Document: WT/DS296/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 Opening Statement of Korea B-2
Document codes: WT/DS296/R
Complainant: South Korea
Respondent: U.S.
Third parties: China, Taiwan, EU, Japan
Dispute stage: Appellate Body
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 Opening Statement of Korea B-2
Annex B-2 Closing Statement of Korea B-5
Annex B-3 Executive Summary of the Open ing Statement of the United States B-7
Annex B-4 Closing Statement of the United States B-12
Annex B-5 Third Party Oral Statement of China B-14
Annex B-6 Third Party Oral Statement of the European Communities B-17
Annex B-7 Third Party Oral Statement of Japan B-20
Annex B-8 Third Party Oral Statement of the Separate Customs Territory of
Taiwan, Penghu, Kinmen and Matsu
B-23

ANNEX B-1

EXECUTIVE SUMMARY OF THE ORAL STATEMENT
BY THE GOVERNMENT OF KOREA AT THE
FIRST SUBSTANTIVE MEETING

I. ITC INJURY INVESTIGATION – CLAIMS OF ERROR

A. ARTICLE 15.1 STANDARDS

1. As an overarching provision, Article 15.1 set s the basic framework for the injury portion of
the current dispute. Article 15.1 requires that all asp ects of the injury investigation must be based on
positive evidence and an objective examination of the facts.

2. In the case below, the ITC violated the re quirements of Article 15.1 by not providing
sufficient explanations in support of the various conclusions it drew.

B. SIGNIFICANT INCREASE IN SUBJECT IMPORTS

3. The data in the underlying case showed that th e Hynix brand lost market share over the period
of investigation, and that subject imports changed only slightly in reaction to the temporary shutdown
of the Hynix US operations.

4. The ITC now tries to obscure these facts with detailed arguments about the data. For
example, the United States accuses Korea of erroneously mixing the shipment data of subject imports
based on their value with other data based on volume . However, the data provided by Korea to the
ITC was based on volume.

5. The ITC tries to look at import volume in a vacuum, mechanically checking off boxes. But
Article 15.2 requires more than such mechanical checking. For the term “significant” to have
meaning, the authorities must ensure whether there have been increases in various measures.

6. Moreover, the ITC tries to address the s hutdown at the Hynix Oregon facility, but never
credibly explains why substitution between factor ies by a single Korean company can represent a
significant increase in volume or market share of subject imports.

C. SIGNIFICANT PRICE EFFECTS BY SUBJECT IMPORTS

7. The ITC’s traditional underselling analysis was not an objective examination for the pricing
analysis in this particular case because it ignored the prices of non-subject imports.

8. As with the volume effects, any objective assessment of the pricing evidence taken as a whole
would find that the price effects of allegedly subsid ized imports were not “significant”. Accordingly,
the ITC’s finding was inconsistent with Articles 15.1 and 15.2.

D. CONDITION OF THE DOMESTIC INDUSTRY

9. Unlike the ITC assertion, the evidence before the ITC demonstrated overall strength, not
weakness, of the domestic industry. Most egre giously, the ITC failed to even address the public

statements that Micron and Infineon made to the financial community and their investors that they
were doing quite fine. Moreover, the ITC never put the condition of the domestic DRAM industry
into the context of the overall business cycle.

E. CAUSATION

10. Pursuant to Article 15.5, Members must dem onstrate an explicit “causal relationship” between
the subsidized imports and any material injury suff ered by the domestic industry. In this case, the
evidence before the ITC demonstrated that there was no correlation between the trends in subject
imports and the condition of the do mestic industry. Most importan tly, record evidence shows that
there was an unprecedented drop in underlying dema nd for computer and telecom equipment and that
2001 was the single worst year in decades for these industries.

11. The ITC defence is that it did address these various arguments. The United States seems to
believe that any mention of a fact or argument is somehow sufficient and meets WTO obligations.
But such an approach does not satisfy obligations under Article 15.

II. DOC SUBSIDY INVESTIGATION – CLAIMS OF ERROR

12. Much of the US financial cont ribution and benefit analysis is based on the predicate that the
US style bankruptcy approach is the single norm against which to measure all restructurings
everywhere in the world. Yet it is a fundamental aspect of any market ec onomy that there be some
method of addressing financially distressed companies short of termination or bankruptcy.

A. FINANCIAL CONTRIBUTION

13. In the underlying case, DOC brought together a patchwork of evidence and determined that
all lending to Hynix by all Korean banks over a ten- month period was somehow being directed by the
GOK. This absence of evidence is particularly egre gious for the financing transactions later in the
period of investigation. With respect to the October restructuring, the only evidence the DOC
provides regarding alleged GOK action is the unve rified assertions of a single anonymous “expert”
interviewed by the DOC in Seoul.

14. The United States argues that the evidence i ndicates that the post-1997 reform measures did
not guarantee complete bank independence or elimin ate government interference in lending decisions
in Korea. In so arguing, however, the United St ates largely ignores the extensive GOK discussion of
various legal mechanisms effectively precluding and prohibiting any form of inappropriate
government intervention in the banking and financial sectors of Korea.

15. For instance, contrary to the erroneous US a llegation, the actual language of Article 1 of the
Prime Minister Decree No. 408 makes amply clear that this law had a very di fferent purpose than that
attributed by the United States.

16. The United States also makes much of the “C orporate Restructuring Promotion Act”. Yet as
Korea made clear, the CRPA is a law of general app lication. Also, creditors still have choices under
the CRPA as they could put the company in question into a court receivership, or exercise appraisal
rights and can walk away.

17. In the present case, the United States tries to read Article l.1(a) so broadly as to provide
authorities with almost limitless discretion. Yet as the panel in US -Export Restraints articulated, the
plain meaning of “entrusts or directs” poses the co re questions of “who” is being directed to do
“what”.

B. FINDING AND MEASUREMENT OF “BENEFIT”

18. In this case, the DOC had a wide range of po ssible commercial benchmarks. Yet rather than
acknowledge the range of facts, and search for the best possible benchmark, the DOC instead
searched for reasons to disregard all of the banks.

19. The DOC approach in this case was to create a set of rules that would make it impossible for
any company to engage in a debt workout rather than a bankruptcy. The US approach seems to be
that because Korea favours the “London Approach” of debt workouts that avoid bankruptcy, rather
than US style bankruptcy proceedings, any debt workout of Hynix must be condemned as a subsidy.

C. SPECIFICITY

20. In its first submission, the United States argu es for unlimited discretion under Article 2. But
the fact that Article 2 does not enumerate speci fic tests or methodologies does not mean that
authorities can draw conclusions in a vacuum. The very idea of disproportionate use has imbedded in
the term “disproportionate” the idea of some benchmark level of use that makes sense.

D. SECRET MEETINGS

21. Finally, Korea believes that the United Stat es breached Article 12.6 when it conducted secret
verification meetings in Korea over explicit objections by the Government of Korea.

22. The US argument now interprets Article 12.6 as presenting an impossible choice. The
United States argues that a Member must consent either to any and all procedures or to none at all.
However, a “right” to guarantee itself adverse facts available is not a right at all.

ANNEX B-2

FIRST SUBSTANTIVE MEETING - CLOSING STATEMENT
OF THE GOVERNMENT OF KOREA

 Mr. Chairman and Members of the Panel, tha nk you for your time over the past two days. I
believe we have made progress in focusing the issues in this case. We also believe that your written
questions will further focus the issues. We welcom e those questions. I would like to close this
meeting with several general observations.

 First, the United States is correct that ther e is no real disagreement over the standard of
review. In paragraph 6 of its opening statement, the United States agreed the Panel should consider
whether the agency decision is “well reasoned” and “adequately supported”. We agree. But with all
due respect, we submit that the ITC and DOC deci sions in this case are neither well reasoned nor
adequately supported. That is what the Panel must decide.

 Second, this case is not about bold and colour ful language used by politicians and political
groups. The United States has certainly collected ma ny examples of the most colourful language of
Korean politicians. But in many different contex ts, WTO jurisprudence has recognized the wisdom
on focusing on what countries actually do, and not on what politicians in those countries might say.
Consider the comment yesterday in the US opening statement about the “bottomless pit”. We checked
last night, and it turns out this report was drafted and submitted by the opposition party in Korea on
the eve of the Presidential election, and was never accepted by the Korean Congress. Criticism of the
government by its opposition party in such circumst ances must be viewed with a healthy scepticism.
This example illustrates the danger of relying on such statements as “evidence”.

 It was legal error for the United States to re ly on such statements as the keystone of its
determination, and to spend so little time focusing ob jectively on what actually happened with respect
to specific transactions. We ar e confident this Panel will focus on the specific actions of the
Government of Korea, and the Korean banks, and not on the rhetoric.

 What were those actions? Consider paragra ph 15 of the US opening statement that identifies
three concrete actions. But even if these actions le d to some loans, the Un ited States then goes much
further and condemns all loans including those that have nothing to do with these actions. Loans by
other banks that did not require any waiver of le nding limits. Loans at distant points of time, far
removed from the initial loans. Loans that had not hing at all to do with rolling over maturing Hynix
bonds.

 This represents the overarchi ng legal flaw in the US appro ach. The United States does not
seem to mind when it has weak or no evidence of “entr ustment or direction” with respect to various
loans or investment decisions. Under the US approach, evidence for some transactions somehow
becomes evidence for all transactions. We believe this is a flawed interpretation of Article 1.1(a) of
the SCM Agreement. Third, this case is not about mere Korean disagreement with DOC findings.
This case is about whether the DOC and ITC rati onales can survive factual and legal scrutiny.
Consider for example, the DOC decision to reject Citibank as a possible benchmark. DOC offered
various reasons for rejecting Citibank, most of wh ich had nothing to do with the specific transactions
at all. Article 14(b) of the SCM Agreement requires only that a loan be “comparable” and “actually

obtained on the market” for that loan to serve as a benchmark. The Citibank loans were both. Even if
the Citibank loan was not a perfect comparison, ther e is no credible factual basis to conclude that
these loans were not at least “comparable”.

 Or consider the numerous conclusions drawn by ITC. The ITC should provide the factual
underpinnings that justify its various conclusions. Ob taining such data – in its actual form -- is the
only way for the Panel to do its job. We urge the Panel to view sceptically any summaries that
obscure the real figures. A range may be appropria te. But an average can be seriously misleading,
depending on how the average is done.

 But even before receiving any additional data, th e flaws in the ITC analysis of causation stand
out. The ITC brushed aside the role of non-subject imports with a vague statement that a “significant”
portion of those imports did not compete. But how large were these specialized products, and why
does attenuated competition for some portion of non-subj ect imports negate the effect of the still large
remaining portion. The ITC never explains. Or consider the role of capacity increases by other
suppliers. Just because the ITC may not have colle cted certain evidence does not mean that evidence
can be ignored. Even if it prefers its own data, that is no reason for the ITC to ignore without any
explanation other credible data. Yet that is precisely what the ITC did in this case.

 That concludes my closing remarks. Thank you.

ANNEX B-3

EXECUTIVE SUMMARY OF THE OPENING STATEMENT
OF THE UNITED STATES AT THE FIRST
SUBSTANTIVE MEETING OF THE PANEL

24 June 2004

General Issue - Standard of Review

1. While Korea says that it does not advocate de novo review, in fact, it does. Korea does not
allege errors in the evidence on which the DOC and the ITC relied. Rather, Korea argues that the US
authorities should have discounted certain facts and relied on others, or analyzed the evidence in
different ways. In other words, Korea wants this Panel to reweigh the evidence to reach a different
outcome. That is de novo review, and the Panel should reject Korea’s suggestions to the contrary.

2. This case is, in fact, a perfect example of why de novo review is not the standard of review.
The administrative records of th e DOC and the ITC are enormous, totalling tens of thousands of
pages. The authorities took many months to review and evaluate all of the record evidence, and
explained in considerable detail th e conclusions they drew from that record evidence. The depth and
complexity of this investigation demonstrates the wisdom of a standard unde r which the Panel’s task
is not to step into the role of investigator and gather or reweigh evidence, but rather, in examining
whether a Member met its agreement obligations re lating to fact-finding, to consider whether the
investigating authority’s decision-making is well re asoned and adequately supported by the evidence
before it.

Issues Concerning the Commerce Department’s Subsidy Determination

3. Financial Contribution – "Injecting money into a bottomless pit" – that is how a
November 2002 report by the Korean Congr ess – entitled "Public Fund Mismanagement
Investigation" – characterized the GOK’s policy in 2000-2001 to bail out the Hyundai Group
companies, including Hynix. By the end of 2000, Hynix had incurred staggering losses, totaling
1.9 billion dollars, and the company’s debt was 186% of its total equity. Hynix, which employed over
24,000 workers, was very important to the Korean economy, and singled it out for special treatment.
The GOK established a policy to ensure that the de bt-ridden Hynix did not fa il. The Hynix bailout
totalled over 11 billion dollars, in less than 12 m onths, a figure nearly three times total sales of all
Hynix products in 2001. 11 billion dollars equale d total sales of DRAMS, by all DRAM producers
worldwide, in 2001, as indicated by the record evidence.

4. Korea asks the Panel to substitute its judgmen t for that of the DOC and find, despite all the
record evidence to the contrary, that this enorm ous financial assistance for a company that was
"technically insolvent" was simply the result of co mmercial banks doing as they saw fit. The facts,
however, paint a very different picture – a picture in which the GOK is directing and entrusting
Hynix’s creditors to carry out the GOK’s decision that the company not go under.

5. Korea insists that Hynix’s creditors were motivated purely by commercial considerations.
However, while commercial considerations are relevant to the issue of whether a company received a
benefit, they are not germane to the issue of a fina ncial contribution. "Financial contribution" focuses
on the action of the government in making the financia l contribution. In particular, subparagraph (iv)

focuses on whether the government has given responsi bility to, ordered, or regulated the activities of
private bodies to make the financial contributions.

6. There is no support in the SCM Agreement for Korea’s suggestion that a formal mandate is
required to find a financial contri bution. While governments may act in such a formal manner, they
frequently operate behind closed doors. There is no textual basis for the assertion that the SCM
Agreement somehow ceases to apply when the doors close.

7. In this case, the GOK knew it would be heavily criticized, both domestically and
internationally, for bailing out Hyni x. Thus, it is not surprising that the GOK operated behind closed
doors. Nevertheless, due in part to intensive public interest in such an enormous bailout, there is
ample compelling evidence that the GOK directed and entrusted Hynix’s creditors to rescue the
failing company.

8. For example, despite its much publicized re forms, the GOK announced that it had to alleviate
Hynix’s liquidity crisis. The government then wa ived the ceiling on the amount of debt banks could
carry for a single debtor on three separate occasions specifically for the purpose of additional loans to
Hynix. The government also ordered the KEIC to resume insuring Hynix’s exports for the purpose of
increasing Hynix’s accounts receivable financing. The GOK also instituted a programme to ensure
that Hynix did not default on its maturing bonds.

9. The evidence also demonstrates that the GOK did not merely extend a helping hand to Hynix
– it used its strong arm to protect the company as well. For example, when KFB balked at
participating in the bailout, government officials th reatened the bank with the loss of deposits and the
loss of customers. After the government arm-twisting, KFB got the message. Likewise, KorAm Bank
balked initially, but subsequently succumbed to government threats and intimidation and went along
with the programme.

10. The evidence also demonstrates that governme nt threats were not limited to creditors, but
extended to anyone who might jeopardize the success of the Hynix bailout. In particular, the
government reprimanded and threatened credit rati ng agencies that lowered (or attempted to lower)
Hynix’s rating to reflect the reality of the company’s dismal financial situation.

11. Even if we assume, for the purposes of argumen t, that the motivations of Hynix creditors are
relevant to the question of a financial contribution, the record evidence also demonstrates that Hynix
creditors were acting to fulfil the government’s objec tive. For example, the rationale given by KEB
for participating in the May and October 2001 restruct urings was to be aligned with the "social and
economic policy concerns of the GOK".

12. Could an investigating authority reasonably conclude, based on this evidence, that the GOK
directed and entrusted Hynix’s creditors to ensure that the company did not fail? Absolutely. The
government’s message was crystal clear. As the De puty Prime Minister and Minister of Finance and
Economics stated: "If Hynix says it needs an additi onal one trillion won, and if the creditor group
cannot make a decision whether or not to provide additional support, the financial authorities should
decide. We cannot simply leave it blindly to the creditor group."

13. Benefit – Hynix’s financial picture was abysmal. Given this, could an investigating authority
reasonably conclude that in measuring the benefit to Hynix from loans, the benchmark should include
a risk premium? Absolutely. Could an investig ating authority also reasonably conclude that a
reasonable investor would not have invested in Hynix? Absolutely.

14. Korea does not dispute the facts concerning Hynix’s poor financial condition. Nevertheless,
Korea challenges the DOC’s finding that Hynix w as not creditworthy or equityworthy during the

period of investigation. Korea’s argument echoes its argument that the GOK did not direct or entrust
private banks to rescue Hynix. The evidence supports the DOC’s determination that private banks in
Korea were directed or entrusted by the GOK, and, therefore, could not provide an appropriate market
benchmark for loans and equity infusions. The so le exception was Citibank, and the United States
explained in its first written submission why Citibank did not provide an appropriate benchmark.

15. The facts on the record of the investigati on support each of the DOC’s findings with respect
to financial contribution, benefit, and specificity. There is also a "reasoned and adequate" explanation
of how the facts support those findings. The DOC ’s determination that a countervailable subsidy
exists is therefore consistent with the require ments of the SCM Agreement, and the Panel should
reject Korea’s claims to the contrary.

Issues Concerning the International Trade Commission’s Injury Determination

16. The Many and Misleading Data Sources Cited by Korea – The ITC used a single, consistent
data source: questionnaire responses covering the period 2000 to 2002 and the first three months of
2002 and 2003. Korea relies on an ever-varying set of data sources and time periods depending on the
point that it seeks to make. Through its selective use of other data sources, Korea repeatedly makes
statements in its submission that are completely in consistent with the data used by the ITC in its
injury determination.

17. No Basis for Korea’ s Insistence that Only Market Share Increases Matter – There is no legal
support for Korea’s assertion that increases in market share are the only indicator that matters for an
affirmative material injury analysis. The inv estigating authority has discretion to select the
methodology to analyze the volume of subsidized subject imports. The ITC found that the absolute
volume of subsidized subject imports was significant. It also found that the increase in that volume
was significant both absolutely and relative to both production and consumption. Article 15.2
specifies that no one or several of these factors is determinative.

18. Korea Disregards Important Conditions of Competition in this Industry – Korea does not
dispute that subsidized subject imports were hi ghly substitutable for domestic DRAM products. They
were used interchangeably, and there were no importa nt differences in product characteristics or sales
conditions between them. Throughout the period of i nvestigation, Hynix’s subject Korean operations
produced many of the same product densities as dom estic producers. Moreover, subject imports and
domestic DRAM products were sold largely to the same customers and through the same channels of
distribution.

19. The commodity-like nature of domestic and subject imported DRAM products magnified the
ability of a given volume of imports to impact the domestic market and industry. These conditions of
competition, as well as the importance of price in this particular industry, were also important to the
ITC’s price effects findings. In a commodity-type market which adjusts quickly (even biweekly) to
price changes, significant price disparities between suppliers would not usuall y be expected. Thus,
the ITC found the patterns of frequent, sustained high-margin undercutting by subsidized subject
imports (at margins often exceeding 20 per cent and at increasing frequencies) was especially
significant in this industry, and could be expected to have particularly deleterious effects on domestic
prices.

20. Korea Seeks Alternate Methodologies without Demonstrating Any Shortcoming in the
Methodologies Used by the ITC – Korea merely asserts that the ITC’s weighted-average pricing
analysis was "wrong for this industry" and that the ITC should have examin ed pricing and volume on
a brand-name basis. These arguments ignore the fact that it is for the investigating authorities in the
first instance to select methodologi es for their analysis under Article 15.2 of the SCM Agreement.
There is no requirement to conduct a brand-name anal ysis, and on the facts of this case, a brand-name

analysis was not consistent with the relevant inquiry under the SCM Agreement. Use of the
brand-name analysis urged by Hynix would not re flect the source country of the DRAM products and
would be utterly inconsistent with the requireme nt under the SCM Agreement to examine the effect
"of the subsidized imports" on the "like product", the product produced by the domestic industry. By
comparing the weighted-average price of subsidized subject imports with the weighted-average price
of domestic shipments for each time period, the ITC’s methodology in this investigation addressed the
inquiry posed by Article 15.2 – the assessment of th e price effects of the subsidized imports on the
domestic industry.

21. In any event, the ITC also examined the pricing data on a disaggregated basis (broken down
by both brand-name and by source). Even a disaggr egated analysis showed that subsidized subject
imports were the lowest-priced product "more often than DRAM products from any other source".

22. Korea Asks This Panel to Reweigh the Evidence and Factors Concerning the Impact of
Subsidized Subject Imports, but the Result is the Same – Based on an examination of trade, financial
and other industry performance indicators, the ITC concluded that the domestic industry’s
performance declined over the period of investig ation with respect to many indicators, and its
financial performance worsened precipitously. The ITC determined that declining prices were the
primary reason for the industry’s large operating losses, and that subject imports "contributed
materially to the steep price declines that occurred over the period." Korea argues that the ITC should
have weighed the evidence differently, and it asserts that in this industry there are only five key
indicia.

23. Korea ignores that it is the investigating author ities that are to evaluate the impact factors and
weigh the evidence and that no one or several of the non-exhaustive list of enumerated SCM
Agreement Article 15.4 factors is de terminative. The ITC’s final determination reflects evaluation of
positive evidence concerning each of the various Article 15.4 factors showing changes in the
industry’s condition, but even the select criteria th at Korea asserts are important in this industry
showed declines during at least part, if not the entire, period of investigation.

24. The ITC’ s Causation Analysis was Proper – In ascertaining whether there is a "causal
relationship", authorities must demonstrate a causal relationship between the subsidized imports and
the injury to the domestic industry based on an examination of all relevant evidence before the
authorities. The authorities also must examine an y known factors other than the subsidized imports
which at the same time are injuring the domestic in dustry to ensure that th e injury caused by these
other factors is not attributed to the subsidized imports. The ITC clearly demonstrated such a causal
relationship, and also provided a satisfactory explan ation of the nature and extent of the injurious
effects of other factors. Even in the context of reviewing safeguards dete rminations, the Appellate
Body has found that Article 4.2(b) of the Safe guards Agreement does not require that increased
imports alone, in and of themselves, are causing serious injury. Nor is there any such requirement in
Article 15 of the SCM Agreement.

25. Non-subject imports
: The ITC found that subsidized im ports, by themselves, were large
enough and priced low enough to have a significant im pact, regardless of the adverse effects caused
by non-subject imports. The ITC determined that there were two principal factors that reduced the
significance of the volume of non-subject imports. First, there was less competition between the
domestic DRAM products and the non-subject imports than there was between the domestic DRAM
products and the subject imports. The ITC de termined after examining the composition of
non-subject imports that a significant portion of n on-subject imports were Rambus and specialty
DRAM products for which domestic producers ha d no significant production during the period of
investigation. Second, even those non-subject impor ts consisting of "standard" products did not have
the price effects that subsidized subject imports di d during the period of investigation. Price effects
were what the ITC concluded caused the "primary negative impact" on the domestic industry.

26. Other possible reasons for price declines: The ITC also evaluated other possible reasons why
prices declined in the US market (including pr oduct life cycles and business cycle changes in demand
and supply that lead to "boom" and "bust" periods characteristic of this industry). While slowing
demand played some role, together with the ope ration of the DRAMs business cycle and product life
cycles, the ITC found that the unprecedented severity of the price declines that occurred from 2000 to
2001 and persisted through 2002 in dicated that supplier competition was an important factor. It
concluded that the increasing fre quency of underselling by subsidi zed subject imports from 2000 to
2002 corresponded with the substantial decline in US prices over those same years and that in the
absence of significant quantities of su bsidized subject imports competing in the same product types at
relatively low prices, domestic prices would have been substantially higher.

ANNEX B-4

CLOSING STATEMENT OF THE UNITED STATES
AT THE FIRST SUBSTANTIVE MEETING OF THE PANEL

24 June 2004

Subsidy Issues

1. In closing, we would like to comment briefly on Korea’ s suggestion that the Commerce
Department is an over-zealous agency run amok. Korea characterizes the US position in alarming
terms, portending unlimited discretion for investigati ng authorities and a world in which the financial
community has no choice but to stand by and watch ailing companies go bankrupt. The alarm Korea
sounds is necessary to justify the fact that Korea is asking the Panel to read into the "entrusts or
directs" language of Article 1.1(a)(1)(iv) a special evidentiary requirement that would immunize all
informal government action from the disciplines of that provision, by prohibiting reliance on
circumstantial evidence, no matter how compelling, and by requiring explicit, concrete evidence of
government entrustment or direction not only for a particular task, but also for each action necessary
to accomplish that task. Korea’s so lution, in short, is to make Article 1.1(a)(1)(iv) so easy for
governments to circumvent that it would render the provision meaningless – an absurd result that
Korea apparently does not find alarming.

2. As we discussed in our submission and over the past two days, the DOC provided a
well-reasoned analysis of why the facts – and admittedly the facts are very complex – when viewed as
a whole, present a clear picture of a government bailout of Hynix.

Injury Issues

3. In its written submission, Korea repeatedly asserted that the volume of subsidized imports
declined. In its opening statement, Korea retreated fr om this assertion, arguing in paragraphs 7 and 9
only that the Hynix brand declined. Indeed, Kor ea even conceded in paragraph 11 that subject
imports did increase.

4. Even without an increase, subject imports ca n have price effects if, for example, they force
other market players to lower their prices. For the sales that the financially troubled Hynix did make,
there was significant price undercutting, however measure d. It does not take much to set the margin
in a commodity market where prices are rapidly disseminated.

5. Korea admitted that there was injury here. The fact that other factors may have been causing
injury at the same time as subsidized subject im ports does not, under the SCM Agreement, invalidate
or prevent an investigating authority from finding that subsidized subject imports caused material
injury to the domestic industry.

Standard and Scope of Review

6. Over the course of the past two days, we and Korea have repeatedly referred to the fact that
"we have a disagreement" or "we have a dispute". It is important that we be clear about what the
disagreement before the Panel is all about.

7. One possible disagreement is historical, involving the question of whether Hynix received
subsidies and whether imports of s ubsidized merchandise caused injury to a US industry. That issue
was resolved by the Department of Commerce an d the International Trade Commission in their
determinations, and is not before the Panel.

8. The present disagreement – the disagreement be fore the Panel – is different; it is whether a
reasonable, unbiased person could have reached the same conclusions as those agencies, based on the
evidence before them.

9. Korea says that there is no disagreement c oncerning the standard of review, but there is.
Korea said earlier that your job is to determine what a reasonable authority should have found.
However, your task is not to determine what a reasonable authority should have found. Rather, your
task is to determine what a reasonable investigating authority could have found based upon the
evidence before it.

10. A related issue is the scope of the Panel’s review. We can certainly understand the Panel’s
desire to have as much information before it as pos sible. However, once you stray into the area of
non-record evidence, you risk running afoul of the provisions of Article 11 of the DSU. We urge you
to consider that if you are thinking of accepting non-record evidence. The Panel cannot perform its
assigned function if it is considering information that was not before the agency.

11. Finally, it is Korea that bears the burden of proving that a reasonable, unbiased person could
not have reached the same conclusions as the DOC and the ITC. So far, all Korea has done is to say
that there are conflicting pieces of evidence in the record, but it has failed to prove – although it
repeatedly suggests – that the agen cies’ consideration of such evidence was improper. In other words,
Korea has failed to satisfy its burden of proof with respect to the disagreement that is before this
Panel.

12. Thank you again for agreeing to participate in the work of this Panel. We look forward to
continuing that work with you in the coming weeks.

ANNEX B-5

ORAL STATEMENT OF CHINA
AT THE THIRD PARTY SESSION

24 June 2004

 Thank you, Mr. Chairman, and members of the Panel. China appreciates the opportunity to
present this oral statement as a third party. Chin a wishes to highlight certain aspects of the issues
contained in its written submission.

I. INDIRECT FINANCIAL CONTRIBUTION

1. The first legal issue China would like to address is indirect financial contribution by a
government. In this respect, China holds the view that Article 1.1 (a)(1)(iv) of the SCM Agreement
should be interpreted strictly.

2. First, this view is supported by the reading of the plain text of the provision. The Panel in US
– Export Restraint concluded that the words of “entrust” and “direct” consist of three elements: (i) an
explicit and affirmative action, be it delegation or co mmand; (ii) addressed to a particular party; and
(iii) the object of which action is a particular task or duty”. China thinks that these three elements
must be proved by positive evidence in order to find “entrustment” or “direction” by a government.

3. Second, in the negotiating history of the SCM Agreement , the element of financial
contribution was included in the definition of a subsid y to limit the kinds of government actions to be
regarded as subsidies. On the other hand, subpar agraph (iv) of Article 1.1(a)(1) was intended as an
anti-circumvention provision, disciplining subsidies provided by a government through a funding
mechanism or a private body. Taking together, a strict reading of the subparagraph (iv) not only
serves the purpose of limiting the applicable scope of the SCM Agreement , but also ensures the
effective operating of the anti-circumvention provision.

4. In the context of reviewing a countervailing dut y determination by a panel, it is crucial to
assess whether the facts before th e investigating authority at th at time supported its finding of
financial contributions, and whether the investig ation reports set forth “the basis on which the
existence of a subsidy has been determined ” as provided by Articles 22.4 and 22.5 of the SCM
Agreement. In China’s view, although the SCM Agreement does not provide for any special
evidentiary standard for the finding of indirect financial contribution, the facts accepted by the
investigating authority must support the finding of the above-mentioned three elements of entrustment
or direction.

II. BENEFIT

5. Now China would like to turn to the second legal issue, the selection of a market benchmark
for the determination and calculation of benefits. On this issue, China submits that the current dispute
involves a set of questions similar to those in US – Lumber CVDs Final.

6. First, China thinks that the investment d ecision of Citibank may constitute a primary market
benchmark in the course of determining and calcula ting benefits conferred by the alleged subsidy
programmes.

7. Second, by analogy to the Appellate Body report in US – Lumber CVDs Final, China is of the
view that the threshold for abandoning a primary benchmark is very high. It is preferable to adjust the
benchmark for some elements of incomparability. Therefore, in the cases of equity infusion and loans
provision, if there are investment activities conducte d by a private entity to the same company under
investigation, it is desirable to use such activities as the primary market benchmark instead of to reject
this readily available and actual benchmark and to construct an additional set of “market terms”.

8. Third, even if a readily available market benchmark is properly rejected with good cause,
Article 14 of the SCM Agreement requires that any alternative met hod used shall be consistent with
the guidelines. In China’s view, the specific require ments set out in Article 14(a) and (b) have the
function of ensuring that only the advantage of a subsidy is calculated thro ugh the application of
guidelines contained therein. This understanding is supported both by the Appellate Body report in
US – Lumber CVDs Final (AB) and by the well accepted interpretation of the term “benefit” in
Article 1.1 by the Appellate Body in Canada – Aircraft. Therefore, China believes that Article 14(a)
and (b) impose an obligation of excluding any factor that affects comparability of the terms that are
being constructed by an authority.

III. SPECIFICITY

9. The third key legal issue on which China woul d like to comment is the determination of
specificity.

10. First, in China’s understanding, Article 2.1(c) of the SCM Agreement provides for a three-
layer requirement in the determination of de facto specificity: (i) there shall be facts indicating the
possible existence of de facto specificity; (ii) consideration may th en be turned to any or all of the
four factors; (iii) when looking at factual factors, one shall take into account two circumstantial
factors, i.e. the extent of diversification of economic activities and the length of time of the
application of the subsidy programme.

11. China notes that DOC in its Decision Memorandum adopted various evidence to show the
intention of the GOK to rescue Hynix. In China’s view, such intenti on, even if established, at best
only shows the “reason to believe” that there may be de facto specificity. It should be pointed out that
Article 2.1(c) of the SCM Agreement does not include the intention of a granting authority as one of
the four factors.

12. Second, in China’s opinion, while deciding on the issue of granting disproportionately large
amounts of subsidy to certain enterprises, the mere fact that a company accounted for a large share in
the debt restructuring provided by the government does not conclusively prove that the amount of
granted subsidy is “disproportionately large”. In China’s opinion, the disproportionate largeness
should be determined on the basis of comparison with other participants in the restructuring
programme, not only from the perspective of the absolute amount of debt, but also, more importantly,
from the perspective of the scales and needs of financing of all participants in the same programme.

13. China also is of the view that Article 2.1(c) of the SCM Agreement clearly provides that two
circumstantial factors have to be considered in the determination of specificity, namely, the “extent of
diversification of economic activities” and the “length of time”.

14. Furthermore, in China’s view, though Article 2.1(c) does not require an authority to consider
each and every factual factor listed therein, when ta king into account of the particular settings of the
debt restructuring, the consideration of the third f actor, amount of subsidy, should be combined with
the fourth factor, the manner of exercising discreti on. The authority should have looked into whether
there were other applications for debt restructuri ng by other companies of scale similar to Hynix and

in similar needs of financing, and whether such app lications were refused despite situations similar to
those of Hynix. Such an inquiry would clarify whether the subsidy is of limited availability.

15. Therefore, China thinks that the DOC’s approach to finding disproportionately large amount
of subsidies does not seem well founded pursuant to Article 2.1(c) of the SCM Agreement.

16. Third, China would like to express its view that Article 2 of the SCM Agreement requires that
specificity of subsidy programmes be determined with respect to each separate subsidy programme. It
is not consistent with Article 2 for an investigating authority to take a particular financial contribution
out of the subsidy programme and consider it in isolation. Neither is permissible to combine various
separate subsidy programmes as a whole and review them as a single programme.

17. In this dispute, the responding party seems to introduce a so-called “inherent specificity”
theory. It is argued by this party that in the situation where the government provides a grant to a
single, financially distressed manufacturer, the nature of the subsidy is inherently specific. Contrary
to such point of view, China believes that specificity should be examined on the basis of a subsidy
programme, rather than an individual financial c ontribution granted under the same programme. If
specificity is to be determined on the basis of an y particular financial c ontribution under the subsidy
programme, there would be no subsidy programme that is not specific.

18. On the other hand, DOC also appears to have put together some seemingly separated
programmes under a big “programme” named “Directi on of Credit and Other Financial Assistance”
and examine their specificity as a single programme. Such a practice seems inconsistent with the
SCM Agreement. China believes that specificity should be examined in relation to each separate and
distinct subsidy programme. Under the SCM Agreement , a subsidy becomes countervailable only
after its specificity is confirmed. A finding of the specificity of a subsidy programme does not
necessarily extend to other subsidy programmes. Article 2.4 of the SCM Agreement also specifically
requires that any determination of specificity sha ll be clearly substantiated on the basis of positive
evidence. China thinks this provision obliges an i nvestigating authority to clearly inquire into and
demonstrate the specificity of each separate subsidy programme.

IV . CONCLUSION

19. This concludes the oral statement of China. Thank you again for this opportunity to express
our views.

ANNEX B-6

EXECUTIVE SUMMARY OF THE ORAL STATEMENT
BY THE EUROPEAN COMMUNITIES

8 July 2004

1. The EC generally refers to its written submis sion in this case, and only wishes to make very
few further observations mainly, triggered by submi ssions made by other third parties, which the EC
submits have to be nuanced.

I. THE APPELLATE BODY REPORT IN US – SOFTWOOD LUMBER IS NO
SUPPORT FOR KOREA’S PRIMARY BENCHMARK TEST

2. According to Korea, supported by Chin a, the US-Softwood Lumber case established
principles that, in respect of the calculation of th e amount of the benefit of the subsidy in accordance
with Article 14 of the Agreement on Subsidi es and Countervailing Measures (“SCM Agreement”)
apply across each of the paragraphs of Article 14. In particular and again based on the US-Softwood
Lumber case, Korea argues that if a benchmark ex ists in the market of the Member under
investigation, this primary benchmark must be u sed unless the investigating authority demonstrates
that this benchmark is distorted. The EC does not agree that there is any primary benchmark included
in Article 14 (b) of the SCM Agreement and submits, for the reasons that will follow, that alternative
benchmarks may be used.

3. China also argues that, based on the finding of the Appellate Body in US- Softwood Lumber,
the threshold for abandoning a primary benchmark is very high.

4. The EC does not agree with this view. The EC would first of all recall that Article 14 of the
SCM Agreement leaves the methodology for determining the amount of a benefit to Members,
referring in its chapeau to “any” method used. The word “any” indicates that more than one method
may be acceptable and, the principles in Article 14 subparagraphs (a) to (d) of the SCM Agreement
contain “guidelines”. Secondly, Article 14 sub-paragraphs (b) and (c) of the SCM Agreement bear no
limitation in respect of the market which could provide a comparative benchmark for establishing the
benefit. Sub-paragraphs (b) and (c ) refer in general terms to a “ comparable commercial loan” and to
“the market”. This wording does not support an interpre tation according to which, in the application
of Articles 14 sub-paragraphs (b) and (c) of the SCM Agreement, regard must be had first to any
benchmark on the market of the Member under investigation.

5. In that context, the EC supports the US view according to which the US- Softwood Lumber
case is not a relevant authority for this case. From the report it is very clear that the Appellate Body
ruled on the specific facts of the case and that it was concerned only about the interpretation of
Article 14 sub-paragraph (d) of the SCM Agreement which concerns the provision of goods and not as
in the present case the provision of loans and equity . Accordingly the EC submits that China’s
argument concerning the threshold for abandoning a primary benchmark would be, if at all, applicable
only to the case of Article 14 sub-paragraph (d) of the SCM Agreement, which is, however, not at
issue in this case. Furthermore, it is submitted that all parties do not dispute that the Appellate Body’s
holdings in the US- Softwood Lumber Case were lim ited to the interpretation of Article 14(d). For
these reasons, the EC submits that the US- Softwood Lumber case should be disregarded as authority
in this case.

II. DISTORTION OF MARKET BENCHMARKS

6. The EC also wishes to comment on China’s argum ent that it is not reasonable require that the
investment decision of a private entity should be free of any government involvement in order for it to
be used as benchmark.

7. The EC submits that this argument needs to be nuanced, especially in the case of financial
investments. It is submitted that, if there was also an investment by the government, this can be an
important factor in assessing whether the decisions by private entities to invest as well were tainted by
the government’s action. Indeed any perception that a government invests in a company will give the
signal that the government it committed to the comp any receiving the investment. That in turn
suggests that the company invested in , because the government is behind it, is unlikely to fail. In the
case of an otherwise highly risky investment opportu nity, such government backing may well tilt the
private operators’ risk assessment in favour of the de cision to actually invest. It is therefore, the EC
submits, reasonable to assume a distorting effect by such government commitment, at least in the
absence of convincing factors pointing to another finding.

8. Therefore, the EC disagrees with the argument put forward by China that the mere perception
that the GOKs policy commitment to Hynix’s surviv al continued to be significant should not have
influenced Citibank’s decision in such a substantial way as to invest in a company that, according to
DOC, should have failed. Purely from a logical poi nt of view, it is perfectly conceivable for the
reasons just explained that because of the perception of a GOK policy commitment to Hynix, Citibank
may have assessed the risk of failure as small. This could have tilted the decision by Citibank in
favour of investing.

9. However, the US dismissed Citibank as a reli able benchmark also because of its role as
financial adviser. China argues that all commercia l entities operate in a complex commercial reality.
A decision in a particular transaction may be influe nced by that in another transaction and suggests
that even if such an influence exists, it may not necessarily constitute a justification for denying the
commercial nature of the first decision. The EC actually agrees that transactions can be influenced by
decisions in other transactions. However, the issue is: can it be assumed that the investments made be
the other participating banks were based on comm ercial grounds just because Citibank, as private
sector bank, invested too?

10. It is submitted that for a benchmark to make any sense in this context, the comparison to it
must be made on an equal footing. In other wo rds: it is not appropriate to compare the lending
decision of a bank which is engaged vis-à-vis the r ecipient of the loan only by its lending business to
the motivation of a bank whose main role is that of financial advisor. Indeed precisely because
decisions in one transaction influence those in othe rs, the interest a bank has as financial advisor is
bound to taint the decision such bank takes in respect of lending to its advisory client, especially if
this lending is comparatively small.

11. Hence, the EC submits that the Panel s hould bear in mind the very specific position of
Citibank in assessing Korea’s and China’s arguments in respect of Citibank as a possible benchmark.

III. EVIDENTIARY STANDARDS TO REVIEW THE EXISTENCE OF ENTRUSTMENT
OR DIRECTION BY THE GOVERNMENT OF KOREA IN THIS CASE

12. The EC would like to take this opportunity to underline that Japan seems to be of the same
opinion as the EC in respect of the degree of evid entiary standard required for showing government
direction for proving a financial contri bution under Article 1.1.(a)(1)(iv) of the SCM Agreement. The
EC, as further set out in its written submission, comes to that conclusion as well.

13. The EC also fully agrees with th e interpretation by Japan that the Export Restraints panel did
not set forth the type of evidence required for finding entrustment or direction, and that these elements
may also be shown by circumstantial or secondary evidence . The EC agrees that it would be
sufficient for the authorities to find a financial contri bution, if the evidence is such that the authorities
can reasonably conclude that the government dele gated a privately-controlled bank to provide
financial support to a specific company.

14. Hence, the EC would suggest the Panel shoul d find that the US finding of direction was
consistent with WTO rules in so far as an obj ective assessment of the evidence would reasonably
allow the Panel to reach the conclusion the authorities did.

IV . CONCLUSION

15. In conclusion, the EC respectfully submits

• That the US- Softwood Lumber case should be disregarded as authority in this case;

• That Citibank’s specific situation in this case should be borne in mind when assessing
whether it was a proper benchmark for the purposes of Article 14 SCM Agreement; and

• That government entrustment or direction can properly be established on the basis of
circumstantial evidence.

ANNEX B-7

ORAL STATEMENT OF JAPAN AT THE
FIRST SUBSTANTIVE MEETING , THIRD PARTY SESSION

24 June 2004

I. INTRODUCTION

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

II. ARGUMENT

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

2. The United States argues that the words “entrusts or directs” in Article 1.1(a)(1)(iv) of the
SCM Agreement dictate that “[t]he focus in de termining entrustment or direction is on the
government’s action”.
1 We agree. As the panel in US – Export Restraints explained, the word
“entrust” means to “give (a person, etc.) the responsibility for a task . . . Commit the . . . execution of
(a task) to a person . . ”. 2 The word “direct” means to “[g]ive authoritative instructions to; order (a
person) to do . . . order the performance of”. 3 The ordinary meaning of these words, as analyzed by
the US – Export Restraints panel, clarifies that Article 1.1(a)(1)(iv) is concerned with the action taken
by the government. The reactions of private banks are not the primary concern of this Article. Some
private banks may accept the responsibility wholly or partly for a task entrusted or directed to them by
the government. Other private banks may decline to take the responsibility. The reaction of such
private banks, however, does not affect the evaluati on for the existence of entrustment or direction
under Article 1.1(a)(1)(iv).

3. We also agree with the United States that instru ctions by a government do not have to be in a
particular form or on a transaction-specific basis.4 The panel in US – Export Restraints interpreted the
government’s entrustment or direction to be an e xplicit and affirmative action prompting a particular
party to perform a particular task or duty. 5 Article 1.1(a)(1)(iv), however, does not specify any
particular methodology for evaluating the government’s action relating to the entrustment or direction
to private banks. The government’s entrustment or direction, thus, does not have to be a publicly
announced command, or a command instructing a privat e bank, in every detail, to provide financial
support to a specific company. It is sufficient under Article 1.1(a)(1)(iv) if the government’s action
were such that a private bank were able to understand what the government delegated or commanded.

1 The First Written Submission of the United States (the “ US First Written Submission ”), dated
21 May 2004, para. 175.
2 Panel Report, United States - Measures Treating Export Restraints as Subsidies (“US – Export
Restraints”), WT/DS194/R, adopted 23 August 2001, para. 8.28.
3 Id.
4 See US First Written Submission, paras. 162-170.
5 Panel Report, US – Export Restraints, para. 8.29.

4. Consequently, the major question under Article 1.1(a)(1)(iv) is the evidence on which the
investigating authority may base its finding on whet her the government’s instruction constituted 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 st andard applicable to
this Article is found in Article 11 of the DSU. Ar ticle 11 requires that the Panel review whether an
investigating authority’s determination was based on “an objective assessment of the matter before it,
including an objective assessment of the facts of the case”. Article 11 directs panels to make an
objective assessment of the facts. However, we woul d consider that this obligation of an objective
assessment applies equally to the investigating authorities’ assessment, because panels are required to
review the investigating authorities' evaluation of f acts in accordance with that standard. Article 11
thus requires, in this case, that an investigating au thority must base its determination on the evidence
sufficient to allow the authority to reasonably c onclude that the government delegated or commanded
a private bank to provide certain financial support to a specific company. There are no further
requirements of the evidentiary standards applicable to Article 1.1 of the SCM Agreement.

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

5. The United States argues that “there is no requirement to collect detailed information
concerning ‘other factors,’ including non-subject imports”
6 to comply with the non-attribution rule
under Article 15.5 of the SCM Agreement. This argument should be carefully examined. Article 15.5
requires that the authorities “examine any known factors other than the subsidized imports” and that
“injuries caused by these other factors must not be attributed to the subsidized imports”. 7 This
language clarifies that if any other factors are known by the investigating authority, the investigating
authority must undertake positive actions to collect a nd evaluate the evidence so that the investigating
authority can separate and distinguish the possible injurious effects of the other known factors.

6. The Appellate Body has repeatedly explaine d that the investigating authority must take
positive actions to collect and assess informa tion regarding the known factors. In US – Hot-Rolled
Steel, the Appellate Body clarified the meaning of the word “examination”. According to the
Appellate Body, an examination “relates . . . to th e way in which the eviden ce is gathered, enquired
into and, subsequently, evaluated; that is, it relates to the conduc t of the investigation generally”. 8
Regarding the authorities’ conduct of the “investigation”, the Appellate Body explained:

The ordinary meaning of the word "inv estigation" suggests that the competent
authorities should carry out a "systematic enquiry" or a "careful study" into the matter
before them.45 The word, therefore, suggests a proper degree of activity on the part of
the competent authorities because authorities charged with conducting an enquiry or a
study – to use the treaty language, an "i nvestigation" – must actively seek out
pertinent information.9
---------------------------------------------------------------------
 45 The New Shorter Oxford English Dictionary, supra, footnote 43, V ol. I, p. 1410.

6 The “US First Written Submission” , para. 422.
7 Article 15.5 of the SCM Agreement (emphasis added).
8 Appellate Body Report, United States - Anti-Dumping Measures on Certain Hot-Rolled Steel Products
from Japan (“US - Hot-Rolled Steel”), WT/DS184/AB/R, adopted 23 August 2001, para. 193.
9 The Appellate Body Report, United States - Definitive Safeguard Measures on Imports of Wheat
Gluten from the European Communities (“US – Wheat Gluten”) WT/DS166/AB/R, adopted 19 January 2001,
para. 53.

The examination to separate and distinguish other known factors under Article 15.5 is a part of the
authorities’ conduct of the investigation under Part V of the SCM Agreement. 10 As the Appellate
Body explained in the above reports in US-Hot-Rolled Steel and in US-Wheat Gluten, therefore, the
investigating authorities are required to take positive actions to “gather” and “evaluate” the evidence
related to other known factors.

7. The phrase “must not be attributed”, in Article 15.5, further clarifies that the investigating
authorities are required to take positive actions to separate and distinguish injury caused by other
known factors from injury caused by the subsidized imports. The Appellate Body has clarified
Article 3.5 of the AD Agreement, which is equivalent to Article 15.5 of the SCM Agreement:

We recognize, therefore, that it may not be easy, as a practical matter, to separate and
distinguish the injurious effects of different causal factors. However, although this
process may not be easy, this is precisely what is envisaged by the non-attribution
language. If the injurious effects of the dumped imports and the other known factors
remain lumped together and indistinguishab le, there is simply no means of knowing
whether injury ascribed to dumped imports was, in reality, caused by other factors.
Article 3.5, therefore, requires investiga ting authorities to undertake the process of
assessing appropriately, and separating and distinguishing, the injurious effects of
dumped imports from those of other known causal factors.11
8. In sum, WTO jurisprudence has clarified that the investigating authorities are required to take
positive actions to collect and evaluate other known factors to separate and distinguish injury caused
by factors other than the subsidized imports.

III. CONCLUSION

9. For the reasons discussed above and in our thir d party submission, Japan respectfully requests
that this Panel carefully review the consistenc y of the injury determination and the subsidy
determination by the United States.

10 See Article 10, which provides “Countervailing duties may only be imposed pursuant to
investigations initiated and conducted in accordance with the provisions of this Agreement and the Agreement
on Agriculture.” (footnote omitted, emphasis added.)
11 Appellate Body Report, US – Hot-Rolled Steel, para. 228 (emphasis added).

ANNEX B-8

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

24 June 2004

Introduction

1. Based on trade and systemic concerns, the Gove rnment of the Separate Customs Territory of
Taiwan, Penghu, Kinmen and Matsu wishes to take this opportunity to express its positions with
regard to the interpretation of the Agreemen t on Subsidies and Countervailing Measures (ASCM)
concerning the dispute between the United States and Korea. We will address, in particular, two
issues: the interpretation of ASCM Article 1.1(a)(1)(iv) “entrust or direct”, and the selection of a
suitable benchmark in the calculation of benefit pursuant to ASCM Articles 14(b).

ASCM Article 1.1(a)(1)(iv) “Entrust or Direct”

2. With regard to the interpretation of the terms “entrust or direct” in Article 1.1(a)(1)(iv) of the
ASCM, we believe that the interpretation of the Panel in US - Export Restraints is applicable to the
present case. The Panel directly examined the mean ing of the words “entrust” and “direct” in the
context of ASCM Article 1.1(a)(1)(iv) in a general manner.
1 The Panel held that

the act of entrusting and that of directing…necessarily carry with them the following
three elements: (i) there must be an explicit and affirmative action, be it delegation or
command; (ii) addressed to a particular party; and (iii) the object of which is a
particular task or duty…We therefore do not believe that either entrustment or
direction could be said to have occurred until all of these three elements are present.”2
[emphasis added]

3. It follows from the Panel’s stringent standards that mere influence or control by the
government is, in itself, insufficient to prove entr ustment or direction. The investigating authorities
must determine whether the government influence w as the result of an explicit and affirmative act
addressed to a particular party for a specific task . Drawing inference from circumstantial evidence
does not discharge a competent author ity’s evidentiary burden in this regard. It is our view that the
competent authority should make an examination of all evidence in order to decide whether the above
three elements of entrustment or direction have been met.

Benchmark Pursuant to Articles 14(b) of the ASCM

4. Article 14 of the ASCM deals with the calc ulation of benefit based on four guidelines, in
which Article 14 (b) addresses the issue of loans and loan guarantees. The paragraph emphasizes the
difference in capital costs by comparing the interest payments the firm would make on government
loan with the amount it would otherwise pay on “ comparable commercial loan which the firm could

1 United States – Measures Treating Exports Restraints as Subsidies (US – Export Restraint) , Panel
Report, WT/DS194/R, paras. 8.25-8.32.
2 US – Export Restraint, para. 8.29.

actually obtain on the market”, or the benchmark.

5. In selecting a benchmark, we believe that Ar ticle 14(b) should be interpreted along with other
paragraphs of Article 14 in a consistent manner. In our view, the appropriate benchmark for
comparable commercial loans should be the marketplace in the Member’s territory in question. If the
firm under investigation received its funding from local sources, the use of a non-domestic benchmark
would be incongruous. It is only when all possibl e domestic benchmarks have been determined by
the investigating authorities to be indeed distorted should other benchmar ks be considered. In doing
so, the investigating authorities should also establish that the other benchmark of their choice relates
to the prevailing market conditions of the market at issue.

Conclusion

6. The Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu respectfully submits
the above positions for consideration by the Panel. We thank you again for the opportunity to offer
our comments.