Document: WT/DS299/R Page B-1 ANNEX B ORAL STATEMENTS OF PARTIES AND THIRD PARTIES AT THE FIRST SESSION OF THE FIRST SUBSTANTIVE MEETING Contents Page Annex B-1 Executive Summary of the Statement of Korea B-2
Document codes: WT/DS299/R
Complainant: South Korea
Respondent: EU
Third parties: China, Taiwan, Japan, U.S.
Dispute stage: Panel
Agreements cited: Art. 1, 2, 10, 12, 14, 15, 19, 22, 32  Subsidies and Countervailing Measures (SCM)Art. VI:3  GATT 1994

ANNEX B

ORAL STATEMENTS OF PARTIES AND THIRD PARTIES AT THE
FIRST SESSION OF THE FIRST SUBSTANTIVE MEETING

Contents Page
Annex B-1 Executive Summary of the Statement of Korea B-2
Annex B-2 Executive Summary of the Statement of the
European Communities
B-9
Annex B-3 Third Party Oral Statement of China B-13
Annex B-4 Third Party Oral Statement of Japan B-16
Annex B-5 Third Party Oral Statement of Chinese Taipei B-19
Annex B-6 Third Party Oral Statement of the United States B-22

ANNEX B-1

EXECUTIVE SUMMARY OF THE
STATEMENT OF KOREA

(15 November 2004)

INTRODUCTION

1. At the outset, I would like to comment on a fe w general issues. First, the EC has misstated
the standard of review. As discussed in its First Submission,
1 the EC’s attempt to rely on the standard
of review set out in Article 17.6 of the Anti-Dumpi ng Agreement. Korea submits that this is flawed,
because the SCM Agreement does not contain such a standard of review. The Panel in US-Hot Rolled
Leaded and Bithmus Carbon Steel (DS138) firmly rejected the argument that this special standard of
review should be applied outside the anti-dumping context. Therefore this Panel should simply apply
the standard of Article 11 of the DSU.

2. I would also like to clarify some confusion in the EC First Submission about the burden of
proof. The EC confuses the burden of proof during the underlying investigation, which is borne by
the investigating authorities, and the initial burden of proving inconsistency in the context of the
WTO dispute settlement proceedings, which is borne by the complaining party. Korea wishes to
reiterate that the investigating authorities can not request a respondent to prove the absence of
elements of a subsidy as a condition of a negativ e determination. Doing so constitutes an
impermissible shift of the burden that the authority itself must bear. If there is incomplete or
insufficient evidence for one of the elements of a subsidy, then there is no basis for the authority to
find a subsidy in the first instance.

EC INJURY INVESTIGATION – CLAIMS OF ERROR

Article 15.1 Standards

3. Article 15.1 requires that the competent author ity have "positive evidence," and that evidence
must receive "objective examination." The Appella te Body has confirmed that evidence supporting a
finding of injury must be affirmative, objective, verifiable, and credible and emerge from an unbiased
investigation.
2 Further, Article 15.1 is an overarching provision requiring each of the substantive
provisions of Article 15 to be read in light of Article 15.1. Thus, all aspects of the injury investigation
must be based on positive evidence and an objective examination of the facts.

4. The EC tries to make light of these obligations. The EC seems to believe that if an authority
considers some matter, then its job is finished.
3 Korea believes that an "objective examination"
requires more. We agree that panels are not to re-weigh the evidence, and substitute their judgment
for that of the authorities. But at the same time, as the Appellate Body has recognized, Panels are not

1 EC First Submission, paragraph 41.
2 See US – Hot Rolled Steel (AB), at paras 192- 193 (discussing parallel issues in anti-dumping
context). Note that we use the same short forms in th is oral statement that we used in the Korea’s First
Submission.
3 EC First Submission, at paras 41-42.

to "simply accept the conclusions of the competent authorities." 4 Rather, panels must carefully and
objectively examine the facts, the reasoning provide d by the authority, and the logical connection
between the two. In this case, the EC reasoning b ears so little relationship to the facts that the EC
determination failed to meet the requirements of Article 15. If the facts conflict, 5 the authority still
must draw reasonable inferences and explain the factual and logical basis for that inference.

Significant Increase in Subsidized Imports

5. We begin with the issue of allegedly increasi ng imports. The EC mechanically cited import
indices in its Definitive Regulation, but largely ignored any meaningful analysis of the significance of
those figures. Given the unique nature of the DR AM market, and the ever-increasing total bits
supplied and consumed, an increase in the number of bits being imported is meaningless. Rather,
based on the facts of this particular case, an obj ective authority must examine the increased imports
relative to consumption on an overall basis, and relative to the market share of the other suppliers. An
objective authority would also have considered im ports relative to production, which in this case
would have confirmed the declining role of the impor ts. Otherwise, the authority simply cannot make
any reasonable and objective assessment of the "significance" of any alleged increase in imports.

6. The EC takes an overly narrow approach in interpreting the alternatives contained in
Article 15.2 of the SCM Agreement. By specifical ly requiring the authorities to make findings of
"significant" volume effects, the text of Article 15.2 does not allow the investigating authorities to
stress one factor at the expense of others, particular ly when the factor being ignored in fact provides a
more appropriate basis for comparison. The inves tigating authorities should conduct volume analysis
based on both quantitative and qualitative factors. It is not enough simply to find some increase. It is
all the more necessary in the case of DRAMS, wher e only the relative increase provides a meaningful
parameter to analyze volume effects.

7. Under Articles 15.1 and 15.2, the national author ity must prove that there was material injury
to the domestic industry caused by subsidized im ports, not the imports from the country being
investigated as a whole. In this case, however, th e EC mistakenly considered the volume and market
share of imports from Korea as a whole, even though the EC itself had already concluded that a
portion of those imports were not subsidized. This constitutes a manifest error and is inconsistent
with Articles 15.1 and 15.2.

8. The EC’s discussion of Korea as a whole takes on an Orwellian twist when the EC argues that
the LG Semiconductor ("LGS") shipments prior to the 1999 merger should be added to non-Hynix
imports from Korea.
6 As the merger with LGS took place with Hynix, and not with any other Korean
DRAM producer, there is no justification for adding the import data of LGS to the volume of imports
from Korea instead of that of Hynix. By doing so, the EC attempts to create the erroneous impression
that Hynix imports increased substantially faster than imports from Korea as a whole.

9. The EC argues
7 that Hynix failed to include the information on LGS data, and this
information could not be verified. The implication of this argument is that the EC was not aware of
the merger issue, which is completely wrong. As Korea has pointed out, Infineon’s complaint
provided data that raised the issue of the need to collapse Hyundai and LGS when discussing Hynix
trends. Korea refrains from going into details, which are provided in paragraph 110 through 121 of its
First Submission concerning the EC’s treatment of information about LGS imports. It suffices to say
that the EC was aware of the relevance of the merger in the context of volume analysis and had in its
possession the necessary information. The EC can not ignore the LG S data submitted by Hynix on

4 US - Lamb Meat (AB), at para 103 (emphasis in original).
7 EC First Submission, at paras 82-83.

the grounds that verification was not possible as th e relevant data was already provided by the
complainant itself. At a minimum, the LGS data contained in the complaint should have been taken
into account. Ignoring the available data is an egregious violation of the objective examination
requirement.

10. Perhaps recognizing the weakness of this ar gument, the EC goes on to argue that it did not
have the information in time.
8 We disagree. As Korea’s First Submission documents at some length,9
Hynix raised this issue early and often. Even if the EC was slow to recogni ze this issue, this late
recognition does not excuse the Definitive Regulation persisting in erroneous analysis.

11. This persistent error is par ticularly baffling, given the petition filed in this case. According to
Infineon’s own complaint, the data show a significant drop in Hynix market share, from about 20 per
cent in 1998 to 15 per cent in 2001. Infineon could admit this reality, since Infineon thought it would
be able to include increasing imports from Sa msung in the total analysis. Once Samsung was
excluded as not being subsidized, the approach ha d to change to find any significant increase in
imports. Thus, the EC’s finding of an "increase" in market share rests solely on improper
manipulation of the data.

12. Korea reiterates that the fact that Hynix ma rket share fell over the period being investigated
explains why the EC had to struggle so hard to find some way to create the appearance of any
increase.

Significant Price Effects of Subsidized Imports

13. We now turn to the issue of price effects. The EC made findings about pricing at odds with
both the facts of this case, and with basic economic l ogic. By far the most important specific fact is
that at the height of the alleged subsidization of Hynix in 2001, Hynix was losing market share in the
EC market, not gaining share. If price were truly as important to customers as the EC has stated, and
if Hynix were truly the lowest price supplier in the EC market, Hynix would have gained market share
in 2001, not lost share. Therefore, it defies economic logic to blame Hynix pricing, when Hynix was
losing market share for a commodity product.

14. The EC tries to brush aside economic logic.
10 In Korea’s view, economic logic is a very
important context within which authorities and pa nels can and should evaluate arguments about
pricing. The text of Article 15.2 explicitly focuses on the "significance" of price undercutting or other
price effects, and thus imposes a higher standard than just finding some price effects. Authorities
must consider what is really happening in the market, and then address those realities in a credible and
objective manner. It is not enough mechanically to check off some box confirming that there were
some price effects. The authorities must instead find and explain "significant" price effects from
imports, a much higher standard than simply finding some price effects.

15. The EC undertook three different approaches to analyzing price undercutting, but then
inexplicably chose to focus on the only met hod that demonstrated price undercutting without
explaining why it jettisoned the two other approaches. It is critical to note that the two other findings
demonstrated no significant price undercutting by Hynix. The EC did not find any price undercutting
when it properly compared average prices to averag e prices. Instead, the EC compared transaction
specific prices by EC producers with an average pr ice by Hynix, an approach that virtually ensures
price undercutting whenever the two sets of prices are close. Korea submits that the price comparison
approach used by the EC results in a completely distorted analysis, i.e., the average to transaction

8 EC First Submission, at paras 76-85
9 Korea First Submission, at paras at 111 to 121.

comparison methodology has an inherent bias against the exporter as shown in Figure 6 of Korea’s
First Submission.11

16. The EC discusses its pricing analysis at some length, and we will respond in our second
submission. At this stage, we simply wish to highlight one very interesting admission. The EC
argues that the "producer offering the lowest price will get the business,"
12 and calls this feature of the
DRAM market "undisputed." Given this feature, the fact that Hynix lost market share thus becomes a
powerful fact suggesting that others in the market were offering lower prices and winning market
share.

17. The EC also brushed aside any meaningful discussion of other factors that affect pricing.
This evidence before the EC demonstrated that DR AM market prices are affected by: (1) the general
economic downturn and decrease of demand, which causes "inventory burn"; (2) excess capacity by
other suppliers; and (3) imports from other suppliers. In its discussion of price effects from other
factors, the EC dismissed them out of hand by conc luding that either they only played some limited
role in the market price decline or they are completely irrelevant. The EC thus failed to consider
positive evidence on the record that showed factors other than Hynix price caused the significant drop
of DRAM prices in 2001. Given the fact that the Hynix market share was indeed decreasing, the EC
should have been particularly alert to other causes of the DRAM price decline.

18. If they had an open and objective mind, the EC authorities should have realized that low
priced non-subsidized imports that were rapidly gaining market share caused the dominant price
effects, and that any remaining effects of subsid ized imports could not reasonably be considered
"significant." Therefore, the EC finding was inconsistent with Articles 15.1 and 15.2.

Condition of the Domestic Industry

19. We turn now to the condition of the domestic industry. Article 15.4 requires an evaluation of
all
 relevant economic factors and indices, and rec ognizes that the relevant economic factors and the
weight to be given to each of those factors will differ from case to case.

20. Perhaps the single most important economic factor in the DRAM market is the notorious
business cycle for DRAM producers. The DRAMs industry has endured a continuing history of
"boom/bust" cycles. The evidence demonstrated that the DRAM industry had gone from the top of
the boom (in 2000) to the trough of the bust (i n 2001) during the period under consideration.
Although the EC had to be aware of the existenc e of the notorious business cycle, it completely
ignored the business cycle when anal yzing the causes of the deterioration of the domestic industry’s
financial condition.

21. We believe the EC determina tion glossed over inconsistencies in what the domestic industry
said to different audiences, and provided only a superficial examination of the condition of the
Community DRAM industry. The EC did not meet the standards of Article 15.4.

Causation

22. We now turn to the particularly important i ssue of causation. Under Article 15.5, Members
must demonstrate an explicit "causal relationship" between the subsidized imports and any material
injury suffered by the domestic industry. The evid ence before the EC demonstrated that there was no
correlation between the trends in subsidized impor ts and the condition of the domestic industry.
Hynix was losing market share while the domestic industry gained market share.

11 Korea’s First Submission, page 41

23. The EC tries to brush aside the significance of this lack of correlation.
13 But these EC
arguments have two serious flaws. First, the EC cites to absolute trends in imports, even though those
trends make no sense in the DRAM industry. The number of "bits" of memory is always increasing.
Hynix market share -- properly defined -- was declining. Perhaps recognizing the importance of
market share, the EC proceeded to rely only on an improperly defined Hynix market share. Second,
the EC cites to differences between the SCM Ag reement and the Safeguards Agreement. Korea
agrees the two agreements are different, but in this particular context the underlying language about
"causation" in each agreement is basically id entical. Moreover, the Appellate Body in U.S - Hot
Rolled Steel expressly recognized the value of analogizi ng the concepts of causation in the two
different agreements.
14

24. Moreover, the non-attribution requirement in the third sentence of Article 15.5 requires the
authority not to impute to subsidized imports any in jury caused by other factors. According to the
plain meaning of Article 15.5 as well as the unambiguous guidance from Appellate Body, the
competent authority must "separate" and "distinguis h" the injurious effects of factors other than
subsidized imports to ensure they are not attributed to the subsidized imports.

EC SUBSIDY INVESTIGATION – CLAIMS OF ERROR

Facts Available

25. Before we turn to the issues of whether the EC properly found a subsidy, there are a number
of issues about the EC use of facts available that must be addressed. The EC has twisted the concept
of "facts available" in very disturbing ways. Unde r the EC approach, whenever a competent authority
does not like a particular fact, or does not know how to respond to that fact, the authority may simply
find some excuse to invoke "non-cooperation" and then dismiss the adverse fact. The EC has abused
the narrow concept of "facts available" to dismiss im portant pieces of factual information in this case.
The text of Article 12.7 and the related jurisp rudence both demonstrate that the use of "facts
available" should be exceptional and narrow. Ko rea believes that the Appellate Body discussion of
"facts available" in the antidumping contex t provides useful guidance on this issue.
15 In this case,
however, the EC abused "facts available" to ignore other evidence when that evidence could not be
reconciled to its outcome driven analysis.

Financial Contribution

26. We now turn to the EC argumen ts about subsidies. In this oral statement, we address the EC
failure to show either financial contribution, or be nefit. We focus on the more important issues here,
but we will address all of the issues and all of the EC arguments in our second submission.

27. Under Article 1.1 (a)(1)(iv), "entrustment" or "direction" can be established only where there
is government action so clear and unambiguous that the actions of private bodies can be imputed to
the government itself.

28. The panel in US – Export Restraints
16held that the acts of entrusting and directing carry with
them the following three elements: (i) an explicit and affirmative action, be it delegation or command;
(ii) addressed to a particular party; and (iii) the obj ect of which action is a particular task or duty.

13 EC First Submission, at paras 167-172.
14 US - Hot Rolled Steel (AB), at paras 229-234.
15 US – Hot-Rolled Steel (AB), at paras 82-86. We recognize that the SCM Agreement does not have
provisions analogous to Annex II of the AD Agreement. But since Annex II elaborates on Article 6.8 of the AD
Agreement, which is nearly identical to Article 12. 7 of the SCM Agreement, Korea believes that Annex II
provides useful context to understand Article 12.7.

This decision confirms that generalized statements of government intent or desire, or even general
interventions in the market itself, cannot establish a financial contribution through a private body.
Thus, it is required to show that each
 alleged government delegation or command be examined with
respect to each party, and with respect to each task or duty.

29. Yet this is exactly what the EC did in this case. After its 14-month investigation, the EC
failed to come up with direct evidence to prove GOK "entrustment or direction" of Hynix creditor
banks. The EC relied on largely a collection of circumstantial evidence that cannot be corroborated or
verified in a judicially reliable and meaningful way. When necessary to bolster its collection of
circumstantial evidence, the EC applied "facts av ailable" and substituted adverse inferences for
evidence.

30. Korea believes that this Panel needs to decide the legal standard to apply over the course of
this Panel proceeding as applied in US – Export Restraints. For now, we simply wish to object to the
EC characterization of the GOK admitting that it took actions to push or "nudge" banks into any of
the Hynix restructurings.
17 When read in context, the cited portion of the Korea’s First Submission
makes quite explicit that we disagr ee with this characterization from the newspaper report. Our point
was to highlight how little the EC has actually estab lished. The EC took a newspaper statement about
a single bank, and then jumped to conclusions abou t all banks. Such an approach simply does not
comply with the standards of Article 1.1.

31. The EC also relies extensively on the fact th at the GOK held ownership interests in certain
banks involved in Hynix’s restructuring. Mere ownership cannot establish direction or entrustment by
the government. Such evidence of ownership simply cannot provide any basis to find an explicit and
affirmative delegation or command to all banks, particularly banks w ith little or no GOK ownership.
Korea reiterates that the Hyni x creditors made their financial decisions under commercial
considerations at each stage without any government intervention.

32. For instance, Hynix’s October 2001 restructuring was carried out under a Korean law of
general application. Well over 100 companies were restructured under this framework. Under the
terms of the October 2001 restructuring, Hynix’s principal creditors agreed on a menu of options they
could choose in moving forward (or cutting ties) with respect to Hynix. The very existence of choices
in the October restructuring contradicts the EC’s su ggestion that there was "entrustment or direction"
by the GOK. The totality of circumstances of th e October restructuring confirms the commercial
reasonableness of the measure and negates any notion of "entrustment or direction." Further, the EC
did not produce a single piece of evidence to demonstr ate the constituent elements of "entrustment or
direction" in the October restructuring.

Finding And Measurement Of "Benefit"

33. The second requirement for establishing a countervailable subsidy is that the competent
authority must demonstrate that a "benefit is ther eby conferred." As noted by the Appellate Body in
Canada – Aircraft, a benefit analysis under Articles 1.1(b) and 14 requires a comparison of what was
received by an entity versus what was availabl e on the market. Moreover, the SCM Agreement
defines benefit in the context of the experience of private actors in the market of the Member under
investigation.

34. The EC goes on at some length about its approach to future risk, and its view about
Article 14(a).
18 We disagree that Article 14(a) does not set forth any specific rules. The text makes
explicit that an authority must consider the "usual i nvestment practice" of investors in "the territory of
the member." This language provides a quite exp licit benchmark for evaluating the existence of a

18 EC First Submission, at paras 403-423.

benefit. Thus, contrary to the EC argument, ther e are explicit obligations that authorities must
respect. Authorities do not have carte blanche to impose their own economic views on the investors
in a particular WTO member country.

35. After initially finding no "benefit" on many issues in its Provisional Regulation , the EC
changed its position in its Definitive Regulation and suddenly found the existence of "benefit." This
change was wrong. Nothing that could affect th e "benefit" analysis could have possibly changed
since the Provisional Regulation : the market environment, terms of the loans, and credit ratings
remained unchanged . In fact, the EC acknowledged that it changed its decision on the syndicated
loan in the Definitive Regulation because of new information; i.e., documents with respect to the
Economic Ministers’ meetings. Even if true, however, all this new information concerned only GOK
"entrustment or direction," and had nothing to do with the EC’s benefit analysis. As such, the EC’s
change of analysis for benefit was completely e rroneous and unwarranted b ecause it failed to engage
in any meaningful discussion as to why it was changing its "no benefit" conclusion from the
Provisional Regulation.

36. Setting aside the fundamental flaw of the EC’s benefit calculation, which treated all allegedly
countervailable programmes as a "grant" without rega rd to the circumstances to the nature of the
transaction, the EC also made numerous mistak es in calculating the benefit even under its own
methodology.

ANNEX B-2

EXECUTIVE SUMMARY OF THE STATEMENT
OF THE EUROPEAN COMMUNITIES

I. OBLIGATIONS, FACT, EVIDENCE

1. The European Communities considers that, in exercising judgment, in good faith, pursuant to
Article 3 of the DSU, as to whether assertions ma de before this Panel are even capable of being
fruitful, it is helpful from time-to-time to refer back to the specific text of the SCM Agreement; to the
facts; and to the evidence. It is a matter of considerable regret that Korea does not appear to share this
view.

2. Korea has the burden of proof , and must adduce evidence. Yet its submissions are peppered
with bare assertion unsupported by any evidence, and with hypothesis. For example, Korea
repeatedly makes factual allegations about what it al leges to be the "usual method or practice" of the
European Communities in relation to various matters,
1 but adduces no evidence in this respect. The
European Communities hereby expressly contests and refutes all such bare factual assertions. Korea’s
casual approach is incapable, as a matter of law, of leading to a resolution of this dispute in Korea’s
favour – and rightly so.

3. For certain matters, the investigating authorit y was obliged to rely on the facts available,
within the meaning of Article 12.7 of the SCM Agreement , and in this respect, the European
Communities has two comments.

4. First, Korea states in its first written submi ssion that "the EC alleges that … the GOK lied in
its questionnaire response and during verification. " The European Communities would like to clarify
that it has never expressly made this allegation an d does not do so now – that word is chosen by
Korea, not by the European Communities. Whether or not a respondent "lies" in an investigation, that
is not the legal test provided for in Article 12.7 of the SCM Agreement. Pursuant to that provision, the
question is rather whether or not the Member or interested party refused access to or otherwise did not
provide necessary information within a reasonable period or significantly impeded the investigation.
It is abundantly clear that this is precisely what happened in this case.

5. Second, the European Commun ities wishes to place on record in the strongest terms its view
that Korea cannot now place before this panel unveri fied and unverifiable factual assertions or alleged
copies of documents that are not part of the record before the investigating authority. Unlike other
types of investigation, in a subsidies investigati on the Member itself is also a respondent, and has a
full opportunity to participate in the investiga tion. There are no circumstances, exceptional or
otherwise, that could possibly justify Korea attempti ng to proceed in such a wa y at this late stage.
Should the Panel even entertain such a possibility, a balanced approach would at the very least require
the production of the very large number of doc uments – including documents no doubt highly
prejudicial to Korea’s case - that remain undisclosed by the Korean respondents.

1 For example, First written submission of Korea, paras. 153 and 161.

II. SUBSIDY

6. When large subsidies are granted to sa ve a national champion from impending doom, a
careful scrutiny of the documents usually reveal s that, during the relevant period, the granting
Member has been busy singing two songs.

7. The first, generally necessary to appease national taxpayers and othe r national groups
opposed to the subsidy, is that the market is in meltdown, the company in dire jeopardy, and the
subsidy urgently necessary to avert disaster, for public policy reasons.

8. The second refrain, often repeated in a vain attemp t to bamboozle investigating and judicial
authorities into swallowing a counter-factual and unreal view of the circumstances, is that business is
(or will soon be) booming, that the company is mean , lean and fighting fit, and that capital is pouring
into the company because investors – including the gove rnment – think it’s the best thing since sliced
bread – a sure thing – a safe bet
. Assertions of this type have been made w ith such frequency by the
Korean respondents in this file, that I will spare the Panel a further re-iteration.

9. Well, these two tunes do not harmonise. They clash horribly. And they cannot plausibly co-
exist, at least in relation to the same time period.

10. As lawyers, or as accustomed to listening to lawyers, we are all accustomed to legal
arguments being made in the alternative. And ther e is nothing wrong with that, even if elements of
the reasoning in the different legal arguments are, to so me extent, in conflict with each other.
However, it is intolerable to have two different versions of the facts underpinning a legal analysis,
and no investigating or judicial authority will countenance that.

11. So what are the facts in this case? What w as really happening in 2001? Well, you don’t need a
PhD in rocket science to figure it out. Condemni ng themselves from their own mouths, the Korean
respondents have repeatedly asserted that in this ma rket there was a "perfect storm" in 2001; and
Hynix was right in its path, facing annihilation, but for Government intervention, for public policy
reasons. Quod erat demonstrandum . Let’s remind ourselves of some of the basic facts that are not
seriously in dispute.

12. Starting in November 2000, the three Economic Ministers of Korea, no less, met repeatedly to
decide what to do about Hynix. The Korean Mi nisters responsible for the national economy, for
national industrial policy and for Korea’s international competitiveness, for Korean state money. Not
surprisingly, this went right to the top.

13. The Ministers decided to take measures, initiated by the Government of Korea, in pursuit of a
Government of Korea coordinated policy to save Hynix, at all costs, and issued directions to that
effect, relating to both the Syndicated Loan and the KE IC Guarantee. The detail of the directions, in
terms of day-to-day management, is remarkable. Those directions were still being implemented on
9 January 2001, on 10 April 2001, on 30 June 2 001, and at least right up until the end of the
investigation period, on 31 December 2001.

14. The Government of Korea also put in place, al so at least for the whole of the investigation
period (1 January to 31 December 2001) the KDB Debenture Programme – another government
backed bailout for Hynix (and the Hyundai group ge nerally), which was by far the most important
intended and actual beneficiary.

15. On 10 March 2001, the Government of Korea, acting via the Vice Commissioner of the
Financial Supervisory Service, participated in th e critical creditors meeting, precisely in order to

"nudge" – to use Korea’s own words – the banks into accepting the arrangements for the May 2001
Rescue Package.

16. In October 2001, as the market and the financ ial situation of Hynix further dramatically
deteriorated, most of the private banks and capital finally "jumped ship". The hard-core that remained
to participate in the October 2001 Rescue Package we re under the ownership, control, entrustment or
direction of the Government of Korea.

17. Thus, if one takes a step back and consider s the overall situation during the whole of 2001, a
period during which the Government of Kor ea was heavily intervening to save Hynix, via the
Syndicated Loan, the KEIC Guarantee and the KDB Debenture Programme, it just defies any
reasonable logic that the Government of Korea si mply lost interest in the May and October 2001
Rescue Packages. And it is simply impossible to accep t, based on the facts, that during this period, in
which the Government of Korea was acting urgently to save Hynix from disaster for public policy
reasons, the banks were, at the same time , throwing good money after bad, based on purely
commercial considerations. It may well be that, by th is time, it had become clear to the continuing
participants that Hynix was a "safe bet" – but th at was not because of its outstanding condition and
performance. It was simply because it had become abundantly clear that the Government of Korea
would never abandon Hynix, and was in fact busy pouring public money and support into it. Only the
best athletes may, in truth, be considered a safe bet – but not if they flunk the drugs test.

III. INJURY

18. A determination of injury must be based on positive evidence. To suggest that it is not is a
serious allegation, that comes very close to calli ng into question the good faith of the investigating
authority. This type of allegation is made repeat edly by Korea in this case – and it is utterly without
foundation. It is, in any event, an incomprehensible allegation, given that much of the determinative
evidence was provided by the Korean parties themselves , and the accuracy of the rest has not even
been challenged. So just what exactly is Korea now alleging? That the information provided by the
Korean parties during the injury investigation was also false or misleading or incomplete? That is
hardly likely to advance Korea’s case.

19. Essentially, the specific obligation on the investigating authority is to examine, consider and
evaluate certain matters, no one or several of whic h can necessarily give decisive guidance.
Manifestly, it results from the text of the measure at issue that this is precisely what the investigating
authority did in this case. Repeatedly and counte r-factually asserting the contrary cannot change this
fact. A mantra is not a legal argument. Korea might disagree with the outcome of the overall
assessment, but that is entirely beside the point.

20. What Korea’s case boils down to is the nebulous and generalised assertion that, in relation to
certain matters on which the SCM Agreement is silent, the investigating authorities’ determination did
not involve an objective examination. In other word s, right from the start, it is the most tenuous of
cases. Perhaps not surprisingly, Korea’s definiti on of "objective" turns out to be anything that
generates a favourable result for Hynix in this case. The briefest scrutiny of Korea’s arguments
demonstrates that they are in fact built on one false or hypothetical statement after another. There is
simply nothing in Korea’s submissions cap able of supporting the assertion that the investigating
authority in this case did anything other th an make a determination involving an objective
examination.

21. Given the global nature of the market and its dire state at the time – points on which Korea
itself insists at great length, it would indeed be qui te extraordinary and amazing if a subsidy of the
magnitude granted to Hynix had no repercussions on other players in the market – like a stone thrown
into a pond that mysteriously vanishes below the surface without generating a single ripple. In fact,

the whole purpose of the kind of "survival" subsidy granted by Korea to Hynix is relative : it is
precisely to improve the relative situation of Hynix vis a vis its competitors, and thus enable it to
survive. Otherwise, there would be fundamentally no point to it.

ANNEX B-3

THIRD PARTY ORAL STATEMENT
OF CHINA

(4 November 2004)

1. Thank you, Mr. Chairman, and Members of the Panel. It is my pleasure to present the views
of China in this proceeding.

2. China has noted that the parties in the present dispute disagree with each other on the
interpretation and application of Ar ticle 12.7 of the SCM Agreement. Among those issues in dispute,
China particularly concerns with the EC’s assertion that the "essential point" of Article 12.7 "is and
can only be the possibility of drawing adverse infere nce". In this oral presentation, China will only
address its views on whether Article 12.7 connotes such asserted possibility.

I. THE EC’S ASSERTION IS OF NO LE GAL BASIS IN THE TEXT OF ARTICLE 12
OF THE SCM AGREEMENT

3. With respect to the EC's above assertion, Chin a fails to see the so-called "essential point" of
"drawing adverse inference" contemplated or implie d under Article 12.7. China recalls the Appellate
Body has observed on various occasions that, in accord ance with the customary rules of interpretation
of public international law, a proper treaty interpreta tion is first of all a text ual interpretation, and the
task of interpreting a treaty provision must begin with the specific words of that provision. 1
Moreover, the interpretive principle is that "an inte rpreter is not free to adopt a reading that would
result in reducing whole clauses or paragraphs of a treaty to redundancy or inutility".2

4. In this regard, China considers that the inte rpretation of Article 12.7 should be first of all on
the basis of the ordinary meaning of the text, and s hould also be analysed in the context of Article 12
as well as Part V of the SCM Agreement.

5. With respect to the ordinary meaning of the text, it is evident that Article 12.7 only provides
for applying facts available under certain circumstan ces, and the text of this paragraph contains no
explicit provision of drawing adverse inference. In the absence of such express provision, should any
interested Members and interested parties fail to provide or refuse access to the required necessary
information or significantly impede the investigatio n, the investigating aut hority could only base its
determinations on objective assessment of the facts available to it.

1 Japan–Taxes on Alcoholic Beverages ("Japan–Alcoholic Beverages II") , Appellate Body Report,
WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB /R, 4 October 1996, § G. See also US–Offset Act ("Byrd Amendment") ,
Appellate Body Report, para. 281.
2 United States–Standards for Reformulated and Conventional Gasoline ("US–Gasoline"), Appellate
Body Report, WT/DS2/AB/R, adopted 20 May 1996, §III. B.

II. IN LIGHT OF PERTINENT PROVIS IONS IN THE SCM AGREEMENT, THE
APPLICATION OF FACTS AVAILABLE DOES NOT DENOTE DRAWING
ADVERSE INFERENCE

6. In order to analyses the EC’s argument, Chin a would like to present its further considerations
in light of the context of certain relevant paragraphs of Annex V of the SCM Agreement.

7. Annex V of the SCM Agreement deals with procedures for developing information about
"serious prejudice" in cases involving actionable subsidies under Part III. This Annex does address,
in impressive detail, the drawing of ad verse inferences under certain circumstances.
3 Paragraph 7 of
Annex V provides explicitly that "the panel shoul d draw adverse inferen ces from instances of non-
cooperation by any party involved in the information-gathering process". Further, China takes special
note of the fact that paragraph 6 in the same A nnex addresses the issue of the application of best
information available. It can be seen that th e two distinct paragraphs of Annex V address the
application of best information available as well as adverse inference respectively.

8. In China's opinion, it is helpful to analyse the relationship between the application of "best
information available" under paragraph 6 and "d rawing adverse inference" under paragraph 7 of
Annex V. In accordance with the effective treaty inte rpretation rules, if paragraph 6 were interpreted
as empowering the panel to draw adverse infere nce from any party's non-cooperation, then the
provision of paragraph 7 in respect of adverse inference would result in "redundancy or inutility".
Obviously, the appropriate reading shall be that th e authority to draw adverse inference can not be
induced from the provision of best information available.

9. The above understanding is also supported by paragraph 8 of Annex V, which provides "[I]n
making a determination to use either best inform ation available or adverse inferences, the panel
shall......". The terms of "either best information available or adverse inferences" connote that, the
two methods are different. Applying best inform ation available does not contain the meaning of
drawing adverse inference by itself.

III. THE FINDINGS OF THE APPELLATE BODY IN CANADA-AIRCRAFT IS
IRRELEVANT TO THE PRESENT DISPUTE

10. China notes that the EC's conclusion reading "the essential point of such a provision is and
can only be the possibility of drawing adverse infe rence" is based on the Appellate Body Report in
Canada Aircraft. However, China considers that paragra phs 181 through 206 of the Appellate Body
Report in Canada-Aircraft are concerned with the authority of the panel, but not that of the
investigating authority to draw adverse inferences under certain circumstances, thus can not provide
interpretive guidance for the present issue.

11. It is evident that the issu e before the Appellate Body in Canada-Aircraft was "[w]hether the
Panel erred in law to draw adverse inference from Ca nada’s refusal to provide information to the
Panel about the EDC’s debt financing activities"
4, that is, the Panel’s authority to draw adverse
inference "in cases that involve prohibited export subsidies for which the adverse effects are
presumed".5 The Appellate Body concluded th at "[C]learly, in our view, the Panel had the legal
authority and the discretion to draw inferences from the facts before it". 6 In addition, Annex V of the

3 Canada--Measures Affecting th e Export of Civilian Aircraft , Report of the Appellate Body,
WT/DS70/AB/R, 2 August 1999 ("Canada-Aircraft"), para. 201.
4 Canada-Aircraft, para. 181.
5 Id., para. 202.
6 Id., para. 203.

SCM Agreement invoked by the Appellate Body also concerns with the panel procedures in cases of
actionable subsidies, but not relevant to the investigating authority in the underlying investigation.

12. In this regard, China believes that the observations made by the Appellate Body in Canada-
Aircraft with respect to the authority of the DSB panel are irrelevant to the evidentiary rules to be
applied by the investigating authority in the counter vailing investigation. Therefore, the EC's reliance
on the Appellate Body Report in Canada-Aircraft is of no help to its argument.

13. In conclusion, Article 12.7 does not explic itly provide the possibility of "drawing adverse
inference" in applying "facts available", and such an understanding is further supported when
analyzed together with the context of Annex V of the SCM Agreement. Virtually, the Respondent's
reliance on the Appellate Body Report in Canada-Aircraft is of no merit in the present dispute.

14. This concludes my presentation. Thank you for your attention.

ANNEX B-4

THIRD PARTY ORAL STATEMENT OF JAPAN

(4 November 2004)

I. INTRODUCTION

1. Mr. Chairman and distinguished Members of the panel, on behalf of the Government of
Japan, I thank you for giving this opportunity to ex press our views on this important matter. This
morning, we will focus on certain arguments presente d by the parties, which involve systemic issues
in the SCM Agreement, and should be addressed further.

II. ARGUMENT

A. NON-ATTRIBUTION RULE UNDER ARTICLE 15.5 OF THE SCM AGREEMENT

2. The EC argues that the investigating aut horities correctly found that other known factors
"may have caused injury, however not to an extent breaking the causal link between the subsidized
imports and the injury caused by the subsidized imports."
1 It appears that the EC misunderstood the
non-attribution rule under Article 15.5. The question to be addr essed for the non-attribution rule is
whether the authorities examined the causation betw een the subsidized imports and the injury after
separating and distinguishing injury caused by other known factors. As discussed in our third party
submission, upon separating the injury caused by other known factors, the authorities are required to
examine whether the injury caused solely by the subsidized imports was material or not.

3. Article 15.5 provides that the authorities "shall also
 examine any known factors other than the
subsidized imports," and "injuries caused by these other factors must not be attributed to the
subsidized imports."2 The word "also" clarifies that the au thorities are obliged to analyze the causal
link between any known factors and injury in a ddition to the causal link between the subsidized
imports and the injury. The phrase "must not be a ttributed" in Article 15.5 further clarifies that
investigating authorities are required to separate and distinguish injury caused by other known factors
from injury caused by the subsidized imports. As we explained in details in our third party
submission, the Appellate Body repeatedly has e xplained this non-attribution requirement in the
context of analysis of the meaning of Article 3. 5 of the AD Agreement, which is equivalent to
Article 15.5 of the SCM Agreement.

4. It appears that the EC’s causation analysis did not separate and distinguish injury caused by
the subsidized imports from injury by other known f actors. As such, the EC’s causation analysis in
this dispute appears insufficient. Japan thus resp ectfully requests that this Panel carefully review
whether the EC separated and distinguished inju ry caused by other known factors from the injury

1 The First Written Submission by the European Communities (“EC First Written Submission”), dated
11 June 2004, para. 180 (footnote and emphasis in original omitted).
2 Article 15.5 of the SCM Agreement (emphasis added).

caused by subsidized imports in its injury determ ination consistently with Article 15.5 of the SCM
Agreement.

B. ENTRUSTMENT OR DIRECTION BY THE GOVERNMENT UNDER
ARTICLE 1.1(A)(1)(IV)

5. We agree with the EC that the entrustment or direction by a government does not have to be
in a particular form or on a transaction-specific basis.
3 The panel in US – Export Restraints
interpreted the government’s entrustment or direc tion to mean an explicit and affirmative action
prompting a particular party to perform a particular task or duty. 4 Article 1.1(a)(1)(iv), however, does
not specify any particular methodology for de termining whether a government’s action was
entrustment or direction. The government’s entrus tment or direction, thus, does not have to be a
publicly announced command, or a command instruc ting a private bank in every detail of financial
supports. In this connection, the EC correctly argues that "[t]here is, for example, nothing in
Article 1.1 SCM Agreement that would preclude an oral entrustment or direction." 5 It is sufficient
under Article 1.1(a)(1)(iv) if the government’s acti on were such that a private bank were able to
understand what the government delegated or commanded.

6. Consequently, the question in this dispute in connection with Article 1.1(a)(1)(iv) is the
evidence, on which the investigating authority may be based to find that a government’s instruction
was an entrustment or direction under this Article. As we discussed in our third party submission, the
instruction may be shown through circumstantial evid ence. The evidentiary standard applicable to
this Article is found in Article 11 of the DSU. Article 11 requires the Panel to review an investigating
authorities’ determination, based on "an objective asse ssment". Further, Article 11 directs panels to
make an objective assessment of the facts of the case. We also could consider that this obligation of
an objective assessment applies e qually to the investigating authorities’ assessment, because panels
are required to review the investigating authoritie s’ evaluation of facts in accordance with that
standard. Article 11 thus requires, in this case, that the investigating authorities base its determination
on evidence sufficient to allow the authorities to reasonably conclude that the government delegated
or commanded a private bank to provide certain financial support to a specific company. There are no
further requirements for the evidentiary standards applicable to Article 1.1 of the SCM Agreement. As
such, we respectfully request that this Panel carefully review the investigating authorities’
determination on entrustment and direction in light of this evidential standard.

C. APPLICATION OF FACTS AVAILABLE UNDER ARTICLE 12.7

7. In replying to the argument by Korea that th e EC incorrectly applied facts available, the EC
has argued that "[t]he questions repeatedly posed by the European Comm unities were sufficiently
precise, and of sufficient scope, to catch matters such as the ministerial meeting and related
documents."
6

8. As discussed in our third party submission, an investigation requires two-way communication
between the investigating authorities and the respon ding parties. The investigating authorities are
required to effectively communicate to responding parties the information that the authorities would
like to receive before the authorities decide to apply facts available. Article 12.1 clarifies this initial
obligation of the authorities, providing "[i]nter ested Members and all interested parties in a
countervailing duty investigation sh all be given notice of the information which the authorities

3 See EC First Written Submission, para. 284.
4 Panel Report, United States -- Measures Treatin g Export Restraints as Subsidies (“US – Export
Restraints”), WT/DS194/R, adopted 23 August 2001, para. 8.29.
6 Id., para. 214.

require." Indeed, without knowing what informatio n the authorities consider to be "necessary," the
responding parties cannot refuse to access to, or otherwise do not provide, necessary information.
7

9. The authorities’ request, however, would be sufficient if it was specific enough that a
responding party was able to understand what type of information the authorities requested. The
authorities’ request does not have to identify a specific name of the document. In fact, the authorities
would not be aware of what specific information is available to responding parties at the initial stage
of an investigation. If the responding party has di fficulties to identify or understand the scope of the
requested information, the SCM Agreement requi res that the responding party communicate the
difficulties to the authorities. Article 12.11 provides "[t]he authorities shall take due account of any
difficulties experienced by interested parties, in pa rticular small companies, in supplying information
requested, and shall provide any assistance practicable ." In order for the authorities to take due
account of a responding party’s difficulties, the author ities have to be informed of the difficulties.
The responding party may not keep silent, waiting for the authorities’ additional inquiries.

10. When the investigating authorities effectivel y communicated what information the authorities
would like to receive from a responding party, but the responding party did not respond to the request,
then the authorities may consider that the r espondent "otherwise" did "not provide necessary
information",
8 and apply the facts available. As the panel in Argentina – Floor Tiles states, the
authorities "may not fault an interested party for not providing information it was not clearly
requested to submit."9 In this connection, we disagree with the EC’s interpretation that the words "or
otherwise" in Article 12.7 refer to "a situa tion in which no such request has been made." 10 The facts
available is allowed to apply when the respondi ng party did not submit the information although it
was clearly requested to do so. While Japan does no t take any position on the factual aspects of this
dispute, the investigating authorities, as unbiased and objective triers of facts, may assess the fact of
the non-submission, taking into account other evidence that the authorities also collected.

III. CONCLUSION

11. For the reasons set forth above and in our wr itten submission, Japan respectfully requests that
this Panel carefully review the consistency of the EC’s injury determination with Articles 15.5 and the
subsidy determination with Articles 1.1(a)(1)(iv) and 12.7 of the SCM Agreement.

7 See, Article 12.7 of the SCM Agreement.
8 Article 12.7 of the SCM Agreement.
9 Argentina - Definitive Anti-Dumping Measures on Imports of Ceramic Floor Tiles from Italy
(“Argentina – Floor Tiles”), WT/DS189/R, adopted 5 November 2001, para. 6.54.
10 EC’s First Written Submission, para. 199.

ANNEX B-5

THIRD PARTY STATEMENT OF THE SEPARATE CUSTOMS
TERRITORY OF TAIWAN, PENGHU, KINMEN AND MATSU

(4 November 2004)

 Mr. Chairman, Members of the Panel and parties to the dispute, thank you for giving us the
opportunity to express our views.

I. INTRODUCTION

1. The Separate Customs Territory of Taiwan , Penghu, Kinmen and Matsu makes this third
party oral statement because of its trade and systemic concerns regarding the correct interpretation of
the Agreement on Subsidies and Countervailing Measures (ASCM).

2. In this oral statement, we will briefly comment on the following:

• The interpretation of the words "entrusts or directs",

• The methodology used in determining "benefit", and

• Non-attribution analysis in the determination of injury.

II. THE DETERMINATION OF SUBSIDY

A. THE INTERPRETATION OF THE WORDS "ENTRUSTS OR DIRECTS"

3. In our view, the Panel in US – Export Restraints
1, by deriving its interpretation of the terms
"entrust" and "direct" from ordinary meaning of th e words in the context of Article 1.1(a)(1)(iv),
adequately clarifies their meanings. We see no re ason why the interpretation in that case cannot be
applied here. Under that Panel’s interpretati on, the conditions upon which a government can be
considered to have "entrusted or directed" a private body under Article 1.1(a)(1)(iv) are: (i) an explicit
and affirmative action, be it delega tion or command; (ii) addressed to a particular party; and (iii) the
object of which is a particular task or duty. 2 In other words, the mere fact of influence or intervention
in the market by a government, which it might undertak e at different levels for different purposes, is
not in itself sufficient proof of entrustment or direction.

4. An investigating auth ority must base its determination on positive evidence showing that the
above three conditions exist in order to find government entrustm ent or direction. We would
therefore respectfully request the Panel to carefully determine whether the EC has addressed the three
conditions above in its investigation.

1 United States – Measures Treating Exports Restrain ts as Subsidies (US – Export Restraints), Panel
Report, WT/DS194/R.
2 US-Export Restraints, WT/DS194/R., para. 8.29.

B. THE METHODOLOGY USED IN DETERMINING "BENEFIT"

5. With regard to the methodology adopted by the investigating authority to calculate the
amount of a subsidy in terms of benefit to the reci pient, Article 14 of the ASCM sets forth relevant
guidelines relating to equity investments, loans, loan guarantees, the provision of goods or services by
a government, and the purchase of goods by a governme nt. The Appellate Body pointed out in the
Canada – Aircraft case that the word "benef it" used in Article 1.1(b) implies some kind of
comparison. A "benefit" arises under each of the guidelines provided under Article 14 if the recipient
has received a "financial contribution" on terms more favourable than those available to the recipient
in the market.
3 We share the view of Korea, expressed in paragraphs 572–57 3 of its first written
submission, that in order to conduct a proper "ben efit" analysis under Article 14, the investigating
authority is under an obligation in measuring bene fit to compare what firms received with what was
available on the market.

6. In addition, in our view, Article 14 provides for a preference for domestic market of the
Member under investigation as the benchmark. It seems illogical to use th e commercial market of
some other territory as the benchmark, when a benc hmark to measure benefit can be found within the
territory of the Member against which a financial contribution has allegedly been conferred. Only
when the domestic market of that Member is dist orted should the investigating authority be permitted
to use another market as a benchmark. Otherwis e, an investigating authority would be able to
arbitrarily choose any market, which could result in the use of the highest CVD margin as its
benchmark.

III. THE DETERMINATION OF INJURY

7. We agree with Korea that Article 15.5 of the SCM Agreement requires a "non-attribution"
analysis.
4 The third sentence of Article 15.5 of the SCM Agreement requires that "the authorities
shall also examine any known factors other than the subsidized imports which at the same time are
injuring the domestic industry, an d the injuries caused by these other f actors must not be attributed to
the subsidized imports."

8. The Anti-Dumping Agreement and the SCM Agreement are widely recognized as being
related, as both agreements are derived from GATT Article VI. The provisions of these two
Agreements often employ a similar language and inte rpretations of corresponding provisions have
been used interchangeably by panels and the Appellate Body in cases such as US – Continued
Dumping and Subsidy Offset Act
5 and US – Softwood Lumber Investigation.6

9. The two provisions in this case, Article 15. 5 of the SCM Agreement and Article 3.5 of the
Anti-Dumping Agreement employ substantially the same language in the same context, namely, in the
examination of injury to domestic industry. Th e jurisprudence for Article 3.5 of the Anti-Dumping
Agreement clearly requires the investigating author ities to separate and distinguish "the injurious

3 Canada -- Measures Affecting the Export of Civilian Aircraft , Report of the Appellate Body,
WT/DS70/AB/R, 2 August 1999, at para. 157-58.
4 First written submission of Korea, para. 221-232
5 Appellate Body Report, United States – Continued Dumping and Subsidy Offset Act of 2000 ,
WT/DS217/AB/R, WT/DS234/AB/R, with regard to Article 18.1 of the Anti-Dumping Agreement and
Article 32.1 of the SCM Agreement.
6 Panel Report, United States – Investigation of the International Trade Commission in Softwood
Lumber from Canada, WT/DS277/R, para. 7.129.

effects of the other factors from the injurious effects of the dumped imports". 7 This requirement also
applies to Article 15.5 of the SCM Agreement. The Panel in the softwood lumber case mentioned
above specifically made this point.

10. Based on the above, we ask the Panel to exam ine whether the EC has met the non-attribution
obligation required by Article 15.5 of the SCM Agreement.

IV. CONCLUSION

11. In light of the above-mentioned comments, the Separate Customs Territory of Taiwan,
Penghu, Kinmen and Matsu respectfully requests the Pa nel to take the above views into account when
making its findings in this case.

7 Appellate Body Report, United States – Anti-Dumping Measures on Certain Hot-Rolled Steel
Products from Japan, WT/DS184/AB/R, para. 223.

ANNEX B-6

THIRD PARTY ORAL STATEMENT
OF THE UNITED STATES

(10 November 2004)

Mr. Chairman, members of the Panel:

1. On behalf of the United States delegation, it is my privilege to appear here today to present
the views of the United States concerning certain issu es in this dispute. In our written submission, we
already commented on the submissions of the Europ ean Communities ("EC") and Korea. Therefore,
the principal focus of my comments today will be on the third-party written submission of Japan.

2. At the outset, however, I would like to make a couple of general observations. First, with
respect to the issue of directed lending by the Gove rnment of Korea ("GOK"), as we explained in our
written submission, "the issue before the Panel is whether a reasonable, unbiased person looking at
the totality of the evidence before the EC authorities could have reached the same conclusion as did
those authorities; namely, that the GOK entrusted and directed private financial institutions to bail out
the financially distraught Hynix."
1 In our view, this issue is not even a close call. There can be no
serious question that a reasonable, unbiased person could have reached the same conclusion as the EC
authorities.

3. Second, with respect to the question of material injury, the United States is not in a position to
comment on the details of the EC’s injury determin ation. However, it appears to the United States
that Korea would have this Panel believe that th e GOK’s intervention in the market to artificially
sustain the existence of the number three produ cer of DRAMs in the world had no adverse
consequences on Hynix’s competitors. While the consequences of Korea’s subsidization of Hynix
likely varied from market to market, we str ongly disagree with Korea’s suggestion that the
subsidization of Hynix had no adverse consequences whatsoever.

4. Having made these general observations, I now would like to comment on certain aspects of
the third-party submission of Japan.

The Evidentiary Standard for Entrustment or Direction

5. The United States agrees with most of Japan ’s discussion regarding the evidentiary standard
applicable to questions of entrustment or direction under Article 1.1(a)(1)(iv) of the Agreement on
Subsidies and Countervailing Measures ("SCM Agreement").
2 The United States agrees that there is
no special evidentiary standard for government en trustment or direction. The United States also
agrees that subparagraph (iv) does not require th at a government’s delegation or command be so
detailed as to instruct every step that the bank must follow. Finally, the United States agrees that the

1 Third Party Submission of the United States of America , 16 June 2004, para. 31 [hereinafter “US
Submission”].
2 Third Party Submission of the Government of Japan , 16 June 2004, paras. 7-13 [hereinafter “Japan
Submission”]; see also US Submission, paras. 16-31.

elements of entrustment or direction may be foun d on the basis of circumstantial evidence or by
evidence from secondary sources. Indeed, the United States would go further and submit that
circumstantial and secondary evidence takes on particul ar importance in situations where, as in the
case of the Hynix bailout, a government acts behind the scenes and takes advantage of its ownership
stakes in banks to direct their behaviour.

6. The one exception the United States would take to Japan’s discussion of evidentiary standards
for entrustment or direction involves the heading to Section II.B.1 of its submission. There, Japan
states that "[t]he Panel should apply the correct ev identiary standards to review the existence and the
extent of entrustment or direction ... ." The Panel’s task is not to determine de novo whether
entrustment or direction existed, but instead is to review the EC’s determination. Therefore, it is more
accurate to say that the Panel’s task is to determine whether the EC applied the correct evidentiary
standard.

The EC’s Injury Determination

7. Turning to the EC’s injury determination, Japan criticizes the EC for failing to separate and
distinguish the injurious effects of other known f actors to the domestic industry from the effects of
subsidized imports.
3 More specifically, Japan asserts that the EC did not address subsidized imports
and non-subsidized imports separately in its overcapac ity analysis. In addition, Japan asserts that the
EC, after acknowledging the harmful effects of non-s ubsidized imports, failed to adequately separate
the injurious effects of subsidized imports from non-subsidized imports.

8. In the view of the United States, these assertions suggest a standard of analysis that is beyond
what the SCM Agreement actually requires. In th is regard, the United States would note that the
particular methods and approaches by which WT O Members choose to carry out the process of
separating and distinguishing the injurious effects of unfair imports from the injurious effects of the
other known causal factors are not prescribed by the WTO agreements. The Appellate Body has
reached this same conclusion consistently. For ex ample, the Appellate Body has stated as follows:
"Thus, provided that the investigating authority does not attribute the injuries of other causal factors to
[unfair] imports, it is free to choose the methodolog y it will use in examining the ‘causal relationship’
between [unfair] imports and injury."
4

9. Similarly, there is no requirement in th e plain text of the SCM Agreement that an
investigating authority "isolate" subject imports or the effects of the subject imports and other known
factors on the domestic industry. Neither in US - Hot-Rolled Steel nor in subsequent reports has the
Appellate Body found any requirement for the investig ating authority to "isolate" the injurious effects
of the unfair imports. Instead, the standard articul ated has been whether the investigating authorities
provided a satisfactory explanation of the nature a nd extent of the injurious effects of those other
factors, as distinguished from the injurious effects of the unfair imports.

10. Second, Article 15 of the SCM Agreement does not require that the subject imports alone, in
and of themselves, be the cause of material injury . Even in the context of reviewing safeguards
determinations, the Appella te Body has stated that Article 4.2(b) of the Agreement on Safeguards
does not require that increased imports alone be the cause of serious injury.
5 In Wheat Gluten, the

3 Japan Submission, para. 6.
4 European Communities – Anti-Dumping Duties on Malleable Cast Iron Tube or Pipe Fittings from
Brazil, WT/DS219/R, Report of the Appellate Body adopted 18 August 2003, para. 189, relying on
United States – Anti-dumping Measures on Certain Hot-Rolled Steel Products from Japan , WT/DS184/AB/R,
Report of the Appellate Body adopted 23 August 2001 [hereinafter “US - Hot-Rolled Steel”].
5 See, e.g. United States - Definitive Safeguard Measures on Imports of Wheat Gluten from the
European Communities, WT/DS166/AB/R, Report of the Appellate Body adopted 19 January 2001, paras. 70,

Appellate Body found that the causation requirement of the Agreement on Safeguards can be met
where serious injury is caused by the interplay of increased imports and other factors.
6

The EC’s Use of Facts Available

11. Moving on to the EC’s use of facts available in connection with its subsidy determination, the
United States in its written submission addressed Ko rea’s arguments concerning the facts available.
Today, I would like to comment briefly on Japan’s arguments regarding this topic.

12. Japan asserts that "the general principle of good faith under international law and the specific
requirements under Articles 12.7 and 12.11 mandate that facts available are the last resort for the
authorities."
7 The United States has several problems with this statement.

13. First, with respect to Japan’s reference to "g ood faith," there is no basis for using a principle
of "good faith" to depart from the text of th e agreements – including the SCM Agreement – as
negotiated. There is also no basis or justif ication in the WTO Agreement for a WTO dispute
settlement panel to enforce a principle of "good fa ith" as a substantive obligation agreed to by WTO
Members.

14. Dispute settlement panels have clear and unequivocal terms of reference: they are to examine
the matter before them "in the light of the releva nt provisions in ... the covered agreements cited by
the parties to the dispute ... ."
8 Nowhere in Appendix 1 to the DSU, which defines the "covered
agreements" for purposes of the DSU, is there listed an international law principle of good faith.

15. Second, there is no basis for Japan’s assertion that Articles 12.7 and 12.11 of the SCM
Agreement "mandate" that facts available be used only as a "last resort." The text of Article 12.7
describes the prerequisites for using facts available. That text does not include the phrase "last resort"
or any similar concept, nor does the text of Article 12.11.

16. Thus, the task for the Panel is to determin e whether the EC reasonably determined whether
the prerequisites existed under the relevant provis ions of the SCM Agreement for relying on facts
available. The Panel’s task is not to rewrite those provisions so as to incorporate an undefined notion
of good faith.

17. Finally, the United States would not take issue with Japan’s observation that cooperation in a
countervailing duty investigation is a two-way process.
9 However, the United States would
emphasize that the process is, indeed, two-way, a nd requires cooperation from the investigated parties
as well as from the investigating authorities. In the report cited by Japan – which, it must be noted,
involved the interpretation of provisions not f ound in the SCM Agreement – the Appellate Body
emphasized that "the level of cooperation required of interest ed parties is a high one ... ." 10 C a n
Korea’s extremely narrow interpre tation of the EC’s questions a nd its withholding of information
regarding the meetings of Economic Ministers be re garded as a "high level" of cooperation? Can
Hynix’s submission of one page of the Arthur Andersen report to the EC authorities, even though it
submitted the entire report to US authorities in their countervailing duty investigation, be regarded as

79 [hereinafter “ Wheat Gluten”];United States - Safeguard Measures on Imports of Fresh, Chilled or Frozen
Lamb Meat from New Zealand and Australia , WT/DS177/AB/R, WT/DS178/AB/R, Report of the Appellate
Body adopted 16 May 2001, paras. 165-170.
6 Wheat Gluten, paras. 67-68.
7 Japan Submission, para. 14.
8 DSU Article 7.1.
9 Japan Submission, para. 18.

a "high level" of cooperation? Can Hynix’s refu sal to give consent to Citibank to provide EC
authorities with documents pertaining to Citibank’s ro le in the Hynix bailout be regarded as a "high
level" of cooperation? To merely pose these questions is to answer them.

Conclusion

18. Mr. Chairman, members of the Panel, that concludes the third-party statement of the
United States. Thank you for your attention.