined whether each report ta ken alone "could establish the GOK's intervention in 
the Deutsche Bank Report".38  Specifically, Japan submits that the fourth and fifth press reports 
indicated that "the GOK was pushing creditors to sell Hynix despite a lack of viable buyers and 
resistance from the creditors."39  For Japan, when read together with the preceding reports, as well as 
with the eighth and ninth repor ts, these reports demonstrate that the GOK initiated discussions with 
Hynix's creditors, "then ventured on to push cred itors into selling Hynix, then, when it became 
apparent that such a sale was unlikely, the GOK pushed to keep Hynix as a going-concern."40  Japan 
argues that, in the light of the GOK's "aggressive ma nner in intervening in de termining the process of 
                                                      
32Japan's appellant's submission, para. 67 (quoting Appellate Body Report, US — Countervailing Duty 
Investigation on DRAMS , para. 150, and referring to paras. 152 and 154). 
33Ibid., para. 70. 
34Ibid., para. 76 (quoting Panel Report, para. 7.169). 
35Ibid., para. 80. 
36Ibid., para. 86. 
37Ibid., para. 88. (emphasis omitted) 
38Ibid., para. 91. 
39Ibid., para. 102. 
40Ibid. WT/DS336/AB/R 
Page 7 
 
 
restructuring Hynix, it is apparent that the GOK's interventions were linked to the content of [the] 
Deutsche Bank Report."41 
17. Disagreeing with the Panel's piecemeal approach , Japan asserts that "the question the Panel 
had to answer was not whether the individual pieces of evidence directly supported a finding of government intervention into the Deutsche Bank Report."
42  Rather, "the Panel's task was to consider 
whether the JIA came to a reasonable and objectiv e conclusion ... based on all pieces of evidence in 
their totality, which was the method by wh ich the JIA consider ed such evidence."43  In Japan's view, 
"[e]ven where a panel reviews individual pieces of evidence it must do so in its capacity as the 
reviewer of the investigating authority's dete rmination, not as the initial trier of fact[s]."44 
18. Moreover, according to Japan, the Panel failed to make an objective assessment of the JIA's 
findings in respect of the substance of the Deutsche Bank Report.  Japan argues that the JIA did not 
seek to draw an intermediate finding that any one of the discrepancies it had identified in the Deutsche 
Bank Report "impugned the commerciality" of that Re port.  Nor "did the JIA deny the commercial 
nature of the Deutsche Bank Report, as suggested by the Panel."45  Instead, the JIA found that each of 
the Four Creditors should have undertaken a "close examination" of the grounds for Deutsche Bank's 
recommendations because the Deutsche Bank Report was not "objective material" and did not 
constitute "a sufficient basis for the commercial financing judgment of experienced financial institutions" when viewed in the light of other evidence on record.
46 
19. Japan also faults the Panel for allegedly ex amining the issue of whether the Deutsche Bank 
Report favoured Hynix over its creditors.  According to Japan, this was not a conclusion that the JIA 
sought to draw.  In Japan's view, by misstating th e JIA's conclusions, the Panel failed to make an 
objective review, in accordance with Article 11 of the DSU.47  
20. In addition, Japan claims that the Panel acted inconsistently with Article 11 of the DSU by 
making a finding regarding a contract involving Deutsche Bank although Korea did not submit 
sufficient "evidence and argument to establish a  prima facie   case based on" that issue.48  According 
                                                      
41Japan's appellant's submission, para. 102. 
42Ibid., para. 117. 
43Ibid. 
44Ibid. 
45Ibid., para. 150. 
46Ibid. (referring to JIA's Final Determination, Annex 1 (Essential Facts), para. 350 (with respect to 
KEB);  and paras. 355, 358, and 363 (with respect to Woori Bank, Chohung Bank, and NACF)). 
47Ibid., para. 124. 
48Ibid., para. 138. WT/DS336/AB/R 
Page 8  
 
to Japan, the Panel collected the ev idence of the relevant "contract ex officio  in March 2007 well after 
both Panel sessions and the submission of all arguments by the parties"
49 and failed to provide Japan 
with any meaningful opportunity to present its vi ews regarding the contract, thereby disregarding 
Japan's due process rights.  Japan further asserts that  the Panel also "disregard[ed] Japan's due process 
rights in making a finding on [this] issue".50   
21. Moreover, Japan claims that the Panel erre d in treating certain of Japan's arguments—
specifically, arguments relating to the way the Deut sche Bank Report analyzed the rate of return to 
Hynix's creditors under a liquidation scenario—as ex post  rationalizations.  In support of its 
contention, Japan points to various passages in the JIA's determination, arguing that, contrary to what 
the Panel found, the JIA did in fact make the rele vant findings in its determination.  According to 
Japan, the Panel failed to make an objective assessment of the matt er before it, as required under 
Article 11 of the DSU, by refusing to  consider these findings by the JIA.51  
22. Finally, Japan argues that the Panel erred in  finding that an error in the Deutsche Bank 
Report, said to have been admitted by Hynix, did not require correction.52  Japan claims that 
"[n]owhere in its Report did the Panel consider [t he] effect of the correction of the error or the 
meaning thereof in accordance w ith what the JIA analyzed."53  Japan asserts that the Panel failed to 
understand the JIA's assessment of the evidence and th e conclusions drawn by the JIA based on that 
evidence and, instead, made a  de novo   review of the evidence to reach its own findings. 
23. For all these reasons, Japan submits that the Pane l failed to apply a proper standard of review 
and thereby exceeded the bounds of its discretion under Article 11 of the DSU.  Japan, therefore, 
requests the Appellate Body to reverse the Panel's fi nding that the JIA "did not have a proper basis for 
finding that the Four Creditors were entrusted or directed by the [GOK] to participate in the 
December 2002 [R]estructuring", contrary to Article 1.1(a)(1)(iv) of the  SCM Agreement .54 
                                                      
49Japan's appellant's submission, para. 135. 
50Ibid., para. 139. 
51Ibid., paras. 154-158 (referring to JIA's Final Determination, Annex 3 (Rebuttals and Surrebuttals), 
para. 496;  and JIA's Final Determination, Annex 1 (Essential Facts), para. 343). 
52Ibid., para. 159 (referring to Panel Report, para. 7.244). 
53Ibid., para. 162. 
54Ibid., para. 32 (referring to Panel Report, paras. 7.252-7.254, and 8.2(a)). WT/DS336/AB/R 
Page 9 
 
 
2. The JIA's Determination of Benefi t with respect to the December 2002 
Restructuring  
24. Japan requests the Appellate Body to reverse the Panel's finding that the JIA improperly 
determined the existence of "benefit" with respect  to the December 2002 Restructuring.  According to 
Japan, the Panel conducted no substantive analysis of  the JIA's determination of benefit regarding the 
December 2002 Restructuring and based its finding on th is issue solely on its finding with respect to 
"entrustment or direction".  As this finding of th e Panel was erroneous, its finding on the existence of 
benefit should also be rejected.55   
3. Calculation of the Amount of Benefit  
25. Japan requests the Appellate Body to reve rse the Panel's finding that Japan acted 
inconsistently with Articles 1.1(b) and 14 of the  SCM Agreement  by improperly calculating the 
amount of benefit conferred on Hynix through the Oc tober 2001 and December 2002 Restructurings.   
(a) Calculation of the Amount of Bene fit by Reference to an Outside 
Investor Standard 
26. Japan challenges the Panel's finding that the JIA calculated the benefit of equity infusions and 
loans on the basis of an exclusively outside inv estor benchmark.  In Japan's view, the Panel 
erroneously understood that the i nvestment perspectives of inside investors were fundamentally 
different from those of outside investors.  Japan al so disagrees with the Panel's finding that there was 
no dispute between the parties that the investment perspectives of inside and outside investors differ.56  
Instead, Japan submits that the "basic standard" th at the JIA applied to both inside and outside 
investors, with respect to both the October 2001 and December 2002 Restructurings, was the same, in 
that "they both seek to maximize profits or minimize losses."57  Japan submits that, by overlooking the 
fact that the JIA calculated the amount of benef it based on this consideration, the Panel made a  
de novo  review to reach its own finding that the JI A's methodology was based exclusively on the 
outside investor benchmark.58 
27. In support of its contention, Japan refers to the Panel's understanding of the term "normal 
commercial perspective" as used by the JIA in its determination.59  Although Japan does not dispute 
that this term may refer to the outside creditors' pe rspective in certain contexts, Japan argues that it 
                                                      
55Japan's appellant's submission, para. 168.   
56Ibid., para. 183 (referring to Panel Report, para. 7.310). 
57Ibid., para. 187.  See also ibid., paras. 183-185. 
58Ibid., para. 188. 
59Ibid., para. 191 (referring to Panel Report, para. 7.307). WT/DS336/AB/R 
Page 10  
 
had also provided a "fuller explanation" that the Panel disregarded—namely, that the JIA used the 
term to refer also to the inside investor's perspective.
60   
28. Japan further alleges that the Panel erred in fi nding that "appraisals by credit rating companies 
are an 'exclusive' reference" to outside investors.61  According to Japan, the input from credit rating 
agencies does not determine the creditworthiness of a company for only new, outside investors.  
Moreover, the JIA's determination acknowledged that existing creditors also use ratings provided by 
credit rating agencies to determine the question of  additional financing to existing borrowers. 
29. Japan also argues that Article 14 of the  SCM Agreement , which contains guidelines for the 
calculation of the amount of benefit, does not disti nguish between outside and inside investors, nor 
does it set forth a specific methodology for dealing with  companies in a specific financial situation.  
Japan asserts that the Panel overlooked the "consi derable leeway" accorded  to WTO Members to 
adopt a reasonable methodology to calculate th e amount of benefit conferred by a subsidy.62  F o r  
Japan, in doing so, the Panel erroneous ly interpreted Article 14 of the  SCM Agreement   "as imposing 
an obligation to adopt a [particular] methodology based on a so-called inside investor standard."63  
Japan further asserts that the JIA adopted its me thodology considering the record evidence that was 
available to it through the investigation process, as required by Article 12.2 of the  SCM Agreement , 
and that, by "finding that the JIA should have cal culated the amount of benefit based on an inside 
investor benchmark, the Panel implicitly required th e JIA to have based its Final Determination on 
something other than evidence on the record."64 
(b) Calculation of the Amount of Bene fit from the Perspective of the 
Recipient 
30. Japan challenges the Panel's finding that "the JIA should not have treated the value of the 
equity that Hynix gave in return for the financi ng as zero, as Hynix had to dilute the ownership of 
existing shareholders in return."65  Japan disagrees with the Panel for various reasons. 
                                                      
60Japan appellant's submission, para. 191 (referring to Japan's response to Question 31 posed by the 
Panel, paras. 125-131). 
61Ibid., para. 198 (referring to Panel Report, footnote 507 to para. 7.307). 
62Ibid., para. 205 (referring to Panel Report, EC – Countervailing Measures on DRAM Chips , 
para. 7.213). 
63Ibid. 
64Ibid., para. 208. 
65Ibid., para. 219 (referring to Panel Report, para. 7.313). WT/DS336/AB/R 
Page 11 
 
 
31. Japan submits first that Korea did not asser t that dilution had occurred in this case.66  
Secondly, even if it had occurred, this would have taken place at the level of shareholders, and not at 
the level of Hynix.67  Thirdly, no provision in Article 14 of the  SCM Agreement   sets forth "any rigid 
rules that purport to contemplate every conceivable factual circumstance"68, nor is there a rule that 
investigating authorities must cons ider the dilution of ownership in the case of equity infusions.  
Japan further argues that, as the JIA has established that Hynix would not be able to provide any value 
to the creditors in the debt-to-equity swap, it was c onsistent with Article 1.1( b) and Article 14 of the  
SCM Agreement   for the investigating authority to have  concluded that the value of the shares 
provided in return for the financing received is zero in this case.  Japan also  argues that the JIA did 
not disregard "'the value of the equity provided in return' nor did it only look at the amount of credits 
exchanged with the equity."69  Rather, the JIA examined these i ssues and, on the basis of record 
evidence, determined that the value of such equity was zero.70   
(c) Other Arguments 
(i) Whether Korea Made a Prima Facie Case 
32. Japan argues that the Panel "had no basis to c onsider" whether the JIA calculated the amount 
of benefit from the perspective of outside invest ors, because Korea did not make such an argument.71  
As a result, the Panel should not have made the findi ng that the JIA used an outside investor standard 
to reach its conclusion that "the JIA improperly calculated the amount of benefit conferred by the 
October 2001 and December 2002 [R]estructurings."72  Japan suggests that the Panel acted 
inconsistently with Article 11 of the DSU by cons idering a claim for which Korea did not establish a 
 prima facie   case.   
(ii) Calculation of the Amount of Benefit on the Basis of "Facts 
Available" 
33. Japan submits that the Panel erred in finding th at the JIA calculated the amount of benefit 
using "facts available".73  Instead, Japan asserts, the JIA "used information on the record, which was 
obtained from independent first- hand sources, such as the Bank of Korea, British Bankers' 
                                                      
66Japan's appellant's submission, para. 220. 
67Ibid. 
68Ibid., para. 221 (quoting Appellate Body Report, US – Softwood Lumber IV , para. 92). 
69Ibid., para. 227. 
70Ibid. 
71Ibid., para. 234. 
72Ibid. (quoting Panel Report, para. 7.315). 
73Ibid., para. 243. WT/DS336/AB/R 
Page 12  
 
Association, Standard & Poor[']s, and the Korean National Tax Service."
74  According to Japan, the 
JIA was not required to use the information on other debt restructurings in Korea—information which 
was not provided to the JIA—because no parties had suggested that such information should be used 
to establish the benchmark for the Restructurings.75  Japan asserts that the Panel acted inconsistently 
with Article 11 of the DSU by failing to consider  these arguments presented by Japan.  In Japan's 
view, the Panel's approach amounts to a "denial of Japan's due process right of defense", because it 
prevented Japan from responding to an argument that  was made by Korea for the first time during the 
course of the Panel proceedings.76   
4. Benefit Calculation Methods   
34. Japan challenges the Panel's findings regarding the benefit calculation methods used by the 
JIA, pursuant to Article 14 of the  SCM Agreement , on two grounds.  First, Japan claims that the Panel 
erroneously interpreted the provisions of  the chapeau of Article 14 of the  SCM Agreement .  Secondly, 
Japan claims that the Panel failed to examine, in  a manner consistent with  Article 11 of the DSU, 
whether the "method[s] used" by the JIA were properly "provided for"77 in Japan's Guidelines for 
Procedures Relating to Countervailing and Anti-Dumping Duties  (the " Guidelines "). 
35. Japan argues that, although the Panel adopted a broad meaning of "method" to mean "a mode 
of procedure; a (defined or systematic) way of doing a thing"78, the Panel incorrectly applied this 
meaning.  Japan contends, for instance, that the Panel implied that the chapeau  "requires" these 
"methods" to be "reduced" to a particular level of detail in a Member's national legislation or 
implementing regulations79, in this case, to the specific mathem atical formulae used by the JIA to 
calculate the benefit (that is, Formula 1 and Formul a 2).  For Japan, the Panel's interpretation suggests 
that detailed aspects of potential  applications   of the methods must be sp elled out in a way that would 
leave no room for an investigating authority to adapt "methods" to the particular facts of an 
investigation, thereby rendering Article 14 "meaningless".80  In support of its view, Japan refers to the 
Panel Report in EC – Countervailing Measures  on DRAM Chips and the Appellate Body Report in
                                                      
74Japan's appellant's submission, para. 243 (referring to JIA's Final Determination, Annex 1 (Essential 
Facts), paras. 92 and 99). 
75Ibid., paras. 243 and 244. 
76Ibid., para. 237. 
77Ibid., para. 255. 
78Ibid., para. 257 (referring to Panel Report, para. 7.328;  and quoting The New Shorter Oxford English 
Dictionary , L. Brown (ed.) (Clarendon Press, 1993) Vol. 1, p. 1759). 
79Ibid., para. 258 (referring to Panel Report, para. 7.330). 
80Ibid., para. 259. WT/DS336/AB/R 
Page 13 
 
 
US – Softwood Lumber IV , which, Japan argues, both recognized th at paragraphs (a)-(d) of Article 14 
contain fairly general approaches to the calculation of benefit, and therefore illustrate the inherent 
flexibility in the chapeau of Article 14 to adapt to different factual situations of particular 
investigations.81   
36. Japan argues further that the term "provided for"  in the chapeau of Article 14 indicates a fairly 
general obligation for Members under th at provision.  The dictionary definition of the term "provided 
for" includes a reference to "enable or allow (somet hing to be done)", which, in Japan's view, allows 
greater latitude than the term "set forth".82  For Japan, this means that a Member's legislation or 
implementing regulations should be considered consistent with the chapeau of Article 14 if they 
"enable" or "allow" the investigating authority to  adopt a formula as a means of applying the method 
to calculate benefit in a specific case.   
37. In support of its position, Japan points to th e broadly defined calculation methods—that is, 
the "gamma" and "same person" methods—that were at issue in US – Countervailing Measures on 
Certain EC Products .83  Japan notes that these "methods" were only "general statements of an 
approach", and were not expressed as mathematical or algebraic formulae.84  Japan further contends 
that the Panel's interpretation of "methods" would render the right of Members to impose 
countervailing duties  inutile , because it would require that Members foresee "each and every possible 
form" of financial contributi ons to determine and specify calculation methods in advance.85  I n  
addition, Japan argues that the Panel erroneously attached the transparency  obligation in the second 
sentence of the chapeau of Article 14 (that is, the requirement that the application of the method be 
"transparent" and "adequately explained") to the ob ligation to "provide for" "methods", instead of 
linking the transparency  obligation to the  application   of the benefit calculation methodology used in 
specific determinations.86  For Japan, the distinction made in the chapeau  between the "method" and 
its "application" confirms that the method itself need not be spelled out precisely.87   
                                                      
81Japan's appellant's submission, paras. 260-263 (referring to Panel Report, EC – Countervailing 
Measures  on DRAM Chips , para. 7.213;  and Appellate Body Report US – Softwood Lumber IV , para. 92). 
82Ibid., para. 265 (quoting Concise Oxford English Dictionary , 10th ed., (Oxford, 2002), p. 1151). 
83Ibid., para. 266 (referring to, inter alia , Appellate Body Report, US – Countervailing Measures on 
Certain EC Products , para. 129). 
84Ibid. 
85Ibid., para. 267. 
86Ibid., paras. 270 and 271 (referring to Panel Report, para. 7.327). 
87Ibid., para. 272. WT/DS336/AB/R 
Page 14  
 
38. In addition, Japan contends that, even under the Panel's interpretation of the chapeau, the 
Panel failed to properly review whether the "method[s] used" were "provided for" in Japan's 
Guidelines .  Specifically, Japan argues that its Guidelines did "provide for" the "method[s] used" by 
the JIA to calculate the benefit conferred by the loan s, equity infusions, and debt forgiveness, in this 
case.
88  According to Japan, the Panel reviewed only a part of the relevant provisions of the 
Guidelines , and then confused how the Guidelines  "provided for" the methods to be used with the 
application   of those methods.  Although Japan's Guidelines  may not directly refer to the integers or 
variables used in Formula 1 and Formula 2, the Panel overlooked how the Guidelines  in fact "provide 
for" the methods, in at least "broad terms", in the elements corresponding to these integers.89   
According to Japan, the Panel's review of the mathem atical formulae used by the JIA and its disregard 
of the JIA's explanation therein, amounts to a  de novo   review of the evidence, contrary to Article 11 
of the DSU.90 
5. Allocation of Benefit  
39. Japan appeals the Panel's finding that Japan  "levied countervailing duties 'in excess of the 
amount of the subsidy found to exist', contrary to Article 19.4 of the  SCM Agreement ".91  Japan 
disagrees with the Panel that "the JIA's decision to allocate the benefit conferred by certain of the non-
recurring subsidies resulting from the October 2001 [R]estructuring" to the years 2001 to 2005 meant 
that "Japan imposed countervailing duties in 2006 on  imports which the JIA itself had found were not 
subsidized at the time of imposition."92   
40. Japan submits that "'the amount of the subsidy found to exist' [under Article 19.4] is the 
amount found in the final determination."93  Japan maintains that "Article 19.1 does not require a 
prospective analysis [of] the situation after the time of the investigation."94  Japan disagrees with the 
Panel that the use of the present tense in Article 19.1 of the  SCM Agreement   suggests that 
"countervailing duties may be imposed if subsidized imports, i.e., imports that are presently 
subsidized, are presently causing injury."  For Japan , "[t]he use of the present tense in Article 19.1 
                                                      
88Japan's appellant's submission, paras. 278-280 (ref erring to Article 13(1)(iv), Article 13(1)(iii), and 
Article 13(1)(ii) of the Guidelines ). 
89Ibid., para. 282.  Japan further explains how this is the case with respect to the integers used in 
Formula 2 (for "the amount of the subsidy") with respect to debt forgiveness and equity infusions ( ibid., 
para. 286) and in Formula 1 (for "calculating benefit") with respect to loan and loan maturity extensions. ( Ibid., 
para. 289). 
90Ibid., para. 290. 
91Ibid., para. 294 (referring to Panel Report, para. 7.361).  
92Panel Report, para. 7.360. 
93Japan's appellant's submission, para. 301. 
94Ibid., para. 313. WT/DS336/AB/R 
Page 15 
 
 
refers to the  concurrent   existence of subsidization, injury and the causal link, not to the fact that such 
events are  presently   occurring at the time of imposition."95  Japan finds support for its position in the 
Appellate Body Report in Mexico – Anti-Dumping Measures on Rice , where the Appellate Body 
found that, "[i]n order to determine whether injury caused by dumping exists when the investigation 
takes place, 'historical data' may be used."96 
41. Japan finds further support for its position in "t he lack of explicit language of a prospective 
determination [in Article 19.1]".97  Japan contrasts this with the words "foreseen and imminent" in 
Article 15.7 and "likely to lead to continuation or recurrence of subsidization or injury" in 
Article 21.3.  Japan asserts that the lack of such  prospective language in Article 19.1 demonstrates 
that no prospective analysis of the situation af ter the time of the investigation is required.98  
Furthermore, Japan submits that the Panel did not explain why "only the amount of non-recurring 
subsidies has to be updated while fi ndings of other elements for the imposition of the duty, such as the 
amount of recurring subsidies, the amount of produc ts covered by these subsidies, injury, and causal 
relationship, may remain as of the period of investigation."99      
42. In addition, Japan claims that the Panel failed to make an objective assessment of the matter 
as required by Article 11 of the DSU, when it found th at the use of a five-year allocation period by the 
JIA "is a finding (even if only implicit) that the benefit will expire after a period of five years."100  
Japan explains that "the purpose of the JIA's cal culation was merely to determine the amount of the 
subsidies conferred in 2003, the peri od of investigation in this case."101  According to Japan, "the 
Panel erred in equating a division by five of the total amount of the non-recurring subsidies to a 
determination that the subsidy woul d cease to exist after five years."102  Japan maintains that "the JIA 
did not make any finding that the subsidy would expire in 2005 or any finding of the amount of subsidy that Hynix would receive in 2006."
103   
                                                      
95Japan's appellant's submission, para. 322. (original emphasis) 
96Ibid., paras. 324 and 325 (quoting Appellate Body Report, Mexico – Anti-Dumping Measures on 
Rice, para. 166 (footnotes omitted)). 
97Ibid., para. 313. 
98Ibid. 
99Ibid., para. 327. 
100Ibid., para. 333 (referring to Panel Report, para. 7.360). 
101Ibid. 
102Ibid., para. 335. 
103Ibid., para. 333. WT/DS336/AB/R 
Page 16  
 
B. Arguments of Korea – Appellee 
1. The JIA's Determination of  Entrustment or Direction with respect to the 
December 2002 Restructuring  
43. Korea rejects Japan's allegation that the Panel act ed inconsistently with Article 11 of the DSU 
in its review of the JIA's determination of "entrust ment or direction" of the Four Creditors by the 
GOK with respect to the December 2002 Restructuring.  In Kore a's view, the standard of review 
applied by the Panel was entirely consistent with the standard identified by the Appellate Body in 
US – Countervailing Duty Investigation on DRAMS  and in subsequent cases.104   
44. Korea submits that a review of the Panel's d ecision confirms that the Panel "refused to 
substitute its judgment for that of the JIA, as long as it found that the JIA's interpretation of the evidence was reasonable and, as a result, an investig ating authority 'could prope rly' have reached the 
conclusion the JIA reached."
105  In addition, the Panel recognized that the JIA had based its finding of 
entrustment or direction on a consideration of "the totality of numerous items of evidence 
obtained"106, and did not purport to re-weigh the evidence.  Nor, in Korea's view, did the Panel require 
the JIA to demonstrate that each item of evidence would, when considered individually, support a 
finding of entrustment or direction.  Rather, the Panel rightly "undertook only to analyze whether the 
JIA's factual findings were consiste nt with the underlying evidence."107       
45. Korea argues that, when an investigating author ity "claims that its decision is supported by 
the interplay of various enumerated items of eviden ce considered in their 'totality,' then its decision 
can only be upheld if its findings concerning all of the enumerated items are found to be sound."108  If, 
"instead, the investigating authority's finding on an y single item is shown to be erroneous, then the 
investigating authority must be required to rec onsider whether the remaining items, without the 
discredited item, would be sufficient to support the original conclusion."109 
46. Korea observes that the Panel, in this case, "f ound significant errors in the JIA's evaluation of 
certain critical items of evidence."110  In fact, the "[e]vidence that the JIA specifically identified as 
                                                      
104Korea's appellee's submission, paras. 53-55 (referring to Appellate Body Report, US – 
Countervailing Duty Investigation on DRAMS , paras. 186-188;  and Appellate Body Report, US – Softwood 
Lumber VI (Article 21.5 – Canada) , paras. 93 and 99). 
105Ibid., para. 56. 
106Ibid., para. 78 (referring to Panel Report, paras. 7.51, 7.73, 7.96, 7.102, 7.172, 7.182, and 7.253). 
107Ibid., para. 78. 
108Ibid., para. 60. 
109Ibid. 
110Ibid., para. 63. WT/DS336/AB/R 
Page 17 
 
 
supporting its conclusions actually did not  support its conclusions at all."111  In such circumstances, 
the Panel rightly concluded that the JIA's determinat ion of entrustment or dire ction was not consistent 
with the evidence or with Japan's obligations under the  SCM Agreement .  Korea adds that, "[f]or 
present purposes, the critical point is that the JIA determination that was before the Panel did not 
provide a correct analysis that justified the JIA's ultimate conclusions."112  As a result, "the Panel had 
no choice but to rule that the JIA's findings were inconsistent with Japan's  obligations under the 
relevant agreements."113  In Korea's view, it would have been  improper "for the Panel to try to 
construct a correct analysis for the JIA that would justify the imposition of countervailing duties."114 
47. Korea also disagrees with Japan's assertion that th e Panel committed errors in its review of the 
JIA's findings with respect to the Deutsche Bank Report.  In Korea's view, the Panel's findings concerning the reliability of the Deutsche Bank Repor t, the importance of that Report to the JIA's 
finding relating to commercial reasonableness, and th e importance of that finding to the JIA's overall 
finding of entrustment or direction are all factual findings that are not subject to appellate review 
under Article 17.6 of the DSU because "a panel's fi nding concerning the meaning of an investigating 
authority's determination is a factual issue."
115   
48. In any event, Korea rejects Japan's contention that the Panel failed to properly examine the 
nine press reports indicating that the GOK had inte rvened in the preparation of the Deutsche Bank 
Report.  As Korea sees it, the Panel considered th e press reports both individually and collectively and 
found that a reasonable and impartial investigating authority could not have reached the conclusion 
drawn by the JIA based on that evidence.116   
49. In addition, Korea submits that the Panel did not  err in considering the relevance of certain 
evidence that Japan itself had submitted in support of  its initial arguments to the Panel.  In Korea's 
view, the Panel's consideration of such evidence di d not constitute a denial of Japan's due process 
rights. 
50. Korea also contests Japan's assertion that the Panel erred by rejecting as ex post  
rationalizations certain arguments made by Jap an relating to the way the Deutsche Bank Report 
analyzed the rate of return to Hynix's creditors under a scenario of liquidation.  Korea observes that 
                                                      
111Korea's appellee's submission, para. 63. 
112Ibid., para. 65. 
113Ibid. 
114Ibid. 
115Ibid., para. 77. 
116Ibid., paras. 87-92. WT/DS336/AB/R 
Page 18  
 
the JIA did not address those issues in its determina tion of entrustment or direction.  Under such 
circumstances, the Panel was correct in rejecting Japan's arguments as ex post  rationalizations. 
2. The JIA's Determination of Benefi t with respect to the December 2002 
Restructuring  
51. Korea submits that Japan's challenge of  the Panel's finding regarding the JIA's 
December 2002 benefit determination is based on a misch aracterization of the Pane l's approach.  First, 
Korea argues that, although Japan states that the Pa nel's findings concerning the existence of benefit 
"were wholly dependent on its finding on subsidization "117, what Japan meant was that the Panel's 
decision was  wholly dependent on its finding that there was no "entrustment or direction", and hence 
no "financial contribution".  Korea asserts that the premise of Japan's argument is incorrect, because 
the Panel actually held that the JIA's finding th at Hynix's creditors had failed to undertake a 
"commercially reasonable" analysis was not supporte d by the evidence.  In Korea's view, Japan is 
hoping that the Appellate Body will apply its argume nts relating to entrustment or direction to the 
benefit issue.  Korea contends, however, that such an approach is not consistent with the Appellate 
Body's Working Procedures , or with the principle of due process.118  In these circumstances, the 
Appellate Body should dismiss Japan's arguments relating to the Panel's finding on benefit for the 
December 2002 Restructuring.  Assuming that th e Appellate Body were to consider Japan's 
arguments, Korea requests the Appellate Body to find th at the Panel was correct in concluding that the 
JIA did not have a proper basis for rejecting the De utsche Bank Report, and that the Panel was correct 
in making the consequential finding on benefit. 
3. Calculation of the Amount of Benefit  
52. As a general matter, Korea argues that Japan is  challenging a number of factual findings of 
the Panel relating to the calculation of the amount of benefit that are not subject to appellate review 
under Article 17.6 of the DSU.  Despite its objec tions to the nature of Japan's claims, Korea 
nonetheless addresses Japan's arguments "for the sake of completeness".119  
(a) Calculation of the Amount of Bene fit by Reference to an Outside 
Investor Standard 
53. Korea does not dispute that rational investors seek to maximize profits or minimize losses.  
Korea emphasizes, however, that this does not mean  that the same result  is reached when an 
                                                      
117Korea's appellee's submission, para. 125 (referring to Japan's appellant's submission, paras. 167 
and 168). (original emphasis) 
118Ibid., paras. 128 and 129. 
119Ibid., para. 138. WT/DS336/AB/R 
Page 19 
 
 
investment decision is taken from an insider and outsi der perspective, or that all investors will analyze 
the same investment in the same manner.120  Korea argues that investors' returns differ depending on 
their pre-existing investments, which may give ri se to claims on the insolvent company's future 
income so that an investment that would be re jected by an outsider may be accepted by an insider.121 
54. Korea contends that the Panel rightly found that the JIA's actual calculation of the amount of 
benefit was based solely on the determination that  no outside investor would have provided new loans 
to, or invested in, Hynix, and that the JIA di d not properly establish the market benchmark for 
measuring benefit.  For Korea, the Panel's findings  that the terms "commercial market" and "normal 
commercial perspective" refer to the perspective of an outside investor122 are factual and beyond the 
scope of appellate review.123  Further, Korea submits that Japan's argument seems to be based on a 
"shifting definition of the investor's 'perspective'".124  Although Japan acknowledged before the Panel 
that this reference was intended to refer solely to an outside perspec tive, it now claims on appeal that 
the Panel failed to recognize that the JIA used the terms in some c ontexts to refer to an inside 
perspective, and that the term "perspective" refers to a principle of profit maximization.125  In any 
event, Korea submits that there is no evidence th at the JIA actually considered whether a rational 
creditor would have engaged in restructuring Hynix in the absence of alleged government 
interference.126 
55. Korea argues that Japan's claims under Article 14 in respect of equity infusions and loans are 
fundamentally flawed for two reasons:  first, the r estructuring transactions were not equity infusions 
or loans, but were transactions involving creditors  with existing debts;  and, secondly, Article 14 
requires a consideration of "usual investment practic es of private investors" (for equity infusions and 
comparable commercial loans).  Both require th e consideration of the specific terms of the 
transactions, and not, as Japan suggests, the use of ri gid rules that compare debt restructurings to 
dissimilar transactions (that is, to new equity investments and new loans by outside investors).127  
Korea also submits that Japan's reliance on Article  12.2 is "inapposite", because this provision does 
not imply that an investigating authority is exonerated from the requirements of the  SCM Agreement  
simply because it does not have sufficient evidence.   Further, Korea posits that there is no 
                                                      
120Korea's appellee's submission, paras. 140 and 143. 
121Ibid. 
122Ibid., para. 148 (referring to Japan's appellant's submission, paras. 190-202). 
123Ibid., para. 149. 
124Ibid., para. 150. 
125Ibid. 
126Ibid., para. 151. 
127Ibid., paras. 156-159. WT/DS336/AB/R 
Page 20  
 
inconsistency in the Panel's finding that the determin ation of the existence of a benefit did not require 
evidence of what (hypothetical) market-based  inside investors would have done.
128   
56. Korea argues that the Panel properly found the JI A's benefit calculation to be inconsistent 
with the JIA's "premise that exis ting creditors would possibly provide additional funding in order to 
maximize the recovery of credit".129  For Korea, the Panel's finding is consistent with the evidence 
concerning the accounting treatment of the debts by Hynix's creditors.  Korea also argues that neither 
Hynix nor its creditors treated the equity that Hyni x provided to creditors in the debt-to-equity swaps 
as having a zero value.130 
(b) Calculation of the Amount of Bene fit from the Perspective of the 
Recipient 
57. In Korea's view, the Panel correctly considered the JIA's benefit analysis to be focused on the 
net cost to creditors, rather than th e net benefit to Hynix (the recipient)  and that the JIA failed to take 
account of the fact that the additional shares issued to creditors would dilute the ownership shares of 
existing creditors.  Korea rejects Japan's assertion that  Korea never "pointed out" that dilution actually 
occurred as being based on the wrong assumption that  the Panel had to base its determination on 
Korea's arguments and evidence.  In any event, Korea did in fact point this out to the Panel.131    
58. Furthermore, characterizing dilution as a cost to shareholders, but not to Hynix, would mean 
that debt-to-equity swaps were considered as two se parate transactions involving the company, on the 
one hand, and existing shareholders, on the other hand.   It would also imply that there could never be 
a benefit to the recipient irrespectiv e of the actual terms of the swap.132  Korea also points out that the 
idea that a company bears the cost of equity cap ital is commonplace in financial analysis.  Finally, 
Korea asserts that, in the end, the equity did not have a zero value in either the accounting records of 
Hynix or the banks, or on the Korean stock market.133 
                                                      
128Korea's appellee's submission, paras. 162 and 163. 
129Ibid., para. 164 (referring to Panel Report, para. 7.92). 
130Ibid., paras. 166-168. 
131Ibid., para. 171 (referring to Korea's first wr itten submission to the Panel, para. 258). 
132Ibid., paras. 172 and 173. 
133Ibid., para. 176. WT/DS336/AB/R 
Page 21 
 
 
(c) Other Arguments 
(i) Whether Korea Made a Prima Facie Case 
59. Korea argues that Japan's claim is based on a misunderstanding of what is required to 
establish a  prima facie   case.  To do so, a complaining party does not need to anticipate every 
argument that a panel might choose to consider.  Furt her, a panel is not cons trained to consider only 
arguments and evidence cited by either party;  it mu st examine and consider all the evidence before 
it.134  Finally, Korea claims that it did argue before the Panel that the JIA improperly used an outside 
investor standard for both the October 2001 and December 2002 Restructurings.135 
(ii) Calculation of the Amount of Benefit on the Basis of "Facts 
Available" 
60. Regarding the use of "facts available" in calcu lating the amount of benefit, Korea argues that 
this was not a case where interested parties refuse d to cooperate.  There were sound reasons why the 
information on the restructuring of other Korean comp anies was not provided to the JIA, in particular, 
that Hynix did not itself have that information.  A dditionally, Korea argues that Hynix's creditors that 
did participate in other restructurings could no t share that information because it was confidential.136   
61. Korea also argues that the JIA its elf had never explicitly stated that it had adopted an outside 
investor standard based on "facts available" due to  the inability of certain financial institutions to 
provide information.  The Panel was therefore correct in dismissing Japan's argument as ex post  
rationalization.137  According to Korea, even if the JIA ha d intended to use "facts available", this 
would be inconsistent with Article 12 of the  SCM Agreement . 
4. Benefit Calculation Methods  
62. Korea argues that the calculation methods used by  the JIA to calculate the amount of benefit 
provided to Hynix (found in paragraphs 90-106 of th e JIA's Final Determination, Annex 1 (Essential 
Facts)) do not conform to the requirements of the chapeau of Article 14 of the  SCM Agreement .  
Korea further notes that Formula 1 and Formula 2, f ound by the Panel not to have been "provided for" 
in Japan's Guidelines , were only part of what Korea had argued was the entire "benefit-calculation 
                                                      
134Korea's appellee's submission, para. 178. 
135Ibid., para. 179 (referring to Korea's first written submission to the Panel, para. 125, in turn quoting 
JIA's Final Determination, Annex 1 (Essential Facts), paras.  230, 298, and 376;  as well as Korea's first written 
submission to the Panel, paras. 229-230). 
136Ibid., para. 182. 
137Ibid., para. 183. WT/DS336/AB/R 
Page 22  
 
system" used by the JIA.
138  Apart from these mathematical form ulae, Korea also refers to the 
"methodological approaches" to the benefit calculation referred to in paragraphs 90-106 of the JIA's 
Final Determination, Annex 1 (Essential Facts). 
63. Korea agrees with the Panel's characteriza tion of the mathematical formulae and the 
methodological approaches contained in paragraphs 90-106 of the JIA' s Final Determination, Annex 1 
(Essential Facts) as the "methods used" for purposes of  the chapeau of Article 14, because, according 
to Korea, they meet the definition of "method"  proposed by Japan and adopted by the Panel.139  Korea 
notes, however, that certain parts of these math ematical formulae and methodological approaches 
were not described anywhere in Japan's legislation or Guidelines .140 
64. Korea deems "inapposite" Japan's ar gument that the Panel Report in EC – Countervailing 
Measures on DRAM Chips indicates that investigating authorities must have flexibility in defining 
benefit calculation methods.  Korea argues that th e Panel in that case was actually examining the 
consistency of methods adopted by an investig ating authority with the guidelines set forth in 
paragraphs (a)-(d) of Article 14, and not the pro cedural requirements under the first sentence of the 
chapeau.141  Further, Korea argues that Japan's contenti on that the "methods" must provide flexibility 
to adapt to specific cases fails because there was no sp ecific tailoring to the facts in this case.  Rather, 
the formulae used by the JIA we re largely copied "verbatim" fro m the published regulations of the 
United States Department of Commerce.142     
65. Korea argues that Japan's equation of the term "provided for" with "enable" or "allow" does 
not fit the context of the chapeau and would re nder the first sentence of  the chapeau meaningless.143  
Korea contends that both the Fren ch and Spanish versions of the term "provided for" translate into 
"shall be previewed", which cannot be shown to have occurred in this case.144  Korea further contends 
that, at a minimum, the term "provided for" re quires that the broad "framework" and "general 
approach" of the benefit calculation method be set fort h in a Member's legislation or regulations.  In 
                                                      
138Korea's appellee's submission, para. 191. 
139Ibid., para. 193 (referring to Japan's first written submission to the Panel, para. 528, in turn quoting 
New Shorter Oxford Dictionary , p. 1759). 
140Ibid., paras. 194-197.  In this regard, Korea refers to specific paragraphs in JIA's Final 
Determination, Annex 1 (Essential Facts) relating to, inter alia , the treatment of debt-to-equity swaps as "equity 
infusions" and extensions of maturities of existing loans as "loans";  the allocation of subsidies over time;  and 
the interest rates for creditworth y and uncreditworthy companies. 
141Ibid., paras. 200 and 204. 
142Ibid., para. 205. 
143Ibid., para. 209. 
144Ibid., para. 210 (referring to the French and Spanish versions of Article 14, which refer to "sera 
prévue" and "estaré previsto"). WT/DS336/AB/R 
Page 23 
 
 
this regard, Korea claims that, even under a broad in terpretation of that term, it could not be said that 
the rules described in paragraphs 90-106 of the JI A's Final Determination, Annex 1 (Essential Facts) 
were "provided for" by Japan;  neither could these ru les be considered as case-specific applications of 
the framework provided in Japan's Guidelines , since the JIA never attempted to explain in its 
determination why the facts of this case mandated the adoption of these rules.  In fact, Korea argues, 
several of the rules used by the JIA are not even mentioned in the Guidelines .145   
66. For these reasons, Korea requests the Appellate Bo dy to uphold the findi ng of the Panel that 
Formula 1 and Formula 2 were "methods" that were not "provided for" in Japan's legislation or 
regulations. 
5. Allocation of Benefit  
67. Korea agrees with the Panel th at Japan "levied countervailing duties 'in excess of the amount 
of the subsidy found to exist', contrary to Article 19.4 of the  SCM Agreement ."146  Korea maintains 
that it "never claimed that the JIA was require d to update its decision based on more recent 
information."  Instead, Korea contended that the JIA's decision, "based on [its] analysis of the 
situation in 2003 ..., necessarily indicate[s] that th e benefit of the subsidies received in 2001 did not 
extend beyond 2005."147  In Korea's view, the JIA's determination was based on "an assumption that 
the subsidies had a life of five years, and that 2003 was the third year of the allocation for the alleged 
benefits from the October 2001 [R]estructuring and the second year of the allocation for the alleged 
benefits from the December 2002 [R]estructuring."148  With respect to the benefit from the 
October 2001 Restructuring, Korea submits that, un der the JIA's determination, a subsidy received 
                                                      
145Korea's appellee's submission, paras. 213-215.  In this regard, Korea refers to the five rules that it 
claims are not "provided for" in the Guidelines .  In particular, paragraph 214 of Korea's appellee's submission 
reads, in relevant part: 
A number of the rules announced by the JIA in its [Final Determination, 
Annex 1 (Essential Facts)] simply do not have any corresponding 
"framework" in Japan's regulations.  For example, the [Essential] Facts establishes rules that: (1) extensions of loan maturities will be "deemed" to 
be new loans, (2) debt-equity swaps will be "deemed" to be equity 
infusions, (3) equity infusions and debt forgiveness will be considered to 
provide benefits over several years, and will therefore be allocated over 
time, (4) the allocation period for such  subsidies shall reflect the average 
useful life of the recipients assets, as defined in the relevant tax laws, (5) a 
different interest rate will be used  to discount future cash flows for 
creditworthy and uncreditworthy borrowers. 
146Ibid., paras. 224-226 (referring to Panel Report, paras. 7.349-7.361).  
147Ibid., para. 223. 
148Ibid., para. 220. WT/DS336/AB/R 
Page 24  
 
in 2001 would provide benefits from 2001 through 2005.
149  It would "not provide benefits in 2006, 
because 2006 would be outside the five-year life of the subsidy."150   
68. Korea finds contextual support for its position in Article 19.1, which provides that a 
countervailing duty may be imposed "unless the subs idy or the subsidies are withdrawn".  Korea 
explains that, "even if a subsidy was found to exis t during the investigation period, no duty may be 
imposed if the subsidy is withdrawn, and thus cease s 'to exist,' prior to the final determination."151  In 
Korea's view, this implies that  "a countervailing duty may be imposed only where the subsidy—and 
its benefit—continues to exist at the tim e the decision to impose the duty is made."152   
69. Finally, with respect to Japan's claim under Ar ticle 11 of the DSU, Korea asserts that "the 
number of years over which the 'subsidy amount is allo cated' equalled the five-year 'useful life of the 
facilities stipulated in Korean law'".153  Korea argues that "[t]he consequence of that determination 
was that the subsidies ceased to have a 'continuous  effect,' and could not be 'allocated' once that 
period had expired."154  In Korea's view, this was not a  de novo   determination;  it was a necessary 
consequence of the JIA's own determination.155 
C. Claims of Error by Korea – Other Appellant 
1. The JIA's Determination of Benefit with respect to the October 2001 
Restructuring  
70. Korea challenges the Panel's conclusion that the JIA could properly find that the 
October 2001 Restructuring conferred a "benefit" on  Hynix in accordance with Articles 1.1(b) and 14 
of the  SCM Agreement .  
71. First, Korea alleges that the Panel failed to  review whether the alleged government action 
made Hynix "better off".156  Korea refers to findings of the Appellate Body in Canada – Aircraft  and 
argues that the Panel's approach improperly confla ted the two distinct concepts of "financial 
contribution" and "benefit" in Article 1.1 of the  SCM Agreement .157  Korea contends that, under the 
                                                      
149Korea's appellee's submission, para. 221. 
150Ibid. 
151Ibid., para. 227. 
152Ibid. 
153Ibid., para. 243 (referring to JIA's Final Determination, Annex 1 (Essential Facts), para. 99). 
154Ibid. 
155Ibid. 
156Korea's other appellant's submission, para. 29. 
157Ibid., para. 41. WT/DS336/AB/R 
Page 25 
 
 
Panel's analysis, a finding that there has been "entru stment or direction" was, by itself, a sufficient 
basis for a finding that a benefit exists.  For Korea, the Panel's approach results in reading the separate 
benefit requirement of Article 1.1(b) out of the  SCM Agreement .158 
72. Secondly, Korea disagrees with the Panel that  evidence that Hynix's creditors relied on non-
commercial considerations when deciding to exte nd further credit to Hynix "indicates terms more 
favourable than those available from the market (as the market is presumed to operate on the basis of 
commercial considerations)."159  Korea alleges that, for the Panel, "t he mere fact that Hynix's creditors 
failed to undertake a market-consistent analysis befo re entering into the October 2001 [R]estructuring 
indicated that the terms of the [R]estructuring they approved  must   have been more favourable than 
the terms of a purely market-driven restructuring."160  Korea submits that the Panel's focus on the 
analysis actually performed by the creditors may be probative of the creditor's subjective  intent   in 
entering into those transactions and that this intent ma y be relevant to the analysis of "entrustment and 
direction".  In Korea's view, however, it "does not permit any conclusion as to whether the 'recipient' 
actually  received a benefit."161  Korea states that footnote 475 of the Panel Report, which was inserted 
at the interim review stage, "purported to address" this  issue.  Yet, in Korea's view, the Panel failed to 
explain why a creditor's imperfect analysis, based on incomplete information, cannot lead to the same 
result as would have been obtained in the market.  A ccording to Korea, "[i]t is always possible to be 
right for the wrong reasons."162 
73. Thirdly, Korea asserts that the JIA failed to take into account the content of the analyses 
prepared by Anjin Accounting and the Monitor Group.  According to Korea, those analyses 
demonstrated that the alleged Korean governme nt action had not confe rred a benefit on Hynix, 
because it was comparable with what Hynix would have  been able to obtain from other creditors who 
were not subjected to alleged gove rnment entrustment or direction.163  Korea concedes that those 
reports were not finalized until after the October 2001 Restructuring was completed, but they were 
available to the JIA at the time it conducted its bene fit examination, and should have been taken into 
account by the Panel.  Korea asserts that, by disr egarding the content of those two reports, the Panel 
improperly shifted the burden of proof from the Me mber seeking to impose countervailing duties to 
the Member whose exports are subject to the duty.    
                                                      
158Korea's other appellant's submission, para. 43. 
159Ibid., para. 39;  and Panel Report, para. 7.276.   
160Korea's other appellant's submission, para. 39. (original emphasis) 
161Ibid., para. 44. (original emphasis) 
162Ibid., para. 46. 
163Ibid., para. 56. WT/DS336/AB/R 
Page 26  
 
2. Interested Parties
 
74. Korea argues that, by failing to properly consider that entities designated as "interested 
parties" under Article 12.9 of the  SCM Agreement   must "have an interest in the outcome of an 
investigation", the Panel improperly found that the JIA was correct in including certain financial 
institutions as "interested parties", and that the JIA did not err in applying "facts available".  In this 
way, the JIA prejudiced Hynix's interests, thereby acting inconsistently with Article 12.7 of the  SCM 
Agreement . 
75. Korea submits that, by its ordinary meaning, the term "interested parties" relates to persons 
who are "affected or involved" in something.164  Korea argues that the Panel was wrong in rejecting 
its argument that this "involvement" must be in the "outcome of the investigation" rather than, more 
broadly, in the "matter under investigation".165  Additionally, according to Korea, the ordinary 
meaning of the term "interested" does not include en tities that may have participated in matters giving 
rise to the dispute, but no longer have any interest in the dispute. 
76. Korea argues that, although Article 12.9 does not  set forth a "definition" of "interested 
parties", the list of entities in subparagraphs (i) and (ii) nonetheless provides a "strong indication" of 
the type of characteristics "interested parties" should have, namely, that they must be "directly affected" by the outcome of the investigation and therefore must have a "clear interest" in the 
proceedings.
166  Korea also refers to Articles 12.3 and 12.8 of the  SCM Agreement , which provide 
that "interested parties" must be given the op portunity to present their "cases" and "defend their 
interests".  For Korea, these provisions "make no sen se if the term ... [is] defined to include entities 
that had no 'interests' in the proceeding, and thus no 'case' to present".167   
77. Korea also contends that the Panel's interpre tation failed to give effect to the object and 
purpose of the provisions of the  SCM Agreement .  According to Korea, the Panel failed to "come to 
grips with the fundamental issue"168 in this case, which is that, wh en an "interested party" is 
designated as such, and fails to provide the re quested information, Article 12.7 allows the 
                                                      
164Korea's other appellant's submission, para. 112 (referring to Panel Report, para. 7.387).   
165Ibid. 
166Ibid., para. 114.  At the oral hearing, Korea rejected  Japan's arguments that Article 23 indicates that 
there may be "interested parties" with no interest in the outcome of the proceedings.  According to Korea, 
Article 23 provides that an "interested party" who had an interest in the outcome might not be allowed to pursue 
judicial review if the administrative ag ency did not take any action against th at party (for instance, if the agency 
found that an exporter did not receive  subsidies and thus did not impose any countervailing duties).  However, 
Korea contends, this does not mean that the exporter had no interest in the outcome of the proceedings. 
167Ibid., paras. 116 and 119. 
168Ibid., para. 120. WT/DS336/AB/R 
Page 27 
 
 
investigating authorities to make a decision on the b asis of "facts available".  In this case, the JIA 
chose to designate all banks participating in Hynix' s Restructurings as "interested parties", regardless 
of their interest in the outcome of the investigati on.  When some of those banks failed to respond, the 
JIA "penalized" Hynix for their noncooperation, through the application of "facts available."169  Korea 
further argues that, in failing to properly construe the purpose of Article 12.7, the Panel also ignored 
the risk that an "innocent respondent may face when  an investigating authority makes a decision 
based on the non-responsiveness of some third party that the respondent has no ability to control."170   
78. Finally, Korea argues that the analysis by the Panel was inconsistent w ith its duty to conduct 
an objective assessment of the matter, pursuant to Article 11 of the DSU.171  Specifically, Korea 
submits that the Panel's statement that the absence of a definition of "interested party" explicitly 
requiring an interest in the outcome of the investig ation indicates that "no such requirement exists", 
was inconsistent with the interpretativ e analysis that is required under the Vienna Convention on the 
Law of Treaties  (the " Vienna Convention ").172 
3. Direct Transfer of Funds  
79. Korea appeals the Panel's finding that the JIA c ould properly characterize the modification of 
loan repayment terms (including extensions of th e maturities of existing loans, reductions of the 
interest rates on existing loans, and conversion of in terest to principal) and debt-to-equity swaps as 
transactions involving "direct transfer[s] of funds" w ithin the meaning of Article 1.1(a)(1)(i) of the  
SCM Agreement .173  For Korea, transactions that merely change the terms of existing claims or the 
legal nature of the recipient's obligations, and do not involve the provision of money to the alleged 
subsidy recipient, are not "direct transfer[s] of funds" within the ordinary meaning of that term.174  
Korea submits that "a 'transfer' of 'funds' occurs only when money changes hands from the 
government (or government-directed private body) to the subsidy recipient."175  By way of contrast, 
Korea argues that, when "a lender agrees to extend th e maturities of existing loans, or to reduce the 
                                                      
169Korea's other appellant's submission, paras. 120 and 121.  Korea refers to, inter alia , para. 7.288 of 
the Panel Report to rebut the Panel's statement that it could not identify any instances in which the JIA had 
penalized Hynix for using "facts available". ( Ibid., footnote 77 to para. 121). 
170Ibid., para. 125. 
171Ibid., paras. 108-110 (referring to Panel Report, para. 7.386).   
172Korea's other appellant's submission, para. 108 (quoting Panel Report, para. 7.386).  Korea contends 
that this error was exacerbated by the Panel's statement that Korea's interp retation would only be accepted by 
"necessary  implication". (Korea's other appellant's submission, para. 110 (quoting Panel Report, para. 7.386) 
(emphasis added by Korea)). 
173Panel Report, para. 7.446. 
174Korea's other appellant's submission, para. 133. 
175Ibid., para. 134. WT/DS336/AB/R 
Page 28  
 
interest rates on existing loans, or to convert existi ng interest payment obligations into loan principal, 
or to write-off loans entirely", existing claims are modified without providing any money to the 
borrower.
176  For the same reason, debt-to-equity swaps are not to be considered as transfers of funds.  
Korea concedes, however, that these transactions mi ght constitute "revenue ... foregone" in the sense 
of subparagraph (ii) of Article 1.1(a)(1). 
80. Korea alleges that the Panel incorrectly "collap sed" the distinction between "direct transfer of 
funds" in subparagraph (i) and "rev enue ... foregone" in subparagraph (ii) by "expanding the meaning 
of the term 'transfer of funds' beyond recognition."177  If the phrase "direct transfer[s] of funds" 
covered transactions that reduced or modified the recipient's liabilities, there would be no need for a 
separate provision addressing situations in which "rev enue that is otherwise due is foregone or not 
collected".178  In Korea's view, the classification of a "financial contribution" under the different 
subparagraphs of Article 1.1(a)(1) does not depend on the nature of the recipient's obligation to the 
government (or government-entrusted or -directed entity).  Instead, the financial contribution is 
defined by the nature of the contribution from the government to the recipient.179  Under the Panel's 
interpretation, "any transaction in which the govern ment agrees to forego revenue can be reconceived 
as a new 'grant'."180  For Korea, this would effectively read subparagraph (ii) out of the  SCM 
Agreement . 
4. Causation of Injury  
81. Korea argues that, under the first sentence of Article 15.5 of the  SCM Agreement , it is not 
sufficient to show that the subsidized imports have caused injury to the domestic industry, there must 
also be a demonstration that the injury is caused "through the effects of subsidies."181  Korea argues 
that the Panel erred by effectively reading the phrase "through the effects of subsidy" out of 
Article 15.5 of the  SCM Agreement , and thereby permitted countervailing duties to be imposed to 
offset injury that was not being caused by the subsidies in questi on.  Korea asserts that the Panel 
expanded the scope of the countervailing measures to s ituations in which there are no trade distortions 
caused by subsidies.182   
                                                      
176Korea's other appellant's submission, para. 137. 
177Ibid., para. 153. 
178Ibid., para. 136 (referring to subparagraphs (i) and (ii) of Article 1.1(a)(1) of the  SCM Agreement ). 
179Ibid., para. 147. 
180Ibid., para. 153. 
181Ibid., para. 72. 
182Ibid., para. 60. WT/DS336/AB/R 
Page 29 
 
 
82. According to Korea, the Panel's interpretati on of the term "through the effects" is not 
consistent with the ordinary meaning, context, or negotiating history of the relevant provisions of the  
SCM Agreement .183  Korea submits that "it is possible that imports that happened to be subsidized 
may cause injury to domestic producers through mechanisms that have nothing to do with subsidies."
184  For example, the imports might take sales away from the domestic producers because 
they are more innovative or of better quality or more attuned to customer desires.  For Korea, in such 
cases, "there might be a basis for finding that 'imports' (which were the subject of a finding of 
subsidies) had caused injury to the domestic pr oducers."  However, there would be no basis for 
finding that the imports, that happened to be subs idized, had caused injury "through the effects of 
subsidies".185  Further, Korea contends that the Panel's in terpretation of the term "through the effects" 
cannot be reconciled with the text of Article 19. 1, which repeats this term and sets forth the 
substantive conditions for the imposition of a countervailing duty.186  
83. In addition, Korea submits that Article 15.5 sh ould be interpreted as requiring the same type 
of "but for" causation analysis that h as been developed under Article 6.3 of the  SCM Agreement   in 
relation to "serious prejudice" that has occurred through the "effect of the subsidy".187  The fact that 
Article 6 establishes a different injury standard than  Article 15 does not mean that Article 15 permits a 
different type of causal nexus between subsidies a nd injury.  Korea argues that the Panel erroneously 
read the language in Article 11.2 of the  SCM Agreement   as indicating that the only evidence needed 
to establish that "injury to a domestic industry is caused by subsidized imports 'through the effects of 
the subsidies'" is evidence concerning the evolution and effects of imports.188  Korea contends that 
there is nothing in the  SCM Agreement   to indicate that the standard for initiating an investigation 
under Article 11.2 is the same as the standard for making an affirmative injury determination under 
Article 15. According to Korea, it would hard ly be surprising that Article 11.2 might allow 
investigations to be initiated based on evidence th at would not be sufficient to permit the imposition 
of duties.  Korea also submits that the word "include" in Article 11.2 is usually understood to 
introduce a non-exhaustive list of examples, so there may be other information that is required under 
that Article.   
84. Korea contends that the Panel's interpretation is  also inconsistent with the object and purpose 
of the  SCM Agreement , which seeks to ensure that counter vailing duties are imposed only where 
                                                      
183Korea's other appellant's submission, paras. 70-91. 
184Ibid., para. 74. 
185Ibid., para. 75. 
186Ibid., paras. 76-79. 
187Ibid., paras. 80-84 (referring to Panel Report, Korea – Commercial Vessels , paras. 7.612-7.616). 
188Ibid., para. 88 (quoting Panel Report, paras. 7.416 and 7.417). WT/DS336/AB/R 
Page 30  
 
necessary to offset subsidies th at cause injury or threat thereof to the domestic industry.
189  Korea 
argues that the Panel's interpretation is also in consistent with the negotiating history of the  SCM 
Agreement , because Articles 15.5 and 19.1 have their origins in the Tokyo Round Subsidies Code , and 
in particular Articles 4.4 and 6.4 of that Code.190  Finally, Korea takes issue with the Panel's reliance 
on the findings of the panel in US – Norwegian Salmon CVD under the  Tokyo Round Subsidies 
Code191 because "the 'precedential status' of that decision is irrelevant."192  Korea further suggests that, 
in US – Hot-Rolled Steel , the Appellate Body rejected the "g eneral approach to causation issues" 
adopted by the US – Norwegian Salmon CVD  panel.193 
85. On the facts of this case, Korea contends that the JIA failed to demonstrate that injury had 
been caused by subsidized imports "through the effects of subsidies".  Korea alleges, in this regard, 
that the JIA disregarded Hynix's arguments that th e alleged subsidies did not affect the prices or 
volumes of exports.  To the contrary, the JIA found that any harm caused by Hynix's exports were an 
effect of the subsidy because Hynix would not have  been in operation, or able to export, in the 
absence of subsidies.194  Korea contends that, in so doing, the JIA assumed that defaults on 
outstanding debts by Hynix would result in liqui dation and cessation of opera tions.  According to 
Korea, the JIA's assumption was erroneous, because  the bankruptcy of Hynix could simply have 
resulted in corporate reorganization, rather  than liquidation and cessation of operations.195   
86. Korea submits that "contrary to what the JI A appeared to believe, 'bankruptcy' is not a 
synonym for piece-meal liquidation."196  Instead, "bankruptcy" is a legal process, which affords a 
debtor protection from its creditors while the debtor 's future is being determined.  According to 
Korea, as a general matter, "Korean bankruptcy law favors reorganization over liquidation" and, 
consequently, there is no reason to believe that, if  Hynix had filed for "bankruptcy", it would have 
ceased operations.   
87. Korea further requests the Appellate Body to comp lete the legal analysis in this regard, and 
find that the JIA's finding concerning "the eff ect of the subsidies" is based on "unsupported 
                                                      
189Korea's other appellant's submission, paras. 95-97. 
190Ibid., paras. 92-94. 
191Ibid., para. 98 (referring to Panel Report, para. 7.412). 
192Ibid., para. 102. 
193Ibid., para. 100 (referring to Appellate Body Report, US – Hot Rolled Steel , para. 226). 
194Ibid., para. 61. 
195Ibid., paras. 61-64. 
196Ibid., para. 63. WT/DS336/AB/R 
Page 31 
 
 
assumptions regarding the consequences of default by  an insolvent debtor", and disregards "the 
bankruptcy laws that would actually  apply in the case of default".197 
D. Arguments of Japan – Appellee 
1. The JIA's Determination of Benefit with respect to the October 2001 
Restructuring  
88. Japan supports the Panel's finding that the JIA had properly determined that the October 2001 
Restructuring conferred a benefit on Hynix.  Japan s ubmits that, contrary to assertions by Korea, the 
Panel did not state that "a finding that there has been 'entrustment or direction' is, by itself, a sufficient 
basis for finding that a benefit exists."198  Japan maintains that "the  Panel's finding is based on a 
comparison of the particular factual situations in this case".199  Japan submits that the Panel confirmed 
the JIA's finding that, at the time of the October 2001 Restructuring, Hynix could not have obtained financial resources from the market. 
89. Japan disagrees with Korea that the Panel upheld  "the JIA's benefit finding solely on the 
assumption that a restructuring approved by cred itors who fail to undertake a sufficient economic 
analysis must have more favourable terms than a restructuring adopted in a purely market-driven 
transaction."
200  For Japan, the Panel's finding regardin g the "non-commercial nature of Hynix's 
private creditors' decisions to extend financing to  Hynix in the October 2001 Restructuring was not 
only based on insufficient economic analysis, but also  their consideration of other factors which are 
not related to the financ ial conditions of Hynix."201  In that respect, Japan argues that the Panel found 
that a number of facts confirmed the JIA's fi nding of the non-commercial nature of Woori Bank's202 
and Chohung Bank's203 decisions.  Japan maintains that these facts demonstrate that the non-
commercial nature of the decisions by Hynix's private creditors was not solely based on their 
insufficient analysis of the terms of the Oct ober 2001 Restructuring and the unavailability of the 
reports by Anjin Accounting and the Monitor Group.204   
90. Finally, with respect to Korea's argument that  the Panel "improperly shift[ed] the burden of 
proof from the Member seeking to impose counter vailing duties to the Member on whom the duties 
                                                      
197Korea's other appellant's submission, para. 64 and footnote 34 thereto. 
198Japan's appellee's submission, para. 35 (quoting Korea's other appellant's submission, para. 43). 
199Ibid., para. 36. 
200Ibid., para. 42 (quoting Korea's other appellant's submission, para. 40). 
201Ibid., paras. 43, 52, and 53.     
202Ibid., para. 52 (referring to Panel Report, para. 7.136). 
203Ibid., para. 53 (referring to Panel Report, paras. 7.137 and 7.138). 
204Ibid., para. 54. WT/DS336/AB/R 
Page 32  
 
will be imposed"
205, Japan asserts that Korea as the complaining party should have established a  
prima facie   case.  In Japan's view, Korea failed to estab lish before the Panel that the terms of the 
October 2001 Restructuring were c onsistent with market outcomes.  As a consequence, the Panel 
made no factual finding in this respect, and the Appellate Body therefore "need not consider this 
issue".206 
2. Interested Parties  
91. Japan argues that Korea's other appeal regard ing the Panel's interpretation of the term 
"interested parties" should be rejected by the Appellate Body.207  Japan agrees with the Panel that the 
express terms of Article 12.9 of the  SCM Agreement  provide that the list of entities enumerated in 
subparagraphs (i) and (ii) of that provision is not exhaustive;  it is merely indicative.208  Japan argues 
that Korea's definition cannot be reconciled with Article 12.9, because the entities listed there do not 
necessarily "have an interest in  the outcome of the investigation", as suggested by Korea.209  Japan 
also submits that the Panel correctly rejected Korea's argument that the term "allowing" in 
Article 12.9 means that there must be a "request" fro m a party prior to its designation as an "interested 
party".210   
92. Japan contends that the negotiating history of Article 12.9, and Articles 12.3, 12.8, and 23 of 
the  SCM Agreement , support the Panel's interpretation of "interested parties" as not necessarily 
requiring an "interest in the outcome of the investigation".211  Contrary to Korea's suggestion that 
Articles 12.3 and 12.8 would make no sense if en tities designated as "interested parties" had no 
"cases" to present, and no "interests to defend", there is nothing in these provisions that limits interest in the investigation to a "pecuniary inter est" in the outcome of the investigation.
212  Furthermore, 
Japan argues that the Korean financial institutions designated as "interested parties" by the JIA did 
have "cases" to present, and that some actually av ailed themselves of the opportunity to "defend their 
                                                      
205Japan's appellee's submission, para. 62 (quoting Korea's other appellant's submission, para. 54). 
206Ibid., paras. 65 and 66. 
207Ibid., para. 116. 
208Ibid., paras. 118-120. 
209Ibid., paras. 129-131. 
210Ibid., para. 132.  Japan also refers to other provisions in the  SCM Agreement  where the term 
"request" is explicitly stated when the drafters intend ed to make this a condition for "allowing" something.  
Similarly, Japan refers to provisions where the term "a llow" is used, as the Panel suggests, to indicate that a 
Member may "allow" something generally through national legislation or implementing regulations without a specific request. ( Ibid., footnote 203 to para. 132) 
211Ibid., paras. 133-140. 
212Ibid., para. 139. WT/DS336/AB/R 
Page 33 
 
 
interests".213   Japan also refers to Article 23, which pr ovides that only those "interested parties" who 
participated in the investigation, and who ar e "directly and individually affected" by the 
administrative action, have judicial review rights.  For Japan, this signifies that there must be a subset 
of "interested parties" not "directly or indirectly affected" by administrative actions relating to final 
determinations.214 
93. In Japan's view, Korea's argument regarding the use of "facts available" under Article 12.7 is 
based on a mischaracterization of the balance between, on the one hand, due process rights of 
"interested parties", and, on the other hand, the obliga tion of an investigating authority to complete its 
investigation.  Japan argues that the due process ri ghts of "interested parties" under Article 12 are not 
unlimited, and are subject to the discretion of i nvestigating authorities to use "facts available".215  
Articles 12.7 and 12.9 must be read to allow inve stigating authorities the flexibility to meet their 
informational needs in making a determination, whic h may differ from case to case.  In this instance, 
the specific needs of the investigation required information relating to private bodies that were 
allegedly being "entrusted or directed".  Japan cont ends that the use of "facts available" was proper in 
this case, and that Korea failed to identify any inst ances to substantiate its allegation that it was not, 
and that Hynix was "punished" for the actions of entities that "it could not control".216   
94. For Japan, it is incorrect to say that ther e was no evidence that the banks designated as 
"interested parties" had a continuing interest in Hynix or in the outcome of the investigation.217  In 
fact, the evidence shows that all the financial in stitutions in question are creditors of Hynix and 
became shareholders of Hynix.218 
95. Regarding Korea's allegation that the Panel's re asoning was inconsistent with Article 11 of the 
DSU, Japan contends that no such claim was made by Korea in its Notice of Other Appeal.  Even if it 
were to be considered by the Appellate Body, it should be rejected, since the Panel's reasoning 
demonstrates that it did not treat the lack of an explicit reference in Article 12 of the  SCM Agreement   
to an "interest in the outcome of an investigation"  as dispositive of the issue of whether an "interested 
party" must have such an interest.219 
                                                      
213Japan's appellee's submission, para. 140. 
214Ibid., paras. 136 and 137. 
215Ibid., para. 142. 
216Ibid., para. 147 (quoting Korea's other appellant's submission, para. 126). 
217Ibid., para. 148 (referring to Korea's other appellant's submission, para. 121). 
218Ibid., para. 154. 
219Ibid., paras. 121-125. WT/DS336/AB/R 
Page 34  
 
3. Direct Transfer of Funds
 
96. Japan asserts that Korea puts fo rward an overly narrow definition of the term "funds".  In 
Japan's view, the term "funds" is to be understo od as "financial resources" having "monetary or 
exchangeable value".220  This is confirmed by the fact that the  SCM Agreement   provides an 
illustrative list of "direct transfer[s] of funds" in Ar ticle 1.1(a)(1)(i).  Japan argues that this provision 
refers to grants, loans, and equity infusion as exam ples, rather than as items on an exhaustive list.  
This indicates that the  SCM Agreement   contemplates direct transfers of funds other than "grants, 
loans, and equity infusion".221 
97. In addition, Japan submits that  Korea's interpretation of the term "transfer of funds" is 
inconsistent with the object and purpose of the  SCM Agreement , which includes "disciplining" the 
use of subsidies and countervailing measures while , at the same time, enabling WTO Members whose 
domestic industries are harmed by subs idized imports to use such remedies.222  However, excluding 
substantial modification of the terms of existing loans, or an exch ange into equity of monetary value 
equivalent to existing debt, from th e definition of "direct transfer of funds", "would open the door to 
potential abuse of the subsidies and offer an easy  way of circumventing the disciplines of the  SCM 
Agreement ."223  Japan finds support for its view in the Appellate Body Report in US – Softwood 
Lumber IV , which it understands to have rejected "a  narrow reading of the term 'goods' in 
Article 1.1(a)(1)(iii) of the  SCM Agreement "224, in order to prevent circumvention of subsidy 
disciplines.225 
98. With respect to debt-to-equity swaps, Japan makes reference to Article 1.1(a)(1)(i), which 
specifically lists "equity infusion" as an example of a "direct transfer of funds".  Japan submits that a 
debt-to-equity swap is one method of making an e quity infusion and, therefore, a type of direct 
transfer of funds.226  Finally, in response to Korea's alle gation that the Panel "collapsed" the 
distinction between "direct transfer of funds" in subparagraph (i) and "revenue ... foregone" in 
                                                      
220Japan's appellee's submission, para. 162. 
221Ibid. 
222Ibid., para. 169 (referring to, inter alia , Appellate Body Report, US – Softwood Lumber IV , paras. 64 
and 95). 
223Ibid., para. 170. 
224Ibid., para. 169. 
225Ibid. 
226Ibid., para. 177. WT/DS336/AB/R 
Page 35 
 
 
subparagraph (ii) of Article 1.1(a)(1), Japan argues that the mere overlap of the scope of 
subparagraphs (i) and (ii) does not render subparagraph (ii)  inutile .227 
4. Causation of Injury  
99. Japan requests the Appellate Body to reject Kore a's appeal regarding the Panel's interpretation 
of the phrase "through the effects of subsidies" in Articles 15.5 and 19.1 of the  SCM Agreement   for 
the reasons given by the Panel.228  Specifically, Japan contends that, in challenging the Panel's 
interpretation of the phrase "through the effects" in Article 15.5, Korea fails to make reference to 
footnote 47 attached to that phrase.229 
100. Additionally, Japan argues that the Panel's inte rpretation is supported by the non-attribution 
provision in the third sentence of Article 15.5.230  Japan argues that the A ppellate Body has clarified 
with regards to Article 3.5 of the  Anti-Dumping Agreement —which has almost identical wording as 
Article 15.5 of the  SCM Agreement —that, in making a finding on causation, the injurious effects of 
any known other factors must be separated and dis tinguished from the injurious effects of the dumped 
imports.231  As is the case with dumped imports, there is no separate requirement for investigating 
authorities to separate and distinguish the effects of  the subsidies from the effects of the subsidized 
imports.232   
101. Japan further argues that paragraphs 2-4 and 6-7 of Article 15 of the  SCM Agreement   
provide further context.  They "all refer to the effe cts of the subsidized imports, rather than to the 
effects of the subsidies."233  With regard to Korea's arguments concerning Article 11.2, Japan argues 
that it is well established that elements that inv estigating authorities must analyze at the time of 
initiation of the countervailing duty determinati on do not differ from elements relevant for 
preliminary and final determinations.234  Japan submits, further, that th e Panel's reference to the Panel 
Report in US – Norwegian Salmon CVD  in support of its conclusions was appropriate because, as an 
adopted report, it constitutes part of the GATT acquis .235  With regard to Korea's reliance on 
                                                      
227Japan's appellee's submission, para. 183. 
228Ibid., paras. 77-112. 
229Ibid., paras. 80-82. 
230Ibid., para. 83. 
231Ibid., para. 84 (referring to Appellate Body Report, US – Hot-Rolled Steel , para. 223). 
232Ibid., para. 86.   
233Ibid., para. 88. 
234Ibid., para. 90. 
235Ibid., para. 93 (referring to Appellate Body Report, Japan – Alcoholic Beverages II , p. 14, 
DSR 1996:I, 97, at 108). WT/DS336/AB/R 
Page 36  
 
subsequent Appellate Body reports, Japan contends that  the Appellate Body found in US – Hot-Rolled 
Steel  that the GATT panel in US – Norwegian Salmon CVD  had merely adopted an interpretation of 
non-attribution that was at odds with the requirements of Article 3.5 of the  Anti-Dumping 
Agreement .
236 
102. With regard to Article 6.3 of the  SCM Agreement , Japan believes that Korea ignores the basic 
difference between Parts II and III of the  SCM Agreement , on the one hand, and Part V of the  SCM 
Agreement , on the other hand, as recognized by the panel in US – Upland Cotton .237   Japan recalls 
that the panel in that case expressly stated that the re ferences in Articles 5(c) and 6.3(c) in Part III to 
the "effect of the subsidy" contrast with  the language used in Part V of the  SCM Agreement   where 
Article 15.5 is found.238  
103. Japan further submits that the duty of a treaty in terpreter to give meaning to each term of the 
Agreement does not necessarily imply that each term imposes an additional obligation.239  Rather, in 
this case, the term "through the effects" serves to clarify and confirm that Article VI of the GATT 1994 and Article 15.5 of the SCM Agreement  actually provide for the same obligation.
240 
Without this clarification, it could have been argued, for instance, that Article VI requires a link 
between the effects of subsidization and injury, and that Article 15.5 required an additional link 
between subsidized imports and injury.241  Japan also considers that the term "through the effects" in 
Article 19.1 simply clarifies the elements that an investigating authority must establish before 
imposing countervailing duties.242 
104. Finally, Japan argues that Korea's argumen ts regarding the "bankruptcy" of Hynix, 
misconstrues the JIA's determination, which is, in an y event, not a legal finding but, rather, a factual 
determination removed from the scope  of appellate review.  Japan contends that specific statements 
made by the JIA—namely, that "Hynix was in a financ ial situation such that it could not raise funds 
from the commercial market", "subsidies provided by the [GOK] to Hynix enabled Hynix to maintain 
and continue its production and export of DRAM pr oducts", and "[a]s the result," Hynix "caused the 
price of domestic products to fall"—were all fact ual findings by the JIA based on the evidence on 
                                                      
236Japan's appellee's submission, para. 94. 
237Ibid., paras. 97-99 (referring to Panel Report, US – Upland Cotton , para. 7.1177). 
238Ibid., para. 99 (referring to Panel Report, US – Upland Cotton , para. 7.1227). 
239Ibid., para. 102. 
240Ibid. 
241Ibid. 
242Ibid., para. 103. WT/DS336/AB/R 
Page 37 
 
 
record.243  Further, Japan argues that Korea's arguments on "bankruptcy" stem from a 
misunderstanding of the term " hatan " used in the JIA's determination,  which refers to bankruptcy in 
the general sense (rather than the legal sense), as a co llapse of the financial state of a company or the 
inability to continue business.244  The term in Japanese for legal bankruptcy is " hasan ".245  Japan 
argues that, as the difference between the meaning of the terms " hasan " and " hatan " shows, the JIA 
did not determine that Hynix would proceed with a legal ba nkruptcy procedure and th en be liquidated;  
rather, the JIA found that "Hynix escaped failure, or in other words was able to continue business, 
because of the subsidies from the GOK."246 
E. Arguments of the Third Participants 
1. European Communities  
105. First, with respect to the standard of review , the European Communiti es argues that the task 
of a panel, under Article 11 of the DSU, is to consid er objectively the facts in the light of the law.  
According to the European Communities, it is well established that, under the  SCM Agreement , 
panels may not conduct a  de novo   evaluation of the investigating authority's decision.  The European 
Communities refers to the Panel's finding that "the  JIA could not properly have relied on the Deutsche 
Bank Report as a basis for concluding that the participation of the Four Creditors in the December 2002 [R]estructuring was not commercially reasonable".
247  The European Communities is 
not able to express a view on whether the Panel in fact conducted such a  de novo   evaluation in its 
finding of entrustment or directi on, thus committing an error in law,  because substantial parts of the 
confidential Panel Report provided to the parties ha ve been omitted from the public version of the 
Panel Report on the grounds that they contain BCI.248 
106. Secondly, regarding the use of BCI refere nces in the Panel Report, the European 
Communities submits that it is unable to follow the Panel's reasoning because the public version of its 
Report, as given to third parties and other Members of the WTO, is "full of blanks stemming from an 
alleged need to protect [BCI]", in particular, concer ning the question of "entrustment or direction".  In 
                                                      
243Japan's appellee's submission, para. 109 (referring to JIA's Final Determination, Annex 1 (Essential 
Facts), para. 550). 
244Ibid., para. 110. 
245Ibid. (referring to JIA's Final Determ ination, Annex 1 (Essential Facts), paras. 110, 159, 189, 231, 
267, 281, 299, 326, and 376).  In fact, Japan contends , Korea recognizes the differ ence between these Japanese 
terms, because it translates the term " hatan " as "failed", "collapse", "liquidation", or "bankruptcy" 
interchangeably.   
246Ibid. 
247European Communities' third participant's submissi on, para. 5 (quoting Panel Report, para. 7.247). 
248Ibid., para. 8. WT/DS336/AB/R 
Page 38  
 
the European Communities' view, an appropriate balan ce needs to be struck both in legal terms and in 
practical terms regarding the protection of BCI.  However, the European Communities is concerned 
that, in the present case, that balance has not b een struck, and that this procedure may not be 
consistent with the DSU and in particular with the procedural requirements of Articles 12.7, 16, 
17.10, and 18.2 thereof.
249 
107. Thirdly, regarding the Panel's finding on "b enefit", the European Communities submits that 
the Panel did not expressly state anywhere in its Re port that a benefit was c onferred on Hynix because 
the GOK entrusted or directed private parties, nor  that a benefit was not conferred because the GOK 
did not entrust or direct private parties.  Accord ing to the European Communities, the conclusions are 
more subtle and hinge on the notion of "comme rcial reasonableness" that the Panel uses in its 
analyses of both "entrustment and direction" and "benefit".250 
108. In addition, regarding the term "interested parties", the European Communities supports the 
Panel's finding that it was reasonable for the JIA to  designate 16 financial institutions that provided 
financing to Hynix as "interested parties" in the investigation.  The European Communities agrees 
with the Panel's analysis of Article 12 of the  SCM Agreement   and requests the Appellate Body to 
uphold the Panel's interpretation of "interested party".251   
109. The European Communities argues, as regards the benefit calculation methods used by the 
JIA, that the Panel failed to establish that Formula 1 and Formula 2 used by the JIA were inconsistent 
with the methods laid down in Japan's Guidelines  so as to justify the conclusion that the "methods 
used" were not provided for (or for eseen) in Japan's national legisla tion or implementing regulations.  
The Panel findings require, at least in fact, if not in  law, that any detailed formula that an investigating 
authority intends to use should be laid down in th e national legislation or implementing regulations.  
In the European Communities' view, this Panel finding  is inconsistent with the chapeau of Article 14 
of the  SCM Agreement   and therefore the Appellate Body should reverse it.252 
110. In addition, the European Communities supports  Japan's appeal of the Panel's finding on 
benefit allocation and submits that, if an alloca tion period for a non-recurring subsidy has expired, 
then the benefit of that subsidy has normally ceased to exist and "withdrawal" of the subsidy shall not 
normally require the re-payment of any funds.  Ho wever, in the European Communities' view, the  
Appellate Body does not need to rule on this issu e, because the mere expiry of the allocation period 
                                                      
249European Communities' third participant's submission, paras. 10-29. 
250Ibid., paras. 30-31. 
251Ibid., paras. 35-37. 
252Ibid., paras. 38-44. WT/DS336/AB/R 
Page 39 
 
 
does not amount to "withdrawal", which, accordi ng to the European Communities, requires some 
positive legal or administrative action by the Member that granted the subsidy.253 
111. Finally, regarding causation, the European Communities submits that once a subsidy to a 
company has been allocated to a specific product, it  may reasonably be determined that the subsidy 
has had the effect of lowering the price of that pro duct (that is, "but for" the subsidy, the price would 
be higher), so that the effect of the subsidized im ports and the effect of the subsidy in practice amount 
to the same thing.  For the European Communities, the situation under Part III of the  
SCM Agreement   is not fundamentally different, even if under Part V of the  SCM Agreement   the 
particular focus is on imports, given the nature  of the countervailing remedy to be imposed.254 
2. United States  
112. The United States argues that the JIA's calculation of the benefit from the debt-to-equity 
swaps was inconsistent with Article 14(a) of the  SCM Agreement .255 
113. The United States disagrees with the Panel's fi nding that the JIA improperly countervailed the 
entire amount of the debt-to-equity swaps for two re asons.  First, the United States submits that the 
Panel's finding "misses the critical point that the commercial market  would not have provided an  
equity infusion to Hynix ".256  As the commercial market would not have provided an equity infusion 
(which, unlike a loan, does not need to be repaid), it is reasonable to treat the entire equity infusion as 
conferring a benefit. 
114. Secondly, the United States submits that the Panel's "conflation" of Hynix and its 
shareholders reveals the type of "internal incons istency" for which the Panel itself "chastised" the 
JIA.257  The Panel's rationale was that Hynix woul d have to dilute the ownership of existing 
shareholders upon receipt of the equity infusion and, therefore, that Hynix did not receive a benefit in 
the entire amount of that infusion.  According to th e United States, "the need to dilute the ownership 
of existing shareholders, even if true as a fact ual matter, is irrelevant" because "Hynix was the 
recipient of the financial contribution, not the sh areholders", and any dilution would affect only the 
existing shareholders, not Hynix.258  In the United States' view, a distinction has to be made between a 
company and its shareholders.  Otherwise, a situ ation in which a government entity holding shares in 
                                                      
253European Communities' third participant's submission, paras. 45-47. 
254Ibid., paras. 32-34. 
255United States' third participant's submission, paras. 4-5. 
256Ibid., para. 3. (original emphasis). 
257Ibid., para. 4. 
258Ibid. (referring to Panel Report, Korea – Commercial Vessels , paras. 7.419-7.423). WT/DS336/AB/R 
Page 40  
 
a company makes a further equity infusion into the company might not confer a benefit, under the 
theory that the shareholder has only benefited itself.
259  The United States further submits that the 
panel in Korea – Commercial Vessels rejected this approach, in the context of a "financial 
contribution" analysis.260   
III. Issues Raised in This Appeal 
115. The following issues are raised in the appeal filed by Japan: 
(a) whether, in its review of the JIA's determin ation of "entrustment or direction" of the 
Four Creditors with respect to the December 2002 Restructuring, the Panel acted 
inconsistently with Article 11 of the DSU by failing to examine the JIA's evidence in 
its totality;  and, consequently, whether the Panel erred in finding that the JIA's 
determination is inconsistent w ith Article 1.1(a)(1)(iv) of the  SCM Agreement ;  
(b) whether the Panel erred in finding that  the JIA acted inconsistently with 
Articles 1.1(b) and 14 of the  SCM Agreement   by determining that the 
December 2002 Restructuring conferred a benefit on Hynix;  
(c) whether the Panel erred in finding that the JIA improperly calculated the amount of 
benefit conferred on Hynix by the Oct ober 2001 and December 2002 Restructurings 
in violation of Articles 1.1(b) and 14 of the  SCM Agreement ;  and in failing to make 
an objective assessment of the matter before it, as required by Article 11 of the DSU; 
(d) whether the Panel erred in finding that the methods used by the JIA to calculate the 
benefit conferred on Hynix by the Oct ober 2001 and December 2002 Restructurings 
were not provided for in Japan's national le gislation or implementing regulations, as 
required by the chapeau of Article 14 of the  SCM Agreement ;  and in failing to make 
an objective assessment of the matter before it, as required by Article 11 of the DSU;  and 
(e) whether the Panel erred in finding that Japa n acted inconsistently with Article 19.4 of 
the  SCM Agreement   by levying countervailing duties on imports which the JIA itself 
had found were not subsidized at the time of  imposition of the duty;  and in failing to 
make an objective assessment of the matter be fore it, as required by Article 11 of the 
DSU. 
                                                     
 
259United States' third participant's submission, para. 4. 
260Ibid. WT/DS336/AB/R 
Page 41 
 
 
116. The following issues are raised in the other appeal filed by Korea: 
(a) whether the Panel erred in finding that th e JIA's determination that the October 2001 
Restructuring conferred a benefit on Hynix is  not inconsistent with Articles 1.1(b) 
and 14 of the  SCM Agreement ; 
(b) whether the Panel erred in finding that the JIA did not act inconsistently with 
Articles 12.7 and 12.9 of the  SCM Agreement  by including certain financial 
institutions as "interested parties" and by using "facts available" for those financial 
institutions that failed to provide information; 
(c) whether the Panel erred in finding that the JIA could properly characterize the 
transactions at issue in the October 2001 and December 2002 Restructurings as 
transactions involving "direct transfer[s ] of funds" within the meaning of 
Article 1.1(a)(1)(i) of the  SCM Agreement ;  and 
(d) whether the Panel erred in finding that the JIA did not act inconsistently with 
Articles 15.5 and 19.1 of the  SCM Agreement , because the JIA had not demonstrated 
separately that the alleged subsidized im ports were, "through the effects of the 
subsidies", causing injury w ithin the meaning of the  SCM Agreement . 
IV. The JIA's Determination of Entrustment or Direction with respect to the 
December 2002 Restructuring 
117. We begin our consideration of the issues raised in  this appeal by examining Japan's claim that 
the Panel adopted an erroneous approach to its re view of the determination of "entrustment or 
direction" by Japan's investigating authorities (t he "JIA") with respect to a debt-restructuring 
programme entered into by Hynix Semiconductor, Inc.  ("Hynix") and its creditors in December 2002. 
118. In its determination, the JI A concluded that four of Hynix's private creditors—Korea 
Exchange Bank (the "KEB"), Woori Bank, Chohu ng Bank, and National Agriculture Cooperative 
Federation (the "NACF") (the "Four Creditors")—had been entrusted or directed by the Government 
of Korea (the "GOK") within the meaning of Article 1.1(a)(1)(iv) of the  SCM Agreement   to 
participate in the debt-restructuring programmes entered into by Hynix and its creditors (the 
"Restructurings") in October 2001 and December 2002261, and that their participation in the 
Restructurings amounted to "financial contributio ns" within the meaning of subparagraph (i) of 
Article 1.1(a)(1).  The JIA made no finding of entrustment or direction in respect of the remaining 
                                                      
261Panel Report, para. 7.50. WT/DS336/AB/R 
Page 42  
 
creditors that also participated in the Restructurings (the "Other Creditors").
262  The Panel summarized 
the reasoning underpinning the JIA's finding of entrustment or direction as follows: 
In a nutshell, the JIA found that the decisions of the Four Creditors to 
participate in the [R]estructurings  were not commercially reasonable, 
and could therefore only be explained by some external, non-
commercial factor, namely the involvement in the [R]estructurings of the [GOK].  To support this explanation various statements by Government ministers, officials and others, and non-attributed statements, and various circumstances relating to the 
[R]estructurings, were referred to  in the JIA's determination as 
circumstantial evidence of entrustm ent or direction.  It was the 
totality of this evidence that w as the basis for the JIA's finding.
263  
119. Before the Panel, Korea claimed that Japan had acted inconsiste ntly with its obligations under 
Article 1.1(a) of the  SCM Agreement   because the JIA did not have a proper basis for its finding that 
the GOK entrusted or directed the Four Cred itors to participate in the October 2001 and 
December 2002 Restructurings.264  In particular, Korea argued that the JIA's determination of 
entrustment or direction was based on a so-cal led "syllogism" consis ting of three premises265:  (i) the 
GOK's intent to "keep Hynix alive";  (ii) that no rational creditor would have entered into the 
restructuring transactions in view of Hynix's poor an d deteriorating financial condition;  and (iii) the 
lack of evidence establishing that the Four Cred itors had conducted a suffic ient analysis of the 
commercial reasonableness of the October 2001 an d December 2002 Restructurings before entering 
into them.266  For Korea, "each of the premises of the JIA's syllogism was flawed, because they were 
based on presumptions rather than evidence."267  The Panel noted that Korea did not challenge the 
basic methodological approach adopted by the JIA.   Rather, it challenged the validity of several 
intermediate conclusions reached by the JIA to arrive at its determination of entrustment or 
direction.268 
120. The Panel identified, at the outset, the standard  of review that it intended to apply in its 
examination of the JIA's subsidy determination.  On the basis of Article 11 of the DSU, and the 
                                                      
262Panel Report, para. 7.50. 
263Ibid., para. 7.51. 
264Ibid., para. 7.52. 
265At the oral hearing, Korea indicated that, alt hough its argument is, strictly speaking, not a 
"syllogism", it nevertheless contends that the JIA had relied on these three premises for its finding on 
entrustment or direction. 
266See Panel Report, para. 7.57. 
267Ibid., para. 7.59. 
268Ibid., para. 7.61. WT/DS336/AB/R 
Page 43 
 
 
guidance provided by the Appellate Body in US – Countervailing Duty Investigation on DRAMS  and 
US – Softwood Lumber VI (Article 21.5 – Canada) , the Panel stated: 
We are, therefore, conscious of the fact that it is not our role to 
perform a  de novo  review of the evidence which was before the JIA 
at the time it made its determination. We will examine whether on 
the basis of the record before it, a reasonable and objective investigating authority could have reached the conclusions that the JIA reached.  Our task is first to  understand what the JIA decided and 
how it came to those decisions.  Our examination of those decisions 
will be informed by whether the JIA provided a reasoned and 
adequate explanation as to: (i) how the evidence on the record 
supported its factual findings; and (ii) how those factual findings 
supported the overall subsidy determin ation.  At the same time, we 
believe that our examination of the JIA's conclusions must be critical 
and searching, and that we would no t be fulfilling our function if we 
were to simply defer to the conclusions of the JIA.
269 
121. The Panel began its analysis by examining certa in "legal, interpretational and evidentiary" 
issues raised by the parties' claims and arguments.270  First, with respect to the concept of 
"entrustment or direction" under Article 1.1(a)(1)(iv) of the  SCM Agreement , the Panel noted the 
clarification provided by the Appellate Body that a finding of entrustment or direction "requires that 
the government give responsibility to a private bod y—or exercise its authority over a private body—
in order to effectuate a financial contribution."271  Secondly, with respect to  the evidentiary standard, 
the Appellate Body stated that "neither the  SCM Agreement  nor the DSU explicitly articulates a 
standard for the evidence required to substantiate  a finding of entrustment or direction", and that 
neither the  SCM Agreement   nor the DSU imposes upon an investigating authority "[any] particular 
standard for the evidence supporting its finding of entrustment or direction."272  The Panel therefore 
held that, in addressing the substantive arguments  made by the parties, it will "simply examine 
whether or not the JIA's evidence could support its conclusion of entrustment or direction."273 
122. Having thus set out the standard of review, the Panel turned to examine the JIA's 
determination of entrustment or direction with  respect to the October 2001 and December 2002 
Restructurings.  Based on its review of the evid ence relied upon by the JIA with respect to the 
                                                      
269Panel Report, para. 7.43 (referring to Appellate Body Report, US – Countervailing Duty 
Investigation on DRAMS , paras. 186-188;  and Appellate Body Report, US – Softwood Lumber VI (Article 21.5 – 
Canada) , para. 93). (footnote omitted) 
270Ibid., para. 7.61. 
271Ibid., para. 7.62 (quoting Appellate Body Report, US – Countervailing Duty Investigation on 
DRAMS , para. 138). 
272Ibid., para. 7.77 (quoting Appellate Body Report, US – Countervailing Duty Investigation on 
DRAMS , para. 138). 
273Ibid., para. 7.81. WT/DS336/AB/R 
Page 44  
 
October 2001 Restructuring, the Panel held that such evidence "could properly be interpreted as 
indicating that the [GOK] had a preference for the c ontinued existence of Hynix, and that the [GOK] 
was prepared to intervene directly in the Hynix restructuring process."
274  The Panel found that certain 
reports regarding announcements made by the Econ omic Ministers in July 2001, relied upon by the 
JIA, could properly be interpreted by an objective and impartial investigating authority "as evidence 
that the [GOK] intended to pursue the restructuring of Hynix beyond the May 2001 
[R]estructuring."275  The Panel concluded, referring to certa in statements emanating from one Hynix 
creditor and a statement concerning the Korea De velopment Bank (the "KDB") relied upon by the 
JIA, that: 
... an objective and impartial inves tigating authority might properly 
conclude from these statements, read  in light of relevant evidence 
regarding the October 2001 [R]estructuring, that the [GOK] was directly involved in the December 2002 [R]estructuring, and that this was because the [GOK]'s intent w as that Hynix should be saved.
276   
123. After a review of certain other evidence before the JIA, the Panel further found that "the JIA 
could properly have concluded that the balance of  the record evidence did indicate that the [GOK] 
was prepared to intervene directly  in the Hynix restructuring process"277 and that: 
[f]aced with evidence of government pressure on Hynix creditors in 
the recent past, and evidence that  the [GOK] was prepared to 
intervene directly in order to preserve Hynix as a going concern at 
the time of the October 2001 and December 2002 [R]estructurings, ... 
the JIA could properly have concluded that the [GOK] had the political intent to save Hynix at the time of those [R]estructurings—through direct intervention if necessar y—even if not all of the record 
evidence pointed in this direction.
278   
124. Summing up its review of the evidence before it,  the Panel found, with respect to the first 
premise of Korea's syllogism, that "the JIA could pr operly have concluded that the [GOK] intended to 
save Hynix at the time of the October 2001 and December 2002 [R]estructurings."279 
125. The Panel then turned to assess Korea's argumen t that the evidence on record did not support 
the JIA's conclusion that the decisions  of the Four Creditors to partic ipate in the Restructurings were 
based on non-commercial considerations .  The Panel rejected Korea's argument insofar as it related to 
                                                      
274Panel Report, para. 7.105. 
275Ibid., para. 7.107. 
276Ibid., para. 7.109. 
277Ibid., para. 7.113. (footnote omitted) 
278Ibid., para. 7.113. 
279Ibid., para. 7.114. WT/DS336/AB/R 
Page 45 
 
 
the October 2001 Restructuring.280  However, with respect to the December 2002 Restructuring, the 
Panel found that the JIA had erred in concluding that the Four Creditors' participation in that 
Restructuring was based on non-commercial considerati ons.  The Panel's review of this issue focused 
on the JIA's treatment of a restructuring plan prep ared by Deutsche Bank that was made available to 
Hynix's creditors at the time they undertook the December 2002 Restructuring (the "Deutsche Bank Report").
281  After an analysis of various aspects of the Deutsche Bank Report,  the Panel concluded 
that "the JIA's determination that the Deutsche Ba nk Report did not provide the existing creditors with 
a proper commercial basis for participating in th e December 2002 [R]estructuring was not reasonable 
and objective."282 
126. The Panel summed up the results of its analysis of entrustment or direction as follows: 
[W]e note that the JIA's determination of entrustment or direction 
was based on "the totality of numerous items of evidence obtained".  We also note that the JIA began its summary of its determination of entrustment or direction regarding the December 2002 [R]estructuring by referring to its finding that the Four Creditors' decisions to participate in that [R]estructuring "were not based on 
commercial consideration[s]".  Commercial reasonableness therefore 
played an important role in the JIA's finding of entrustment or direction.  As noted above, the JIA's finding that the Four Creditors' participation in the [R]estructuring was not commercially reasonable was to a great extent based on its  rejection of the Deutsche Bank 
Report.  Our finding that the JIA erred in both its formal and 
substantive analysis of the Deutsche Bank Report therefore 
invalidates the JIA's finding that the Four Creditors' participation in the December 2002 [Restructuring] was not commercially reasonable, revealing a fatal flaw in the JIA's determination of entrustment or direction.  While th e JIA also based its determination 
of entrustment or direction on evidence that the [GOK] "was in a 
position to be able to exercise sufficient influence on" the Four 
Creditors, and that the [GOK] "had the political intent to have Hynix survive", and "had been ascertaining at all times the progress of discussion of the December 2002 Program", the JIA declined to find 
that such evidence in and of itself (i.e., absent consideration that the 
[R]estructuring was not commercially reasonable) demonstrated that the [GOK] gave responsibility to the Four Creditors, or actually exercised any authority over the Four Creditors, in order to effectuate the December 2002 [R]estructuring.  Since the JIA made no such finding, there is no basis for us to conclude whether or not the JIA
                                                     
 
280Panel Report, para. 7.252.  Korea does not appeal this finding by the Panel. 
281Exhibit KOR-20 submitted by Korea to the Panel.  See Panel Report, paras. 7.155-7.247. 
282Ibid., para. 7.245. WT/DS336/AB/R 
Page 46  
 
could properly have relied on such  evidence (absent consideration 
that the [R]estructuring was not commercially reasonable) to make a determination of government entrustm ent or direction.  It is not our 
role to conduct a de novo  examination of that issue by asking 
whether such a finding could have been made by the JIA.
283 
127. The Panel concluded that, because the JIA coul d not properly have found that the Four 
Creditors' participation in the December 2002 Rest ructuring was not commercially reasonable, the 
JIA did not have a proper basis for its determination th at the Four Creditors were entrusted or directed 
by the GOK to participate in the December 2002 Restruct uring, contrary to Article 1.1(a)(1)(iv) of the  
SCM Agreement .284 
128. On appeal, Japan alleges several errors in the Panel's review of the JIA's determination of 
entrustment or direction with respect to the Decembe r 2002 Restructuring.  Japan contends, first, that 
the Panel erred by limiting the scope of its review to the Deutsche Bank Report in isolation, without 
considering, as did the JIA, whether the eviden ce in its totality supported the JIA's finding of 
entrustment or direction.285  For Japan, the Panel's approach would make it impossible for an 
investigating authority to rely on the totality of evidence, because under the Panel's approach "a flaw 
in [the investigating authority's] assessment of one of many pieces of evidence would necessarily invalidate the entire determination."
286  Besides challenging the Panel's review of the JIA's overall 
finding of entrustment or direction, Japan also fi nds fault with the Panel's review of the JIA's 
intermediate finding on the commercial reasonableness of the Four Creditors' participation in the 
December 2002 Restructuring.  In particular, Japan  contends that the Panel employed an improper 
approach to its review of the JIA's findings with respect to the Deutsche Bank Report and did not give 
adequate consideration to other circumst antial evidence supporting the JIA's conclusion.287  I n  t h e  
light of these alleged errors, Japan claims that th e Panel failed to comply with its obligations under 
Article 11 of the DSU and requests us to reverse th e Panel's finding on entrustment or direction with 
respect to the December 2002 Restructuring.288 
129. Korea disputes Japan's submissions and contends that the Panel's findings with respect to the 
commercial reasonableness of the Four Creditors' par ticipation in the restructuring process are factual 
findings that are beyond the scope of appellate review .  In any event, Korea rejects Japan's allegation 
that the Panel acted inconsistently with Article 11 of  the DSU in its review of the JIA's determination 
                                                      
283Panel Report, para. 7.253. 
284Ibid., para. 7.254. 
285Japan's appellant's submission, para. 63. 
286Ibid., para. 70. 
287Ibid., para. 74. WT/DS336/AB/R 
Page 47 
 
 
of entrustment or direction.  First, according to Korea, the standard of review applied by the Panel 
was consistent with the standard id entified by the Appellate Body in US – Countervailing Duty 
Investigation on DRAMS  and in subsequent cases.289  Secondly, Korea submits that a review of the 
Panel's decision confirms that the Panel "refused to  substitute its judgment for that of the JIA" and 
that, viewed as a whole, the Panel did not engage in a  de novo  review.290  Korea also disagrees with 
Japan's assertion that the Panel committed errors in it s review of the JIA's findings with respect to the 
Deutsche Bank Report.   
130. The participants do not contest the Panel's articulation of the standard of review.291  Japan 
contends, rather, that the Panel erred in its  application   of the standard of review as prescribed by 
Article 11 of the DSU, and as clarified by the Appellate Body in US – Countervailing Duty 
Investigation on DRAMS  and US – Softwood Lumber VI (Article 21.5 – Canada) .  We therefore turn to 
consider whether the Panel properly applied the sta ndard of review in its assessment of the JIA's 
determination of entrustment or direction w ith respect to the December 2002 Restructuring.292  
A. The Panel's Review of the JIA's Determination of Entrustment or Direction  
131. The Appellate Body has previously found that "when an investigating authority relies on the 
totality of circumstantial evidence, this imposes upon a panel the obligation to consider, in the context 
of the  totality   of the evidence, how the  interaction   of certain pieces of evidence may justify certain 
inferences that could not have been justified by a review of the individual pieces of evidence in 
isolation."293  In addition, if an investigating authority explains that the totality of the evidence 
supports the conclusion reached, a panel must undertake a critical examination of whether, in the light 
of the evidence on record, the investigating au thority's conclusion was reasoned and adequate.294  The 
Appellate Body has also said that errors in an investigating authority's examination of individual 
pieces of evidence "undoubtedly would affect an examination of the  totality   of the evidence, as these 
pieces would constitute the evidence the Panel would consider as a whole in assessing the evidentiary 
                                                                                                                                                                     
288Japan's appellant's submission, para. 166.       
289Korea's appellee's submission, paras. 53-55 (referring to Appellate Body Report, US – 
Countervailing Duty Investigation on DRAMS , paras. 186-188;  and Appellate Body Report, US – Softwood 
Lumber VI (Article 21.5 – Canada) , para. 93). 
290Ibid., paras. 56 and 57. 
291Japan's and Korea's responses to questioning at the oral hearing. 
292We note that Korea has  not  appealed the Panel's finding that the JIA had a proper basis for finding 
that the GOK entrusted or di rected the Four Creditors to participate in the October 2001 Restructuring. (See 
Panel Report, para. 7.252)  The Panel's finding of entrustment or direction, as it relates to the October 2001 
Restructuring, therefore stands. 
293Appellate Body Report, US – Countervailing Duty Investigation on DRAMS , para. 157. (original 
emphasis). 
294Appellate Body Report, US – Softwood Lumber VI (Article 21.5 – Canada) , para. 93. WT/DS336/AB/R 
Page 48  
 
support of [an investigating authority's] finding of entrustment or direction."
295  Finally, we recall the 
Appellate Body's statement that, "in order to exam ine the evidence in the light of the investigating 
authority's methodology, a panel's analysis usually sh ould seek to review the agency's decision on its 
own terms, in particular, by identifying the inference drawn by the  agency   from the evidence, and 
then by considering whether the evid ence could sustain that inference."296 
132. The Panel in this case recognized that the JIA based its determination of entrustment or 
direction on "the totality of numerous items of evidence obtained".297  In particular, the Panel 
acknowledged that the JIA relied on evidence that the GOK "'was in a position to be able to exercise 
sufficient influence on' the Four Creditors, and that the [GOK] 'had the political intent to have Hynix 
survive', and 'had been ascertaining at all tim es the progress of discussion of the December 2002 
[Restructuring]'."298  However, the Panel found that it had "no basis" to assess whether the JIA could 
have sustained its finding on entrustm ent or direction by recourse to evidence other than the evidence 
concerning commercial reasonableness.  The Panel r easoned that since the JIA had not undertaken 
such an exercise, the Panel could not do so, as this would amount to a  de novo   review.299 
133. We disagree with the approach adopted by th e Panel.  The JIA came to its finding on 
entrustment or direction based upon a consideration of  the totality of evidence before it.  It is not 
evident to us that the JIA accorded  such decisive weight to the i ssue of commercial reasonableness as 
to render insignificant other evidence relating to th e GOK's intent to save Hynix and its intervention 
in the restructuring process.  The JIA made a holis tic assessment of the evidence before it.  While 
commercial reasonableness, in particular the Deut sche Bank Report, may have been an important 
factor in its considerations, it is unreasonable to e xpect the JIA to have engaged upon an enquiry as to 
whether other evidence would, by itself, have su stained its finding on entrustment or direction.300  
This is because the JIA cannot be expected to procee d on the basis that certain aspects of its reasoning 
would later be found to be faulty.   
                                                      
295Appellate Body Report, US – Countervailing Duty Investigation on DRAMS , para. 154. (original 
emphasis). 
296Ibid., para. 151. (original emphasis). 
297Panel Report, paras. 7.51, 7.73, and 7.253 (referring to JIA's Final Determination, Annex 1 
(Essential Facts), paras. 285 and 288;  and JIA's Final Determination, Annex 3 (Rebuttals and Surrebuttals), para. 20). 
298Ibid., para. 7.253 (referring to JIA's Final Determination, Annex 1 (Essential Facts), para. 370). 
299Ibid., para. 7.253.  In its appellant's submission, Japan disputes the Panel's assertion that the JIA 
"declined" to find that such other evidence was sufficient to support the JIA's conclusion of entrustment or 
direction.  (Japan's appellant's submission, para. 71) 
300See footnote 304 of this Report. WT/DS336/AB/R 
Page 49 
 
 
134. The Panel should have considered whether the remaining evidence before the JIA provided an 
objective basis for finding entrustment or direction,  notwithstanding the Panel's conclusion that the 
JIA's assessment of the Deutsche Bank Report was flawed.  That could only have been done by 
considering the totality of the evidence, including, in  particular, the evidence relating to the intent and 
involvement of the GOK in the Restructurings.  Th is is particularly so given the Panel's earlier 
findings that "the JIA could properly have concluded that the balance of the record evidence did 
indicate that the [GOK] was prepar ed to intervene directly in the Hynix restructuring process"301 and 
that, "[f]aced with evidence of government pressu re on Hynix creditors in the recent past, and 
evidence that the [GOK] was prepar ed to intervene directly in order to preserve Hynix as a going 
concern at the time of the October 2001 and December 2002 [R]estructurings, ... the JIA could properly have concluded that the [GOK] had the politi cal intent to save Hynix at the time of those 
[R]estructurings—through direct intervention if n ecessary—even if not all of the record evidence 
pointed in this direction".
302  The Panel did not undertake such an examination, and thereby failed 
properly to apply the required standard of review.   
135. We recognize that there may be cases in wh ich certain intermediate  findings may be so 
central to the ultimate conclusion of an investigating au thority that an error at an intermediate stage of 
reasoning may invalidate the final conclusion.  In deed, an evaluation of the significance of the 
different factors considered by an investigating auth ority is at the heart of the assessment a panel must 
make.  What a panel should not do is to have recourse to an  a priori   "syllogism" that accords 
presumptive weight to certain propositions.  This is al l the more so when this was not the approach to 
the evaluation of the evidence adopted by the investigating authority.   
136. In this case, the Panel's finding on the GOK's in tent and involvement in the restructuring 
process—that the JIA could properly have conclude d that the GOK intended to save Hynix and that 
the GOK was prepared to intervene directly in the Hynix restruct uring process—is common to both 
the October 2001 and December 2002 Restructurings.303  The Panel found that the October 2001 
Restructuring involved entrustment or direction on the basis of its upholding the JIA's determination 
that the participation of the Four Creditors in th at Restructuring was not commercially reasonable.  
The Panel found that the December 2002 Restructur ing did not involve entrustment or direction
                                                      
301Panel Report, para. 7.113. 
302Ibid.  See also ibid., paras. 7.109 and 7.114. 
303Ibid., paras. 7.113 and 7.114. WT/DS336/AB/R 
Page 50  
 
because it concluded that the JIA had not properly established that the participation of the Four 
Creditors in that Restructuring was not commercially reasonable.  Thus, it seems to us that the sole 
basis on which the Panel came to different conc lusions on entrustment or direction in the two 
Restructurings was its findings on the commercial reasonableness of the Four Creditors' participation 
in those Restructurings. 
137. The Panel did not adequately explain why a fi nding of commercial reasonableness, by itself, 
was indispensable for the ultimate finding of entrustm ent or direction.  We are unable to discern from 
the JIA's determination that the JIA considered co mmercial reasonableness to be indispensable for its 
ultimate finding of entrustment or direction.  Even if  the Panel were correct that the JIA's finding on 
commercial unreasonableness lacked evidentiary suppor t, that alone would not necessarily invalidate 
the JIA's determination of entrustmen t or direction.  As we have st ated above, the Panel should have 
considered whether, in the light of the remaini ng evidence, the JIA could nevertheless have reached 
its finding on entrustment or direction.
304   
138. We recognize that the commercial unreasonableness of the financial transactions is a relevant 
factor in determining government entrustment or  direction under Article 1.1(a)(1)(iv) of the  SCM 
Agreement , particularly where an investigating author ity seeks to establish government intervention 
based on circumstantial evidence.  However, this does not mean that a finding of entrustment or 
direction can never be made unless it is establis hed that the financial transactions were on non-
commercial terms.  A finding that creditors acted on the basis of commercial reasonableness, while 
relevant, is not conclusive of the issue of entrus tment or direction.  A government could entrust or 
direct a creditor to make a loan, which that credito r then does on commercial terms.  In other words,
                                                      
304We note, in this regard, that the JIA's determination refers to, inter alia , certain other evidence 
suggesting that the GOK was in a position to control or influence the decisi ons of the Four Creditors:  the 
GOK's shareholding power in the Four Creditors;  a Memorandum of Understanding entered into between 
certain of the Four Creditors and a government body (the Korea Deposit Insurance Corporation);  and bank debt 
guarantees provided by the GOK.  (See JIA's Final Determination, Annex 1 (Essential Facts), paras. 58, 60-63, 
79-81, 351, 356, and 359)  The Panel di d not examine this ev idence.  See also supra , para. 134. WT/DS336/AB/R 
Page 51 
 
 
as a conceptual matter, there could be entrustmen t or direction by the government, even where the 
financial contribution is made on commercially reasonable terms.305 
139. In the light of the above, we  find  that the Panel did not conduct an objective assessment of 
the matter before it, as required by Article 11 of  the DSU, because it failed to examine whether the 
JIA's evidence in its totality supported the JI A's finding of entrustment or direction.   
B. The Panel's Conclusion under Article 1.1(a)(1)(iv) of the SCM Agreement  
140. Following its examination of the evidence a nd intermediate findings underlying the JIA's 
determination of entrustment or di rection, the Panel concluded that  "the JIA did not have a proper 
basis for finding that the Four Creditors were entrusted or directed by the [GOK] to participate in the 
December 2002 [R]estructuring, contrary to Article 1.1(a)(1)(iv) of the  SCM Agreement ."306   
141. We have found that the Panel applied an errone ous approach to its analysis of the JIA's 
finding of entrustment or direction and, thereby, failed to apply the proper standard of review in 
accordance with Article 11 of the DSU.  In our view, this inva lidates the basis for the Panel's 
conclusion, quoted above, that the JIA could not  have properly found entrustment or direction.307  
Because this conclusion is the sole basis for the Panel's finding of inconsistency with
                                                      
305At the oral hearing, Korea acknowledged that the issues of entrustment or direction and of benefit 
are two separate legal requirements and that the commercia lity of the financial contributions is more relevant to 
determine the issue of benefit.  We also note that, in response to Question 64 posed by the Panel, Korea asserted that: 
[a]s a conceptual matter, sub-paragraph (iv) of Article 1.1(a) does not limit a 
finding of "entrustment or direction" to situations in which private entities are forced by a government to undertake actions that are not in their own 
interests.  A government could, for example, order a bank to make a loan on 
commercial terms to a creditworthy borrow er.  In such cases, there might be 
entrustment or direction, but there would also be no benefit to the recipient 
—and, as a result, there would be no subsidy. 
(Panel Report, para. 7.66) 
The Panel understood Korea to accept that:  
... as a legal matter, ... an investigati ng authority may find the existence of a 
financial contribution on the basis of entrustment or direction of private 
bodies, even if those private bodies are not required to act contrary to their 
own interests. 
(Ibid., para. 7.67) 
306Ibid., para. 7.254. 
307We note that Korea agrees that a finding of error under Article 11 of the DSU, with respect to the 
Panel's standard of review, would require a reversal of the Panel's finding that the JIA's determination is 
inconsistent with Article 1.1(a)(1)(iv) of the SCM Agreement . (Korea's response to questioning at the oral 
hearing) WT/DS336/AB/R 
Page 52  
 
Article 1.1(a)(1)(iv) of the  SCM Agreement , we  reverse   the Panel's finding, in paragraphs 7.254 
and 8.2(a) of the Panel Report, that the JIA's dete rmination of entrustment or direction of the Four 
Creditors by the GOK with resp ect to the December 2002 Restructuring is inconsistent with 
Article 1.1(a)(1)(iv) of the  SCM Agreement .  In these circumstances, for purposes of assessing the 
Panel's review of the JIA's entrustment or direc tion determination, we find it unnecessary to examine 
Japan's arguments regarding the i ssue of commercial reasonableness.
308 
142. We note that neither participant has requested, in  its written submission, that we complete the 
legal analysis by undertaking our own review of th e JIA's finding of entrustment or direction if we 
were to reverse the Panel's fi nding of inconsistency with Ar ticle 1.1(a)(1)(iv) of the  SCM Agreement .  
At the oral hearing, Korea tentatively suggested that we complete the analysis but recognized the 
difficulty of such a task.  We do not consider that the participants have addressed sufficiently, in their 
submissions, those issues we might need to examine in  order to complete the analysis in this case, 
including the probative value of certain evidence not c onsidered by the Panel.  In these circumstances, 
we are not in a position to, and therefore do not, comp lete the analysis to reach our own conclusion on 
the consistency of the JIA's determination of entrustm ent or direction with Article 1.1(a)(1)(iv) of the  
SCM Agreement . 
V. The JIA's Determination of Benefit with respect to the December 2002 Restructuring   
143. The Panel found that "the JIA's erroneous analys is (in form and substance) of the Deutsche 
Bank Report invalidated the JIA's finding that the Fo ur Creditors' participation in the December 2002 
[Restructuring] was not commercially reasonable."309  As the Panel also found that "the JIA 
determined benefit by reference to the market, and commercial reasonableness"310, the Panel 
concluded that the JIA's determination of "b enefit" for the December 2002 Restructuring was 
inconsistent with Articles 1.1(b) and 14 of the  SCM Agreement .311   
144. Japan requests that we reverse the Panel's fi nding that the JIA improperly determined the 
existence of benefit for the December 2002 Restruct uring.  According to Japan, the Panel conducted 
                                                      
308In response to questioning at the oral hearing, Japan agreed that we would not be required to 
examine Japan's arguments regarding comm ercial reasonableness to the extent that we agree with Japan that the 
Panel erred in its review of the finding of entrustment or  direction by the JIA under Article 1.1(a)(1)(iv) of the  
SCM Agreement   with respect to the December 2002 Restructuring.  However, we address these arguments in 
Section V of this Report in the context of our examinati on of the JIA's determination of benefit with respect to 
the December 2002 Restructuring. 
309Panel Report, para. 7.282.   
310Ibid.  In the light of its finding, the Panel did not consider it necessary to examine other issues raised 
by Korea relating to the JIA's determ ination of benefit with respect to  the December 2002 Restructuring. ( Ibid., 
para. 7.285) 
311Ibid., para. 8.2(b). WT/DS336/AB/R 
Page 53 
 
 
no substantive or independent analysis of the JIA's determination of benefit and based its finding on 
this issue solely on its earlier finding on government entrustment or direction.  As the finding of the 
Panel on entrustment or direction was, according to Japan, erroneous, the Panel's finding on the 
benefit issue should also be rejected.312   
145. Korea contends that Japan's appellant's su bmission does not satisfy the requirements of 
Rule 21(2) of the  Working Procedures   and the requirements of due process.  Korea asserts, in 
particular, that it had "not been given adequate notice of the nature of Japan's arguments or an 
adequate opportunity to refute them".313 
146. Japan provides extensive arguments, in its appella nt's submission, to support its assertion that 
the Panel's review of the JIA's determinati on of entrustment or direction is erroneous.314  As we see it, 
a careful reading of Japan's appellant's submis sion should have indicated to Korea that these 
arguments are also relevant with respect to the Pa nel's review of the JIA's benefit determination.  
Therefore, in our view, Japan's appellant's submis sion satisfies the requirements of Rule 21(2) of the 
Working Procedures   and of due process.  
147. We proceed to examine the Panel's review of the JIA's analysis of the commercial 
reasonableness of the Four Creditors' participati on in the December 2002 Restructuring in order to 
assess whether the Panel erred in its finding on the JI A's benefit determination.  In doing so, we note 
that the Panel's finding concerning the JIA's bene fit determination was premised on the Panel's 
previous finding that the JIA failed to properly establis h that the participation of the Four Creditors in 
the December 2002 Restructuring "was based on non-commercial considerations".315 
A.  The Panel's Review of the JIA's Analysis of Commercial Reasonableness  
148. In its determination, the JIA rejected the Deutsche Bank Report as proof of the commercial 
reasonableness of the Four Creditors' participa tion in the December 2002 Restructuring "for both 
formal and substantive reasons".316  As to form, the JIA questioned the independence of the Deutsche 
Bank Report on, inter alia , the basis that the GOK had intervened  in the preparation of that Report.317  
As to substance, the JIA found that the Deutsch e Bank Report contained discrepancies, which "should 
                                                      
312Japan's appellant's submission, para. 168. 
313Korea's appellee's submission, para. 129. 
314Japan's appellant's submission, Section II. 
315Panel Report, para. 7.282. 
316Ibid., para. 7.159. 
317JIA's Final Determination, Annex 1 (Essential Facts), para. 341. WT/DS336/AB/R 
Page 54  
 
have been easy for a person who engages in  the corporate financing business to identify"
318, and 
concluded therefore that "the Deutsche Bank Report, reviewed from the aspect of its content as well, 
is not a sufficient basis for the commercial fi nancing judgment of experienced financial 
institutions."319 
149. Japan argues that the Panel committed several erro rs in its examination of the Deutsche Bank 
Report.  First, although the Panel examined th e evidence regarding nine press reports allegedly 
showing the GOK's intervention in the preparation of  the Deutsche Bank Report,  it failed to consider 
these press reports in their totality and in the contex t in which the JIA made its finding.  Secondly, the 
Panel committed errors in its review of the JIA's analysis of the relevance of certain evidence, 
including misstating some of the JIA's findings, and examining an issue for wh ich Korea did not even 
present relevant evidence or arguments.  Thirdly, the Panel erred by rejecting certain arguments by 
Japan as  ex post   rationalizations.  According to Japan, the Panel's approach was inconsistent with its 
obligations under Artic le 11 of the DSU. 
150. Korea disagrees with Japan's asser tion that the Panel committed errors in its review of the 
JIA's findings with respect to the Deutsche Bank Report.320  Korea also rejects Japan's contention that 
the Panel failed to properly exam ine the press reports relied upon by the JIA to indicate that the GOK 
had intervened in the preparation of the Deutsche Bank Report. 
151. We begin by examining Japan's arguments rela ting to the "formal" reasons underlying the 
JIA's rejection of the Deutsche Bank Report. 
1. The Independence of the Deutsche Bank Report  
152. Japan submits that the JIA reli ed upon certain press reports in their totality as evidence "in 
order to impugn the commercial reliability of the De utsche Bank Report, and to therefore find that the 
decisions made by the Four Creditors to enter into the December 2002 [R]estructuring were not 
commercially based."321  According to Japan, the Panel failed to follow the same approach.  Instead, 
the Panel "required that an individual piece of evidence, in and of itself, establish the JIA's 
intermediate factual finding of the intervention by  the GOK in the preparation of the Deutsche Bank 
Report."322   
                                                      
318JIA's Final Determination, Annex 1 (Essential Facts), para. 345. 
319Ibid. 
320Korea's appellee's submission, para. 77. 
321Japan's appellant's submission, para. 76 (quoting Panel Report, para. 7.169). 
322Ibid., para. 80. WT/DS336/AB/R 
Page 55 
 
 
153. We disagree with Japan's characterization of  the Panel's reasoning.  The Panel stated: 
Although we necessarily begin by reviewing the reports individually, 
we also consider them collectively, in case aspects of different  [press 
reports relied on by the JIA] toge ther might support a finding of 
government intervention even wher e reports taken individually do 
not.323 (footnote omitted) 
154. Thus, contrary to what Japan suggests, the Pa nel did not fail to consider the press reports 
collectively.  Rather, it found that "the reports re lied on by the JIA—whether read in isolation or as a 
whole—provide precious little support for a finding that  the [GOK] intervened in the preparation of 
the Deutsche Bank Report."324   
155. Japan also faults the Panel's examination of  the issue of whether the Deutsche Bank Report 
favoured the interests of Hynix over those of the creditors.325  As we see it, Japan mischaracterizes the 
Panel's reasoning on this issue;  the Panel merely  examined the question of whether the JIA could 
properly have called into question the independe nce of the Deutsche Bank Report on the basis of 
certain evidence on record. 
156. Japan further submits that the Panel erred by making a finding on the relevance of a 
consultancy contract, although "Korea did not subm it necessary evidence and argument to establish a 
prima facie   case" in this regard.326  Moreover, according to Japan, th e Panel collected the evidence of 
the relevant "contract  ex officio   in March 2007 well after both Pa nel sessions and the submission of 
all arguments by the parties"327 and failed to provide the parties with an opportunity to present their 
views on the relevance of the contract for the purpose of its analysis. 
                                                      
323Panel Report, para. 7.172. 
324Ibid., para. 7.182.  In particular, the Panel reported that its analysis of the press reports as a whole 
had found that: 
... out of the nine reports relied on by the JIA, only one (the sixth) suggests 
that the government did intervene in the Deutsche Bank Report. ... Furthermore, there is nothing in the other reports which might add weight to 
a finding of government intervention in the preparation of the Deutsche 
Bank Report, based on the sixth report.  As such, we consider that the 
reports relied on by the JIA—whether read in isolation or as a whole—
provide precious little support for a finding that the [GOK] intervened in the preparation of the Deutsche Bank Report. 
(Ibid.) (footnotes omitted) 
325See Japan's appellant's submission, paras. 120-124 (referring to Panel Report, paras. 7.166 
and 7.167).  See also ibid., subheading II.4.(b)(ii), p. 40. 
326Ibid., para. 138. 
327Ibid., para. 135. WT/DS336/AB/R 
Page 56  
 
157. Contrary to what Japan appears to suggest, the relevant consultancy contract was not 
submitted to the Panel for the first time at the end of the Panel proceedings.
328  Instead, Japan had 
included it as an exhibit to its fi rst written submission to the Panel.329  We agree with Korea in this 
respect that "[t]he Panel's consider ation of a contract that Japan its elf submitted in support of its initial 
arguments obviously does not constitute a denial of Japan's due process rights."330  Japan's reference 
to Korea's failure to establish a  prima facie   case is also misguided.  In this case, the Panel rightly 
conducted its own assessment of the rele vance of the consultancy contract. 
2. The Substance of the Deutsche Bank Report  
(a) Whether the Panel Properly Rejected Certain of Japan's Arguments 
as  Ex Post   Rationalizations 
158. Japan claims that the Panel erred in treating as  ex post   rationalizations certain of Japan's 
arguments relating to the way in which the Deutsche  Bank Report analyzed the rate of return to 
creditors under the liquidation scenario.331  In Japan's view, the Panel acted inconsistently with its 
obligations under Article 11 of the DSU by refusing to consider Japan's arguments.332  Korea contests 
Japan's assertion and points out that the JIA did not address those issues in its determination of 
"entrustment or direction".  The Panel was therefore correct in rejecting them as  ex post   
rationalizations. 
159. In our view, it follows from the requirement that the investigating authority provide a 
reasoned and adequate explanati on for its conclusions, that the underlying rationale behind those 
conclusions be set out in the investigating authority's determination.  It is on the basis of the rationale 
or explanation provided by the investigating author ity that a panel must examine the consistency of 
the determination with a covered agreement, in cluding whether the investigating authority has 
adequately explained how the facts support the determ ination it has made.  Just as a panel must focus 
in its review on the rationale or explanation provided  by the investigating authority in its report, so, 
too, is the respondent Member precluded during th e panel proceedings from offering a new rationale 
or explanation  ex post   to justify the investigating authority's determination.333 
                                                      
328Japan acknowledged this in response to questioning at the oral hearing. 
329Exhibit JPN-02-368 submitted by Japan to the Panel. 
330Korea's appellee's submission, para. 101. 
331Japan's appellant's submission, paras. 155 and 158 (r eferring to Panel Report, paras. 7.216 and 7.220, 
respectively). 
332Ibid., para. 158. 
333See Appellate Body Report, US – Countervailing Duty Investigation on DRAMS , para. 159 and 
footnote 293 thereto. WT/DS336/AB/R 
Page 57 
 
 
160. Based on our review of the Panel's analysis, we find that the Panel was correct in concluding 
that Japan's arguments in this respect were  ex post  facto   rationalizations and thus fell outside the 
scope of the Panel's review.  We therefor e dismiss this ground of Japan's appeal.  
(b) Admission of Error by Hynix  
161. The Panel observed that the final alleged "discrepancy" in the Deutsche Bank Report 
identified by the JIA was an error, allegedly adm itted by Hynix, which when corrected would have 
had the effect of reducing each of the recovery rates under the going concern scenarios by a certain 
amount.334    
162. Japan argues that "[n]owhere in its Report did th e Panel consider the effect of the correction 
of the error or the meaning thereof in accordance with what [the] JIA analyzed."335  In this way, 
according to Japan, the Panel acted inconsistently  with Article 11 of the DSU by making a  de novo   
review of the evidence to reach its own findings.  We disagree with Japan.  As we see it, the Panel 
properly examined the evidence befo re it and found that the alleged error was "nothing more than a 
typographical error" that did not require correction.336  This finding appears to be reasonable and 
within the discretion of the Panel.  Therefore, we  see no reason to disturb the Panel's finding that 
"Hynix had not identified any analytical error that required correction."337   
B. Conclusion  
163. We are not persuaded by Japan's argument that the Panel failed to comply with its obligations 
under Article 11 of the DSU in its review of the JIA' s analysis of commercial reasonableness.  To the 
contrary, it seems to us that the Panel conducted an  objective appraisal of the JIA's determination of 
commercial reasonableness.  Based on its analysis, the Panel found that "the JIA's rejection of the 
Deutsche Bank Report played a central role in its conclusion that the participation of the Four 
Creditors in the December 2002 [R]estructuring was not  commercially reasonable to the extent that it 
coloured the JIA's assessment of the Four Cred itors' internal analyses of the [R]estructuring."338  
Recalling its finding that an objective and impartial i nvestigating authority could not have rejected the 
Deutsche Bank Report on the grounds selected by the JI A, the Panel determined that "the JIA could 
not properly have relied on the Deutsche Bank Report as a basis for concluding that the participation 
                                                      
334Panel Report, para. 7.239 (referring to JIA's Fi nal Determination, Annex 3 (Rebuttals and 
Surrebuttals), para. 502). 
335Japan's appellant's submission, para. 162. 
336Panel Report, para. 7.244. 
337Ibid. 
338Ibid., para. 7.247. WT/DS336/AB/R 
Page 58  
 
of the Four Creditors in the December 2002 [R]estructuring was not commercially reasonable."
339  We 
see no reason to disturb this finding by the Panel.    
164. Accordingly, we  uphold   the Panel's finding, in paragraphs 7.282 and 8.2(b) of the Panel 
Report, that the JIA acted inconsistently with Article 1.1(b) and Article 14 of the  SCM Agreement   by 
improperly determining that the December 2002 Restructuring conferred a benefit on Hynix. 
VI. Calculation of the Amount of Benefit 
165. Before the Panel, Korea claimed that the JI A erred in calculating the amount of benefit 
conferred by the financial transactions that constituted the October 2001 and December 2002 
Restructurings, because the JIA did not assign any valu e to what Hynix provided in return and did not 
take into account the creditors' existing claims.  According to Korea, "a proper analysis of these 
transactions requires consideration of all parts of the exchanges—not only th e value of whatever the 
recipient received, but also the value of whatever the recipient gave in return."340  In the light of 
"Korea's extensive argumentation regarding the di fferences between the investment perspectives of 
inside and outside investors in respect of insolvent companies"341, the Panel considered that Korea 
was "essentially arguing that the JIA calculated the amount of benefit [exclusively] from the 
perspective of outside investors".342 
166. With respect to the JIA's calculation of the amount of benefit resulting from debt-to-equity 
swaps, the Panel observed that "Japan has not denied, that the formula used by the JIA to calculate the 
amount of benefit of the debt-to-equity swaps is the formula used in other jurisdictions to calculate the 
subsidy benefits from outright grants."343  Noting Korea's argument that "an investigating authority's 
analysis of a debt-to-equity swap cannot look only at the forgiveness of debt, and ignore the value of 
the equity provided in return"344, the Panel agreed with the panel in  EC – Countervailing Measures 
on DRAM Chips  that "[f]or the recipient, a loan clearly h as a different value than a grant as it involves 
a debt that is owed to someone and will appear as such in a company's balance sheet."  The Panel also 
                                                      
339Panel Report, para. 7.247. 
340Ibid., para. 7.299. 
341Ibid., para. 7.305. 
342Ibid. 
343Ibid., para. 7.311. 
344Ibid. WT/DS336/AB/R 
Page 59 
 
 
stated that, "in a benefit analysis, it is the perspective of the recipient that is important, not that of the 
provider of the financial contribution."345 
167. The Panel summed up its analysis of the benef it conferred by the debt-to-equity swaps as 
follows: 
We note that the JIA did not explicitly treat the debt-to-equity swaps 
as grants.  Nevertheless, the JIA did conclude that the value of the equity was zero.  We recall that the JIA did so because "the major issue in the October 2001 Program and December 2002 Program was 
not to recover the equity infusion, but to maximize the recovery of 
the credit."  In doing so, the JIA addressed the issue from the perspective of Hynix's creditors, rather than from the position of 
Hynix itself.  ... [W]e consider that such an approach erroneously overstates the amount of benefit conferred on the recipient, for it 
overlooks the perspective of the recipient, i.e., Hynix, which must 
dilute the ownership of existing shar eholders in return.  We therefore 
find this to have been a further fl aw in the JIA's calculation of the 
amount of benefit.
346 (footnote omitted) 
168. On the basis of the above analysis, the Panel c oncluded that the JIA calculated the amount of 
benefit conferred by the Oct ober 2001 and December 2002 Restructur ings inconsistently with 
Articles 1.1(b) and 14 of the  SCM Agreement .347 
169. On appeal, Japan requests that we reverse this finding of the Panel.  According to Japan, the 
Panel acted inconsistently with Article 11 of the DSU in reaching this conclusion.  As we see it, 
Japan's challenge is based on three main arguments.348  First, Japan disputes the Panel's assertion that 
the JIA calculated the benefit conferred by the fina ncial transactions at issue on the basis of an 
exclusively outside investor benchmark.349  Secondly, Japan contests the Panel's conclusion that the 
JIA should not have treated the value of the equity that Hynix gave in return for the debt-to-equity 
swaps as zero.350  Thirdly, Japan argues that dilution is irre levant in this case, given that it would have 
taken place at the level of shareholde rs, and not at the level of Hynix.351 
170. By contrast, Korea submits that the Panel ri ghtly considered the JIA's amount of benefit 
analysis to be focused on the net cost to credito rs, rather than on the net benefit to Hynix, the 
                                                      
345Panel Report, para. 7.312 (quoting Panel Report, EC – Countervailing Measures on DRAM Chips , 
para. 7.212). 
346Ibid., para. 7.313. 
347Ibid., paras. 7.316 and 8.2(c). 
348Japan's appellant's submission, para. 172. 
349Ibid., para. 188. 
350Ibid., para. 219. 
351Ibid., para. 220. WT/DS336/AB/R 
Page 60  
 
recipient;  and, further, rightly found that the JIA fa iled to take account of the fact that the additional 
shares issued to creditors would dilute the ow nership interest of existing shareholders.  
171. We begin by examining Japan's contention that the Panel erred in finding that the JIA had 
calculated the amount of benefit by reference to an "exclusively outside investor benchmark".
352  
According to Japan, the "basic standa rd" that the JIA applied to both inside and outside investors was 
the same:  "they both seek to maximize profits or minimize losses."353  Japan submits that the JIA 
calculated the amount of benefit based on this sta ndard, and not by reference to an "exclusively 
outside investor benchmark".354  At the oral hearing, Japan refe rred to this standard as a "rational 
investor" standard.355  Japan also disputes that it admitted be fore the Panel that an "inside investor" 
standard was the appropriate benchmark for this case.356 
172. We do not consider the distinction between inside  and outside investors to be helpful in order 
to determine the appropriate benchmark for calcula ting the amount of benefit under Articles 1.1(b) 
and 14 of the  SCM Agreement .357  The terms of a financial transaction must be assessed against the 
terms that would result from unconstrained exchange in the relevant market.  The relevant market 
may be more or less developed;  it may be made up of  many or few participants.  By way of example, 
there are now well-established markets in many economies for distressed debt, and a variety of 
financial instruments are traded on these markets.  In some instances, the market may be more 
rudimentary.  In other instances, it may be difficult  to establish the relevant market and its results.  
But these informational constraints do not alter th e basic framework from which the analysis should 
proceed.  We also do not consider that there are diffe rent standards applicable to inside and to outside 
investors.  There is but one standard—the market  standard—according to which rational investors act. 
173. Article 14 of the  SCM Agreement , entitled "Calculation of the Amount of a Subsidy in Terms 
of the Benefit to the Recipient", provides guidance as to how the relevant market shall be identified.  
Specifically, with respect to "government provision of equity capital", Article 14(a) stipulates that 
such equity infusions "shall not be considered as conferring a benefit, unless the investment decision 
can be regarded as inconsistent with the usual invest ment practice of private investors in the territory 
of that Member".  In respect of loans, Article 14(b)  provides that "a loan by a government shall not be 
                                                      
352Japan's appellant's submission, para. 190. 
353Ibid., para. 187. 
354Ibid., para. 190. 
355Japan's response to questioning at the oral hearing. 
356Ibid. 
357Japan and Korea agreed with this view at the oral  hearing.  The European Communities argued that 
there is no distinction between an inside and an outside investor standard and that there are no two separate 
standards.  (European Communities' respons e to questioning at the oral hearing) WT/DS336/AB/R 
Page 61 
 
 
considered as conferring a benefit, unless there is  a difference between the amount that the firm 
receiving the loan pays on the government loan and the amount the firm would pay on a comparable 
commercial loan which the firm could actually obtain on the market."  In the latter case, "the benefit 
shall be the difference between these two amounts."  Thus, under Article 14(a), the benchmark is "the 
usual investment practice of private investors", a nd under Article 14(b), the be nchmark is "the amount 
the firm would pay on a comparable commercial loan which the firm could actually obtain on the 
market."  Neither of these benchmarks makes a distin ction between "outside" or "inside" investors.  
Rather, they suggest that the investigating author ity calculate the amount of benefit conferred on the 
recipient by comparing the terms of the financial c ontribution to the terms that the relevant market—
consisting of rational investors, be they inside or outside investors or both—would have offered.  As 
the Appellate Body has previously said: 
Article 14, which ... is relevant cont ext in interpreting Article 1.1(b), 
supports our view that the marketpl ace is an appropriate basis for 
comparison. The guidelines set forth in Article 14 relate to equity 
investments, loans, loan guarantees, the provision of goods or services by a government, and the purchase of goods by a government. A "benefit" arises under each of the guidelines if the recipient has received a "financial contribution" on terms more 
favourable than those available to  the recipient in the market.
358 
174. We therefore disagree with the Panel's appr oach in this case, wh ich consiste d only of 
examining "whether or not the JIA applied [the insi de investor] standard in an appropriate manner."359  
As we see it, the Panel should have identified the appropriate benchmark to apply for the purpose of 
assessing whether the JIA calculated the amount of  benefit for the October 2001 and December 2002 
Restructurings consistently with  Articles 1.1(b) and 14 of the  SCM Agreement .  Instead, the Panel 
held that, since the parties had agr eed that the inside investor standard constituted a valid benchmark,  
"there [was] no need for [the Panel] to make an y findings on whether or not the inside investor 
perspective constituted [the ] valid market benchmark"360 for purposes of its analysis.   
175. We turn next to consider Japan's contention th at the Panel erred by concluding that the JIA 
should not have treated the value of the equity that Hynix gave in return for the debt-to-equity swaps 
as zero.361  Japan asserts that the JIA did not disregar d the value of the equity provided in return.362  
                                                      
358Appellate Body Report, Canada – Aircraft , para. 158. 
359Panel Report, footnote 512 to para. 7.310. 
360Ibid. 
361Japan's appellant's submission, para. 219. 
362Ibid., para. 227. WT/DS336/AB/R 
Page 62  
 
Rather, according to Japan, the JIA examined the issue on its merit and determined, based on 
"uncontested facts on the record, that the value of such equity was zero."
363   
176. In response, Korea alleges that neither Hynix no r its creditors treated the equity provided to 
the creditors in the debt-to-equity swaps as ha ving zero value, and that even when the banks 
recognized that the book value was le ss than the face value, they still assigned a "substantial value to 
equity".364  Moreover, Korea submits that the "accoun ting treatment" relied on by Japan does not 
support the JIA's calculations, which valued the debts that the creditors forgav e at the face value of 
the debts, but valued the equity that Hynix gave the creditors in return as having no value.365 
177. As noted above366, with respect to this issue, the Panel stated: 
We note that the JIA did not explicitly treat the debt-to-equity swaps 
as grants.  Nevertheless, the JIA did conclude that the value of the equity was zero.  We recall that the JIA did so because "the major issue in the October 2001 Program and December 2002 Program was not to recover the equity infusion, but to maximize the recovery of 
the credit." In doing so, the JIA addressed the issue from the 
perspective of Hynix's creditors, rather than from the position of 
Hynix itself.  ... [W]e consider that such an approach erroneously overstates the amount of benefit conferred on the recipient, for it overlooks the perspective of the recipient, i.e., Hynix, which must 
dilute the ownership interest of existing shareholders in return.
367 
(footnote omitted) 
178. We see no error in this reasoning by the Panel.  The JIA did not sufficiently explain, in its 
determination, how it reached the conclusion th at the value of the shares was zero from the 
perspective of Hynix, the recipient.368  
179. We turn next to the Panel's statement regarding dilution  of the ownership of existing 
shareholders.  Japan submits that "dilution is irrelevant to this case", given that the Panel did not 
indicate any evidence showing that dilution had in fact occurred, and that, even if dilution had 
occurred, it would have taken place at the level of shareholders, not at  the level of Hynix.369   
                                                      
363Japan's appellant's submission, para. 227. 
364Korea's appellee's submission, para. 168. 
365Ibid. 
366Supra , para. 167. 
367Panel Report, para. 7.313. (footnote omitted) 
368Japan does not contest the Panel's observation that "the JIA itself acknowledged, and Japan 
confirmed, that an investment of zero value to  outside  investors might not necessarily have zero value to  
inside   investors." ( Ibid., footnote 513 to para. 7.310) (original emphasis) 
369Japan's appellant's submission, para. 220.  In para graph 7.312 of the Panel Report, the Panel recalled 
that another non-appealed panel had discussed this issue. WT/DS336/AB/R 
Page 63 
 
 
180. By contrast, Korea submits that the Panel rightly  found that the JIA failed to take account of 
the fact that the additional shares issued to credito rs would dilute the ownership interest of existing 
shareholders.  Further, Korea submits that character izing dilution as a cost to shareholders but not to 
Hynix would mean that debt-to-equity swaps would be considered as two sepa rate transactions:  one 
involving the company, and the other involving existing shareholders.370     
181.  Based on our reading of the Panel Report, we  understand the Panel to have referred to the 
issue of dilution merely to support its finding that the JIA did not calculate the amount of benefit from 
the perspective of the recipient.  The Panel's finding was not based on whether or not dilution 
occurred in the circumstances of this case.  Instead,  the Panel found that the JIA did not calculate the 
amount of benefit from the perspective of either Hyni x or its shareholders, and, thereby, addressed the 
issue solely from the perspective of Hynix's creditors .  As we see it, dilution of the rights of existing 
shareholders does not appear to be a relevant issue on the facts of this case.  Having said this, we do 
not wish to exclude the possibility that there ma y be circumstances in other cases in which the 
relationship between a company and its shareholders  might be relevant for calculating the amount of 
benefit to the recipient.371   
182. In the light of the above, we see no error in  the Panel's finding that the JIA's approach 
"erroneously overstates th e amount of benefit conferred on the recipient"372 with respect to the 
October 2001 and December 2002 Restructurings. 
183. We note that Japan advances certain additional arguments in support of its position that the 
Panel erred in finding that the JIA calculated the am ount of benefit conferre d by the October 2001 and 
December 2002 Restructurings inconsistently  with Articles 1.1(b) and 14 of the  SCM Agreement .373  
We observe that these arguments are based on the distinction between an inside and an outside 
investor standard, a distinction we have found to be  unsustainable under Article 14.  Japan agreed at 
the oral hearing that the distinction between an in side and an outside investor perspective is not 
pertinent for the determination of the amount of benefit under the  SCM Agreement .374  Under these 
                                                      
370Korea's appellee's submission, paras. 172-173. 
371See Appellate Body Report, US – Countervailing Measures on Certain EC Products , paras. 116 
and 118. 
372Panel Report, para. 7.313. 
373Japan alleges that the Panel erroneously considered a claim for which Korea had not established a  
 prima facie  case.  Japan further alleges that the Panel erred in finding that the JIA calculated the amount of 
benefit using "facts available". (Japan's appellant's submission, paras. 234 and 237)   
374Japan's response to questioning at th e oral hearing.  At the oral hear ing, Japan stated that the amount 
of benefit is, rather, to be determined by comparing the terms of the financial contribution at issue with the 
terms that would have been available in a market consisting of rational creditors.    WT/DS336/AB/R 
Page 64  
 
circumstances, we refrain from considering these arguments by Japan on, inter alia , whether Korea 
had made a  prima facie   case regarding the outside investor standard. 
184. We have found that the Panel erred in its inte rpretation and application of Articles 1.1(b) 
and 14 of the  SCM Agreement   because it did not identify properly the appropriate market benchmark 
to be applied under those provisions.  At the same time, we have found that the Panel did not err in 
finding that the JIA's determinati on "erroneously overstate[d] the am ount of benefit conferred on the 
recipient".
375   Moreover, based on our review of the Panel's reasoning and the Panel record, we  find  
that the Panel did not act inconsistently with its obligations under Article 11 of  the DSU in concluding 
that Japan improperly calculated the amount of  benefit conferred by the October 2001 and 
December 2002 Restructurings.  As the Appellate Body  has previously found: "not every error of law 
or incorrect legal interpretation attributed to a pane l constitutes a failure on the part of the panel to 
make an objective assessment of the matter before it."376 
185. Therefore, we  uphold , albeit for different reasons, the Pa nel's finding, in paragraphs 7.316 
and 8.2(c) of the Panel Report, that the JIA calcu lated the amount of benef it conferred on Hynix by 
the October 2001 and December 2002 Restructurings inc onsistently with Articles 1.1(b) and 14 of the 
SCM Agreement . 
VII. Benefit Calculation Methods 
186. The Panel found that the JIA had acted contrary to the chapeau of Article 14 of the  SCM 
Agreement   by using methods that were not provide d for in Japan's national legislation or 
implementing regulations to calculate the amount of  benefit conferred on Hynix by the October 2001 
and December 2002 Restructurings.377  
187. On appeal, Japan argues that the Panel erred in finding that the two mathematical formulae 
used by the JIA in its benefit calculation, referre d to as Formula 1 and Formula 2, were "method[s] 
used" under the chapeau of Article 14.  According to Japan, the two mathematical formulae were only 
an  application   of the methods provided for in Japan's na tional regulations.  Japan further argues that, 
even if the Panel were correct in designating these mathematical formulae as the "method[s] used" by 
the JIA, the Panel failed to properly examine, in a manner consistent with Article 11 of the DSU, 
whether they were "provided for" in Japan's national legislation or implementing regulations. 
                                                      
375Panel Report, para. 7.313. 
376Appellate Body Report, US – Steel Safeguards , para. 497. 
377See Panel Report, paras. 7.334 and 8.2(d). WT/DS336/AB/R 
Page 65 
 
 
188. With respect to the meaning of the term "m ethod used", Japan argues that the Panel's 
interpretation of the chapeau of Article 14 would impl y that the applications of the methods be spelled 
out in the national legislation or implementing regula tions in such detail so as to leave no room for an 
investigating authority to adapt them to the particular  facts of an investigation.  Japan further contends 
that the Panel's interpretation of "method" would re quire Members to foresee "each and every possible 
form" of financial contribution and to specify in detail the appropriate calculation methods in their 
national legislation or im plementing regulations.   
189. Korea contends that, while Formula 1 and Formula 2 in and of themselves constitute 
"methods", there were also other "methodologies" used  by the JIA in calculating the amount of benefit 
in this case, which also fell under the concep t  of "method" for purposes of the chapeau of 
Article 14.378  
190. The chapeau of Article 14 sets out three requirements.  The first is that "any method used" by 
an investigating authority to calculate the amount of a subsidy in terms of benefit to the recipient shall 
be provided for in the national legislation or implem enting regulations of the Member concerned.  The 
second requirement is that the "application" of that method in each particular case shall be transparent 
and adequately explained.  The third requirement is that "any such method" shall be consistent with 
the guidelines contained in para graphs (a)-(d) of Article 14. 
191. The chapeau of Article 14 provides a WTO Memb er with some latitude as to the method it 
chooses to calculate the amount of benefit.  Paragr aphs (a)-(d) of Article 14 contain general guidelines 
for the calculation of benefit that allow for the me thod provided for in the national legislation or 
regulations to be adapted to different factua l situations.  As the Appellate Body said in US – Softwood 
Lumber IV : 
The chapeau of Article 14 requires that " any" method used by 
investigating authorities to calculate the benefit to the recipient shall be provided for in a WTO Member's  legislation or regulations ... The 
reference to "any" method in the chapeau  clearly implies that more 
than one method consistent with  Article 14 is available to 
investigating authorities for purposes of  calculating the benefit to the 
recipient . 
                                                     
 
378Korea's appellee's submission, paras. 198-199.  Korea refers to paragraphs 90-106 of JIA's Final 
Determination, Annex 1 (Essential Facts), where it alleges that these other "methods" can be found.  WT/DS336/AB/R 
Page 66  
 
... We agree with the Panel that the term "shall" in the last sentence of the chapeau of Article 14 suggests that calculating benefit consistently with the guidelines is mandatory.  We also agree that the 
term "guidelines" suggests that Article 14 provides the "framework 
within which this calculation is to performed", although the "precise 
detailed method of calculation is not determined" .    Taken together, 
these terms establish mandatory parameters within which the benefit 
must be calculated, but they do not require using only one 
methodology  for determining the adequacy of remuneration for the 
provision of goods by a government.
379 (emphasis added) 
192. We observe that the first requirement of the chap eau of Article 14 is that the method used be 
provided for in a WTO Member's national legisl ation or implementing regulations.  Although the 
chapeau of Article 14 states that the calculation of  benefit must be consistent with the guidelines in 
paragraphs (a)-(d) of that provision, it does not, in ou r view, contemplate that the method be set out in 
detail.  The requirement of the chapeau would be me t if the method used in a particular case can be 
derived from, or is discernable from, the national le gislation or implementing regulations.  We believe 
that this view strikes an appropriate balance betw een the flexibility that is needed for adapting the 
benefit calculation (consistent, however, with the guide lines of paragraphs (a)-(d) of Article 14) to the 
particular factual situation of an  investigation, and the need to  ensure that other Members and 
interested parties are made aware of the method th at will be used by the Member concerned, under 
Article 14 of the  SCM Agreement .   
193. The Panel noted, in this case, that the provisions  of Japanese law relating to the calculation of 
benefit are found in Japan's Guidelines  for Procedures Relating to Countervailing and Anti-dumping 
Duties  (the " Guidelines ").380  The Panel observed that the JIA ha d made calculations regarding three 
main types of transactions entered into by Hynix wi th its creditors, namely, debt forgiveness, equity 
infusions, and loans.  The Panel considered that th e JIA was entitled to treat debt-to-equity swaps as
                                                      
379Appellate Body Report, US – Softwood Lumber IV , paras. 91 and 92.  In addition, the panel in EC – 
Countervailing Measures on DRAM Chips  explained that:  
In light of these problems dealing with the prescribed methodology for 
calculating benefit in Article 14 of the SCM Agreement , we consider that an 
investigating authority is entitled to considerable leeway in adopting a 
reasonable methodology. 
(Panel Report, EC – Countervailing Measures on DRAM Chips , para. 7.213)   
380These procedures were notified to the WT O pursuant to Article 32.6 of the  SCM Agreement , in 
document G/ADP/N/1/JPN/2/Suppl.4.   WT/DS336/AB/R 
Page 67 
 
 
comprising new equity infusions and loan maturity extensions as comprising new loans.381  The Panel 
then found that, in calculating the amount of bene fit with respect to these financial transactions, the 
JIA utilized two mathematical formulae:  "Formula 2" for calculation of the amount of benefit to be 
allocated to the year in which the subsidy was allegedly received for tran sactions involving debt 
forgiveness and equity infusions382;  and "Formula 1" for the calculation of the benchmark interest 
rate for uncreditworthy companies for transactions involving loans.383  
194. At the outset, we wish to point out that neither before the Panel, nor before us, did the parties 
question the substantive content of Formula 1 and Fo rmula 2 and their consistency with the guidelines 
of Article 14 of the  SCM Agreement .  Rather, the issue raised by Korea was only whether the 
"method[s] used" by the JIA complied with the pro cedural requirements of the chapeau of Article 14 
of the  SCM Agreement .  The Panel first examined whether Formula 1 and Formula 2 were "methods" 
within the meaning of the chapeau.  In construing the ordinary meaning of the word "method", the 
Panel accepted the definition suggested  by Japan and not contested by Korea, that "method" means "a 
mode of procedure;  a (defined or systematic) way of doing a thing".384  The Panel found that 
                                                      
381Panel Report, footnote 524 to para. 7.329. 
382Formula 2 provides: 
Ak = y/n + [y-(y/n)(k-1)]d  
                    1+d [where ] 
A
k:  the amount of subsidy allocated to year k 
y:   the amount of subsidy n:   the useful life (year) 
d:   the discount interest rate 
k:   the year the subsidy is allocated to. The year of receipt = 1, and 1<k<n 
(See Panel Report, para. 7.329) 
383Formula 1 provides: 
ib = (1+ if)[(1-qn)/(1-pn)]1/n - 1 
[where ] 
n:  the repayment term of the loan 
ib:  the interest rate for uncreditworthy companies (the benchmark interest 
rate) 
if:  the interest rate for creditworthy companies 
pn:  the default rate of uncreditw orthy companies within n years 
qn:  the default rate of creditworthy companies within n years 
(See ibid., para. 7.332) 
384Ibid., para. 7.328 (quoting Japan's first written submission to the Panel, para. 528, in turn quoting 
The New Shorter Oxford Dictionary , L. Brown (ed.) (Clarendon Press, 1993), Vol. 1, p. 1759). WT/DS336/AB/R 
Page 68  
 
Formula 1 and Formula 2 were "methods" within the meaning of the chapeau.  The Panel then 
examined whether Formula 1 and Formula 2 were "provided for" in Japan's Guidelines .
385   
195. We are unable to agree with the Panel that Fo rmula 1 and Formula 2, in and of themselves, 
constitute the "method[s] used" by the JIA  to calculate the amount of s ubsidy in terms of benefit to 
the recipient   within the meaning of Article 14.  Formula 1 was used to calculate a  benchmark 
interest rate ;  and Formula 2 was used to allocate benefit over time .  In our view, Formula 1 and 
Formula 2 constitute  components or elements of the methods used   by the JIA to calculate the amount 
of benefit conferred on Hynix.  Neither, in isola tion, was the complete "method used" in calculating 
the amount of subsidy in the transaction involved. 
196. In identifying the applicable method for calculati ng benefit with respect to equity infusions, 
the JIA set out the three consecutive steps that it  would follow.  First, it would determine the 
appropriate market benchmark against which it w ould compare and from which it would subtract the 
amount of equity infusion actually received by Hyni x.  This would enable it to determine the actual 
amount of benefit received.  For this purpose, the JIA would use as the appropriate benchmark the 
amount of equity infusion provided by private inv estors under equivalent conditions;  or, if no such 
private investors existed, it would determine an "adequate amount of subsid y ... after examining the 
circumstances whereby the government may make  a reasonable return on the investment".386  
Secondly, the JIA would determine the time of receipt of the subsidy.  Thirdly, the JIA would allocate 
the subsidy over a relevant period of time.387   
                                                      
385With respect to Formula 2, the Panel found that the Guidelines  did not "provide for" the method 
used, because the provisions in the Guidelines relating to debt forgiveness  and equity infusions  did not contain 
any reference to the integers actually used in that formul a, either in specific or ge neral terms. (Panel Report, 
paras. 7.330 and 7.331)  The Panel similarly concluded that Formula 1 was "quite different to the simplistic 
explanation in the Guidelines " relating to loans . (Ibid., para. 7.333) (emphasis added) 
386As the Panel itself noted, the JIA calculated the amount of benefit resulting from the October 2001 
and December 2002 debt-to-equity swaps (treated by the JIA as "e quity infusions") as follows: 
As described above, the Investigating Authorities find that at the time of the 
October 2001 Program, there were no investors who would additionally 
invest in or make loans to Hynix from a normal commercial perspective, and thus, there were no normal investments by private investors that can be 
reasonably compared to th e equity infusions granted by the creditor banks.  
An investment under such a situation is not consistent with the usual 
investment practice of the private inve stors in Korea at that time. Because 
the situation at the time was such that a return on such investment could not be expected within a reasonable period  of time, the amount of the subsidy is 
the full amount of the investment. 
(Panel Report, para. 7.308 (quoting JIA's Final Determination, Annex 1 (Essential Facts), para. 310)  The Panel 
also referred to paras. 379 and 381 of Annex 1, wher e the JIA used the same approach in respect of the 
December 2002 debt-to-equity swap.  (See ibid., footnote 509 to para. 7.308) 
387JIA's Final Determination, Annex 1 (Essential Facts), paras. 96-100. WT/DS336/AB/R 
Page 69 
 
 
197. In our view, Formula 2 applies to the third step of the above process.  It relates to allocation  
of benefit over time once the amount of benefit has actually been determined under the first step of 
the JIA's calculation methodology.  Formula 2, standing alone, does not constitute the "method used" 
by the JIA to calculate the  amount   of benefit.  Rather, taken together, all three steps identified by the 
JIA for treating equity infusions constitute the "met hod used" by the JIA for calculating the amount of 
benefit in respect of the equity infusions.  This  applies equally to the JIA's use of Formula 2 for 
transactions involving debt forgiveness.388   
198. With respect to loans al so, the JIA set out a three-step pr ocess.  First, it would identify the 
appropriate market benchmark for calculating the amount of subsidy.   Secondly, it would determine 
the time of receipt of the subsidy.   Thirdly, it would determine th e manner in which the subsidy would 
be allocated.389  Formula 1 is a mathematical rule that relate d to only the first step of this process:  it 
was used by the JIA to calculate the benchmark in terest rate for uncreditworthy companies, where 
comparative commercial loans did not exist on the commercial market. As in the case of Formula 2, 
however, it was only a part, albeit an important part, of the "method used" by the JIA to calculate the 
amount of benefit for loans and loan extensions, b ecause, after identifying the benchmark interest rate 
in accordance with Formula 1, the JIA then had to determine the difference between the amount so 
calculated and the actual interest amount paid by Hynix for the new loan.390   
199. We agree with the Panel that, in accordance w ith the definition of "method" accepted by the 
Panel, Formula 1 and Formula 2 can be considered "methods" in the sense of a "mode of procedure".  
But it does not follow from this that they are the "method[s] used"  for calculating the amount of 
benefit   in this case.  Rather, they are methods for allocating benefit  once the amount of the benefit 
has been determined, and for  calculating interest rates   for loans to uncreditworthy companies where 
                                                      
388In calculating the amount of benefit for debt forgiveness, the JIA first determined the amount of the 
subsidy, which it treated as the total amount of debt forg iveness granted, and then allocated it over a five-year 
period using Formula 2.  (See JIA's Final Determination, Annex 1 (Essential Facts), paras. 313 and 314) 
389Ibid., paras. 91-95. 
390As the Panel itself noted, the JIA "calculated the amount of benefit resulting from the October 2001 
[R]estructuring in Section 2.8.5 of [the] JIA's Final Determination, Annex 1 (Essential Facts).  The JIA adopted the same approach for both new loans and extensions of loan maturities, finding that: 
at the time of the October 2001 Progra m, there were no normal commercial 
loans that would be comparable to the loans granted by the creditor banks. 
Moreover, as examined above, the Inve stigating Authorities find that there 
were no investors who would additionally invest in or make loans to Hynix from a normal commercial perspectiv e. Therefore, the Investigating 
Authorities calculate the benchmark interest rate in accordance with 
Formula 1 in 2.3.2.2.1 hereof, and obtain the difference between this amount and the actual interest amount paid for the new loan." 
(Panel Report, para. 7.306 (quoting JIA's Final Determination, Annex 1 (Essential Facts), para. 302, and 
referring to paras. 103 and 306) WT/DS336/AB/R 
Page 70  
 
no comparable loans exist on th e commercial market.  The Panel should have gone further to 
determine the entire methodology used by the JIA in calculating the amount of benefit for each type 
of transaction.  If it had done so, the Panel could then have properly proceeded to consider whether 
those methodologies, in their entirety, were "provided for" under Japan's Guidelines .  The Panel, 
however, treated Formula 1 and Formula 2 as if they were, by themselves, the "method[s] used" to calculate the amount of benefit.  They were not.   
200. We therefore find that the Panel erred in finding in paragraphs 7.330, 7.331, and 7.333 of the 
Panel Report, that Formula 1 and Formula 2 were the "method[s] used" to calculate the amount of 
benefit conferred on Hynix, within the m eaning of the chapeau of Article 14.   
201. Japan claims that, even if th e mathematical formulae could be considered the "method[s] 
used" in this case, the Panel erred in finding that  Formula 1 and Formula 2 were not "provided for" 
under Japan's Guidelines , and thereby violated Article 11 of the DSU.  This conditional claim would 
arise only if we upheld the Panel's finding on the "met hod[s] used".  As we have found that the Panel 
erred in treating Formula 1 and Formula 2 as the "method[s] used", we do not proceed to consider whether the Panel properly found that Formula 1 and Formula 2 were not "provided for" in Japan's 
Guidelines .  We also see no need to determine whet her the Panel's findings were based on an 
objective assessment of the matter, as required under Article 11 of the DSU.  
202. We therefore  reverse   the Panel's finding, in paragraphs 7.334 and 8.2(d) of the Panel Report, 
that the methods used by Japan to calculate th e amount of benefit conferred on Hynix were not 
provided for in Japan's national legislation or im plementing regulations, as required under the chapeau 
of Article 14 of the  SCM Agreement . 
VIII.  Allocation of Benefit 
203. The Panel found that "Japan imposed counterva iling duties in 2006 on imports which the JIA 
itself had found were not subsidized at the time of imposition."
391  Accordingly, with respect to those 
subsidies, the Panel concluded that Japan acted  inconsistently with Article 19.4 of the  SCM 
Agreement   by levying countervailing duties "in excess of the amount of the subsidy found to 
exist".392 
                                                      
391Panel Report, para. 7.361. 
392Ibid. WT/DS336/AB/R 
Page 71 
 
 
204. Japan appeals the Panel's finding on two grounds.  First, Japan alleges that the Panel erred in 
its interpretation of Article 19.4 of the  SCM Agreement .  Secondly, Japan claims that the Panel acted 
inconsistently with Article 11 of the DSU by concluding that the JIA's "use of a five-year allocation 
period" for a non-recurring subsidy relating to th e October 2001 Restructuring "is a finding (even if 
only implicit) that the benefit [of that subsid y] will expire after a period of five years"393, in other 
words, by the end of 2005.  We address Japan's arguments in turn below.   
1. Article 19.4 of the  SCM Agreement  
205. Japan asserts that the Panel's interpretation of Article 19.4 effectively requires that an 
investigating authority update its finding of subsid ization at the time of imposition of the duty.  In 
Japan's view, a finding of subsidization in respect of a past period of investigation suffices for the 
imposition of countervailing duties.394 
206. Korea insists that it "never claimed that the JIA was required to update its decision based on 
more recent information."395 Instead, Korea argues that, by allocating benefit conferred by the October 
2001 Restructuring to the years 2001 through 2005, the JIA itself had found that no benefit would be conferred in 2006, because that year "would be  outside the five-year life of the subsidy".
396  Korea 
suggests that duties could not be imposed after that time since, by the JIA's own logic, there would no longer be any subsidy left to countervail. 
207. As we see it, this issue relates to the qu estion of whether countervailing duties can be 
imposed, in the case of non-recurring subsidies, when  the determination made by the investigating 
authority indicates that the subsidy will no longer exist at the time of imposition.
397 
                                                      
393Panel Report, para. 7.360.  We note that non-recurring subsidies are usually allocated over a certain 
period of time.  This practice is not in dispute by the parties in this case. 
394Japan's appellant's submission, para. 327 (referring to Panel Report, footnote 551 to para. 7.357). 
395Korea's appellee's submission, para. 223. 
396Ibid., para. 221. 
397As the Panel noted, the present case concerns non-recurring subsidies provided through the 
October 2001 Restructuring.  We agree with the Panel that recurring subsidies would lend themselves to a 
different type of analysis.  (See Panel Report, footnote 551 to para. 7.357) WT/DS336/AB/R 
Page 72  
 
208. We begin our analysis by consideri ng the text of Article 19.4 of the  SCM Agreement : 
No countervailing duty shall be le vied* on any imported product in 
excess of the amount of the subsidy found to exist, calculated in 
terms of subsidization per unit of the subsidized and exported 
product. 
_______________ 
*[Original footnote 51] As used in th is Agreement "levy" shall mean the 
definitive or final legal assessment or collection of a duty or tax. 
 
209. In our view, Japan misreads the Panel Report when it alleges that the Panel interpreted 
Article 19.4 to require that an investigating author ity update its finding of subs idization and show that 
there is subsidization at the time of imposition of  the countervailing duty.  On the contrary, the Panel 
explicitly said that it was "not suggesting that an investigating authority [was] somehow required to 
conduct a new investigation at the time of imposition, in order to confirm the continued existence of 
the subsidization found to exist during the period of investigation.  That will defeat the very purpose 
of using periods of investigation in the first place."398 
210. By its terms, Article 19.4 refers to a subsid y "found to exist".  We see no requirement in 
Article 19.4 for an investigating authority to conduct a new investigation or to "update" the 
determination at the time of imposition of a count ervailing duty in order to confirm the continued 
existence of the subsidy.  However, in the case of a non-recurring subsidy, a countervailing duty 
cannot be imposed if the investigating authority h as made a finding in the course of its investigation 
as to the duration of the subsidy and, according to th at finding, the subsidy is no longer in existence at 
the time that the Member  makes a final determination to impose a countervailing duty.  This is 
because, in such a situation, the countervailing duty,  if imposed, would be in excess of the amount of 
subsidy found to exist, contrary to the provisions of Article 19.4.    
211. In the light of the above, we do not find fault w ith the Panel's interpretation of Article 19.4 of 
the  SCM Agreement .   
2. Article 11 of the DSU  
212. Japan claims that the Panel acted inconsistently  with Article 11 of the DSU when it found that 
the use of a five-year allocation period by the JIA "is a finding (even if only implicit) that the benefit will expire after a period of five years."
399  For Japan, "the purpose of the JIA's calculation was merely 
to determine the amount of the subsidies conferred in 2003, the period of investigation in this case" 
                                                      
398Panel Report, para. 7.356. 
399Japan's appellant's submission, para. 333 (referring to Panel Report, para. 7.360). WT/DS336/AB/R 
Page 73 
 
 
for determining the existence of a subsidy.400  In Japan's view, "the Panel erred in equating a division 
by five of the total amount of the non-recurring subsidies to a determination that the subsidy would 
cease to exist after five years."401  Japan maintains that "the JIA did not make any finding that the 
subsidy would expire in 2005 or any finding of the amount of  subsidy that Hynix would receive 
in 2006."402 
213. Korea rejects Japan's contention that the Panel acted inconsistently with Article 11 of the 
DSU.  Korea observes that "the number of years over which the 'subsidy amount is allocated' equalled 
the five-year 'useful life of the facilities stipulated in Korean law'".403  Korea argues that "[t]he 
consequence of that determination was that the subsidies ceased to have a 'continuous effect,' and 
could not be 'allocated' once that period had expired."404  For Korea, this was not a  de novo   review 
by the Panel;  it was a necessary consequence of the JIA's own determination.405 
214. The Panel held that the JIA's determination contained an implicit finding that the 
subsidization in question would expire in 2005 at the end of the five-year period.  We are not 
convinced by Japan's argument that, "[b]y stating 'even if only implicit,' the Panel admit[ted] that the 
JIA made no finding on the amount of subsidies in  2006" and, in effect, "second-guessed the JIA's 
finding".406  Put differently, we are not persuaded that the Panel overstepped the bounds of its review 
when it concluded that the JIA's use of a five-year period for the allocation is a determination by the 
JIA that the non-recurring subsidies granted in th e October 2001 Restructuring would expire at the 
end of 2005. 
215. We therefore reject Japan's claim that the Pane l failed to discharge its duty under Article 11 of 
the DSU to conduct an objective assessment of the matter before it.   
                                                      
400Japan's appellant's submission, para. 333. 
401Ibid., para. 335. 
402Japan's appellant's submission, para. 333. 
403Korea's appellee's submission, para. 243 (referring to JIA's Final Determination, Annex 1 (Essential 
Facts), para. 99). 
404Ibid. 
405Ibid. 
406Japan's appellant's submission, para. 335 (referring to Panel Report, para. 7.360). WT/DS336/AB/R 
Page 74  
 
IX. The JIA's Determination of Benefit with respect to the October 2001 Restructuring 
216. Korea appeals the Panel's finding relating to th e JIA's determination that the October 2001 
Restructuring conferred a benefit on Hynix within the meaning of Articles 1.1(b) and 14 of the  SCM 
Agreement .
407 
217. The Panel observed that a "benefit" within th e meaning of Article 1.1(b) exists when a 
financial contribution "is made available on terms th at are more favourable than the recipient could 
have obtained on the market."408  Regarding the nature of the evidence that is required to support a 
finding as to existence of benefit, the Panel took the view that: 
[i]n certain circumstances, an i nvestigating authority might examine 
the existence of benefit by gather ing available evidence of the terms 
that the market would have offered, and by comparing those terms with those of the financial contributi on at issue.  This is the approach 
advocated by Korea in the present cas e.  In other circumstances, an 
investigating authority might rely on evidence of whether or not the financial contribution was provide d on the basis of commercial 
considerations.  This is the approach adopted by the JIA in the 
present case. In our view, both types of evidence are relevant in determining the existence of benefit.  The first, because such evidence provides a market benchmark against which to determine whether or not the terms on offer were more favourable than those 
available from the market.  The second, because evidence of reliance 
on non-commercial considerations indicates terms more favourable 
than those available from the market  (as the market is presumed to 
operate on the basis of commercial considerations).  Depending on the particular circumstances of a case, an investigating authority might also rely on other types of evidence that could be equally 
relevant.
409 (footnote omitted) 
218. Based on an analysis of the evidence relied up on by the JIA, the Panel upheld the JIA's 
determination that: 
... the Four Creditors had failed to participate in the October 2001 
[R]estructuring on the basis of commercial considerations.  We have 
rejected Korea's arguments challenging that conclusion.410 
                                                      
407Panel Report, para. 7.316. 
408Ibid., para. 7.275. 
409Ibid., para. 7.276. 
410Ibid., para. 7.281. WT/DS336/AB/R 
Page 75 
 
 
219. The Panel no doubt conducted this analysis while dealing with the issue of "entrustment or 
direction".  When it addressed the issue of "benefit", the Panel recalled its previous finding on 
entrustment or direction and observed: 
Since we uphold the JIA's finding that the October 2001 
[R]estructuring was not commercially reasonable, it follows that we also uphold the JIA's determination that the October 2001 
[R]estructuring conferred a benefit on Hynix.
411 (footnote omitted) 
 
220. Finally, having reviewed the evidence relating to the Other Creditors' participation in the 
October 2001 Restructuring, the Panel concluded th at "the JIA properly determined, on the basis of 
the available evidence, that the mere partic ipation of Other Creditors in the October 2001 
[R]estructuring should not outwe igh the evidence directly concer ning the Four Creditors that 
indicated that they participated in the [R ]estructuring on the basis of non-commercial 
considerations."412  The Panel therefore rejected Korea's cl aim that the JIA's benefit finding with 
respect to the October 2001 Restructuring was inc onsistent with Articles 1.1(b) and 14 of the  SCM 
Agreement . 
221. Korea challenges the Panel's finding on appeal .  Korea's appeal is based on three main 
arguments.  First, Korea submits that the Panel im properly conflated the two distinct concepts of 
"financial contribution" and "benefit" in Article 1.1 of the  SCM Agreement .413  Korea submits that, 
under the Panel's analysis, a finding that there has been "entrustment or direction" is, by itself, a 
sufficient basis for a finding that benefit exists.   
222. Secondly, with respect to the Panel's conclusi on that the JIA's determination of benefit was 
based on relevant economic evidence414, Korea alleges that, for the Panel, "the mere fact that Hynix's 
creditors failed to undertake a market-consistent analysis before entering into the October 2001 
[R]estructuring indicated that the terms of the restructuring they approved  must   have been more 
favourable than the terms of a purely market-driven restructuring."415  Korea agrees that the analysis 
actually performed by creditors may be probative of th e creditor's subjective  intent  in entering into 
the underlying transactions and that  intent   may be relevant to an analysis of "entrustment and 
direction".  In Korea's view, however, the creditors' failure to undertake an analysis "does not permit 
                                                      
411Panel Report, para. 7.281. 
412Ibid., para. 7.298. 
413Korea's other appellant's submission, para. 41. 
414Panel Report, para. 7.277. 
415Korea's other appellant's submission, para. 39 (refe rring to Panel Report, para. 7.276). (original 
emphasis) WT/DS336/AB/R 
Page 76  
 
any conclusion as to wh ether the 'recipient'  actually   received a benefit".
416  In addition, Korea refers 
to footnote 475 of the Panel Report and critici zes the Panel for not explaining why a creditor's 
imperfect analysis based on incomplete information cannot lead to the same result as would have been 
obtained in the market.417  In Korea's view, it is "always possible to be right for the wrong reasons".418 
223. Thirdly, Korea refers to the analyses by An jin Accounting and the Monitor Group, which it 
had submitted to the Panel, to demonstrate that  the alleged government ac tion had not conferred a 
benefit on Hynix, because the terms obtained from the Four Creditors were comparable with what 
Hynix would have been able to obtain from other creditors who were not subjected to the alleged 
government "entrustment or direction".  Korea submit s that these reports were available to the JIA at 
the time it conducted its benefit examination and shoul d therefore have been taken into account by the 
JIA.   
224. Japan submits that, contrary to assertions by Korea,  the Panel did not hold that "a finding that 
there has been 'entrustment or direction' is, by itself, a sufficient basis for finding that a benefit 
exists."419  Japan maintains that "the Panel's finding is based on a comparison of the particular factual 
situations in this case."420  Japan argues that the non-commercial nature of the decisions by Hynix's 
private creditors was not based solely on their insu fficient analysis of the terms of the October 2001 
Restructuring and the unavailability of the repor ts by Anjin Accounting and the Monitor Group.421 
225. In our analysis concerning the calculation of the amount of benefit in Section VI of this 
Report, we referred to the Appe llate Body's interpretation, in  Canada – Aircraft , of the benefit 
requirement of Article 1.1(b) of the  SCM Agreement .422  The Appellate Body held that "the 
marketplace provides an appropriate basis for compar ison in determining whether a 'benefit' has been 
'conferred', because the trade-distorting potential of a 'financial contribution' can be identified by 
determining whether the recipient has received a 'financial contribution' on terms more favourable than those available to th e recipient in the market."
423  We follow this approach in our assessment of  
the Panel's review of the JIA's determination of  whether the October 2001 Restructuring conferred a 
benefit on Hynix.     
                                                      
416Korea's other appellant's submission, para. 44. (original emphasis) 
417Ibid., para. 51. 
418Ibid., para. 46. 
419Japan's appellee's submission, para. 35 (quoting Korea's other appellant's submission, para. 43). 
420Ibid., para. 36. 
421Ibid., para. 54. 
422See supra , para. 173. 
423Appellate Body Report, Canada – Aircraft , para. 157. WT/DS336/AB/R 
Page 77 
 
 
226. Korea suggests that the Panel's finding that the October 2001 Restructuring conferred a 
benefit on Hynix was merely consequential to its re pudiation of Korea's claim that the JIA erred in 
concluding that the Four Creditors were entrusted or directed by the GOK.424  We disagree.  Based on 
our review of the Panel's reasoning, we are not convi nced that the benefit finding did not involve any 
additional analysis by the Panel.425  Instead, the Panel relied on evidence of "non-commercial 
considerations" as a criterion in its analysis of th e JIA's review of whether private banks had been 
entrusted or directed by the GOK to ma ke a financial contribution to Hynix.426  The Panel also relied 
on evidence of "non-commercial considerations" in its  consideration of the JIA's analysis of whether 
the financial contribution conferre d a benefit.  Relying on the sam e or similar evidence for assessing 
distinct legal requirements does not, in our view, amount to a conflation of the benefit requirement 
with the financial contribution requirement.  We are sa tisfied that the Panel in this case used evidence 
of non-commercial considerations first to assess the JI A's review of whether entrustment or direction 
had occurred under Article 1.1(a)(1)(iv), and then to determine the distinct legal question of whether 
the JIA properly established that the Octobe r 2001 Restructuring conferred a benefit under 
Article 1.1(b). 
227. The Panel also recognized that an investigating authority might be confronted with different 
types of evidence, and that one type of evidence might not support the conclusion suggested by the 
other.  In the specific circumstances of this case, the JIA had undertaken to investigate whether 
"'creditors acting in accordance w ith the "usual practice" in the relevant market' would have 
restructured Hynix on the same terms as the Four Creditors did".427  That inquiry, however, did not 
reveal any such evidence to the JIA.  The JIA was not therefor e confronted with evidence indicating 
that non-entrusted or non-directed creditors would ha ve restructured Hynix on similar terms as the 
Four Creditors did. 
                                                      
424See Korea's other appellant's submission, para. 45 (referring to Panel Report, para. 7.281). 
425The Panel explained that an "investigating authority might rely on evidence of whether or not the 
financial contribution was provided on the basis of comm ercial considerations ... because evidence of reliance 
on non-commercial considerations indicates terms more fa vourable than those available from the market (as the 
market is presumed to operate on the basis of commercial considerations)." (Panel Report, para. 7.276)  The 
Panel also recognized that, in certain cases, "there might be evidence that, although the financial contribution 
was not provided on the basis of commercial considerations, it would in fact have been provided by 'creditors acting in accordance with the "usual practice" in the rele vant market'."  The Panel stated that, "[i]n such cases, 
the investigating authority would need to weigh the probative value of one type of evidence against the 
probative value of the other." ( Ibid., footnote 475 to para. 7.276) 
426See Sections IV and V of this Report. 
427Panel Report, footnote 475 to para. 7.276 (quoting JIA's Final Determination, Annex 3 (Rebuttals 
and Surrebuttals), para. 136). WT/DS336/AB/R 
Page 78  
 
228. We also see no error in the Panel's review of the JIA's analysis of the Other Creditors' role in 
the October 2001 Restructuring.
428  The Panel noted that "the JIA's finding regarding the commercial 
reasonableness of the decision of Hynix's Other Creditors to participate in the October 2001 
[R]estructuring was based on facts available, as those Other Creditors contacted by the JIA (other than 
Kookmin) had failed to res pond to its questionnaire."429  The Panel further stated that the "JIA was 
required to apply facts available in respect of th e Other Creditors because none of the Other Creditors 
contacted by the JIA (except Kookmin) had responded to  its questionnaire.  In other words, there was 
no direct evidence on the JIA's record regarding the reasons why Other Cr editors (other than 
Kookmin) had participated in the October 2001 [R]estructuring."430  In these circumstances, the Panel 
correctly found that "the mere participation of Other Creditors in the October 2001 [R]estructuring 
(absent evidence establishing that their participa tion was based on commercial considerations) should 
not have precluded a finding by the JIA that the participation of the Four Creditors in that 
[R]estructuring conferred a benefit on Hynix."431   
229. For these reasons, we  find  that the Panel did not err in finding that the JIA's determination of 
the existence of benefit with respect to the Oc tober 2001 Restructuring was not inconsistent with 
Articles 1.1(b) and 14 of the  SCM Agreement . 
X. Interested Parties 
230. The Panel rejected Korea's claim that the JIA acted inconsistently with Articles 12.7 and 12.9 
of the  SCM Agreement   by including certain financial institutions as "interested parties", and by using 
"facts available" for those financial institutions  that had failed to provide information.   
231. On appeal, Korea claims that the Panel imprope rly rejected its argument that entities included 
as "interested parties" under Article 12.9 of the  SCM Agreement   must "have an interest in the 
outcome of the proceeding".432  Korea submits that the JIA's designation of certain creditors of Hynix 
as interested parties, when they did not "have an interest in the outcome of the proceeding", resulted 
in the JIA applying "facts available", under Article 12.7 of the  SCM Agreement ,  in a manner 
prejudicial to Hynix.   
                                                      
428We understand the Panel's cross-reference in footnote 475 ("for the reasons set forth above") to refer 
to paragraphs 7.283-7.298 of its Report. 
429Panel Report, para. 7.288. 
430Ibid., para. 7.289. (footnote omitted) 
431Ibid., para. 7.291. 
432See Korea's other appellant's submission, paras. 106 and 107. WT/DS336/AB/R 
Page 79 
 
 
232. Japan argues that Korea's appeal regarding the Panel's interpretation of the term "interested 
parties" should be rejected by the Appellate Body .  According to Japan, Korea's definition cannot be 
reconciled with Article 12.9, as the entities listed th ere do not necessarily "have an interest in the 
outcome of the proceeding".433  In Japan's view, Korea's interpretation of "facts available" under 
Article 12.7 would distort the balance between the due  process rights of interested parties, on the one 
hand, and the obligation of an investigating author ity to carry out an objective investigation, on the 
other hand.  Japan also contends that the due process rights of interested parties under Article 12 are 
not unlimited, and are subject to the discretion of investigating authorities to use "facts available".434     
233. On 7 September 2004, the JIA sent questionnaires concerning subsidies to GOK, Hynix, 
and 16 financial institutions that had provided financing to Hynix.435  The JIA considered that it was 
reasonable to include these 16 financial institutions  as interested parties in the investigation.436  The 
GOK, Hynix, and ten of the 16 fina ncial institutions filed responses.437  Among these ten financial 
institutions were the Four Creditors for which th e JIA ultimately made a final determination of 
entrustment or direction.  For the institutions that  failed to respond to the JIA's questionnaires or to 
provide the information requested, the JIA made certa in findings in its determination on the basis of 
"facts available", pursuant to Article 12.7 of the  SCM Agreement .438   
234. Article 12.7 of the  SCM Agreement   governs the use of "facts available" in countervailing 
duty proceedings.  It reads: 
In cases in which any interested Me mber or interested party refuses 
access to, or otherwise does not provide, necessary information 
within a reasonable period or significantly impedes the investigation, preliminary and final determinations , affirmative or negative, may be 
made on the basis of the facts available.   
235. Thus, the circumstances under which an inves tigating authority may make its determination 
on the basis of "facts available" are limited, pursuan t to Article 12.7, to cases in which an interested 
Member or an interested party "refuses access to, or otherwise does not provide, necessary information within a reasonable period or significantly impedes the investigation".   
                                                     
 
433Japan's appellee's submission, paras. 129-131. 
434Ibid., para. 142. 
435JIA's Final Determination, para. 8. 
436Panel Report, para. 7.381 (referring to JIA's Fi nal Determination, Annex 3 (Rebuttals and 
Surrebuttals), paras. 29 and 39). 
437JIA's Final Determination, para. 10. 
438Panel Report, para. 7.381. WT/DS336/AB/R 
Page 80  
 
236. Article 12.9 of the  SCM Agreement   provides that: 
For the purposes of this Agreement, "interested parties" shall include: 
(i) an exporter or foreign producer or the importer of a product 
subject to investigation, or a trade or business association a majority of the members of which are producers, exporters or importers of such product;  and 
(ii) a producer of the like product in the importing Member or a 
trade and business association a majority of the members of 
which produce the like product in the territory of the importing Member.   
This list shall not preclude Members from allowing domestic or 
foreign parties other than those me ntioned above to be included as 
interested parties. 
237. As noted above, Korea's contention is that th e JIA erred by designating certain financial 
institutions as interested parties although they had no "interest in the outcome of the proceeding".  We 
observe that Article 12.9 of the  SCM Agreement   does not, by its explicit terms, require that an 
investigating authority must establish that a party ha s "an interest in the outcome of [a] proceeding".  
Nor do we see any provision of the  SCM Agreement   that defines the nature of the interest required 
for an entity to be include d as an interested party. 
238. Korea argues that the parties listed in subparagr aphs (i) and (ii) of Article 12.9, which are 
required to be included by an investigating auth ority as interested parties—that is, exporters, 
importers, foreign producers, domestic producers, a nd their associations—all have a clear and direct 
interest in the outcome of a countervailing duty investigation.  For Korea, the types of entities 
included in the list provide a "strong indication" that an entity cannot be an interested party if it does 
not have such an interest.
439  We agree that the entities specified in subparagraphs (i) and (ii)—which 
are all involved in the production, export, or import  of the product under investigation, or in the 
production of the like product in the importing countr y—are likely to "have an interest in the outcome 
of the proceeding", but we find nothing in Article 12.9 to suggest that interested parties are restricted 
to entities of this kind under the residual clause of Article 12.9.440  Although the term "interested 
party" by definition suggests that the party must have an interest related to the investigation, the mere 
fact that the lists in subparagraphs (i) and (ii) co mprise entities that may be directly interested in the 
                                                      
439Korea's other appellant's submission, para. 114. 
440The residual clause of Article 12.9 states: "This list shall not preclude Members from allowing 
domestic or foreign parties other than those mentioned above to be included as interested parties."  We note that, 
even if the outcome of the investigation is no longer of interest to any of the entities required to be included as interested parties under subparagraphs (i) and (ii), these par ties still do not lose their status as interested parties.  
This supports the view that interested parties are not conf ined to those that "have an interest in the outcome of 
the proceeding". WT/DS336/AB/R 
Page 81 
 
 
outcome of the investigation does not imply that parties that may have other forms of interest 
pertinent to the investigation are excluded.  
239. The last sentence of Article 12.9 provides that Members are not precluded from  allowing   
domestic or foreign parties other than those listed in subparagraphs (i) and (ii) to be included as 
interested parties.  Korea takes issue with the Pa nel's interpretation of the term "allowing" in that 
sentence.  Korea claimed before the Panel that the term "allowing" had the meaning of "granting 
permission".441  The Panel found that, while the term could refer to an investigating authority allowing 
an entity to be designated as an interested party following a request, it could also refer to a Member 
"allowing, through national legislation or implementi ng regulations, certain parties to participate in 
investigations as interested parties."442  The Panel further explained that, since there are a number of  
provisions of the  SCM Agreement , for instance Article 21.2, that provide specifically for the term 
"upon request" where such a requirement is contem plated, the absence of this phrase in Article 12.9 
supports the interpretation that the inclusion of a pa rty as an interested party is not predicated on a 
request.443 
240. We agree with the Panel's interpretation of th e term "allowing" in Article 12.9.  While a 
response to a request is certainly one way by which an investigating authority may allow an entity to 
be recognized as an interested party, we do not believe  this is the only way for a party to be included.  
In our view, the term "allowing" in the residua l clause connotes the power or authority given to a 
Member to include other parties as interested parti es, rather than a restriction on such power of 
inclusion to those parties that make a request. 
241. Korea further argues that Articles 12.3 and 12.8 of the  SCM Agreement   indicate that 
interested parties must have a case to present and an interest to defend.444  We recognize that 
                                                      
441Korea's other appellant's submission, footnote 72 to para. 115. 
442Panel Report, para. 7.390. 
443Ibid., para. 7.390. Japan makes similar arguments. (See Japan's appellee's submission, footnote 203 
to para. 132) 
444Article 12.3 provides: 
The authorities shall whenever practicable provide timely opportunities for 
all interested Members and interested parties to see all information that is 
relevant to the presentation of their cases, that is not confidential as defined 
in paragraph 4, and that is used by the authorities in a countervailing duty 
investigation, and to prepare presentations on the basis of this information. 
Article 12.8 provides: 
The authorities shall, before a final determination is made, inform all 
interested Members and interested pa rties of the essential facts under 
consideration which form the basis for the decision whether to apply 
definitive measures.   Such disclosure should take place in sufficient time 
for the parties to defend their interests. WT/DS336/AB/R 
Page 82  
 
Articles 12.3 and 12.8 refer to rights that inte rested parties have in presenting their cases and 
defending their interests in investigations.  Howeve r, we see differentiations in the nature of the 
interest that parties may have in participating in an investigation.  As the Panel correctly noted, 
Articles 12.1 and 12.2 presuppose the existence of two gr oups of interested parties, that is, those that 
may be initially involved because they received ques tionnaires, but subsequently cease to participate;  
and those that decide to participate actively, a nd choose to present cases and defend interests, as 
provided for in Articles 12.3 and 12.8.  We are therefore unable to accept Korea's argument that 
Articles 12.3 and 12.8—which relate to parties participating in an investigation—imply that entities 
must "have an interest in the outcome of a pro ceeding" to be designated as "interested parties". 
242. We do not suggest that investigating authoriti es enjoy an unfettered discretion in designating 
entities as interested parties regardless of the rele vance of such entities to the conduct of an objective 
investigation.  As we have observed, the term "int erested party" by definition suggests that the party 
must have some "interest" related to the investigation.
445  Although that interest  may  b e  i n  t h e  
outcome of the investigation, a consideration of  the interest should also take account of the 
perspective of the investigating authority.  An inv estigating authority needs to have some discretion to 
include as interested parties entities that are releva nt for carrying out an objective investigation and 
for obtaining information or evidence relevant to the investigation at hand.446  Nonetheless, in 
designating entities as interested parties, an investiga ting authority must be mindful of the burden that 
such designation may entail for other interested parties. 
243. In this case, we do not believe that the JIA erred in designating the 16 financial creditor 
institutions of Hynix as interested parties.  As th e JIA was investigating an allegation of entrustment 
or direction with respect to the Restructurings, we consider that it was reasonable for the JIA to seek 
information from Hynix's creditor institutions.  The Panel noted that "the JIA had information 
indicating that the relevant Other Creditors were, or  had been, creditors of Hynix, and could possibly 
have become shareholders in Hynix through the debt -to-equity swaps in the two [R]estructurings at 
issue."447  In these circumstances, we see no error in the Panel's statement that "at the very least the 
JIA was entitled to treat these Other Creditors as inte rested parties for the purpose of distributing its 
questionnaire. The Other Creditors might then, in  their responses, have provided the JIA with 
information indicating that they no longer had an interest in the outcome of the investigation."448 
                                                      
445See also Panel Report, para. 7.387. 
446See also ibid., para. 7.392 (referring to Appellate Body Report, Mexico – Anti-Dumping Measures on 
Rice, para. 293).  We recognize that, in conducting its investigation, an investigating authority may also seek 
information from entities not designated as interested parties. 
447Ibid., footnote 582 to para. 7.394. 
448Ibid. WT/DS336/AB/R 
Page 83 
 
 
244. Korea also argues that the JIA applied "facts available" under Article 12.7, in a manner that 
was prejudicial to Hynix.449  However, as we see it, this claim by Korea was premised on our 
acceptance of Korea's argument that an interested part y must "have an interest in the outcome of [a] 
proceeding" and that, therefore, the JIA improperly included certain financial institutions as interested 
parties.  Since we have rejected that argument by  Korea, we do not need to consider Korea's claim 
regarding the use of "facts available" under Article 12. 7.  In any event, the Panel found that Korea had 
failed to substantiate its claim regarding the JIA' s alleged improper use of "facts available", and we 
see no reason to disturb the Panel's finding.450   
245. For the reasons above, we  uphold   the Panel's finding, in paragraphs 7.398 and 8.1(c) of the 
Panel Report, that Korea has failed to establish th at the JIA acted inconsistently with Articles 12.7 
and 12.9 of the  SCM Agreement   by including certain financial institutions as "interested parties" and 
by using "facts available" for those financial institutions that failed to provide information.451 
XI. Direct Transfer of Funds 
246. We next examine the question of whether th e financial transactions undertaken in the 
October 2001 and December 2002 Restructurings cons tituted "direct transfer[s] of funds" within the 
meaning of Article 1.1(a)(1)(i) of the  SCM Agreement .452 
247. Before the Panel, Korea claimed that the JIA ha d acted inconsistently with Article 1.1(a)(1)(i) 
of the  SCM Agreement   by finding that the October 2001 and December 2002 Restructurings—in 
particular, the modification of the terms of pre-ex isting loans (including extensions of the maturities 
of existing loans, reductions of the interest rates on existing loans, and conversion of interest to 
principal) and debt-to-equity swaps—involved di rect transfers of funds.  Korea submitted that
                                                      
449However, contrary to Korea's imp lication that the use of "facts ava ilable" under Article 12.7 of the 
SCM Agreement  necessarily has a prejudicial effect on parties th at are subject to the countervailing duty, we do 
not believe that the use of "facts available" necessar ily entails a negative inference by the investigating 
authority. (See Korea's other appellant's submission, paras. 124 and 125) 
450See Panel Report, para. 7.397. 
451We do not consider it necessary to address Korea' s claim under Article 11 of the DSU, given that 
Korea explained at the oral hearing that it was not seeking a separate substantive finding under that provision. 
452Article 1.1(a)(1)(i) of the  SCM Agreement   states:  "[A] government practice involves a direct 
transfer of funds (e.g. grants, loans,  and equity infusion), potential di rect transfers of funds or liabilities 
(e.g. loan guarantees)". WT/DS336/AB/R 
Page 84  
 
"transactions that merely change the terms of existing claims, and do not involve the provision of 
money to the alleged subsidy recipient, cannot be  characterized as transactions involving a 'direct 
transfer of funds' within the meaning of Article 1.1(a)(1)(i)."
453  The Panel rejected Korea's claim, 
finding instead that the JIA:  
... could properly characterize the modification of loan repayment 
terms (including extensions of the maturities of existing loans, reductions of the interest rates on existing loans, and conversion of 
interest to principal) and debt-to-equity swaps as transactions 
involving a "direct transfer of funds" within the meaning of 
Article 1.1(a)(1)(i).
454 (footnote omitted)  
248. On appeal, Korea suggests that a direct tran sfer of funds arises only where there is an 
incremental flow of funds to the recipient that enha nces the net worth of the recipient.  According to 
Korea, the initial issuance of a financial instrument  may constitute a direct transfer of funds;  but 
subsequent modifications of its te rms do not.  When a creditor agrees to modify the terms of existing 
loans, or to write off loans entirely, existing clai ms are modified without providing any money to the 
borrower and there is no direct transfer of funds.  Fo r Korea, "a 'transfer' of 'funds' occurs only when 
money changes hands from the government (or government-directed private body) to the subsidy 
recipient."455  Korea contends that, for the same reason, debt-to-equity swaps are not to be considered 
as transfers of funds.  In Korea's view, however, m odifications of the terms of existing loans might 
constitute "revenue ... foregone" in the sense of Article 1.1(a)(1)(ii).456 
249. Japan asserts that Korea puts forward an overl y narrow definition of the term "funds".  Japan 
argues that Article 1.1(a)(1)(i) refers to "grants, loan s, and equity infusion" as examples, rather than as 
items on an exhaustive list.  Accordin g to Japan, this indicates that the  SCM Agreement   contemplates 
direct transfers of funds other than grants, loans, and equity infusion.457  Excluding modification of 
the terms of existing loans, or an exchange into e quity of monetary value equivalent to existing debt,
                                                      
453Panel Report, para. 7.426. 
454Ibid., para. 7.446. 
455Korea's other appellant's submission, para. 134. 
456Ibid., para. 139. 
457Japan's appellee's submission, para. 162. WT/DS336/AB/R 
Page 85 
 
 
from the definition of the phrase "direct transfer of funds", "would open the door to potential abuse of 
the subsidies and offer an easy way of circumventing the disciplines of the  SCM Agreement ."458 
250. In our view, the term "funds" encompasses not only "money" but also financial resources and 
other financial claims more generally.  The concep t of "transfer of funds" adopted by Korea is too 
literal and mechanistic because it fails  to encapsulate how financial transactions give rise to an 
alteration of obligations from which an accrual of fi nancial resources results.  We are unable to agree 
that direct transfers of funds, as contemplated in Ar ticle 1.1(a)(1)(i), are confined to situations where 
there is an incremental flow of funds to the recipi ent that enhances the net worth of the recipient.  
Therefore, the Panel did not err in finding that th e JIA properly characterized the modification of the 
terms of pre-existing loans in the present case as a direct transfer of funds.   
251. We observe that the words "grants, loans,  and equity infusion" are preceded by the 
abbreviation "e.g.", which indicates that grants, lo ans, and equity infusion are cited examples of 
transactions falling within the scope of Article 1.1( a)(1)(i).  This shows that transactions that are 
similar to those expressly listed are also covere d by the provision.  Debt forgiveness, which 
extinguishes the claims of a creditor, is a form of performance by which the borrower is taken to have 
repaid the loan to the lender.  The extension of a loan maturity enables the borrower to enjoy the 
benefit of the loan for an extended period of time.  An interest rate reduction lowers the debt servicing 
burden of the borrower.  In all of these cases, the financial position of the borrower is improved and 
therefore there is a direct transfer of funds within the meaning of Article 1.1(a)(1)(i).  
252. With respect to Korea's argument that debt-to- equity swaps cannot be considered as direct 
transfers of funds given that no money is transferre d thereby to the recipient, the Panel reasoned that 
"the relinquishment and modification of claims inhere nt in such transactions similarly result[] in new 
rights, or claims, being transferred to the former debtor."459  Again, we see no error in the Panel's 
analysis.  Debt-to-equity swaps replace debt with equity, and in a case such as this, when the debt-to-
equity swap is intended to address the deteriorati ng financial condition of the recipient company, the 
cancellation of the debt amounts to a direct transfer of funds to the company. 
253. Korea further alleges that the financial contribut ions at issue in this case can, at most, fall 
under "revenue ... foregone" within th e meaning of Article 1.1(a)(1)(ii). 
                                                      
458Japan's appellee's submission, para. 170. 
459Panel Report, para. 7.442. WT/DS336/AB/R 
Page 86  
 
254. In that respect, the Panel found: 
[W]e do not exclude that certain of the relevant transactions might 
be covered simultaneously by different sub-paragraphs of 
Article 1.1(a)(1).  The issue before us, though, is not whether the modification of loan repayment terms and debt-to-equity swaps 
might also be treated, for example, as government revenue foregone.  The issue is whether the JIA erred in treating such transactions as 
"direct transfers of funds".
460 (footnote omitted) 
 
255. We agree with the Panel that the issue before  it was whether the JIA erred in treating the 
October 2001 and December 2002 Restructurings as dir ect transfers of funds.  The legal question was 
not whether one or several transactions at issue could additionally be treated as revenue foregone 
under Article 1.1(a)(1)(ii) of the  SCM Agreement . 
256. For these reasons, we  uphold   the Panel's finding, in paragra phs 7.446 and 8.1(d) of the Panel 
Report, that the JIA could properly characterize the modifications of loan repayment terms (including 
extensions of the maturities of existing loans, reduc tions of the interest rates on existing loans, and 
conversion of interest to principal) and debt-t o-equity swaps as transactions involving "direct 
transfer[s] of funds" within the meaning of Article 1.1(a)(1)(i) of the  SCM Agreement . 
XII. Causation of Injury 
257. We turn now to the issue of causation.  Ko rea argued that Articles 15.5 and 19.1 of the  SCM 
Agreement   require more than a demonstration that "the  subsidized imports are causing injury":  they 
require an additional demonstration that the inju ry is caused "through the effects of subsidies".461   
258. The Panel found that Articles 15.5 and 19.1 do not impose an additional requirement on an 
investigating authority to demonstrate that the volum e and price effects of the subsidized imports and 
the consequent impact of these imports on domestic industry, as set forth in Articles 15.2 and 15.4 of the  SCM Agreement , are the effects of subsidies.
462  In the light of this interpretation of Articles 15.5 
and 19.1, the Panel found that it was unnecessary to rule on whether the JIA properly demonstrated 
that the volume and price effects of the subsidized imports and the consequent impact of these imports 
on the domestic industry were the "effects of  subsidies" allegedly received by Hynix.463  The Panel, 
                                                      
460Panel Report, para. 7.439. 
461Korea's other appellant's submission, para. 72. 
462Panel Report, para. 7.424. 
463Ibid. WT/DS336/AB/R 
Page 87 
 
 
therefore, concluded that Korea had failed to de monstrate that, in making its determination of 
causation, the JIA had acted inconsistently  with Articles 15.5 and 19.1 of the  SCM Agreement .464   
259. Korea asks us to reverse the Panel's finding on the grounds that the Panel erred in its 
interpretation of Articles 15.5 and 19.1 of the  SCM Agreement .  According to Korea, the Panel 
effectively read the "through the effects of subsidy"  language out of those provisions.  For Korea, the 
Panel's interpretation of the phrase "through the effects"  is not consistent with the ordinary meaning, 
context, or negotiating history of the relevant provisions of the  SCM Agreement .465  Further, Korea 
contends that the Panel's reading of the phrase "thr ough the effects" cannot be reconciled with the text 
of Article 19.1, which repeats this phrase and sets forth the substantive conditions for the imposition 
of a countervailing duty.466  
260. Japan requests us to uphold the Panel's interp retation of Articles 15.5 and 19.1 of the  SCM 
Agreement   for the reasons given by the Panel.467  Specifically, Japan contends that, in challenging the 
Panel's interpretation of the phrase "through the effects"  in Article 15.5, Korea fails to make reference 
to footnote 47 attached to that phrase.468  In Japan's view, the Panel's interpretation is borne out by the 
non-attribution rules in the subsequent sentences  of Article 15.5 and the other paragraphs of 
Article 15.469  Korea's interpretation of the phrase, however , requires an additional demonstration of a 
causal relationship between the effects of the subsidy and injury.470 
                                                      
464Panel Report, para. 7.425.  In addition, with respect to the "effects of subsidies", the Panel noted that 
the JIA had found as follows: 
As examined in Chapter 2, Hynix was in a financial situation such that it 
could not raise funds from the commercial market. The subsidies provided by the Government of Korea to Hynix enabled Hynix to maintain and 
continue its production and export of DRAM products. As the result, the 
Investigating Authorities find that Hynix significantly increased its volume of the exports to Japan of the subject products, sold large volumes of 
products at low prices in Japan's do mestic market, and thereby caused the 
price of domestic products to fall. 
(See ibid., para. 7.405 (quoting JIA's Final Determination, Annex 1 (Essential Facts), para. 550) 
465Korea's other appellant's submission, paras. 70-94. 
466Ibid., paras. 76-79. 
467Japan's appellee's submission, paras. 77-112. 
468Ibid., paras. 80-82. 
469The European Communities and the United States also agree with the Panel's interpretation of 
Articles 15.5 and 19.1.  (European Communities' and United States' response to questioning at the oral hearing) 
470Korea's other appellant's submission, para. 72. WT/DS336/AB/R 
Page 88  
 
261. We begin our consideration of this issue with the text of Article 15.5 of the  SCM Agreement , 
which provides that: 
[i]t must be demonstrated that the subsidized imports are, through the 
effects* of subsidies, causing injury within the meaning of this 
Agreement.  The demonstration of  a causal relationship between the 
subsidized imports and the injury to the domestic industry shall be based on an examination of all relevant evidence before the authorities.  The authorities shall also examine any known factors other than the subsidized imports wh ich at the same time are injuring 
the domestic industry, and the injuries caused by these other factors 
must not be attributed to the subsidized imports.  Factors which may be relevant in this respect include, inter alia , the volumes and prices 
of non-subsidized imports of the pr oduct in question, contraction in 
demand or changes in the patterns of  consumption, trade restrictive 
practices of and competition between the foreign and domestic 
producers, developments in technology and the export performance and productivity of the domestic industry.  _____________________ 
*[Original footnote 47] As set forth in paragraphs 2 and 4. 
262. Article 15.5 as a whole deals with the causal relationship between s ubsidized imports and 
injury to the domestic industry.  The first sentenc e of Article 15.5 requires that an investigating 
authority demonstrate that "the subsidized imports  are, through the effects of subsidies, causing 
injury" to the domestic industry.  The second sen tence emphasizes that the demonstration of the 
causal relationship between the subsidized imports and the injury shall be based on all relevant 
evidence before the investigating authority.  In both sentences, the subject to which the phrase "are 
causing injury" applies, or in respect of which "a causal relationship" is to be established, is "the 
subsidized imports". 
263. By virtue of footnote 47 to Article 15.5, which forms an integral part of the first sentence, the 
demonstration of the causal relationship envisaged in the first two sentences of Article 15.5 is to be 
carried out by following the analysis set forth in Articles 15.2 and 15.4 for examining the "effects" of 
the subsidized imports.  According to these pa ragraphs, such an examination will comprise 
of:  (i) whether there has been a significant increase  in subsidized imports;  (ii) the effect of the 
subsidized imports on prices;  and (iii) the cons equent impact of the subsidized imports on the 
domestic industry. 
264. It is clear from the architecture of Articles 15.2, 15.4, and 15.5 that, for determining whether 
the "subsidized imports are, through the effects of subsidies, causing injury" to the domestic industry, 
what is required is the examination of the effects of  the subsidized imports as set forth in Articles 15.2 
and 15.4.  These paragraphs neither envisage nor re quire the two distinct types of examinations 
suggested by Korea, namely, an examination of  the effects of the subsidized imports as per WT/DS336/AB/R 
Page 89 
 
 
Articles 15.2 and 15.4;  and, a second examination of  the effects of the subs idies as distinguished 
from the effects of the subsidi zed imports on a case-by-case basis. 
265. Korea's argument that the effects of subsidies must be distinguished from the effects of the 
subsidized imports is based on the premise that the increase in the volume of subsidized imports or the 
price at which they are sold on the importing Me mber's market may not ha ve been caused by the 
subsidies received by the exporting company.  To illustrate its point, Korea has suggested that the 
increased volumes of sales of the product may be due to better quality, design, innovation, or 
customer preference, rather than the subsidy.471 
266. We are not persuaded by these arguments of Kor ea.  In our view, they would imply additional 
inquiry by an investigating authority into two matters :  first, the use to which the subsidies were put 
by the exporting company472;  and, secondly, whether, absent the subsidies, the product would have 
been exported in the same volumes or at the same  prices.  Such additional examinations are not 
contemplated by Articles 15.2 and 15.4.   
267. Furthermore, the "non-attribution" provisions c ontained in the third sentence of Article 15.5 
already address adequately the concern that the injurious effects of any known factors  other than 
subsidized imports   are not attributed to the subsidized imports.473  This ensures that injuries that may 
have been caused by other known factors are not a ttributed to the subsidized imports.  The third 
sentence of Article 15.5 does not envisage the ki nd of additional enquiry implied in Korea's 
arguments. 
268. We are therefore of the view that, if an i nvestigating authority carries out the examination 
required under Articles 15.2, 15.4, and 15.5, su ch examination suffices to demonstrate that 
"subsidized imports are, through the effects of subs idies, causing injury" within the meaning of the  
SCM Agreement . 
                                                      
471Korea, however, recognizes that there may be cases  where the nature of the subsidy itself would be 
sufficient to show that the injurious effects are due to  the subsidy, such as a subsidy given specifically for 
export.  In the case of such subsid ies, Korea acknowledges that no additional examination is warranted beyond 
the examination of the effects of the subsidized imports, as set forth in Articles 15.2 and 15.4. (See Korea's other 
appellant's submission, para. 91) 
472In respect of the quality of an imported product, Korea has stated that, "unless the subsidy were in 
fact the impetus behind the superior quality", the injury to the domestic industry cannot be attributed to the 
subsidy. ( Ibid., para. 74)  In our view, this would imply an examination of the purpose to which the subsidy has 
been put. 
473The factors relevant to this examination "include, inter alia , the volumes and prices of 
non-subsidized imports of the product in question, contraction in demand or changes in the patterns of consumption, trade restrictive practices of and competition between the foreign and domestic producers, 
developments in technology and the export performance and productivity of the domestic industry." 
(Article 15.5 of the  SCM Agreement ) WT/DS336/AB/R 
Page 90  
 
269. Article 11.2 of the  SCM Agreement   provides contextual support for our reading of the first 
sentence of Article 15.5.  Article 11.2 sets fort h guidance as to what may constitute "sufficient 
evidence" for purposes of an application for the in itiation of a countervailing duty investigation
474 and 
further describes the type of evidence that should be included in the application.  Article 11.2 
provides, in relevant part, that: 
… evidence that alleged injury to a domestic industry is caused by 
subsidized imports  through the effects of the subsidies ;  this evidence 
includes information on the evolution of the volume of the allegedly 
subsidized imports, the effect of these imports  on prices  of the like 
product in the domestic market and the consequent impact of the 
imports  on the domestic industry, as dem onstrated by relevant factors 
and indices having a bearing on the state of the domestic industry, such as those listed in paragraphs 2 and 4 of Article 15. (emphasis 
added) 
270. We agree with the Panel that Article 11.2 th us indicates that information relating to the 
volume effects, the price effects, and the consequent  impact of the subsidized imports on the domestic 
industry serves as evidence to demonstrate that in jury is caused by the "subsidized imports through 
the effects of subsidies".
475  By its terms, Article 11.2 does not re quire an applicant to provide specific 
evidence regarding the effects that the subsidies may have on import volumes and prices so as to 
cause injury. 
271. Korea argues that there is nothing in the  SCM Agreement   "that indicates that the standard for 
initiating an investigation under Article 11.2 is the same as the standard for making an affirmative 
injury determinati on under Article 15."476  Korea further argues that Article 11.2 does not prohibit 
investigating authorities from requiring additional info rmation "to satisfy the 'through the effects of 
subsidies' requirement" in the context of making an affirmative injury determination.477  We are not 
persuaded by this argument.  If a demonstration of an  additional causal link between the effect of the 
subsidy and injury is to be established as a prere quisite for an injury de termination, as Korea 
contends, there is no reason why Article 11.2 would not have prescribed submission of evidence for 
that purpose. 
                                                      
474An application "shall include sufficient evidence of th e existence of (a) a subsidy and, if possible, its 
amount, (b) injury within the meaning of Article VI of GATT 1994 as interpreted by this Agreement, and (c) a 
causal link between the subsidized imports and th e alleged injury." (Article 11.2 of the  SCM Agreement )   
475Panel Report, para. 7.417. 
476Korea's other appellant's submission, para. 89. 
477Ibid., para. 90. WT/DS336/AB/R 
Page 91 
 
 
272. Korea further argues that the "through the effe cts of subsidies" la nguage in Article 15.5 
should be interpreted as requiring the same type of  causation analysis that has been developed in 
dispute settlement practice for the "effect of th e subsidy" language in Article 6.3 of the  
SCM Agreement .478  However, in our view, the Panel rightly rejected Korea's argument in this regard.  
Like the Panel, we do not see how the terms of Artic le 6.3 or prior panel re ports interpreting this 
provision that relate to the different concepts of " serious prejudice" and "adverse effects" in Part III of 
the  SCM Agreement   support Korea's interpretation of Ar ticle 15.5 in Part V on countervailing 
measures.   In view of the difference between the te xt, context, rationale, and object of the provisions 
in Part III and Part V of the  SCM Agreement , we see no basis for importing the specific obligations of 
Part III into the provisions of Part V of the  SCM Agreement .479  Although both Articles 6.3 and 15.5 
refer to effects of the subsidies, the meaning of this phrase must be interpreted in the light of the 
substantive obligations within which the phrase is lo cated.  Articles 6.3 and 15.5 deal with different 
subject matters and therefore it is not appropriate  to accord an identical  meaning to the common 
phrase in these Articles. 
273. We turn next to address Korea's argument that the Panel's understanding of the context 
provided by Article VI:6(a) of the GATT 1994 effec tively repeals the obligations under that Article.480  
According to Korea, that Article allows a Member  to levy a countervailing duty only if it determines
                                                      
478Article 6.3 of the  SCM Agreement   provides that: 
Serious prejudice in the sense of paragr aph (c) of Article 5 may arise in any 
case where one or several of the following apply: 
(a) the effect of the subsidy is to displace or impede the imports of a like 
product of another Member into the market of the subsidizing Member; 
(b) the effect of the subsidy  is to displace or impede the exports of a like 
product of another Member from a third country market; 
(c) the effect of the subsidy  is a significant price undercutting by the 
subsidized product as compared w ith the price of a like product of 
another Member in the same market  or significant price suppression, 
price depression or lost sales in the same market; 
(d) the effect of the subsidy is an increase in the world market share of 
the subsidizing Member in a particul ar subsidized primary product or 
commodity as compared to the average share it had during the previous 
period of three years and this increas e follows a consistent trend over a 
period when subsidies have been granted. (emphasis added) 
479See also Panel Report, US – Upland Cotton , para. 7.1177.   
480Korea's other appellant's submission, para. 73. WT/DS336/AB/R 
Page 92  
 
that the effect of the subsidized imports is to cau se injury to the domestic industry.  As we have 
observed above, if an investigating authorit y carries out an examination as required under 
Articles 15.2, 15.4, and 15.5 of the  SCM Agreement , this suffices to demonstrate that subsidized 
imports are, through the effects of subsidies,  causing injury.  We do not see any inconsistency 
between our interpretation of the first sentence of Ar ticle 15.5 and the provisions of Article VI:6.  We 
therefore do not consider that the Panel's reading of the first sentence of Article 15.5 repeals the 
obligations provided for in Article VI:6 of the GATT 1994.
481 
274. In addition, Korea argues that the fact that Article 19.1 of the  SCM Agreement   refers to "the 
effects of the subsidy", "confirms that this langua ge was intended to impose a substantive requirement 
that must be met in order for countervailing duties to be imposed."  According to  Korea, "[t]he Panel's 
assertion that this language was intended to indicat e, instead, that there was no such requirement 
cannot be reconciled with the provisions of Article 19.1."482 
275. On appeal, Korea does not purport to claim that the phrase "through the effects of subsidies" 
in Article 19.1 should be assigned a meaning that is different from that of the same phrase in 
Article 15.5.483  Nor does Korea submit any further argumen ts in support of its interpretation other 
than those we have rejected above. 
276. Korea submits, "more generally", that the Panel' s interpretation of the "through the effects of 
subsidies" language of Articles 15.5 and 19.1 is also  inconsistent with the object and purpose of the  
SCM Agreement .  According to Korea, "the object and purpose of that Agreement is 'to offset 
government subsidies that distort trade, thereby causing injury to competing industries in other 
countries.'"484  Therefore, for Korea, Article 15.5 does " not permit countervailing duties to be imposed 
unless the  effect   of the subsidies is to distort trade, by altering the volume or prices of the imports in 
a manner that causes injury."485  We see our interpretation of the fi rst sentence of Article 15.5 to be in 
harmony with the object and purpose of the  SCM Agreement . 
277. As we have found above, if an investigati ng authority carries out the examination required 
under Articles 15.2, 15.4, and 15.5 of the  SCM Agreement , such examination suffices to demonstrate 
that "subsidized imports are, through the effects of  subsidies, causing injury" within the meaning of 
that Agreement.  We have also found that there is no additional requirement to examine the effects of 
                                                      
481Korea's other appellant's submission, para. 73. 
482Ibid., para. 79. 
483Ibid., para. 76. 
484Ibid., para. 95 (referring to Appellate Body Report, US – Lead and Bismuth II , para. 17 (summarizing 
the United States' argument);  and Appellate Body Report, Canada – Aircraft , para. 157). 
485Ibid., para. 96. (original emphasis) WT/DS336/AB/R 
Page 93 
 
 
the subsidies as distinguished from the effects of th e subsidized imports on a case-by-case basis.  In 
the light of our analysis, we  uphold   the Panel's finding, in paragra phs 7.425 and 8.1(g) of the Panel 
Report, that the JIA did not act inconsistently with Articles 15.5 and 19.1 of the  SCM Agreement  by 
not demonstrating separately that the allegedly subsidized imports were, "through the effects of 
subsidies", causing injury w ithin the meaning of the  SCM Agreement . 
278. In the light of our finding, we do not consider  it necessary to address the question of whether 
the JIA properly demonstrated that the volumes and price effects of the subsidized imports and the 
consequent impact on these imports on the domestic industry were the "effects of subsidies" allegedly 
received by Hynix.486 
XIII.  Business Confidential Information 
279. We note that several passages have been omitte d from the public version of the Panel Report 
on the basis that Japan and Korea indicated th at those passages contained business confidential 
information ("BCI").  The European Communities has complained that, while BCI must be respected, 
the Panel has dealt with it in such a sweeping manne r that the Panel Report has become unintelligible 
for third parties, and as a result its rights as a third party have been affected.487  While a panel must 
not disclose information which is by its nature confidential488, a panel, in deciding to redact such 
information from its report at the re quest of one or both of the parties, should bear in mind the rights 
of third parties and other WTO Members under various provisions of the DSU, such as Articles 12.7 
and 16.  Accordingly, a panel must make efforts to ensure that the public version of its report 
circulated to all Members of the WTO is unders tandable.  On appeal, Japan and Korea have 
designated certain information contained in thei r written submissions as BCI.  We have found it 
possible to render our Report without disclosing any BCI, designated as such. 
                                                      
486Korea's other appellant's submission, para. 64 and footnote 34 thereto. 
487See European Communities' third participant's submission, para. 10 (quoting Panel Report, 
paras. 7.205 and 7.206).    
488See, for example, Article 12.4 of the  SCM Agreement . WT/DS336/AB/R 
Page 94  
 
XIV.  Findings and Conclusions 
280. For the reasons set out in this Report, the Appellate Body: 
(a) as regards the Panel's review of the JIA's fi nding of "entrustment or direction" of the 
Four Creditors with respect to the December 2002 Restructuring: 
(i) finds
 that the Panel erred, in paragraphs  7.250-7.254 of the Panel Report, in 
failing to examine the JIA's evidence in its  totality, and that the Panel thereby 
failed to apply the proper standard of re view in a manner consistent with its 
obligations under Article 11 of the DSU;  and, consequently,  
(ii) reverses  the Panel's finding, in paragra phs 7.254 and 8.2(a) of the Panel 
Report, that the JIA's determination of "e ntrustment or direction" of the Four 
Creditors is inconsistent with Article 1.1(a)(1)(iv) of the  SCM Agreement . 
(b) upholds  the Panel's findings, in paragraphs 7.28 2 and 8.2(b) of the Panel Report, that 
the JIA acted inconsistently with Ar ticle 1.1(b) and Article 14 of the  SCM Agreement   
by determining that the December 2002 Restru cturing conferred a benefit on Hynix;   
(c) upholds , albeit for different reasons, the Pa nel's findings, in paragraphs 7.316 
and 8.2(c) of the Panel Report, that the JI A calculated the amount of benefit conferred 
on Hynix by the October 2001 and December 2002 Restructurings inconsistently with 
Articles 1.1(b) and 14 of the  SCM Agreement ;  and finds  that the Panel did not fail to 
conduct an objective assessment of the matte r before it, as required by Article 11 of 
the DSU; 
(d) reverses  the Panel's finding, in paragraphs 7.3 34 and 8.2(d) of the Panel Report, that 
the methods used by Japan to calculate the amount of benefit conferred on Hynix 
were not provided for in Japan's national le gislation or implementing regulations as 
required under the chapeau of Article 14 of the  SCM Agreement ;   
(e) upholds  the Panel's finding, in paragraphs 7.36 1 and 8.2(e) of the Panel Report, that 
Japan acted inconsistently with Article 19.4 of the SCM Agreement  by levying 
countervailing duties on imports which the JI A itself had found were not subsidized 
at the time of duty imposition;  and finds  that the Panel did not fail to conduct an 
objective assessment of the matter before it, as required by Article 11 of the DSU; WT/DS336/AB/R 
Page 95 
 
 
(f) upholds  the Panel's findings, in paragraphs 7.31 6 and 8.1(b) of the Panel Report, that 
the JIA's determination of the existence of  benefit with respect to the October 2001 
Restructuring was not inconsistent with Articles 1.1(b) and 14 of the  SCM 
Agreement ; 
(g) upholds  the Panel's finding, in paragraphs 7.39 8 and 8.1(c) of the Panel Report, that 
the JIA did not act inconsistently with Article 12.7 and 12.9 of the  SCM Agreement   
by including certain financial institutions as "interested parties" and by using "facts 
available" for those financial institutions  that failed to provide information; 
(h) upholds  the Panel's finding, in paragraphs 7.446 and 8.1(d) of the Panel Report, that 
the JIA could properly characterize the tran sactions at issue in the October 2001 and 
December 2002 Restructurings as "direct tran sfer[s] of funds" within the meaning of 
Article 1.1(a)(1)(i) of the  SCM Agreement ;  and 
(i) upholds  the Panel's finding, in paragraphs 7.425 and 8.1(g) of the Panel Report, that 
the JIA did not act inconsistently with Articles 15.5 and 19.1 of the  SCM Agreement  
by not demonstrating separately that the a llegedly subsidized imports were, "through 
the effects of subsidies", causing in jury within the meaning of the  SCM Agreement . 
281. The Appellate Body recommends  that the DSB request Japan to bring its measure, found in 
this Report, and in the Panel Report as modified by  this Report, to be inconsistent with the  SCM 
Agreement , into conformity with its oblig ations under that Agreement. WT/DS336/AB/R 
Page 96  
 
Signed in the original in Geneva this 9th day of November 2007 by:  
 
   
 
_________________________ 
David Unterhalter 
Presiding Member 
  
 
 
 _________________________ _________________________ 
 A.V. Ganesan Giorgio Sacerdoti 
 Member Member  WT/DS336/AB/R 
Page 97 
 
 
ANNEX I 
 
 WORLD TRADE  
ORGANIZATION  WT/DS336/8 
30 August 2007 
 (07-0000) 
 Original:   English 
  
JAPAN – COUNTERVAILING DUTIES ON DYNAMIC  
RANDOM ACCESS MEMORIES FROM KOREA 
 
Notification of an Appeal by Japan
 
under Article 16.4 and Article 17 of the Understanding on Rules  
and Procedures Governing the Settlement of Disputes (DSU),  
and under Rule 20(1) of the Working Procedures for Appellate Review  
   The following notification, dated 30 August 200 7, from the Delegation of Japan, is being 
circulated to Members. 
_______________ 
 
 Pursuant to Articles 16.4 and 17 of the Understanding on Rules and Procedures Governing 
the Settlement of Disputes  ("DSU") and Rule 20 of the Working Procedures for Appellate Review , 
Japan hereby notifies its decision to appeal to the A ppellate Body certain issues of law covered in the 
Panel Report on Japan – Countervailing Duties on Dynamic Random Access Memories from Korea  
(WT/DS336/R) ("Panel Report"), and certain legal in terpretations developed by the Panel in this 
dispute.  Japan seeks review by the Appellate B ody of the Panel's conclu sions and related findings 
and legal interpretations that: 
1. Japan improperly found government "entrustment or direction" of four of the private creditors 
of Hynix Semiconductor, Inc. ("Hynix") to particip ate in the December 2002 Restructuring of Hynix, 
contrary to Article 1.1(a)(1)(iv) of the Agreement on Subsidies and Countervailing Measures ("SCM 
Agreement ").
1  This conclusion was based on an erroneous  interpretation and application of this 
provision.  In particular, the Panel erred in law by: 
(i) failing to conduct the objective assessment of the matter required by 
Article 11 of the DSU by limiting the scope of its analysis of the findings by the investigating authorities of Japan (the "JIA") regarding the 
December 2002 Restructuring to only the Deutsche Bank Report without any 
assessment of other evidence on the record and the JIA's findings thereon, denying the "totality of evidence approach" actually adopted by the JIA, and conducting thereby a de novo  review of the evidence, the JIA's findings and 
its determination
2;  and 
(ii) failing to conduct the objective assessment of the matter required by 
Article 11 of the DSU with respect to th e intervention into the preparation of 
                                                      
1See Panel Report, paras. 7.245-47, 7.253-54 and 8.2 a. 
2See, e.g., Panel Report, para. 7.157 in conjunction with paras. 7.155-56; para. 7.162 in 
conjunction with paras. 7.158-60, 7.246-47, 7.253-54. WT/DS336/AB/R 
Page 98  
 
the Deutsche Bank Report by the Government of Korea, the lack of independent third party characteristics of the Deutsche Bank Report and the 
content of the Deutsche Bank Report, by making a de novo review of the 
evidence, the JIA's findings and its determination, by making findings on the characteristics of the Deutsche Bank Report which Korea neither presented 
the relevant evidence or arguments nor sought any findings by the Panel and 
failing to accord the due process right of defence to Japan, and by improperly rejecting as ex post rationalization arguments presented by Japan.
3 
2. Japan improperly found that the December 2002 Restructuring conferred a benefit on Hynix, 
contrary to Articles 1.1(b) and 14 of the SCM Agreement .4  This conclusion is in error because it was 
not based on any analysis of these provisions and w as wholly dependent on its conclusions relating to 
"entrustment or direction" in the cont ext of the December 2002 Restructuring under 
Article 1.1(a)(1)(iv) of the SCM Agreement .5  It is based solely on the Panel's erroneous conclusion, 
described in paragraph 1 above, which was made in consistently with Article 11 of the DSU.   
3. Japan improperly calculated the amount of benefit conferred by the October 2001 and 
December 2002 Restructurings of Hynix, contrary to Articles 1.1(b) and 14 of the SCM Agreement .6  
This conclusion was based on an erroneous interpretation and app lication of these provisions.  In 
particular, the Panel erred in law by: 
(i) failing to conduct the objective assessment of the matter required by 
Article 11 of the DSU by finding that the JIA applied exclusively an outside investor benchmark giving rise to an internal inconsistency in the JIA's 
calculation of benefit, based on an inaccurate understanding of the JIA's 
actual findings and a de novo  review of the evidence, the JIA's findings and 
its determination
7;  
(ii) finding that the JIA failed to adopt an insider investor benchmark, even 
though neither Article 1.1(b) nor 14 of the SCM Agreement  requires the 
application of a particular methodolog y, and the benchmark alleged by the 
Panel lacked necessary support in the evidence on the record required under 
Article 12.2 of the SCM Agreement8; 
(iii) erroneously interpreting the provisions of Articles 1.1(b) and 14 of the SCM 
Agreement  and failing to conduct the objective assessment of the matter 
required by Article 11 of the DSU in finding that the JIA made its calculation 
of the benefit amount from the creditor's perspective9;  
                                                      
3See, e.g., Panel Report, para. 7.168 in conjunction with paras. 7.163-67; para 7.188 in conjunction 
with paras. 7.169-87, para. 7.189, and para. 7.190; para s. 7.199, 7.206, 7.217, 7. 221, 7.225, 7.231, 7.238 
and 7.244 in conjunction with paras. 7.191-243; and para. 7.245.  
4See Panel Report, paras. 7.282 and 8.2 b. 
5See Panel Report, para. 7.282. 
6See, e.g., Panel Report, paras. 7.315, 7.316 and 8.2 c. 
7See, e.g., Panel Report, para. 7.315 in conjunction with paras. 7.304-14.  
8See, e.g., Panel Report, para. 7.315 in conjunction with paras. 7.304-14.  
9See, e.g., Panel Report, para. 7.315 in conjunction with para. 7.313. WT/DS336/AB/R 
Page 99 
 
 
(iv) failing to conduct the objective assessment of the matter required by 
Article 11 of the DSU by reaching conclusions on the JIA's benefit calculation formulae, for which Korea failed to establish a prima facie  case of 
inconsistency with Article s 1.1(b) and 14 of the SCM Agreement
10;  and 
(v) failing to conduct the objective assessment of the matter required by 
Article 11 of the DSU without according the due process right of defence to 
Japan and erroneously interpreting the requirements under Article 22.5 of the 
SCM Agreement  as informed by Articles 12.2 and 12.8 thereof and the 
meaning of facts available under Article 12.7 thereof in rejecting rebuttal arguments presented by Japan
11;  
4. Japan improperly used methods to calculate th e amount of benefit to the recipient that were 
not provided for in Japan's national legislation or implementing regulations, contrary to the chapeau 
of Article 14 of the SCM Agreement .12  This conclusion was based on an erroneous interpretation and 
application of this provision.  In pa rticular, the Panel erred in law by: 
(i) erroneously interpreting the requirement  to provide for the methods in the 
national legislation or implementing re gulations to calculate the amount of 
benefit under the chapeau  of Article 14 of the SCM Agreement13;  and 
(ii) failing to conduct the objective assessment of the matter required by 
Article 11 of the DSU in considering whether the methods provided for in Japan's implementing regulations were  used and actually applied in the 
investigation to calculate the benefit amount.
14 
5. Japan improperly levied countervailing duti es in 2006 to offset some of the subsidies 
provided by the October 2001 Restructuring, contrary to Article 19.4 of the SCM Agreement.15  This 
conclusion was based on an erroneous  interpretation and application of  this provision as well as other 
relevant provisions under the SCM Agreement .  In particular, the Panel erred in law by: 
(i) erroneously interpreting the provisions  of Articles 19.1 and 19.4 of the SCM 
Agreement16;  
(ii) failing to conduct the objective assessment of the matter required by 
Article 11 of the DSU by finding that the JIA levied the countervailing duty despite its determination that the non -recurring subsidies in the October 2001 
Restructuring would expire in 2005, b ased on an inaccurate understanding of 
the actual determination by the JIA and a de novo  review of evidence on the 
record and findings and determination by the JIA.
17 
                                                      
10See, e.g., Panel Report, para. 7.315 in conjunction with paras. 7.305-14.  
11See, e.g., Panel Report, para. 7.315 in conjunction with paras. 7.304 and 7.314. 
12See Panel Report, paras. 7.334 and 8.2 d. 
13See, e.g. , Panel Report, paras. 7.327, 7.330, 7.331, 7.333 and 7.334 in conjunction with 
paras. 7.326-33.  
14See, e.g., Panel Report, paras. 7.330, 7.331, 7.333 and 7.334 in conjunction with paras. 7.326-33. 
15See Panel Report, paras. 7.361 and 8.2 e. 
16See, e.g., Panel Report, para. 7.361 in conjunction with paras. 7.351-57.  
17See, e.g., Panel Report, paras. 7.360 and 7.361 in conjunction with paras. 7.358-59. WT/DS336/AB/R 
Page 100  
 
 In sum, Japan considers that the Panel erred in law in the interpretation and application of 
Articles 1.1(a)(1)(iv), 1.1(b), 12.2, 12.7, 12.8, 14, 19.1, 19.4 and 22.5 of the SCM Agreement and 
failed to meet the requirements of Article 11 of the DSU.  Japan requests that the Appellate Body 
reverse the Panel's erroneous finding s and conclusions identified above.  
 
_______________ WT/DS336/AB/R 
Page 101 
 
 
ANNEX II 
 
 WORLD TRADE  
ORGANIZATION  WT/DS336/9 
11 September 2007 
 (07-0000) 
 Original:   English 
  
JAPAN – COUNTERVAILING DUTIES ON DYNAMIC  
RANDOM ACCESS MEMORIES FROM KOREA 
 
Notification of an Other Appeal by Korea
 
under Article 16.4 and Article 17 of the Understanding on Rules  
and Procedures Governing the Settlement of Disputes (DSU),  
and under Rule 23(1) of the Working Procedures for Appellate Review  
   The following notification, dated 11 September 2007, from the Delegation of Korea, is being 
circulated to Members.  
_______________ 
 
 Pursuant to Article 16 of the Understanding on Rules and Procedures Governing the 
Settlement of Disputes  ("DSU") and Rule 23 of the Working Procedures for Appellate Review, the 
Republic of Korea ("Korea") hereby notifies its d ecision to appeal to the Appellate Body certain 
issues of law and legal interpretations contained in the report of the panel Japan – Countervailing 
Duties on Imports of Certain Dynamic R andom Access Memories (DRAMS) from Korea  (WT/DS336) 
(the "Panel Report").  Korea seeks review by th e Appellate Body of the following legal conclusions 
and related findings and legal interpre tations in the Report of the Panel: 
 
(a) The Panel's finding that Japan acted consisten tly with its obligations under Articles 1.1(b) 
and 14 of the Agreement on Subsidi es and Countervailing Measures (the "SCM 
Agreement"), when the Japanese investigating authorities ("JIA") determined that Hynix 
Semiconductor, Inc. ("Hynix") received a "benefit" from a transaction restructuring Hynix's debts in October 2001.
1  The Panel incorrectly interpreted Articles 1.1(b) and 14 
of the SCM Agreement to permit an investig ating authority to assume that a "benefit" 
exists based solely on a finding that allegedly entrusted or directed private creditors failed 
to undertake a satisfactory analysis of the transaction before approving it, in the absence 
of evidence or a finding by the investigating authority that the alleged entrustment or 
direction actually made the recipient "better o ff."  The Panel's analysis is inconsistent 
with the provisions of Article 1.1 of th e SCM Agreement, which requires a separate 
analysis of (i) whether the government acti on constituted a "financial contribution" as a 
result, inter alia , of government entrustment or dir ection of non-governmental entities;  
and (ii) whether the government action has conferred a "benefit" on the recipient.  In addition, the Panel's analysis is inconsiste nt with the requirement of Articles 1.1(b) 
and 14 of the SCM Agreement that a "benef it" exists when the recipient of the 
government financial contribution has been ma de "better off", because the terms of the 
                                                     
 
1These findings include paragraphs 7.271 to 7.277, 7.280 to 7.281, and 7.316 to 7.317 of the Panel 
Report. WT/DS336/AB/R 
Page 102  
 
transaction provided through the government fi nancial contribution are more favourable 
than the terms that would have been ava ilable in the absence of government action. 
(b) The Panel's finding that Japan acted consiste ntly with its obligations under Articles 15.5 
and 19.1 of the SCM Agreement, when the JIA made a determination of injury and 
imposed countervailing duties, without making a reasonable determination that the 
allegedly subsidized imports were causi ng injury to a competing domestic industry 
through the effects of subsidies.
2  Article 15.5 requires a demonstration "that the 
subsidized imports are, through the effects of subsidies , causing injury within the meaning 
of this Agreement."3  Article 19.1 permits the imposition of countervailing duties only if 
"a Member makes a final determination ... that, through the effects of the subsidy , the 
subsidized imports are causing injury ... ."4  The Panel adopted an interpretation of these 
provisions that rendered inutile the language of the provisions referring to "the effects of 
the subsidy."  As a result, the Panel incorrec tly allowed an affirma tive determination of 
injury to be made, and countervailing duties to be imposed, when the evidence did not 
support the conclusion that the volume or pri ce of the imports, or the injury to the 
domestic industry, would have been any different in the absence of subsidies. 
(c) The Panel's finding that Japan acted consiste ntly with its obligations under Articles 12.7 
and 12.9 of the SCM Agreement, when the JIA designated as "interested parties" entities 
that were not demonstrated to have any inter est in the proceeding, and then applied "facts 
available" when some of those entities failed to provide information requested by the JIA 
within the time limits established by the JI A.  The Panel's interpretation of the term 
"interested party" was not consistent with the ordinary meaning of that term or with the 
context and purpose of the relevant provisions  of the SCM Agreement. As a result, the 
Panel approved a determination that was not consistent with the due process obligations 
that the SCM Agreement imposes on investiga ting authorities, and authorized Japan to 
subject an exporter to punitive duties b ased on the non-responsiveness of entities over 
which the exporter had no influence or control.5 
(d) The Panel's finding that Japan acted c onsistently with its obligations under 
Article 1.1(a)(1) of the SCM Agreement, when (i) the JIA classified transactions that did 
not involve a transfer of funds from the government (or government-entrusted or -directed private entities) to Hynix as "direct transfers of funds" within the meaning of sub-paragraph (i) of Article 1.1(a)(1);  and (ii) the JIA failed to demonstrate that the 
transactions met the requirements for clas sification as foregone revenue within the 
meaning of sub-paragraph (ii) of Article 1.1(a )(1).  The Panel's analysis is inconsistent 
with the ordinary meaning of the relevant  terms of the SCM Agreement and with the 
context of the relevant provisions of the SCM Agreement.  As a result, the Panel 
disregarded the SCM Agreement's scheme for classifying financial contributions, and the 
different analyses that investigating aut horities are required to apply when making 
findings under sub-paragraphs (i) and (ii) of Article 1.1(a)(1).
6 
__________ 
 
                                                      
2These findings include paragraphs 7.405 to 7.425 of the Panel Report. 
3(Emphasis added, footnote deleted.) 
4(Emphasis added.) 
5These findings include paragraphs 7-381 to 7.398 of the Panel Report. 
6These findings include paragraphs 7.439 to 7.446 of the Panel Report.