EUROPEAN COMMUNITIES – COUNTERVAILING MEASURES ON DYNAMIC RANDOM ACCESS MEMORY CHIPS FROM KOREA (WT/DS299)
Document: Report of the Panel
Date: 17 June 2005
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

EUROPEAN COMMUNITIES – COUNTERVAILING
MEASURES ON DYNAMIC RANDOM ACCESS
MEMORY CHIPS FROM KOREA
(WT/DS299)

Report of the Panel

I. INTRODUCTION
A. COMPLAINT OF KOREA
1.1 On 25 July 2003, the Government of Korea ("Korea") 1 requested consultations with the
European Communities ("EC") pursuant to Article 4 of the Understanding on Rules and Procedures
Governing the Settlement of Disputes (" DSU"), Article 30 of the Agreement on Subsidies and
Countervailing Measures ("SCM Agreement"), and Article XXII of the General Agreement on Tariffs
and Trade 1994 (" GATT 1994"), with regard to the provisiona l countervailing measures imposed on
dynamic random access memory chips ("DRAM s") from Korea, as announced in Commission
Regulation (EC) No. 708/2003 and published in the O fficial Journal of the EC on 24 April 2003, and
with regard to any final measures on the same products. 2 A first round of consultations took place on
21 August 2003.
1.2 On 25 August 2003, Korea requested further cons ultations with the EC pursuant to Article 4
of the DSU, Article 30 of the SCM Agreement, and Article XXII of the GATT 1994, with regard to the
EC's final countervailing measures imposed on DRAMs from Korea, as adopted by the Council on
11 August 2003 through Regulation No. 1480/2003 and subsequently published in the Official Journal
of the EC on 22 August 2003.
3 Korea and the EC held a s econd round of consultations on
8 October 2003, but failed to reach a mutually satisfactory resolution of the matter.
1.3 On 19 November 2003, Korea requested the establishment of a Panel to examine the matter.4
B. ESTABLISHMENT AND COMPOSITION OF THE PANEL
1.4 At its meeting on 23 January 2004, the DSB est ablished a Panel in accordance with Article 6
of the DSU and pursuant to the request made by Korea in document
1.5 At that meeting, the parties to the dispute al so agreed that the Panel should have standard
terms of reference. The terms of reference are, therefore, the following:
"[t]o examine, in the light of the relevant provisions of the covered agreements cited
by Korea in document WT/DS299/2, the matter referred by Korea to the DSB in that
document, and to make such finding s as will assist the DSB in making the
recommendations or in giving the rulings provided for in those agreements."
1.6 China, Japan, Chinese Taipei and the United States reserved their third-party rights.
1.7 On 24 March 2004, the parties agreed to the following composition of the Panel:5
Chairperson: Ms. Luz Elena Reyes de la Torre
Members: Mr. Scott Gallacher
 Mr. Thinus Jacobsz

1 We note that the term "Korea" is used in this report to refer to both the Government of Korea and the
country, Korea, depending on the context.
2 WT/DS299/1 and WT/DS299/1/Rev.1.
3 WT/DS299/1/Rev.1/Add.1.
4 WT/DS299/2.
5 WT/DS299/3 and WT/DS299/3/Corr.1.

1.8 Ms. Luz Elena Reyes de la Torre resigned from the Panel on 22 June 2004. On 27 July 2004,
the parties appointed Mr. Gary Clyde Hufbauer as a new Chairman of the Panel. On 29 July 2004, the
Panel was re-composed as follows:
6
Chairman: Mr. Gary Clyde Hufbauer
Members: Mr. Scott Gallacher
 Mr. Thinus Jacobsz
C.
PANEL PROCEEDINGS
1.9 The Panel met with the parties on 3-4 Novemb er and on 9 December 2004. The Panel met
with third parties on 4 November 2004.
1.10 The Panel submitted its Interim Report to the pa rties on 15 March 2005. The Panel submitted
its Final Report to the parties on 19 April 2005.
II. FACTUAL ASPECTS
2.1 This dispute arises from the EC's imposition of definitive countervailing duties on DRAMs
from Korea. The countervail investigation was in itiated on 25 July 2002, following a complaint filed
by Infineon, the largest domestic producer in the EC. Micron, the other EC producer, supported the
complaint and cooperated in the investigation. Th e EC sent questionnaires to a number of interested
parties, including two exporters in Korea (Hynix and Samsung), the Government of Korea, and a
number of Korean financial institutions. The pe riod of investigation ("POI") for the subsidy
investigation covered 1 January to 31 December 2001, while the injury POI covered 1 January 1998
to 31 December 2001.
2.2 On 24 April 2003, the Commission published Regulation 708/2003 imposing provisional
countervailing duties on DRAMS from Korea (hereaf ter, "the Preliminary Determination").
7 T w o
programmes were found to be countervailable subsidies, i.e., the KDB Debenture and the
October 2001 Restructuring Programme. The rate of the provisional duty for Hynix was set at 33 per
cent. No duty was imposed on Samsung, as the s ubsidy amount determined for this exporter was de
minimis.
2.3 On 22 August 2003, Regulation 1480/2003 impos ing a definitive countervailing duty on
DRAMs from Korea was published (hereaf ter, "the Final Determination"). 8 At this stage, the EC
determined that five programmes were counter vailable: the Syndicated Loan, the Korea Export
Insurance Corporation ("KEIC") Guarantee, the Korea Development Bank ("KDB") Debenture
Programme, the May 2001 Restructuring Programme, and the October 2001 Restructuring
Programme. The amount of subsidisation for Hy nix was 34.8 per cent, while for Samsung it was
determined to be de mininis . The EC confirmed its provisional finding that the domestic industry
suffered material injury and that it was caused by subsidised imports of DRAMs from Korea. The
rate of the definitive countervailing duty for Hynix was equal to the subsidy amount, i.e., 34.8 per
cent. Given the de minimis subsidisation finding, no countervailing duty was imposed on Samsung.

6 WT/DS299/4.
7 Commission Regulation (EC) No. 708/2003 of 23 April 2003 imposing a provisional countervailing
duty on imports of certain electronic microcircuits known as DRAMs (dynamic random access memories)
originating in the Republic of Korea.
8 Council Regulation (EC) No. 1480/2003 of 11 August 2003 imposing a definitive countervailing duty
and collecting definitively the provisional duty imposed on imports of certain electronic microcircuits known as
DRAMs (dynamic random access memories) originating in the Republic of Korea.

III. PARTIES' REQUESTS FOR FINDINGS AND RECOMMENDATIONS
A. KOREA
3.1 Korea requests that this Panel find that the EC has acted inconsistently with its obligations
under Articles 1, 2, 10, 12, 14, 15, 19, 22 and 32 of the SCM Agreement, as well as Article VI:3 of
GATT 1994. Specifically, the Korea requests this Panel to find the EC acted inconsistently with:
• Article 1.1(a) of the SCM Agreement in determining the existence of financial
contributions with respect to the Syndicated Loan, the KEIC Guarant ee, the KDB Debenture
Programme, and the May and October 2001 Restructuring Programmes;
• Articles 1.1(b) and 14 of the SCM Agreement in determining the existence of a
benefit, and its measurement, for the Syndicated Loan, the KEIC Guarantee, the KDB
Debenture Programme, and the May and October 2001 Restructuring Programmes;
• Articles 1.2 and 2 of the SCM Agreement in making an erroneous finding of de facto
specificity, specifically with respect to the KDB Debenture and the May and October 2001
Restructuring Programmes;
• Articles 19.4 of the SCM Agreement and VI:3 of the GATT 1994 in levying
countervailing duties in excess of the amount allowed under those provisions;
• Article 12.7 of the SCM Agreement in applying "facts available" with respect to
certain aspects of its subsidy investigation;
• Article 15.1 of the SCM Agreement because the EC's injury and causation
determinations were not based on positive evidence and did not involve an objective
assessment of the effects of allegedly subsidized imports;
• Article 15.2 of the SCM Agreement because, inter alia, the EC determinations
improperly assessed the significance of the volume effects of Hynix imports;
• Article 15.2 of the SCM Agreement because, inter alia , the EC determinations
improperly assessed the significance of the price effects of Hynix imports;
• Article 15.4 of the SCM Agreement because, inter alia, the EC failed to consider all
factors relevant to the overall condition of the Community industry;
• Article 15.5 of the SCM Agreement because the EC failed to demonstrate the requisite
causal link between Hynix imports and injury , and because the EC improperly assessed the
role of other factors and, therefore, failed to ensure that it did not attribute the effects of other
causes to Hynix's imports;
• Article 22.3 of the SCM Agreement because the EC's injury determination did not set
forth in sufficient detail the EC's findings and conclusions on all material issues of fact and
law; and,
• Articles 10 and 32.1 of the SCM Agreement in imposing a definitive countervail
measure on DRAMs from Korea that was neither in accordance with the relevant provisions
of the SCM Agreement nor with the relevant provisions of the GATT 1994.

3.2 Korea also requests the Panel to recommend th at the EC terminate its countervailing duty
order against imports of DRAMs from Korea immediately.9
B. EUROPEAN COMMUNITIES
3.3 The EC invites the Panel to reject all claims and arguments raised by Korea in these
proceedings.10

IV. ARGUMENTS OF THE PARTIES
4.1 The arguments of the parties as submitted, or as summarized in their executive summaries as
submitted to the Panel, are attached as Annexes (see Ta ble of Annexes, page vi). Replies to questions
posed by the Panel were received from both parties.
V. ARGUMENTS OF THE THIRD PARTIES
5.1 The arguments of those third parties which have made submissions to the Panel, as submitted
or as summarized in their executiv e summaries, are attached as Annexes (see Table of Annexes,
page vi). Neither China nor Chinese Taipei made written submissions. China did not submit replies
to the Panel's questions.
VI. INTERIM REVIEW
6.1 On 15 March 2005, we submitted the Interim Re port to the parties. On 29 March 2005, both
parties submitted written requests for the review of precise aspects of the Interim Report. On
5 April 2005, the EC submitted written comments on Ko rea's comments. Neither party requested an
interim review meeting.
6.2 We have briefly outlined our treatment of partie s' requests below. Where necessary, we have
also made certain technical revisions to our Report.
A. K
OREA COMMENTS
Status of the KDB

6.3 Korea asserts that the Panel's characterization with regard to Korea' s position regarding the
status of the KDB under the Syndicated Loan and the KDB Debenture Programme – as set forth in
paragraphs 7.69 and 7.91 – does not fairly describ e its position during the panel procedure. Korea
asserts that in footnote 339 to its First Written Su bmission and in its response to question 1 of the
Panel, it made it clear that it did not agree that the KDB is a public body and that, given the other
issues involved in the dispute, it was simply unn ecessary to contest the public body issue. Korea
requests the Panel to more accurately reflect Kore a's position on the KDB in the Final Report. The
EC considers that the Report accurately reflects Ko rea's position and notes that Korea is unable to
make any concrete suggestion for re-drafting. In our view, the Report appropriately reflects Korea's
position. We note that our Report does not state that Korea agrees with the EC's characterization of
the KDB as a public body. We only conclude that Kor ea chose not to contest this characterization. It
is clear from both the footnote referred to by Korea in its comments on the Interim Report, and in its
answer to question 1 of the Panel, that Korea was not contesting this determ ination of the KDB as a
public body. In its comments on the Interim Re port, Korea once again confirmed that it was not
contesting the public body issue. We therefore do not consider it necessary to amend our Report and
reject Korea's request in this respect.
Qualifications to the Panel's analysis of benefit and the May 2001 Restructuring Programme

6.4 Korea asserts that a qualificati on similar to that contained in paragraph 7.200 should appear
after paragraphs 7.201 to 7.203, in case these paragraphs were to be maintained in the Final Report.
The EC has no difficulty with such an amendment. We have amended the Report as requested by
Korea.

Qualifications and Corrections to the Panel's Analysis of the KEB

6.5 Korea requests that the Panel reiterate in para graph 7.134 its earlier conclusion set forth in
paragraph 7.103 that evidence of past conduct, wh ether direction or otherwise, cannot establish
entrustment or direction with resp ect to a future event. The EC does not agree that past conduct is
irrelevant to a future event and fully reserves its lega l position in this respect. We are of the view that
our footnote 143 sufficiently explains our position with regard to the EC' s reliance on the question of
evidence relating to government direction at the time of the Syndicated Loan for the purposes of
establishing government direction with regard to the KEB's participation in the October 2001
Restructuring Programme. The stat ement referred to by Korea in paragraph 7.103 about the use of
evidence concerning past events h as to be read in the context of our discussion of the May 2001
Restructuring Programme. While, in our view, evidence of past conduct cannot as such establish
entrustment or direction with respect to a future ev ent, this does not mean that it is irrelevant. The
importance of such evidence has to be seen in th e context in which it is used and the purposes for
which it is used. We explain in our Report the different context of the May and October Restructuring
Programmes. We thus do not find it necessary to amend our Report and reject Korea's request in this
respect.
6.6 In addition, Korea asserts that our finding in pa ragraph 7.134 is premised on a serious factual
error. Korea considers that the Panel improperly fo und relevant the EC's considerations that the KEB
was until 1998 a specialized government bank. Acco rding to Korea, evidence on the record before
the investigating authority showed that since December 1989 the KEB was a public corporation under
the Korean Commercial Code and its shares were traded on the Korean Stock Exchange. Korea
asserts that under these circumstances, the Panel should revise its discussion and analysis of the
KEB's participation in the October 2001 Restructuri ng. The EC points out that the investigating
authority referred to the year 1998 with respect to Ko rea's shareholding in the bank. In light of these
comments, we have amended our Report in paragra phs 7.133 and 7.134 in order to more accurately
reflect what the investigating authority asserted with regard to the KEB. This clarification does not,
however, change the basis for our an alysis that we find relevant the EC's considerations concerning
the important role played by the Korean Government in the KEB in the past.
Comments on Panel's Analysis of the KDB Debenture Programme

6.7 Korea asserts that in paragraphs 7.197 and 7.198, the Panel gives the appearance of
effectively adopting certain factual assertions fr om the EC Final Determination which Korea
considers to have been contradicted by evidence of record. In particular, Korea considers that
comments made before the investigating authority by the KDB contradict the authority's conclusion
that the CBO programme was created only for relativ ely small firms and that the KDB controlled the
roll-over of programme bonds placed in CBO funds.
11 Korea requests that the Panel either note the
basis for the EC authority's conclusions within its discussion and identify the contested facts or
disassociate itself from these facts. The EC cons iders that Korea nowhere indicates where these
alleged facts were contested during the panel proceedi ngs. In addition, the EC argues that the exhibit
referred to by Korea contains mere assertions by one of the interested parties made before the
investigating authority.
6.8 We note that our task is not to conduct a de novo review of the investigation, rather to
examine whether the authority provided a reasona ble and reasoned explanation of how the facts
support the determination made. In the paragraphs referred to by Ko rea, we consider that similar
arguments were made before the investigating authority as were made before us concerning the KDB
Debenture Programme. The investigating author ity responded to these arguments in the Final
Determination, and therefore we considered it useful to directly quote from the Final Determination.

11 Korea refers to KDB's Comments on the European Commission's Final Disclosure Document
(30 June 2003). (Exhibit GOK-17)

In relevant part, we considered reasonable the inve stigating authority's explanations provided in the
Final Determination. The two alleged inconsistencies raised by Korea in its comments are clearly not
essential to the overall analysis of the investigating au thority, as is also evidenced by the fact that
Korea did not put much emphasis in its arguments before the Panel on these alleged inconsistencies.
In our view, the two alleged errors in the EC inv estigating authority's statement which we quoted are
not particularly relevant to the question of benefit to Hynix. We do not consider it necessary for us to
further examine the correctness of the statements made. We therefore reject Korea's request to amend
our Report in this respect.
Comments on Panel's Analysis of Financial Cont ribution with respect to Woori Bank in the
October 2001 Restructuring Programme

6.9 Korea asserts that in paragraph 7.121, the Pane l noted that the record of the investigation
shows that Woori Bank participated as an Option 1 bank in the October 2001 Restructuring
Programme on the basis of public policy considera tions. Korea disagrees with this conclusion,
pointing to some evidence of record allegedly show ing that Woori Bank decided to participate in the
October 2001 Restructuring Programme based on comme rcial considerations. Korea is of the view
that the EC's reliance on only three paragraphs of what is a detailed commercial analysis in the so-
called Loan Committee Report discussing what the EC viewed as public policy considerations is
improper and takes these factors out of context. Korea requests that the Panel reconsider its
entrustment or direction analysis and calculus with respect to Woori Bank and the October
Restructuring Programme, given that the misstatement of the record of investigation identified above
affected the Panel's ultimate c onclusions regarding Woori Bank's participation in the October 2001
Restructuring Programme. The EC considers that th e facts on the record simply show that, as well as
the "commercial" explanations provided by Woori Bank, public policy considerations also played a
role, as Korea admits in its comments. The EC th erefore sees no reason to amend the Report on this
point.
6.10 We note that we do not state in our Report that the record of evidence shows that Woori Bank
based its participation only on public policy considerations. However, as Korea acknowledges, the
record shows that Woori Bank participated, inter alia, on the basis of such public policy
considerations. In light of Korea's comments, we decided to clarify the first sentence of
paragraph 7.121 to reflect this nuance. However, this does not alter our overall assessment with
regard to Woori Bank. First, as we state in paragra ph 7.121, we consider relevant in the context of an
examination of government entrustment or direction the fact that a private body bases its decision to
invest on public policy considerations, albeit onl y in part. Moreover, Woori Bank's public policy
reasons for participating was only one piece of eviden ce that led us to the conclusion that the EC's
determination of government directi on with regard to Woori Bank was justified. It was certainly not
the only evidence of such direction, nor was it a de terminative factor in our assessment. In sum, we
reject Korea's request to reconsider our analysis with respect to Woori Bank's participation in the
October 2001 Restructuring Programme.
B. EC
 COMMENTS
Paragraph 8.1

6.11 The EC requests the Panel to replace in Sec tion "VIII. Conclusions and Recommendations",
the term "countervailing measures" (plural) in para graph 8.1 with "definitive countervailing measure"
as the Panel did not make any findings with respec t to the provisional measures imposed. Korea did
not provide any comments on this request. We ag ree with the proposed change, and have amended
our Report accordingly.

"Entrustment or direction"

6.12 With regard to the Panel's findings regarding en trustment or direction generally, the EC first
requests that the Report should always refer to "entrustment or direction" and not just "direction".
Second, the EC requests the Panel to reconsider th e question of the relevance of the totality of the
facts and evidence available. The EC asserts that, for example, the existence of an express guarantee
– the KEIC Guarantee – by Korea because Hynix was c onsidered too big to fail, throughout the POI,
as well as the implied guarantee, is highly relevant to the question of entrustment or direction in the
context, for example, of the October 2001 Restructuring Programme. No comments were received
from Korea on these requests.
6.13 With regard to the EC's first request, we note th at the use of the term "direction", rather than
"entrustment or direction", when discussing the EC investigating authorities' determinations is not
accidental. We made a deliberate choice to use this term as the EC investigating authority itself made
findings of government direction, and not governme nt entrustment. We therefore reject the EC's
request in this respect. In the general section of the Report entitled "General standard of entrustment
or direction under Article 1.1(a)(1)(iv) of the SCM Agreement", where we discuss the legal standard
in more general terms, we did add the term "entrustment" in the middle of paragraph 7.59.
6.14 As far as the EC's second request is concerned, we recall that our views as to the "totality of
facts" argument of the EC are set forth in paragraph 7.63. We see no reason to change this view at
this stage. We therefore reject the EC's request in this respect.
Paragraph 7.87

6.15 The EC requests the Panel to delete the wo rd "potential" in the first sentence of
paragraph 7.87. No comments were received fro m Korea on this request. We note that the
investigating authority found in paragraph 45 of th e EC Final Determination, which is quoted in
paragraph 7.86 of our Report, that the guarantee is a financial contribution by the government within
the meaning of Articles 2.1(a)(iv) and (i) of th e EC's basic Regulation, which provisions are in
relevant part identical to Article 1.1(a)(1)(iv) and (i) of the SCM Agreement and refers to a direct or
potential direct transfer of funds. We have amende d our Report to more accurately reflect the fact
that the EC made a finding of a direct or potential direct transfer of funds.
Paragraph 7.320

6.16 The EC requests the Panel to delete the words "the usual practice of making" in the final
sentence of paragraph 7.320. No comment was re ceived from Korea on this request. We accept the
EC's comment and have amended our Report accordi ngly in order to clarify the EC's views on this
matter.
Paragraph 7.393

6.17 The EC requests the Panel to make two changes to paragraph 7.393: (1) state in the second
sentence that Hynix imports increased by "(361 per cent overall)" instead of by "(461 per cent
overall)" and (2) to end the third sentence with th e following: "and fell from 31.4 per cent in 2000 to
20 per cent in 2001". No comments were received from Korea on this request. We accept the EC's
comments and have amended our Report accordingly.
VII. FINDINGS
7.1 This case concerns a challenge by Korea of the definitive countervailing measure imposed by
the EC on imports of DRAMs from Korea. The EC found that, of the two Korean DRAMs producers,
Hynix and Samsung, the latter di d not receive a subsidy above de minimis and it thus decided not to

impose any countervailing duty on imports from this producer. However, the EC determined that,
from December 2000 through November 2001, Korea extended subsidies to Hynix, either through the
provision of a financial contribution by its public bo dies or by directing private bodies to take part in
the restructuring operation of Hynix. The EC determined that such financial contributions conferred a
benefit to Hynix and thus constitu ted subsidies in the sense of the SCM Agreement . Examining
developments in the state of the domestic industr y from 1998 to 2001, the EC concluded that the
subsidized imports of DRAMs were causing injury to the domestic producers of DRAMs. The EC
thus imposed a countervailing duty on imports of DRAMs from Hynix equal to the margin of
subsidization of 34 per cent ad valorem.
7.2 Korea's challenge concerns both the EC's subs idy determination, and the determination of
injury to the domestic industry. In particular, Korea claims that the EC's finding of a financial
contribution by the government is not c onsistent with Article 1.1(a) of the SCM Agreement. Korea
further claims that the EC's determination of the existence and amount of benefit conferred to Hynix
was in breach of Articles 1.1(b) and 14 of the SCM Agreement, and that the EC failed to demonstrate
that some of the alleged subsidy programmes were specific in the sense of Articles 1.2 and 2 of the
SCM Agreement . A final claim relating to the subsidy determination concerns the use of facts
available by the EC which Korea considers to have been inconsistent with Article 12.7 of the SCM
Agreement.
7.3 With regard to the injury determination, Korea submits that the EC failed to properly examine
the volume and price effects of the allegedly subsid ized imports and did not adequately evaluate all
relevant factors having a bearing on the state of the domestic industry as required by Articles 15.1,
15.2 and 15.4 of the SCM Agreement . In addition, Korea claims that the EC did not establish the
required causal relationship between the subsidized imports and the injury to the domestic industry
found to exist and failed to ensure that injury caused by other factors was not attributed to the
subsidized imports thereby acting in breach of Article 15.5 of the SCM Agreement.
A. G
ENERAL ISSUES
1. Standard of Review
7.4 Article 11 of the DSU sets out the mandate of the Panel in WTO dispute settlement
proceedings. It provides that:
[t]he function of the panel is to assist the DSB in discharging its responsibilities under
this Understanding and the covered agreements. Accordingly a panel should make an
objective assessment of the matter before it , including an objective assessment of the
facts of the case and the applicability of a nd conformity with th e relevant covered
agreements, and make such other findi ngs as will assist the DSB in making the
recommendations or giving the rulings provi ded for in the covered agreements.
(emphasis added)
7.5 The requirement under Article 11 of the DSU for a panel to make an objective assessment of
the matter before it has been interpreted, inter alia, in the context of trade remedies other than anti-
dumping (for which the AD Agreement contains its own specific standard of review) to entail an
examination by the panel of whether the investigati ng authority examined all relevant facts, whether
adequate explanation has been provided of how the facts support the determination made, and
consequently, whether the determination was made consistent with the international obligations of the
Member concerned. In this regard, we recall the Appellate Body's guidance regarding the application
of Article 11 of the DSU in the US – Lamb case:
"[w]e wish to emphasize that, although panels are not entitled to conduct a de novo
review of the evidence, nor to substitute their own conclusions for those of the

competent authorities, this does not mean that panels must simply accept the
conclusions of the competent authorities. To the contrary, …, a panel can assess
whether the competent authorities' explana tion for its determination is reasoned and
adequate only if the panel critically examines the explanation, in depth, and in the
light of the facts before the panel. Panels must, therefore, review whether the
competent authorities' explanation fully addresses the nature, and especially, the
complexities, of the data, and responds to othe r plausible interpretations of that data.
A panel must find, in particular, that an explanation is not reasoned, or is not
adequate, if some alternative explanation of the facts is plausible, and if the
competent authorities' explanation does not seem adequate in the light of that
alternative explanation. T hus, in making an "objective assessment" …, panels must
be open to the possibility that the explana tion given by the competent authorities is
not reasoned or adequate."12 (emphasis in original)
7.6 We are, therefore, fully conscious of the fact that it is not the role of the Panel to perform a de
novo review of the evidence which was before the i nvestigating authority at the time it made its
determination. We will, therefore, examine whether on the basis of the record before it, a reasonable
and objective investigating author ity could have reached the conc lusions the EC investigating
authority reached with regard to the determination of subsidization and injury.
2. Burden of Proof
7.7 In WTO dispute settlement proceedings, the burden of proof with respect to a particular claim
or defence rests with the party th at asserts such claim or defence. 13 The burden of proof is "a
procedural concept which speaks to the fair and orderly management and disposition of a dispute". 14
In the context of the present dispute, which is c oncerned with the assessment of the WTO consistency
of a definitive countervailing measure imposed by the EC, Korea is obliged to present a prima facie
case of violation of the relevant articles of the SCM Agreement. In this regard, the Appellate Body
has stated that "a prima facie case is one which, in the absence of effective refutation by the defending
party, requires a panel, as a matter of law, to rule in favour of the complaining party presenting the
prima facie case".15 Thus, where Korea presents a prima facie case in respect of a claim, it is for the
EC to provide an "effective refutation" of Ko rea's evidence and arguments, by submitting its own
evidence and arguments in support of the assertion that the EC complied with its obligations under the
SCM Agreement. Assuming evidence and arguments are presented on both sides, it is then our task to
assess that evidence and those arguments in order to determine whether Korea has established that the
EC acted inconsistently with its obligations under the SCM Agreement. The role of the Panel is not to
make the case for either party, but it may pose ques tions to the parties "in order to clarify and distil
the legal arguments".16
B. CLAIMS CONCERNING THE EC'S SUBSIDY DETERMINATION
7.8 Korea challenges the EC's subsidy determination w ith regard to each of the five restructuring
measures through which the EC found that subsidies we re provided to Hynix. Korea considers that
the EC's findings that each of these five restructur ing efforts constituted a financial contribution by
the government that conferred a benefit are inconsistent with Articles 1 and 14 of the SCM
Agreement.

12 Appellate Body report, US – Lamb, para. 106.
13 Appellate Body report, US – Wool Shirts and Blouses, p. 14.
14 Appellate Body report, Canada – Aircraft, para. 198.
15 Appellate Body report, EC – Hormones, para. 104.
16 Appellate Body report, Thailand – H-Beams, para. 136.

7.9 In general, Korea claims that the EC's financial contribution analysis with respect to these five
measures is flawed as it failed to establish, inter alia, that the private bodies that participated in the
restructuring measures were entrusted or directed by the Government of Korea to do so. Moreover,
Korea asserts that the EC's benefit analysis faile d to rely on the correct market benchmarks and
illegitimately considered all measures as grants, in cl ear contradiction with the nature of the measures
adopted. The EC, on the other hand, rejects all of Korea's assertions and considers that the
investigating authority conducted an objective exam ination in which it found sufficient evidence that
Korea entrusted or directed private bodies to partic ipate in the restructuring. In addition, the EC
argues that, in light of the reasonable conclusion that no market operator would have provided
financing to Hynix in the course of the period of in vestigation, the investigating authority was entitled
to consider all measures as grants.
7.10 In light of the reference that will need to be ma de to the various restructuring efforts found to
constitute subsidies to Hynix, we consider it usef ul to first describe briefly each of these five
programmes which were examined by the EC. We will then examine in detail the claims and
arguments of the parties with resp ect to the EC's determination of financial contribution and benefit
for each of these programmes.
17
7.11 We note that the record shows that Hynix's fi nancial situation was critical during the years
following the financial crisis in Korea of 1997, an d that, by the end of 2000, Hynix had accumulated
more than USD 9.46 billion of liabilities, almost tw ice its net worth and more than four times the
market capitalisation of the company. 18 It appears that the important problem that Hynix was facing
consisted of the maturing of the majority of these liabilities in the year 2001, which would imply
serious liquidity problems for Hynix. The EC dete rmined that, by November 2000, Korea decided to
take action to "alleviate Hynix' cash crunch" and provided subsidies through five different support and
restructuring programmes from December 2000 to October 2001: the Syndicated Loan, the KEIC
Guarantee, the KDB Debenture Programme, th e May 2001 Restructuring Programme and the
convertible bonds purchase in particular, and the October 2001 Restructuring Programme.
7.12 The Syndicated Loan of a total amount of KRW 800 billion was part of a financial plan to
resolve the problem of a "mismatch" between Hynix 's cash flow and the extent of debt obligations
that matured and had to be repaid in 2001. While ten banks participated in the Syndicated Loan, the
EC examined only three banks, the Korea Deve lopment Bank ("KDB"), the Korea Exchange Bank
("KEB") and the Korea First Bank ("KFB") and consider ed that their participation in the Syndicated
Loan constituted a financial contribution by Korea conferring a benefit on Hynix. The EC found the
KDB to be a public body, and the KEB and KFB (each participating in the Syndicated Loan for an
amount of KRW 100 billion) to be acting under the direction of Korea.
7.13 In January 2001, Hynix benefited from an in crease in its 90 day D/A (documents against
acceptance) export credit facility from USD 800 million to USD 1.4 billion. It documents each export
transaction, on the basis of which it receives immediate payment from the fourteen participating
banks. The overseas purchasers later pay the bank s. The Korea Export Insurance Corporation
("KEIC") guarantees that the banks will receive payment, in case either the exporter or the importer
goes bankrupt. The EC concluded that, without the KEIC Guarantee, the banks would not have been
willing to extend the export credit facility for Hynix and determined that the KEIC, as a public body,
was therefore providing a financial contribution that conferred a benefit to Hynix.
7.14 Around the same time, i.e., on 4 January 2001, Hynix was admitted to the KDB Debenture
Programme. Under this progra mme, maturing debt was to be rolled-over and re-packaged for
investors. Hynix had to pay 20 per cent of th e due debt, while 80 per cent was purchased by the

17 In addition, and for ease of understanding, Annex F-1 contains a timeline of these programmes and
salient events in 2000 and 2001 based on the relevant information on the record.
18 Final Determination, para. 19, referring to Hynix Business plan filed with the FSC, 21 March 2002.

KDB, which then repackaged 70 per cent thereo f for sale to investors as collateralised bond
obligations ("CBOs") and/or collateralised loan obligations ("CLOs"), guaranteed by the Korea Credit
Guarantee Fund ("KCGF"); and 10 per cent was retained by the KDB. The EC found that the bond
purchase by the KDB as part of this programme constituted a financial contribution by the
government which conferred a benefit on Hynix.
7.15 In May 2001, a further recapitalisation plan, referred to as the "May 2001 Restructuring
Programme", was agreed by the eighteen Hynix cr editor banks united in the Creditors' Council. The
May Programme included an injection of fresh capital into Hynix through the offering of
KRW 1.3 trillion of global depositary receipts ("GDRs"); an extension of the maturities of short and
long-term debt (a debt roll-over); and the purchase by the creditor banks of convertible bonds ("CBs")
worth KRW 1 trillion. The EC found that the creditor banks had been directed by Korea to agree to
these measures and countervailed the CBs purchase as being a financial contribution by the
government which conferred a benefit on Hynix.
7.16 Finally, on 31 October 2001, the Creditors Financial Institutions Council ("CFIC") decided on
a second restructuring package for Hynix, the so-called "October 2001 Restructuring Programme".
Creditor banks were given several options, rangi ng from walking away from Hynix and collecting
part of the amount owed as determined by a liquida tion report, to providing even further financing.
Six banks provided new funds to Hynix and agreed to a new loan of KRW 1 trillion to Hynix with an
interest rate of 7 per cent; a debt-to-equity swap by acceptance of bonds convertible into shares; and
extending the maturities of existing loans until 31 December 2004, converting the maturing corporate
bonds into corporate bonds with a three year maturity and an interest rate of 6.5 per cent and adjusting
the interest rate of the remaining loans in Korean currency to 6 per cent. The EC considered that the
participation by these six so-called "Option 1" banks in the October 2001 Restructuring Programme
constituted a financial contribution by the governme nt which conferred a benefit on Hynix, as these
banks were either public bodies or directed to take part in the restructuring by Korea.
7.17 The EC concluded that the overall amount of the subsidy provided by Korea to Hynix through
these five programmes was 34.8 per cent ad valorem.
19
1. Claim regarding the EC's determinations of the existence of a financial contribution by
the government
(a) Korea
7.18 Korea argues that the EC's findings of financia l contribution with regard to five different
programmes are inconsistent with Article 1.1(a) of the SCM Agreement, mainly because the EC failed
to establish that the private bodies that participated in the programme were entrusted or directed by
Korea to provide a financial contribution to Hynix.
(i) General standard of entrustment or direction under Article 1.1(a)1(iv) of the SCM Agreement
7.19 With respect to the appropriate legal standard of entrustment or direction under Article 1.1(a)
of the SCM Agreement, Korea argues that, in order to find a financial contribution through a private
body, an authority must demonstrate an explic it and affirmative government action addressed to a
particular party to perform a particular task or duty. 20 Korea asserts that the ordinary meaning of the
term "entrust" is "to give responsibility for" while the ordinary meaning of "to direct" is "to give a
formal order or command". 21 As the French and Spanish versions of Article 1 of the SCM Agreement
confirm, the most appropriate interpretation of the term "to direct" must be the meaning that conveys

19 See Final Determination, table in para. 166.
21 Id., para. 404.

the idea of ordering the private body to take some action, and not the looser idea of mere guidance or
suggestions.
22 Korea argues that Article 1 of the SCM Agreement only targets government action. In
this context, the terms "entrust or direct" must ther efore be read to mean that the disciplines of the
SCM Agreement apply to the actions of private bodies only in case the private body becomes the
instrument of the government. If any discretionary au thority is left to private body, its actions cannot
be imputed to the government, and the SCM Agreement does not apply. 23 In the view of Korea, the
"entrusts or directs" standard is not merely an "e ffects test". Korea argues that the perceived reaction
of private entities to reported government inducement, or even confirmed react ion by private entities,
cannot be the basis on which the Member's compliance with its treaty obligations under the WTO is
established. Korea finds support for its inte rpretation in the report of the panel in US – Export
Restraints. Korea submits that, under this legal standard , the EC failed to establish that the private
bodies that participated in the five programmes which were alleged to constitute a financial
contribution were entrusted or directed by the Korean government or a Korean public body to do so.
(ii) Syndicated Loan
7.20 With regard to the Syndicated Loan that was provided by ten banks in December 2000, Korea
submits that there is no basis in the facts of the r ecord for the EC's finding that two private banks, the
KEB and KFB 24, took part in the loan because they were entrusted or directed to do so. Korea
considers that the EC attached undue importance to the letter of the Ministry of Finance and Economy
to the KEB dated 28 November 2000. According to Korea, all this letter did was to advise or
recommend the KEB to seek a lending limit waiv er from the FSC. The letter clearly does not
command the KEB to provide financing to Hynix. 25 According to Korea, even if the letter is read to
require the KEB to act in a certain manner, then at best the letter requires the KEB to seek a lending
limit waiver from the Financial Supervisory Comm ission ("FSC"), a Korean public body. The letter
did not order the KEB to participate in the Syndicated Loan and provide funds. 26 Korea argues that
while the FSC waiver which was obtained by the KEB may have enabled the KEB and two other
banks which had reached their lending limits to pa rticipate in the loan, this does not explain these
banks' decision to actually participate in the lo an. Korea notes that seven other banks also
participated in the loan without the need for a waiv er. In sum, while the waiver granted by the FSC, a
public body, permitted the transaction, this does not su ffice to conclude that this public body or the
government required the KEB to take part in the tr ansaction. Korea recalls that the Syndicated Loan
was already on the table in early November and that the question in December was simply a matter of
how to execute the loan.
27
(iii) KEIC Guarantee
7.21 Korea submits that the financial contribution th at was countervailed by the EC consisted of
the extended D/A financing of the creditor banks which was guaranteed by the KEIC. Korea argues
that the EC failed to establish that these creditor ba nks were directed by the government to provide
further D/A financing, and ignored the fact that the financing was driven by the very rational and
commercial considerations of the creditors involved, as is not contested by the EC. 28 While it may
well be correct that a public body such as the KEIC made available export insurance to creditors, this
cannot be read to constitute an explicit and affi rmative delegation or command by Korea to Hynix
creditors to extend such D/A financing in the amount of USD 600 million. 29 The fact that the KEIC

23 Korea First Written Submission, paras. 405-406.
24 We recall that the KFB contribution was considered to be negligible by the EC and was therefore not
countervailed.
28 Id., para. 453.
29 Id., para. 454.

may be considered to be a public body is irrele vant as KEIC only provided insurance, and not any
D/A financing. It was the D/A financing which the banks provided that constituted the financial
contribution that was countervailed without evidence of entrustment or direction of those banks. 30
(iv) KDB Debenture Programme
7.22 Korea submits that the EC did not establish that all creditors that took part in the KDB
Debenture Programme were entrusted or directed by Korea to provide funds. 31 The EC was therefore
not entitled to consider their participation as a fina ncial contribution by the government or a public
body under Article 1.1(a) of the SCM Agreement. Korea asserts that, even if the EC characterisation
of the KDB as a public body is correct, numerous cr editors other than the KDB were also involved
and the EC did not establish entrustment or direction with regard to these creditors.32 Korea notes that
the KDB Debenture Programme did not actually invol ve the provision of new funds but merely a
refinancing of existing bonds. 33 In any case, Korea points out that there is no evidence on the record
that any specific lender was legally obligated by th e KDB Debenture Programme to participate in any
specific refinancing.34 Therefore, the EC statement that all Hy nix creditors were directed by Korea to
participate in the KDB Programme is unsubstantiate d and incorrect and reveals a confusion between
financial contribution and the possible benefit to Hynix.35
(v) May 2001 Restructuring Programme
7.23 Korea submits that the EC's finding that the May 2001 Restructuring Programme of Hynix
constituted a countervailable subsidy is also flawed . Korea recalls that the May 2001 Restructuring
Programme occurred at a time of rising DRAMs prices and that it was successful only because Hynix
could persuade sophisticated international investors to invest a huge sum of money in the company, as
was recognised by the EC in the Preliminary Determination.
36 Korea argues that the EC's finding of
financial contribution in the context of the May 2001 Restructuring Programme was based on
insufficient circumstantial evidence of entrustment or direction.
7.24 In particular, Korea first asserts that the EC relied on erroneous press reports concerning the
reason for the presence of an FSS official at one meeting of the Creditors Council and alleging
government pressure being exercised on one of the ei ghteen participating banks. Korea submits that
the presence of an FSS official at this one meeting is explained by the fact that it was only logical that
the FSS, as the principal Korean agency concerned with bank supervision, was present at the meeting
to witness discussion of the prior commitments of the cr editors. All this shows, at a maximum, is an
abstract government interest, not direction or entrustment. 37 Moreover, Korea argues that the press
reports about Korea putting pressure on one bank, th e KorAm Bank, were mistaken as this bank was

31 Korea argues that the KDB programme was not specific to Hynix but was designed to address a
common problem of maturing bonds in the Korean market. The creditors' decision to apply for the KDB
programme was based on commercial considerations. (Korea First Written Submission, para. 458)
33 Id., para. 456. Under the programme, 20 per cent of the bonds had to be paid off by the debtor, and
of the 80 per cent remaining, KDB only retained 10 per cent of the refinanced bonds. The existing creditors
were to hold only 16 per cent of the outstanding debt being refinanced (20 per cent of 80 per cent), and all the
rest was refinanced on the open market.
34 Id., para. 457.
 35 Id., paras. 459-463. Korea points, in particular, to the specific criteria that need to be met in order to
be allowed to participate. Moreover, Korea states th at the fact that FSC waived the lending limit for certain
banks does not equal a requirement to participate in th e programme. Finally, Kore a asserts that the example
provided in the EC Final Determination of the KFB being forced into participating is based on erroneous press
reports, as the KFB did not take part in the programme, contrary to what it is stated in the Final Determination.

36 Korea First Written Submission, paras. 466-469.
37 Id., para. 472.

simply waiting for certain legal documents from Hyni x before finalizing its investment. The KorAm
went ahead with the investment as soon as it received the documents concerned.
38
7.25 Secondly, Korea considers incorrect and inappropria te the reliance of the EC on the fact that
there was insufficient market financing available to Hynix by May 2001 to conclude that the
participating banks thus must have been acting under the entrustment or direction of the government.
Korea refers to opposite conclusions reached by the EC itself in its Preliminary Determination.
Moreover, according to Korea, the commercial reasonability of the financing is a matter which relates
to the question of benefit to Hynix rather than the question of the existence of a financial contribution.
7.26 Thirdly, Korea also considers inappropriate the EC reliance on alleged earlier cases of
directed financial contributions (such as the Sy ndicated Loan, the KEIC Guarantee and the KDB
Debenture Programme) to support of a finding of entrus tment or direction in respect of the May 2001
Restructuring Programme. Especially, in light of the fact that the EC itself treated all five
restructuring efforts as distinct measures, and in the absence of any demonstrated linkage between the
restructuring operations, such past actions are simply irrelevant in establishing direction in the
May 2001 restructuring.
7.27 Finally, Korea submits that the EC failed to examine all of the banks involved in the
May 2001 restructuring before making findings of an alleged financial cont ribution provided by all
participating banks. The EC relied on press reports concerning alleged pressure put on one bank only,
the KorAm Bank, and failed to show that this bank w as representative of all others. The EC did not
examine which of the banks were alleged to have b een entrusted or directed by Korea due to presence
of an FSS official at the March meeting of the Creditors Council. Korea argues that it appears that the
only basis for the EC's conclusions seems to have been that such presence was not disclosed earlier,
which entails an attempt to penalize Korea for an a lleged failure to cooperate, and such a penalty is
not authorized by Article 12.7 of the SCM Agreement.
(vi) October 2001 Restructuring Programme
7.28 With regard to the October 2001 Restructuri ng Programme, Korea asserts that the EC relied
on a patchwork of circumstantial evidence most of which bears no relationship to the October
Restructuring Programme as such, but rather rehash es press reports relating to the Syndicated Loan,
the FSC waiver, the presence of an FSS official at the March 2001 meeting, and the allegations
concerning the KorAm Bank. In fact, Korea submits that the EC based its conclusion of financial
contribution in the context of the October 2001 Restructuring Programme on only one new press
report. This report contains a statement of the deputy PM which does not address the question of
Korea's direction of banks to participate in the October 2001 Restructuring Programme.
7.29 Korea asserts that the EC conclusion of entrustmen t or direction of the banks that took part in
the October 2001 Restructuring Programme was largel y based on the fact that the government was a
shareholder in a number of these banks. Korea s ubmits that the government-shareholding in and of
itself does not prove direction or entrustment. Acco rding to Korea, for such a determination to be
made, it needs to be positively established that the go vernment actually exercised its control to direct
the particular bank in a particular way. The EC failed to do this.
39 Moreover, Korea argues that the
existence of a choice that was given to creditors as to whether they wanted to continue to invest in
Hynix as well as the fact that some 100 per cent government-owned banks, when given this choice,
decided not to participate in the October Restru cturing Programme, clearly prove the absence of
entrustment or direction.

38 Id., para. 477.
39 Id., para. 506.

7.30 In particular, Korea asserts that with regard to Citibank, the EC ignored all relevant evidence
(such as a Citibank affidavit; statements of Kor ea with regard to Citibank, as well as Citibank
officials' statements) and merely relies on the a lleged close relationship between Citibank and the
government, which does not prove direction or en trustment. Korea notes that, in a parallel
investigation concerning Hynix, the US Departme nt of Commerce found Citibank not to have been
directed. With regard to the KEB, Korea argues th at the KEB's low internal rating of Hynix does not
show direction by the government, especially sin ce the KEB, as an existing creditor, may have had
different objectives than new creditors. The EC's argument, based on an alleged past culture of
government influence over the KEB lending practices, ev en if correct, is unlikely to be valid in 2001
now that an outside international bank like Commerzbank controls the KEB's lending practices.
Concerning Woori Bank, Korea points out that the EC ignored the fact that, at the time of the
restructuring in October 2001, there were still two banks, Woori Bank and Peace Bank, which later
merged as Woori Bank. The EC completely fail ed to examine Peace Bank's involvement or its
alleged direction or entrustment. The fact that Woori Bank seemed to have taken certain public policy
objectives into account when deciding to take part in the restructuring is only normal for an important
national bank. It does not suffice to conclude, as the EC does, that this bank was entrusted or directed
by the government to participate. In the vi ew of Korea, the fact that a Memorandum of
Understanding ("MOU") existed between Woori a nd the government is irrelevant for the
October 2001 Restructuring Programme. In any cas e, this MOU only set forth general prudential
rules for Woori Bank as the recipient of public funds. 40 With regard to Chohung Bank, Korea submits
that government shareholding does not equal entrustment or direction, as the EC failed to demonstrate
that the government actually used its alleged power to influence decisions as shareholder or under the
MOU, which was put in place to protect the banks from government influence rather than the reverse.
As far as the National Agricultural Cooperative Fe deration ("NACF") is concerned, Korea submits
that the economic public policy obj ectives of the NACF relate only to the agricultural sector, and do
not imply any government direction in a no n-agricultural sector like DRAMS. The NACF's
cooperative goals have, in any case, no bearing on the question of direction or entrustment.
(b) EC
(i) General standard of entrustment or direction under Article 1.1(a)1(iv) of the SCM Agreement
7.31 According to the EC, the terms "entrust or di rect" in Article 1.1(a)(1)(iv) have a wider
meaning than the meaning advanced by Korea. The EC argues that the use of the term "direct" in the
SCM Agreement rather than the term "order" implies that the term "direct" has a wider connotation
including "to regulate, conduct or control affairs", "to give commands or orders with authority". It is
thus of the view that an indication or a nudge by the government or a public body to a private body is
also a "direction".
41 Similarly, the EC submits that the concept of "entrust" indicates a particularly
light control and includes the notion of "putting so mething into the care or protection of someone". 42
The fact that a certain discretionary authority is le ft to the private body is therefore not inconsistent
with a finding of entrustment or direction. Such acts of entrustment or direction may well include
threats, encouragements, or even in certain ci rcumstances attending a meeting and monitoring the
results of that meeting, depending on the facts of the case.43
7.32 According to the EC, the real issue in this case is an evidentiary one. In this respect, the EC
emphasises the general problems of evidence gather ing in countervail investigations which concern
the behaviour of states and the difficulty of finding "the smoking gun". The EC submits that Korea

41 The EC argues that, since Korea acknowledges the government nudged the banks into participating,
this acknowledgement equals an admission of govern ment entrustment or direction. (EC First Written
Submission, para. 276)
43 EC response to question 5 of the Panel, paras. 21 and 24.

did not discharge its obligations under the SCM Agreement since it did not place evidence in relation
to the subsidies determination before the investigating authority at the time of investigation. In this
regard, the EC refers, for instance, to the minutes of the Economic Ministers' meeting which were not
submitted by Korea. The EC recalls that Article 1.1 of the SCM Agreement provides that a subsidy
will be deemed to exist in any of the circumstances described in that provision, and argues that the use
of the term "deemed" refers to the possibility of an evidentiary gap.
44,45
7.33 According to the EC, the panel report in US – Export Restraints is irrelevant to the case at
hand and does not in any case support Korea's assertions. 46 The EC is of the view that the panel
findings in that report need to be put in context of facts of the case. The EC recalls that the US –
Exports Restraints case concerns a restriction on exports, which is an inherently prohibitive or passive
government action, and thus comple tely different from the affirmative government action at issue in
this case.47 That panel's interpretation cannot be exte nded beyond the specific facts of the case as the
fact pattern differs significantly from the fact pattern of this case. 48 In any case, the EC considers that
the panel report in that case, in so far as it is applicable or relevant, does not support Korea's
argument. The EC asserts that the US – Export Restraints panel recognized the possibility of a
general act of entrusting or directing a private body to take a certain course of action. In other words,
there can be government direction or entrustment if a government generally entrusts or directs a
company or a bank to act in the public interest and, in such case, there is no need to show that there
was a specific entrustment or direction with resp ect to each specific act leading to a financial
contribution.
7.34 The EC considers that it has established the exis tence of a financial contribution in the sense
of Article 1.1(a) of the SCM Agreement with regard to each of the five challenged Hynix rescue
operations.
(ii) Syndicated Loan
7.35 The EC first notes that it is not contested th at the KDB and FSC are public bodies, and that
the KDB's participation in the loan thus cons tituted a financial contribution in the sense of
Article 1.1(a)(1) of the SCM Agreement . The EC argues that, as far as the two private banks are
concerned, the KEB and KFB, there was sufficien t evidence on the record to support the conclusion
that they had been entrusted or directed to provi de the loans to Hynix. The EC submits that the
28 November 2000 letter from the Ministry of Economy and Finance ordered, and thus "entrusted or
directed", the KEB to apply for the extension of the credit ceilings, including on behalf of the KDB
and KFB. In other words, the letter did more than simply recommend or advise the KEB to seek a
waiver.
49 The EC is of the view that it is impossible to dissociate the extension of the credit ceilings
from the participation in the loan. While preparator y steps for the Syndicated Loan were taken before
the November letter, it was only put in place follo wing the steps taken by the government, at the
28 November Economic Ministers' meeting, the results of which are contained in the letter. 50 The

44 Id., para. 20.
45 The EC thus argues that, if the evidence and the totality of the facts reasonably support the view that
the government has guaranteed the company, and thus the risk associated with any capital supplied by private
banks, then an investigating authority is entitled to conclude that there is a financial contribution within the
meaning of Article 1.1 of the SCM Agreement , resulting from such government guarantee. Another way of
saying essentially the same thing is that, in these circumstances, the private banks have been entrusted or
directed by the government to supply the necessary capital, under the umbrella of the overarching government
guarantee. (EC response to question 8 of the Panel, para. 47)
47 EC response to question 4 of the Panel, para. 10.
48 EC First Written Submission, paras. 282-283.
49 Id., para. 290.
50 Id., paras. 291-292. The government thus "provided" or made available to certain banks the right to
derogate from the normal prudential banking rules. (EC First Written Submission, para. 294)

participation of other banks does not prove the comme rcial viability of participation. The EC argues
that the other banks were simply not investigated by the EC and, if anything, their participation shows
that the "too big to fail"-policy of intervention in favour of Hynix was successful. It convinced other
banks to participate in the loan as the credit would be a safe bet. 51 For these reasons, participation by
the seven non-examined banks in the Syndicated Loan does not provide a valid benchmark for the
commercial reasonability of participation in the Sy ndicated Loan. The acti ons of these seven banks
were, in any case, profoundly influenced both by the actions of the government in relation to Hynix,
and by the actions of the government in relation to the Korean capital markets as a whole.52
(iii) KEIC Guarantee
7.36 The EC submits that Hynix would not have been able to obtain the D/A extension by
USD 600 million (from USD 800 million to USD 1.4 billio n ) without the KEIC Guarantee, and this
due to its precarious financial situation and the fact that some banks had already reached their
prudential lending limits.53 The EC notes that Korea does not co ntest the EC's finding that the KEIC
is a public body and hence no entrustment or direction in respect of KEIC needs to be demonstrated.
In the case of the KEIC however, th e EC submits, there is also evidence that the government directed
the KEIC to provide the additional guarantee. Moreover, the government itself guaranteed the
guarantor - the KEIC - that, in the event of future problems caused by the guarantee to Hynix, the
government would provide additional funds to the KE IC. In sum, the EC concludes that Hynix was
only able to secure the further guarantee from the KE IC due to government direction to the KEIC and
the government's assurance that it would underwrite the guarantee. The EC argues that three letters of
28 November 2000 (from the Ministry of Economy and Finance), 30 November 2000 (from the
Ministry of Commerce) and 10 January 2001 (from th e three Ministries involved) contain clear and
irrefutable evidence of this government direction of the KEIC.
(iv) KDB Debenture Programme
7.37 The EC submits that the KDB is a public body and that the purchase of corporate bonds under
the programme was therefore a clear financial contri bution in the sense of Article 1.1(a)(1) of the
SCM Agreement. The EC notes that Korea does not contest its determination of the KDB as a public
body. In the view of the EC, of the total pr ogramme budget of KRW 2.9 trillion, 1.2 trillion (41 per
cent) was used for purchasing Hynix bonds, of wh ich Hynix paid back KRW 280.4 billion under the
conditions of the programme, thus receiving a financial contribution of KRW 919.6 billion.
(v) May 2001 Restructuring Programme
7.38 The EC submits that the investigating authority based its determination on the totality of facts,
and that it is not appropriate to assess the strength of each piece of evidence in isolation. The EC also
notes that the authority was to a certain extent obliged to use facts available due to the non-
cooperation of Korean actors.54

51 Id., paras. 286-287.
 52 EC response to question 11 of the Panel, para. 64. As the EC stated:
"[c]onsider the situation in which a government gives a guarantee that induces a bank to
provide a company with risk capital that will certa inly be lost. There are essential two ways
of viewing this situation, which both lead to e ssentially the same result. First, the guarantee
itself, with no premium, is a financial contribution, the amount of the subsidy being at least
equivalent to the capital that it is certain will be lost. Second, the bank has effectively been
entrusted or directed to provide a subsidy, the amount of the subsidy being at least equivalent
to the capital that it is certain will be lost". (EC response to question 11 of the Panel, para. 62)

53 EC First Written Submission, paras. 435-437.
54 Id., para 304.

7.39 Addressing the arguments by Korea, the EC submits, first, that the use of press reports as
evidence is common and accepted. The EC asserts that , in this particular case, the press reports
concerning the FSS official's presence at the Credito rs Council meeting were from a reputable source
specialized in economic and financial matters. The EC considers important the fact that the press
report was dated the day of the meeting and that th e information was thus fresh. Moreover, the EC
notes, the government failed to present the written reco rd of the minutes of this meeting to contradict
information contained in the press report.
55 The EC further argues that the significance of the press
reports has to be put in the context of this case, in which 2/3rds of the CBs were purchased by banks
100 per cent owned by government or with government majority or decisive shareholding. Moreover,
and with respect to the press reports concerning the government pressure on one bank, the KorAm
Bank, the EC submits that these reports clearly show the reluctance of this bank and the fact that it
eventually participated only due to government direction. As these reports are evidence of the
willingness of the government to use pressure, there is no reason why the government would not have
been as willing and able to similarly put pressure on the other seventeen participating banks.
7.40 Second, the EC emphasises that the absence of alternative financing on the market is very
important in the totality of facts on wh ich the authority based its conclusions. 56 The EC considers that
the absence of alternative financing is a major fa ctor supporting the authority's conclusion that the
banks were entrusted or directed to take part in the restructuring as there would have not been any
need for government direction had such alternative financing existed.
7.41 Third, and in a similar vein, the EC submit s that the existence of earlier financial
contributions is important in the totality of fact s given the close temporal and economic connection
between the various events. According to th e EC, it is only reasonable to assume that the
government's interest in saving Hynix would continue.
7.42 Finally, the EC is of the view that no bank-by -bank analysis was required as the totality of
facts showed government direction for each of th e banks involved in the May 2001 Restructuring
Programme.
(vi) October 2001 Restructuring Programme
7.43 The EC considers that the Final Determinati on sets forth sufficient evidence to support its
finding of the existence of a financial contribution to Hynix. The EC asserts that state control or
participation is a strong indicator of entrustment or di rection. In this regard, the EC asserts that four
of the largest Hynix creditors, i.e., the KDB, Woori Bank, Chohung Bank, and the KEB, were either
totally or by large majority owned by the governme nt. Of the two less important creditors in the
October Restructuring Programme, the NACF and Citibank, one (NACF) is a cooperative established
by a special law and jointly managed by the Ministry of Finance and Economy and the Ministry of
Agriculture and Fishery.
7.44 In the case of two of the banks, Woori Bank and Chohung Bank, the EC submits that there
was direct evidence on the record that they based their decisions on public policy considerations,
rather than their own commercial considerations. In the view of the EC, the fact that the failure of
company would cause a shock to the national economy would not justify a commercial bank's
decision to inject money in a company with no reasonable expectation to receive its money back. The
EC asserts that these factors, taken as a whole, are sufficient to demonstrate that there was
government entrustment or direction, in particular taking into account that the investigating authority
operated under a facts available standard.

55 The EC considers that the press release which was issued by the FSC shortly after the press report in
question and contradicting the information stated therein only shows the degree of connexity between FSS, FSC
and the government. The EC concludes that in the case of FSC, "qui s'excuse, s'accuse".
56 EC First Written Submission, paras. 319-320.

7.45 With regard to Korea's claim that the EC s hould have taken into account that a number of
Hynix's creditor banks with substantial government pa rticipation did not participate in Option 1 of the
October 2001 Restructuring Programme, the EC st ates that Korea's argument is posited on the
assumption that it was reasonable for any bank to pa rticipate in Option 1 because there was a chance
that it could recover losses. However, the EC st ates that it was not commercially reasonable on any
view for any of the players to participate in Option 1, irrespective of the amount of exposure at the
time of the October 2001 Restructuring Programme. Fi nally, the EC considers that evidence of prior
government entrustment or directi on is relevant as it shows the government's involvement which was
likely to continue as long as necessary to save Hynix.
7.46 In response to some of Korea's arguments concer ning each of the specific participating banks,
the EC asserts that the authority did not ignore any Citibank evidence. In fact, according to the EC,
what Korea calls "evidence" are no more than self-int erested statements and affidavits of little or no
probative value. The EC also disagrees with Korea's assertion that Commerzbank controlled the
lending practice of the KEB, as in fact, of the twenty directors, only four were from Commerzbank,
and the government as the largest shareholder was able to influence the other directors' appointments.
Finally, with regard to Woori Bank, the EC emph asises that Peace Bank no longer existed at the time
of the investigation and that none of the inte rested parties made any arguments before the
investigating authority about the need to examine Peace Bank. In fact, according to the EC, Peace
Bank had effectively been taken over by the government by October 2001.
(c) Panel Analysis
7.47 Korea's claim concerns the definition of a subsidy under Article 1 of the SCM Agreement, and
the requirement of determining the existence of a financial contribution by the government under
Article 1.1(a) of the SCM Agreement in particular. Article 1 of the SCM Agreement provides in
relevant portion as follows:
1.1 For the purpose of this Agreement, a subsidy shall be deemed to exist if:
(a)(1) there is a financial contribution by a government or any public body
within the territory of a Member (referred to in this Agreement as
"government"), i.e. where:
(i) a government practice involves a direct transfer of funds (e.g.
grants, loans, and equity infu sion), potential direct transfers
of funds or liabilities (e.g. loan guarantees);
(ii) government revenue that is otherwise due is foregone or not
collected (e.g. fiscal incentives such as tax credits);
(iii) a government provides goods or services other than general
infrastructure, or purchases goods;
(iv) a government makes payments to a funding mechanism, or
entrusts or directs a private body to carry out one or more of
the type of functions illustrate d in (i) to (iii) above which
would normally be vested in the government and the
practice, in no real sense, differs from practices normally
followed by governments;

and

(b) a benefit is thereby conferred. (footnote omitted)
(i) General standard of entrustment or direction under Article 1.1(a)1(iv) of the SCM Agreement
7.48 Article 1.1 of the SCM Agreement thus provides that a subsidy shall be deemed to exist in
case there is a financial contribution by the governme nt or any public body wi thin the territory of a
Member which confers a benefit. Article 1.1(a)(1) s ubparagraphs (i) to (iii) set forth three situations
that are considered to constitute such a financia l contribution by the government. Subparagraph (iv)
adds that a financial contribution may also be considered to have been provided by the government, in
cases where the government has entrusted or directed a private body to provide one of the types of
financial contributions described in subparagra phs (i) to (iii) of Article 1.1(a)(1) of the SCM
Agreement. In other words, the Agreement provides that a financial contribution will be considered to
have been provided by the government in cases where the government or a public body itself provides
such a financial contribution, or in cases where the government entrusts or directs a private body to do
so.
7.49 In our view, two situations thus need to be distinguished. If the government or a public body
carries out one of the functions illustrated in subparagr aphs (i) to (iii), then such action constitutes a
financial contribution in the sense of Article 1.1(a) of the SCM Agreement . If a private body
undertakes the same action, there is no financial c ontribution in the sense of Article 1.1(a) of the SCM
Agreement, unless it is established that the private body w as entrusted or directed by the government
to provide the financial contribution. We note, in this respect, that Article 1.1(a)(1) of the SCM
Agreement clarifies that the term " government" as used in the SCM Agreement covers both the
government as such, as well as any public body with in the territory of a Member. In our view,
therefore, and the parties do not seem to disagree in this respect, there is no need for a finding of
entrustment or direction in cases where it has been established that the party providing the financial
contribution was itself a public body.
7.50 However, in cases where the financial contri bution was provided by a private body, as the
investigating authority considered to have been the case on a number of occasions with respect to
support for Hynix, the disciplines of the SCM Agreement will not apply as there is no financial
contribution by the government , unless it can be demonstrated that the private body was entrusted or
directed by the government to provide such a financia l contribution. We will thus need to examine
the exact scope and meaning of the terms "entrust" a nd "direct" as used in Article 1.1(a)(1)(iv) of the
SCM Agreement.
7.51 Article 3.2 of the DSU requires us to interpret the terms of the various WTO Agreements in
accordance with the "customary rules of interpreta tion of public international law". This is a
reference to the rules of treaty interpretation laid down in the Vienna Convention on the Law of
Treaties (the "Vienna Convention"), particularly Articles 31-32 thereof.
57 We will therefore examine
the ordinary meaning of the terms used in Article 1 of the SCM Agreement, in their context and in
light of the object and purpose of the Agreement.
7.52 The ordinary meaning of the term "entrust" is "to give (a person etc.) the responsibility for a
task" or "to commit the execution of (a task) to a person". 58 The term "direct" in turn means, inter
alia, "to give authoritative instru ctions to; order (a person) to do , (a thing) to be done; order the
performance of."59 In other words, the term "entrust" refe rs to a delegation over the performance of a

57 See, e.g., Appellate Body report, US - Reformulated Gasoline, page 17.
58 The New Shorter Oxford Dictionary, Third edition, p. 831.
59 Id., p. 681. In a similar vein, another dictionary defines the term "direct" (followed by to +
Infinitive, as is the case in the provision in question) as "to give a formal order or command to". (The Concise
Oxford Dictionary, Ninth edition, p. 382)

task, while the term "direct" refers to a more direct command, an order. 60 Both, in our view, clearly
contain the notion of the imposition of a requirement or an obligation on the person that is entrusted
with a task or that is directed to carry out a t ask. The private body that is directed to provide a
financial contribution or is entr usted to do so, is thus acting on behalf of the government, and its
actions can therefore be ascribed to the government.
7.53 The use of these terms is not surp rising in the context of the SCM Agreement which, like the
WTO Agreements generally, deals with government behaviour and not the behaviour of private
parties. Article 1.1(a)(1) provides that the first el ement of a subsidy is a "financial contribution by a
government or any public body". All four subparagr aphs (i) to (iv) thus deal with government
behaviour. Subparagraphs (i) to (iii) focus on expl aining what is meant by a financial contribution,
while subparagraph (iv) deals with situations in which the financial contribution was provided by a
private body, but acting under the entrustment or di rection of the government. In this context, the
terms "entrust or direct" thus bridge the distance between private parties' actions, which fall outside
the scope of the SCM Agreement, and the government behaviour to which the disciplines of the SCM
Agreement apply. By entrusting or directing a private body to carry out one of the functions
illustrated in subparagraphs (i) to (iii), the governme nt is providing a financial contribution, and the
private parties' actions may thus be attributed to the government.61
7.54 Korea argues on the basis of the language used in the report of the panel in the US – Export
Restraints case that there is a requirement to demonstrate an explicit and affirmative act by
government to a particular entity to perform a partic ular task. In our view, the specific language of
the panel in that case was inspired by the facts of that case, which are entirely different from the facts
currently before us. Indeed, the panel in US – Export Restraints made it quite clear that the scope of
its rulings was squarely focussed upon the particular fact pattern that Canada – the complainant in that
case – had cited, i.e.:
"… a border measure that takes the form of a government law or regulation which
expressly limits the quantity of exports or places explicit conditions on the
circumstances under which exports are perm itted, or that takes the form of a
government-imposed fee or tax on exports of the product calculated to limit the
quantity of exports."62 (emphasis added)
7.55 The panel in US – Export Restraints then observed that it was these "essential characteristics"
of an export restraint that delineated the scope of Canada's claims in that case and the panel's
rulings.63
7.56 We share that panel's basic understanding of the terms "entrust" or "direct" as requiring a
government action which obliges a private body to act in a particular way and generally refers to the
situation in which government executes a particul ar policy by operating through a private body.
However, we do not feel bound by the precise language used by the panel in the US – Export
Restraints case which had a completely different factual setting. Neither do we feel that we need to
interpret what this panel may or ma y not have intended to imply by using the words it did, as our task
is not to interpret panel reports but rather the provisions of the SCM Agreement in accordance with
customary rules of interpretation of public international law.

60 We note that the panel in the US – Export Restraints case based itself on the same definitions to
reach a similar conclusion. (Panel report, US – Export Restraints, paras. 8.28-8.29)
61 We find support for our reading of the terms "entrust or direct" in the panel report in the US – Export
Restraints case, paras. 8.29-8.34.
62 Id., para. 8.17.
63 Ibid.

7.57 In that respect, we consider that Article 1.1(a)(1) of the SCM Agreement does not require that
the government's entrustment or di rection be conveyed to the private bodies in a particular way.
Rather, it encompasses entrustment or direction i rrespective of the precise form it takes. As the US –
Export Restraints panel observed, it follows from the ordina ry meanings of the two terms "entrust"
and "direct" that the action of the government must contain an element of delegation (in the case of
entrustment) or command (in the case of direction).
64 And such delegation or command should
invariably take the form of an affirmative act. But it does not necessarily need to be "explicit". It
could be explicit or implic it, informal or formal. 65 The key is being able to identify such entrustment
or direction in each factual circumstance. This will obviously need to be determined, on a case-by-
case basis, whether an investigating authority coul d reasonably have conclude d on the basis of all of
the relevant and probative evidence before it that such entrustment or direction existed.
66
7.58 This ordinary meaning of the terms "entrusts or directs" is consistent with the object and
purpose of the SCM Agreement to discipline certain – but not all – forms of government action which
distort international trade. As such, Article 1.1.(a )(1)(iv) should not be read too broadly so that it
encapsulates the actions of private bodies acti ng independently of government delegation or
command. But neither should it be read too narrowl y so that it allows governments to escape their
obligations under the SCM Agreement by acting indirectly, implicitly or informally through private
bodies. In our view, the ordinary meaning of the terms "entrusts or directs" that we have outlined
above in paras. 55-56 fits squarely in line with the object and purpose of the SCM Agreement.
7.59 We consider that it is important to distinguish between the legal standard that has to be met
and the evidence that is relied upon to prove governme nt entrustment or direction. We note that the
EC placed much importance on the fact that th e private bodies participating in the various
restructuring efforts were not acting in a commercia lly reasonable way. We agree with the EC that,
when demonstrated, such non-commercial behaviour may well be seen as an indication of possible
government entrustment or direction. It can thus be taken into account as an element of evidence that
the government was perhaps entrusting or directing these private bodies to act in a certain way, but it
is not sufficient as evidence of government entrus tment or direction as such. Rather, it raises
evidentiary issues that the investigating authority will need to work through in order to ascertain
whether an action by a private body was the object of some form of government entrustment or
direction. In other words, the investigating au thority will need to ensu re that the evidence of
entrustment or direction is probative and compelling a nd this will obviously differ from case to case.
In this respect, we consider that evidence which de monstrates merely that the government encouraged
or facilitated private investment would not be suffici ent to conclude that the government entrusted or
directed such private actions. Something more will be required.
67

64 Id., para. 8.29.
 65 In this regard, we note that the focus of Article 1.1(a)(1)(iv) would be significantly undermined if an
"explicit" act was required in all instances. After all, this provision is supposed to encapsulate those instances
where the government attempts to execute a particular policy by operating through a private body. In other
words, it is trying to ensure that indirect government action does not fall outside the scope of the SCM
Agreement. If we were to limit the scope of Article 1.1(a)(1 )(iv) to only those instances where the government
acted "explicitly", governments would be able to circumvent their commitments under this provision by
removing those elements that were "explicit".

66 Neither are we of the view that the SCM Agreement contains the requirement that it be demonstrated
that the private body was entrusted with, or directed to, execute a particular task.
 67 We note that at the time of the investigation, the EC set a very similar standard for entrustment or
direction for itself as becomes clear from the Final Determination:
"(15) With regard to the notion of "direction" in Article 2(1)(a)(iv), this exists where the
government requires a private body to carry out functions normally vested in the government
and the practice does not differ from practices normally followed by governments. It is not
sufficient to show th at a government merely encouraged or facilitated such actions,

7.60 In reviewing the findings of the investigating au thority, the extent to which the interested
parties cooperated with the authority is, of course, also a relevant element to be taken into account. In
those cases where certain essential information which was clearly requested by the investigating
authority is not provided, we consider that this uncooperative behaviour may be taken into account by
the authority when weighing the evidence and the fact s before it. The fact that certain information
was withheld from the authority may be the element that tilts the balance in a certain direction.
Depending on the circumstances of the cases, we cons ider that an authority may be justified in
drawing certain inferences, which may be adverse, from the failure to cooperate with the investigating
authority. We consider relevant, in this respect, the following statement of the Appellate Body in the
US – Hot-Rolled Steel case concerning the facts available provision of Article 6.8 of the AD
Agreement, which is very similar both textually a nd contextually to Article 12.7 of the SCM
Agreement:
"[i]n order to complete their investigations , investigating authorities are entitled to
expect a very significant degree of effort – to the "best of their abilities" – from
investigated exporters. At the same time , however, the investigating authorities are
not entitled to insist upon absolute standards or impose unreasonable burdens upon
those exporters".68 (emphasis in original)
7.61 While we acknowledge that this statement was, at least in part, based on several paragraphs of
Annex II to the AD Agreement, we consider that a similar signifi cant degree of cooperation is to be
expected of interested parties in a countervailing duty investigation. 69 The fact that the SCM
Agreement does not contain a similar Annex is not determinative as the role played by the facts
available provision in an anti-dumping investigatio n and a countervailing duty investigation is the
same. Article 12.7 of the SCM Agreement is an essential part of the limited investigative powers of an
investigating authority in obtaining the necessary in formation to make proper determinations. In the
absence of any subpoena or other evidence gathering powers, the possibility of resorting to the facts
available and, thus, also the possibility of drawi ng certain inferences from the failure to cooperate
play a crucial role in inducing interested par ties to provide the necessary information to the
authority.70 If we were to refuse an authority to take such cases of non-cooperation from interested
parties into account when assessing and evaluating th e facts before it, we would effectively render
Article 12.7 of the SCM Agreement meaningless and inutile. We wish to add that we do not suggest
that non-cooperation provides a blank cheque fo r simply basing a determination on speculative
assumptions or on the worst information available. Ultimately, the determination has to be made on
the basis of the available facts, and not on mere speculation. Therefore, and in the absence of such
supporting facts, mere non-cooperation by itself do es not suffice to justify a conclusion which is
negative to the interested party that failed to cooperate with the investigating authority.
7.62 We will therefore now examine, with this st andard in mind, the EC determination of a
financial contribution concerning each of the five di fferent programmes at issue. We recall in this
respect that we must, under Article 11 of the DSU, make an objective assessment of the matter before
us. This requires us to examine whether the invest igating authority examined all relevant facts and
whether adequate explanation has been provided of how the facts support the determination made. In

although such encouragement or facilitation may be a factor to be considered." (emphasis
added)
68 Appellate Body report, United States – Hot-Rolled Steel, para. 102.
69 In that respect, we see an important similarity between the power of an investigating authority to
draw inferences from the failure to cooperate with the authority and the discretionary power of panels in the
WTO dispute settlement context, as well as international tr ibunals of various kinds in public international law,
to draw such inferences, as recogn ized by the Appellate Body in the Canada – Aircraft case. (Appellate Body
report, Canada – Aircraft, para. 202)
70 We thus disagree with the views expressed by China in its Third Party Oral statement, in this respect.
(China Third Party Oral Statement, paras. 6-13)

other words, the question before us is whether on the basis of the record evidence, the EC reached
reasoned and reasonable conclusions as to the existen ce of a financial contribution by the government
or a public body in the sense of Article 1.1(a) of the SCM Agreement.
7.63 Finally, we wish to add in this respect that in the Final Determination, the EC clearly
addressed each of these five different programmes as distinct measures, making findings of a financial
contribution and benefit w ith regard to each of these five programmes. Therefore, we will examine
these five programmes as five distinct programmes. We do not consider a ppropriate the suggestion
made by the EC before us on various occasions that evidence with regard to all of the five
programmes can be placed in a pot labelled "the totality of facts" and then be drawn upon in justifying
a conclusion as to financial contribution and benefit with respect to each different programme. This
approach could have been followed perhaps had th e investigating authority itself treated the five
programmes as one big Hynix bail-out exercise.
71 But it did not do so, and that is why we will thus
also examine the merits of the EC determination in light of the specific evidence it relied on to make
its findings with respect to each of the different re-financing programmes at issue in this case.
(ii) Syndicated Loan
7.64 The Syndicated Loan was developed by Hynix's financial advisor Salomon Smith Barney Inc.
("SSB") during the second half of 2000 as part of a financial plan to resolve the problem of a
"mismatch" between Hynix's cash flow and the extent of debt ob ligations that would mature and had
to be repaid in 2001, which was some times referred to at the time as Hynix 's "short term liquidity
problems". Citibank was appointed as lead mana ger of the Syndicated Loan and Citibank held
meetings with domestic banks to present its plan in the course of December 2000. In total, 10 banks
participated in the loan which amounted to KRW 800 billion:
72 the Korea Development Bank
("KDB"), Hanvit Bank, Chohung Bank, the Korea Exchange Bank ("KEB"), the Korea First Bank
("KFB"), Kookmin Bank, Citibank, Shinhan Ba nk, Hana Bank and the KorAm Bank. The EC
examined three banks, the KDB, KEB and KFB and considered that their participation in the
Syndicated Loan constituted a financial contribution by the government which conferred a benefit on
Hynix.
7.65 From the record, we conclude that the loan was released in two tranches and the interest rate
of the tranches was set at that of unsecured three- year corporate bonds for BBB- rated companies,
plus an additional margin to reflect the risky natu re of the financing, bearing in mind the high debt
ratio of Hynix. One of the conditions of the loan was the separation of Hynix from the Hyundai
group. The loan agreement further provided that the loan amount was to be used exclusively for
redeeming the previously issued corporate bonds, refinancing the existing debt or securing liquidity.
73
7.66 The EC made determinations with regard to the existence of a financial contribution with
regard to only three of the ten participating banks, i.e., the KDB, KFB and KEB . What these three
banks had in common is the fact that, due to the prudential lending limits that had been put in place by
the government after the Korean financial crisis of 1997, these banks would not have normally been
able to take part in the Syndicated Loan, as they had already reached their lending limits.
74 However,
Article 20(3) of the Enforcement Decree of th e Banking Act allowed a governmental body, the
Financial Supervisory Commission ("FSC"), to gran t an approval permitting banks to exceed these

71 However, the "one big bail-out" approach must, in any case, confront the fact that the financial
condition of Hynix changed dramatically (for the worse) between fall 2000 and fall 2001.
72 For the benefit of better understanding these amount s, we note that at the time KRW 800 billion was
around USD 650 million.
73 EC Preliminary Determination, para. 27. This description of the conditions under the loan agreement
was not contested by Korea.
74 In particular, Article 35 of the Banking Act of Korea provides that no financial institution can extend
credits exceeding 25/100 of the relevant financial institution's equity capital to the same individual, corporation
and person, or 20/100 to the same individual or corporation.

ceilings "when it is recognised that it is inevitable for industrial development (…) or the stability of
national life." The three banks mentioned above received such a waiver from the FSC and participated
in the Syndicated Loan.
7.67 The EC determined that one of these three banks, the KDB, was a public body, and its
participation in the loan was, therefore, consider ed to be a financial contribution in the sense of
Article 1.1(a) of the SCM Agreement without any need for evidence of entrustment or direction. 75
With regard to the KEB and KFB, which each partic ipated in the Syndicated Loan for an amount of
KRW 100 million, the EC concluded that these two banks had been directed to take part in the loan by
the government in pursuing the public policy goal of alleviating the difficult financial situation of
Hynix for reasons of industrial development. 76 It thus found these banks' participation in the
Syndicated Loan also to constitute a financial contribution by the government.
7.68 We will thus need to examine the EC's determ ination with regard to these three banks, the
KDB, KEB and KFB. Of these three banks, one was de termined to be a public body, while the two
other banks, the KEB and KFB were considered as private bodies. We will first examine the EC's
determination of the existence of a financial contribution by the government with respect to the public
body, the KDB. We will then examine the EC's dete rmination with regard to the KEB and KFB. In
this respect, we note that, upon examining the benefit question, the EC concluded that the KFB
contribution was negligible and its participa tion in the Syndicated Loan was therefore not
countervailed. For that reason, and in line with th e arguments as set forth by Korea in its various
submissions before us, our discussion of the EC's de termination with regard to the two private bodies,
the KEB and KFB, will focus on the KEB only.
77
7.69 Korea does not challenge the EC determination of the KDB as a public body. Neither does it
contest the fact that a loan of the kind extended by the KDB in this programme is a government
practice which involves a direct transfer of funds in the sense of subparagraph (i) of Article 1.1(a)(1)
of the SCM Agreement. In light of our above analysis of the requirements of Article 1 of the SCM
Agreement, and the fact that Korea did not adduce a prima facie case otherwise, we consider that the
EC finding that the KDB's participation in the Syndi cated Loan constituted a financial contribution by
the government is consistent with Article 1.1(a) of the SCM Agreement.
7.70 With regard to the loans extended by the two fina ncial institutions that were not considered to
be public bodies, the KEB and KFB, the EC reasoned its conclusion that they had been directed by the
government to take part in the loan in the following manner:
"(32) On 28 November 2000, a letter from the Ministry of Finance and Economy,
signed by the Minister of Finance and Economy, was sent to the President of the
Korea Export Insurance Corporation ("KEIC") and the President of the KEB. The
letter transmits the results of the disc ussion on "alleviating the cash crunch of
Hyundai Electronics", which was on the agenda of the Economic Ministers' meeting
held on the same day (November 28). The le tter orders the recipients to make sure
that the measures decided would be "carried out perfectly". The letter also states that
the measures to help Hynix were initiated by the Financial Supervisory Service. The
letter orders KEB to request an extensi on of the credit ceilings on behalf of the
creditor financial institutions, which accord ing to the results of the Economic

75 Final Determination, para. 36.
76 Ibid.
77 The benefit amounts to the extent to which the lending limit was exceeded by the KDB, KFB and
KEB. For the KFB, this meant that the amount was negligible. The amount provided by the KDB and KEB
were rolled-over into the October 2001 Restructuring Programme. Since the contributions of the KDB and KEB
were, in any event, also to be coun tervailed as part of the October 2001 Restructuring Programme, a single
countervailing duty was imposed in relation to both measures, in order to avoid double-counting.

Ministers' discussions would be subject to special approval by the FSC. The Minister
thereby imposed an obligation on KEB to apply for the extension and on the FSC to
approve such an application.
(33) In December 2000, KEB filed the requ est for approval of this extended credit
limit for Hynix financing and submitted similar requests for Korea First Bank
("KFB") and the KDB. In the FSC decision it was explained that these banks
intended to grant a syndicated loan and a D/A facility (documents against acceptance-
backed loans) to Hynix. FSC approv ed these requests on the basis of Article
20(3)1.3. of the Enforcement Decree. This provision allows FSC to extend the
ceilings "when it recognises that it is inev itable for the industrial development ... or
the stability of the national life". This provision is a public interest provision and
shows that from the GOK point of view, the granting of the extra credit was a public
interest issue.
(34) It is noted that according to the mi nutes of the relevant FSC meeting, the FSC
Commissioners approved the increase in the credit ceiling for Hynix financing
because Hynix was too big and too important to fail. In the minutes the following is
explained: "The semiconductor industry is a strategic industry; after Hynix's merger
with LG Semicon in 1999, the company accounted for 20 per cent of the world
semiconductor market and 4 per cent of the Korean exports. Hynix employs 24,000
employees in the industry, and other i nvolved companies exceed 2,500 with over
150,000 employees. To support the syndicated loan and D/A financing would
improve Korea's international competitiveness. Therefore, for the promotion of the
electronics industry policy, the FSC finds it in the best interest to increase the
ceiling".
(35) It is noted that without the extensi on of the credit ceilings it would have been
impossible for the three abovementioned banks to participate in the syndicated loan.
They would have breached their obligations under the Banking Act. The GOK, by
directing the FSC to approve the extension and by directing KEB to apply for such
extension, had effectively directed the banks to extend the loans in a way that they
would not otherwise have been able to do under Korean banking laws. It was evident
that the credit limits needed to be lifted in order to provide the financing to Hynix.
Indeed, when the GOK and Hynix were inv ited specifically to comment on the new
information indicating the GOK direction as regards the lifting of the credit limits,
neither of them indicated in their comme nts that there would have been another
source of funding available to Hynix at th e time of the measures. Moreover, neither
party invoked any such probability at any other stage of the investigation.
(36) In accordance with the findings set out in recitals 55 to 59 of the provisional
Regulation which are hereby confirmed, KDB is considered to be a public body
within the meaning of Article 1(3) of th e basic Regulation. As regards KEB and
KFB, their participation in the syndicated loan for an amount of KRW 100 billion
each is considered to be directed by the GOK in pursuing the public policy goal of
alleviating the difficult financial situati on of Hynix for reasons of industrial
development. Therefore, they are in this case considered to be directed by the GOK
to carry out a function normally vested in the GOK. The fact that the particular
provision of the Enforcement Decree was evoked also demonstrates that lifting the
credit limits was considered as a question of public interest. Moreover, the GOK
intervention shows that the granting of the extra credit was a question of public
interest, which falls within the practi ces normally followed by governments.
Therefore, the participation of the banks in the syndicated loan fulfils the criteria
explained in recital 15. Consequent ly, these measures constitute a financial

contribution by government within the meaning of the basic Regulation in
Article 2(1)(a)(i) for KDB and Article 2( 1)(a)(iv) for KEB and KFB." (footnotes
omitted)
7.71 In sum, the EC based its finding of government entrustment or direction of the KEB and KFB
on three considerations. First, the EC alleges that the letter of the Minister of Finance and Economy
of 28 November 2000 orders the KEB to request an extension of the credit ceilings on behalf of the
creditor financial institutions, and that, in so doing, the Minister thereby imposed an obligation on the
KEB to apply for the extension, and on the FSC to approve such an application.
78 A second important
consideration for the EC was that the FSC gran ted the lending limit waiver based on the public
interest provision of Article 20(3) of the Enforcement Decree of the Banking Act. 79 Finally, the EC
emphasises the crucial relevance of this waiver as the three banks in question would not have been
able to lend without the waiver.80 Its overall conclusion was therefore that
"[t]he GOK, by directing the FSC to appr ove the extension and by directing KEB to
apply for such extension, had effectively di rected the banks to extend the loans in a
way that they would not otherwise have been able to do under Korean banking
laws."81
7.72 We start our examination by looking at th e letter of 28 November 2000 to which the EC
attached particular importance in reaching its finding of government-direction of the KEB. 82 T h e
letter which is signed by the Minister of Fina nce and Economy and sent to the attention of the
Presidents of the KEIC and the KEB states as follows83:
"[e]nclosed please find discussion results on alleviating the cash crunch of Hyundai
Electronics which are part of discussion items at the Economic Ministers meeting
held today (28 Nov., Tuesday). Please make sure they are carried out perfectly."
7.73 The enclosure, entitled "Results of Discussion at the Economic Ministers' Meeting (28 Nov.)
(Measures to alleviate the cash crunch of Hyundai El ectronics: Initiated by the Financial Supervisory
Service)", states in relevant part:
"[a]s for the issue of (lifting) the ceilings on loans extended to the same borrower in
connection with the syndicated loan in won, pursue a resolution of special approval
by the Financial Supervisory Commission upon the request of the Korea Exchange
Bank representing creditor financial institutions".

78 Final Determination, para. 32.
79 Id., para. 33.
80 Id., para. 35.
81 Ibid. In the view of the EC, the fact that these banks were directed to take part in the loan is further
confirmed by the dire financial state of Hynix as presented by one interested party challenging the provisional
negative subsidy determination:
"[o]ne interested party argued that Hynix was not creditworthy at the time of the measure and
therefore the GOK direction is the only possi ble explanation for the creditors' decision to
extend new lending to Hynix." (Final Determination, para. 29)
 82 This is evidenced by the fact, that in the Preliminary Determination, the EC concluded that the banks'
participation in the Syndicated Loan was in conformity with market conditions. The only important difference
between the negative Preliminary and the positive Final Dete rmination in this respect seems to have been the
discovery of the letter, as is clear from para. 30 of the Final Determination.
83 Document of 28 November 2000 from the Ministry of Finance and Economy to the KEIC and KEB
(the "28 November letter"). (Exhibit EC-3)

7.74 In our view, this letter – and its enclosure – reveal that the Economic Ministers had decided to
take certain action to alleviate the so-called cash crunch of Hyundai Electronics/Hynix. One of the
actions they decided on was to pursue a special approval by the FSC of lifting the lending limits upon
the request of the KEB. It is clear that the deci sion taken was thus to require the public body FSC to
lift the lending limits, when such a request would be made by the KEB.
7.75 The EC concluded that the letter was clear ev idence that the government was directing the
KEB to request a lending limit waiver from the FSC and that the KEB was informed that it would
receive a positive reply to such a request. The next step in the EC's reasoning is that by directing the
KEB to apply for a waiver and by directing the FSC to approve the waiver, Korea had effectively
directed the KEB to extend the lo ans in a way that it would otherwise not have been able to do under
Korean banking laws.
7.76 In examining this letter, we find very important that this letter from the government together
with its enclosure was directly addressed to the KE B. In the letter the government requests the KEB
to make sure that the results of the discussion on alleviating the cash crunch of Hyundai
Electronics/Hynix, as set forth in the enclosure are "c arried out perfectly". The title of the enclosure
itself also refers to "measures to alleviate the cash crunch of Hyundai Electronics". In our view, the
fact that the letter was sent to the KEB, may reaso nably be read to imply that the government was
requiring the KEB to assist in carrying out the measures to alleviate Hynix's cash crunch decided upon
by the three Economic Ministers. At the same time, we acknowledge that the text of the letter, and its
enclosure, could be read more narrowly to require the KEB only to apply for a lending limit waiver,
and not to require it to provide a financial contribut ion by participating in the loan. However, and
taking into account the particular circumstance s of this case, we do not find unreasonable the
conclusion of the EC that this letter actually required the KEB to participate in the Syndicated Loan.
7.77 We note that an important element in the ev aluation and assessment of this piece of evidence
by the EC was the fact that this letter and ot her information concerning the Economic Ministers'
meeting was withheld from the investigating authority by the government. As stated in paragraph 30
of the Final Determination:
"(30) Since the publication of the provisional Regulation, new information of the
GOK directing the FSC to raise the legal lending limits of some banks participating in
the syndicated loan has b een obtained. The Commission's provisional findings as
regards this measure should therefore be reassessed in the light of the new
information. The interested parties, Hynix and the GOK, were specifically invited to
comment on the new information and their comments have been taken into account in
the reassessment of this measure."
84
7.78 We recall that, in the Final Determination, the EC clearly stated that in the appreciation of the
facts, it had taken due account of the failure of certain parties to cooperate fully with the investigating
authority:
"(16) When determining the existence of a public body or of government direction,
the investigating authority bears the burden of proof when making a positive finding.
Such findings must be made on the basis of positive evidence, taking account of the
totality of the facts on the record and availa ble to the authority, and weighing these
facts in accordance with th e considerations above. In appreciating the facts in
question, due account must be taken, in accordance with Article 28 of the basic
Regulation, of the failure of certain parties to cooperate fully with the investigation,
which has in some cases necessitated the use of information from other sources. In
this particular case, it has become apparent that the GOK failed to provide a number

84 Final Determination, para. 30.

of requested documents on meetings relating to the future of Hynix. The GOK also
failed to inform the Commission that such meetings took place, in spite of clear
requests being made to this end in the questionnaire and at the on-the-spot
verification. The GOK has been made aware of the consequences of non-cooperation
in accordance with Article 28(1) and (6) of the basic Regulation. In view of this lack
of cooperation, it has been necessary, in addition to taking accoun t of relevant GOK
documents submitted by other parties, to use information from secondary sources,
including from the Korean press. Such in formation has been viewed with special
circumspection, the GOK and Hynix given the opportunity to comment on it, and,
where practicable, it has been cross-checked with other independent sources."
85
7.79 As we explain in detail in our section dealing with Korea's claims under Article 12.7 of the
SCM Agreement, we are of the view that the investigating authority was justified in concluding that
this information was not provided to it, in spite of clear requests to do so. We do not accept Korea's
argument that it did not understand the EC's general request for information to include the provision
of this letter and other related information. It was only because Micron, one of the EC DRAMs
producers, included this letter in its comments on the Preliminary Determination that the investigating
authority became aware of the letter and its enclosur e. In other words, we find that Korea failed to
cooperate with the EC in this respect, and the EC was thus entitled to make its determination based on
the facts available. In this case, the facts thus ultimately became available due to the submission of
the information by Micron.
7.80 In our view, it is not unreasonable of an inves tigating authority to read the information which
was withheld from it in light of such non-cooperation. In other words, in case the information is such
that it could be read in more than one way, we can accept that the failure to cooperate with the
authority is an important element in tilting the balan ce towards a reading of this information which is
less favourable to the interested party that was withholding the information. We recall, in this respect,
that the possibility of Article 12.7 of the SCM Agreement of resorting to facts available is the only
possibility that investigating authorities have to obtain the necessary information in the absence of any
subpoena or other powers. This im plies that, if this "stick" is to have any meaning in forcing
interested parties to provide the ne cessary information, the failure to provide the information must be
accepted as a relevant factor in the evaluation of the evidence, if it is later produced by another party.
At the same time, we hasten to add that we are of the view that facts available should not be used as a
punishment, and that non-cooperation does not allow an investigating authority to simply use the
information available which leads to the worst possi ble result for the interested party that failed to
provide such information. Ultimately, the determination still has to be based on the facts that are
available, not on mere inferences. But it is not because facts available should not be used in a
punitive manner that the failure to cooperate becomes completely irrelevant in weighing and assessing
the information before the authority.
7.81 We recall that our standard of review re quires us to examine whether a reasonable
investigating authority on the basis of the facts before it could have reached these conclusions and
thus whether the EC provided a reasonable and ad equate explanation of how the facts support the
determination made. We are not to make a de novo review of the letter ourselves, nor, however,
should we show total deference to the investigating authority.
7.82 In our view, in light of the clear withholding of this information, the fact that the letter
required the KEB to request a waiver of the lending limits and informed the KEB that this waiver
would be granted, it was not unreasonable of the inv estigating authority to reach the conclusion that,
effectively, the KEB was required to take part in the Syndicated Loan. We find reasonable the
conclusion that the government, by requiring the KEB to request that the last hurdle ( i.e., the lending
limit) to its participation in the loan be lifted, was actually telling this bank that it had no excuse not to

85 Id., para. 16.

take part in the Syndicated Loan. In other words, this letter can reasonably be read to demonstrate
that the government was expecting, and thus directing, the KEB to participate. In this respect, we find
relevant the EC's consideration that it would not have been possible under Korean law for the KEB to
lend the KRW 100 million to Hynix, as it did under the Syndicated Loan, without the lending limit
waiver from the FSC. While, in the absence of a ny additional facts such as the withholding of
information, this would not, in and of itself, n ecessarily imply that the government actually entrusted
or directed the KEB to provide such funds to Hynix, it is clearly a factor to be taken into account
when examining and evaluating such direct evidence of government direction as constitutes the letter.
All the more so in this case where the letter was withheld from the investigating authority.
7.83 Similarly, we consider relevant the fact that the FSC approved the waiver for public interest
reasons. In fact we note that the th reshold for lifting the legal lending limits, i.e., when this is
"inevitable for industrial development (...) or the stab ility of national life" appears to be very high, but
yet it was considered to have been met in the case of the three banks in question. This, again, clearly
shows that the government had taken a particular interest in trying to assist Hynix and that it
considered the survival of Hynix to be in Korea's pub lic interest. While it may not be, in and of itself,
sufficient evidence to establish that the government entr usted or directed the KEB to participate in the
Syndicated Loan, it does, in our view, strengthen the position of the EC that it was reasonable to read
the letter as requiring the KEB to participate in the Syndicated Loan. The fact that the letter was
withheld from the authority further tilts the bala nce in favour of the EC's overall conclusion of
government direction.
7.84 In sum, and taking into account the circum stances of this case and the clear case of non-
cooperation by Korea in producing clearly necessary information, we consider reasonable the EC's
conclusion that Korea directed the KEB to particip ate in the Syndicated Loan. For these reasons, we
find that the EC's determination with regard to the existence of a financial contribution by the KEB to
Hynix was consistent with Article 1.1(a) of the SCM Agreement.
(iii) KEIC Guarantee
7.85 The second action which was found to be a subsi dy was the extension of a guarantee by the
Korea Export Insurance Corporation ("KEIC") which is the official export credit agency of Korea.
The KEIC provides export insurance and guarante es to manage the risk associated with overseas
transactions. In January 2001, fourteen Hynix creditor banks increased the ceiling of the export credit
facility for D/A's (documents against acceptanc e) provided to Hynix from USD 800 million to
USD 1.4 billion, an increase of USD 600 million. The KEIC granted the short-term export credit
insurance for the extended D/A limit as regards the transaction between Hynix and its overseas
subsidiaries. In other words, Hynix collects the foreseen payment for the export transaction from the
banks concerned, which hold the D/A documents. The affiliated importer in the country of
destination then makes the payment for the goods con cerned directly to the banks against the D/A.
Hynix pays the KEIC a premium for the guarantee a nd pays interest to the banks concerned for the
D/A amounts withdrawn until the importer makes the fi nal payment. The KEIC insurance covers the
amounts due to the banks which cannot be collected due to bankruptcy of either the exporter or the
importer.
7.86 In its Final Determination, the EC found that the KEIC Guarantee constituted a financial
contribution by the government and concluded as follows:
"(45) Thus the guarantee was given by KEIC due to specific GOK direction in
pursuing the public policy goal of alleviating the difficult financial situation of Hynix
for reasons of industrial development. Th erefore, KEIC, despite being a public body,
was specifically directed by the GOK to carry out a function and follow practices
normally vested in the GOK. Consequently , the guarantee is a financial contribution
by government within the meaning of Ar ticles 2(1)(a)(iv) and (i) of the basic

Regulation. This guarantee conferred a bene fit to Hynix, since without the guarantee
Hynix was not able to receive the D/A extension of USD 600 million. At the same
time, the GOK's assurance that KEIC would be compensated in case of default
showed that the premium paid by Hynix could not cover the risk undertaken by KEIC
to guarantee the D/A extension and, theref ore constituted a non-commercial act. The
GOK effectively underwrote the risk of fa ilure of payment by Hynix without asking
for any compensation for it. According to the information on the record, the banks
would not have granted the D/A facility wit hout the guarantee. Moreover, there is no
information that Hynix could have obtained comparable financing from other sources.
This coverage of the guarantee, without any adequate premium being paid, is
therefore considered to have conferred a benefit to Hynix within the meaning of
Article 2(2) of the basic Regulation. In view of the provisions of Article 6(c) of the
basic Regulation, since no comparable co mmercial loan could have been obtained
without the guarantee, the coverage of the D/ A extension is effectively a grant. The
benefit to Hynix and thereby the amount of the subsidy is the amount of the D/A
extension, USD 600 million."
7.87 The EC considered that the KEIC was a public body.
86 It further found that the KEIC
provided an export insurance guarantee, which involved a direct or potential direct transfer of funds
and thus constituted a financial contribution. Kor ea does not contest the EC's determination of the
KEIC as a public body. Korea only takes issue with the fact that what was countervailed by the EC
was the amount of the D/A extension of USD 600 mil lion, and not the guarantee as such. In addition,
it notes that the fact that an extension of USD 600 million of the D/A facility was granted by the
banks does not necessarily imply that such an amount of USD 600 million was actually provided to
Hynix. We are of the view that these arguments relate to benefit and the calculation of the amount of
the subsidy rather than to the question of the ex istence of a financial contribution, which we are
addressing here. It is clear from the EC's Final Dete rmination that what was considered by the EC to
constitute the financial contribution was the KEIC Guar antee. As the provision of a guarantee of this
sort involves a potential direct transfer of funds , we consider that this Guarantee constituted a
financial contribution in the sense of Article 1.1(a)(1)(i) of the SCM Agreement. Given that the KEIC
was found to be a public body, we consider there was no further need for an additional finding of
entrustment or direction by government to the KEIC to provide the guarantee. Therefore, we consider
that the EC's finding that the KEIC provided a fina ncial contribution to Hyni x was not inconsistent
with Article 1.1(a) of the SCM Agreement.
(iv) KDB Debenture Programme
7.88 A third programme found to constitute a subsidy by Korea was the KDB Debenture
Programme to which Hynix was admitted on 4 Ja nuary 2001. This was a programme which
essentially lasted for one year (2001) and was set- up by the government in response to financial
instability in Korea caused by th e fact that a large amount of bonds issued by a few companies
(including Hynix) were due to mature simultane ously. Under this Programme, maturing debt was
rolled-over and re-packaged for investors. A participating company repayed on its own 20 per cent of
its corporate bonds falling due and the KDB assumed th e remaining 80 per cent. This constituted the
first phase of the programme. Of the 80 per cent originally assumed by the KDB, 20 per cent of the
bonds was then sold to the company 's creditor banks in proportion to their debt exposure to the
company; 70 per cent was re-packaged for sale to investors as collateralised bond obligations
("CBOs") and/or collateralised loan obligations (" CLOs"), guaranteed by the Korea Credit Guarantee

Fund ("KCGF");
87 and the KDB retained the remaining 10 per cent. The participating company had
to repurchase at least 3 per cent of any CBOs and 5 per cent of any CLOs.88
7.89 We note that companies were placed in the Programme upon nomination by the main creditor
bank, and needed the approval by the Creditors Fi nancial Institutions Council ("CFIC"), based on an
assessment of the company 's financial future. The CFIC consis ted of representatives of the KCGF,
the KDB and seventeen other creditor banks. 89 The CFIC ultimately decided on participation in the
programme. If banks holding 75 per cent of the loans of the company agreed to the participation of
the company in the Programme, the CFIC considered the decision unanimous. To be placed in the
Programme, companies had to be able to repay 20 per cent of their maturing bonds; normalise
business operations through a rescue plan; have credit ratings below A but higher than BB; and agree
to any change in majority share holdings requested by their creditor banks, or to the replacement of
management in case of insolvency. Hynix was ad mitted to the programme on 4 January 2001 with a
credit rating of BBB-. In total six companies were admitted; four of which, including Hynix,
belonged to the Hyundai group. 90 The EC found that the bond purchase by the KDB as part of this
programme constituted a financial contribution by the government which conferred a benefit on
Hynix.
7.90 The EC found that the KDB was a public body. It considered that the KDB was not only
100 per cent government-owned, but also entrusted w ith a specific public policy role which obliged it
to carry out policies normally followed by the government, as defined in the KDB Act. Since, under
the KDB Debenture Programme, the KDB first purchased all the maturing bonds before refinancing
most of them, the EC concluded that this purchase of corporate bonds constituted a financial
contribution – direct transfer of funds – by a public body.
91
7.91 We note that Korea does not contest the EC de termination of the KDB as a public body. Nor
does it appear to contest that the purchase of corporat e bonds constitutes a direct transfer of funds and
thus a financial contribution in the sense of Article 1.1(a)(1)(i) of the SCM Agreement . However,
Korea argues that numerous creditors other than the KDB were also in volved and that the EC did not
establish entrustment or direction with regard to these creditors. 92 We are of the view that this is not a
relevant consideration as it was the public body KDB wh ich first provided a direct transfer of funds to
Hynix by purchasing 80 per cent of Hynix corporate bonds. This is the financial contribution that
went to Hynix and this is the financial contribution th at the EC found to have been provided to Hynix.
Whether or not the full cost of this financial contribution was borne by the public body KDB is not
relevant in determining the existenc e of the financial contribution. We therefore consider that there
was no need for the EC to establish that other bank s that participated in the Programme and that
purchased bonds were entrusted or directed by the government to do so.
7.92 Neither do we consider relevant the fact that the programme did not involve the provision of
any new funds, but merely a refinancing of existing bonds, as argued by Korea. Article 1.1(a)(1)(i) of
the SCM Agreement provides that there is a financial contribution where a government practice
involves a direct transfer of funds, such as in the case of a grant, loan and equity infusion for example.
The purchase of corporate bonds is such a direct transfer of funds, and therefore constitutes a financial
contribution. Finally, we are of the view that Korea's argument that the cr editors' decision to enrol

87 The CBO's and CLO's are asset backed securities that are sold to investment trusts.
88 Preliminary Determination, paras. 47-48.
89 Id., para. 49.
90 Id., paras. 49-52. The EC states that the budget for the programme was KRW 6.2 trillion, of which
KRW 2.9 trillion was ear-marked for Hynix; eventu al expenditure being KRW 2.9 trillion of which
KRW 1.2 trillion (41 per cent) for Hynix and 38 per cent was used for the other three Hyundai companies.
91 Id., para. 59. According to the EC, of the total programme budget of 2.9 KRW trillion, 1.2 trillion
(41 per cent) was used for purchasing Hynix bonds, of which Hynix paid back KRW 280.4 billion under the
conditions of the programme, thus receiving a financial contribution of KRW 919.6 billion.

Hynix in the KDB Debenture Programme was based on commercial considerations is not relevant in
determining the existence of a financial contribution by a public body in the sense of the SCM
Agreement.
7.93 In our view, the EC determination that the purchase of corporate bonds by a public body such
as the KDB was a financial contribution was consistent with Article 1.1(a) of the SCM Agreement.
(v) May 2001 Restructuring Programme
7.94 The fourth programme on which the EC based its subsidy determination is the May 2001
Restructuring and the convertible bonds ("CBs") pur chase, in particular. In March 2001, seventeen
Hynix creditor banks set up the Creditors Financia l Institution Council ("CFIC"), and, in April 2001,
Hynix' s financial advisor, SSB, prepared a furthe r recapitalisation plan for Hynix. In May 2001,
three measures were agreed: an injection of fresh capital into Hynix through the offering of
KRW 1.3 trillion of global depositary receipts ("GDRs"); an extension of the maturities of short and
long-term debt (a debt roll-over); and the purchase by the creditor banks of CBs worth KRW 1
trillion. The creditors agreed to support this fi nancial restructuring on the condition that the GDRs
offering in the international capital markets would be successful. If not, the roll-over of maturities
would be cancelled and the CBs re-purchased by Hynix. In addition, the funds received from the CBs
issuance had to be maintained in an escrow acco unt and could only be used for the repayment of
corporate bonds maturing in the first half of 2002. In mid-June 2001, Hynix raised USD 1.25 billion
in the GDRs offering and, on 20 June 2001, as ag reed, the creditor banks purchased the CBs in
proportion to their debt exposure on 30 November 2000, and short and long term debt was rolled-
over for between 1 to 4 years.
93 The EC countervailed the CBs purchase which it found to be a
financial contribution by the government which conferred a benefit on Hynix.
7.95 In the Final Determination, the EC concludes th at the creditor banks that participated in the
May 2001 Restructuring Programme were directed by the government to buy the bonds, and their CBs
purchase thus constituted a financial contribution. In reaching this conclusion, the EC emphasises the
importance of the fact that essential information concerning the presence of Financial Supervisory
Service ("FSS")94 and FSC officials at the 10 March Cred itors' Council meeting was withheld from
the EC authorities in spite of explicit requests to make known any government involvement in the
restructuring and any government participation in meetings of the creditor banks. This un-cooperative
behaviour, combined with the fact that the official of the FSC was not just anybody but its vice-
chairman, led the EC to the conclu sion that the creditor banks were directed to participate in the
May 2001 Restructuring Programme and to purchase the CBs.
95

93 Preliminary Determination, paras. 40-41.
94 The FSS is a public agency whose main task is to carry out fina ncial supervision under the FSC's
guidance. The EC considered the FSS to be a public body. (Final Determination, para. 40)
95 In its Final Determination, the EC stated its conclusion in the following manner:
"(94) Following the disclosure of this information to the interested parties, the parties admitted
that an FSS official was present in one m eeting and that subsequent contacts between
FSC/FSS and the banks took place. It was explai ned that the FSS official was only present as
an observer to act as a witne ss for the creditors' prior commitments of funding, and not to
influence the creditor banks or their decision to extend further credits to Hyundai companies.
It was also explained that the "follow-up ph one calls" with the FSS/ FSC officials and the
creditor banks were only conducted in the exercise of the normal prudential supervisory role
of the FSC/FSS. However, considering that the parties have been withholding important
information until confronted with it and impeding the investigation by instructing other parties
not to cooperate, it is difficult to find these explanations fully convincing. In addition,
information on the record indicates that the official attending the meeting of 10 March 2001
was the FSC Vice Chairman, i.e. a high-ranking of ficial. In these circumstances, pursuant to
Article 28 of the basic Regulation which allows the conclusions to be based on best facts

7.96 The question before us is thus whether the EC drew a reasonable and reasoned conclusion on
the basis of the facts before it when it found that the creditor banks that pur chased such bonds were
directed to do so by the govern ment. The answer to that question will determine whether the EC's
finding that the purchase of CBs worth KRW 1 trillion by the creditor banks constituted a financial
contribution by the government was cons istent with Article 1.1(a) of the SCM Agreement. We recall
that, in our view, a financial contribution exists in case a direct or potential direct transfer of funds,
such as the purchase of CBs, is made by the government or a public body, as well as in the case where
this is done by the government entrusting or directin g a private body to provide such funds. In so far
as there are banks whose status as a public body is not contested and which took part in the May 2001
Restructuring Programme, we are of the view that there would be no need for an additional finding
that these banks had been entrusted or directed by the government to participate. However, and with
regard to the private banks' participation, an i nvestigating authority will only be able to find a
financial contribution by the government if it has established that such private bodies were entrusted
or directed by the government to purchase the CBs.
7.97 We note that, in the Preliminary Determinati on, the EC considered that there was not
sufficient evidence to conclude that it was commerc ially unreasonable for the banks to participate in
the May 2001 Restructuring Programme.
96 In the Final Determination, however, the EC considered
that this conclusion had to be reconsidered in light of new information from secondary sources,
including press articles that contacts had taken place between the banks and government officials of
the FSC/FSS. As the EC states in its Final Determination:
"[t]he parties failed to rebut this new info rmation. In fact, both of them admitted
expressly that the FSS representatives were indeed present in the meeting of
10 March 2001 and had contacts with the ba nks in the context of these measures, as
indicated by the new information."97
7.98 While the parties argued about the possible role of press reports as evidence, it appears to us,
that the facts are not contested: FSS/FSC officials had contact with the banks in March to May 2001,
and FSS/FSC officials, among which the FSC vice-chairman, were present during the 10 March
creditors' meeting. One press article relied on by th e EC concluded that the March meeting was held
to get the banks to support the Hyundai group, and that government officials persuaded the reluctant
banks to provide support to Hynix. The press repor ts thus revealed a set of facts which was later
confirmed by the parties, and their value as a source of information is thus not an issue. We are of the
view that a distinction should be made between the facts described in the press reports and the
journalistic colouring of these facts. While we do not reject press reports as a source of evidence, we
are of the view that the investigating authority should be very careful about attaching too much weight
to unverified statements in press reports. The ch aracterisation of the events by the press reports,
without supporting evidence, is in other words not particularly probative in a trade remedy
investigation. In our view, while the government officials' presence may show the interest the
government took in the survival of Hynix, this is not sufficient to conclude that the government
delegated this task of rescuing Hynix to private banks or ordered them to do so.
7.99 It appears that, when the EC confronted the pa rties with this new information, and with the
various press reports, the interested parties to the investigation explained that the FSC/FSS official
was present at the meeting as an observer to act as a witness for the creditors ' prior commitments of

available in cases of non-cooperation by the parties, it is concluded that the banks were not
freely and independently deciding on the i ssue of the CB purchase on the basis of
commercial considerations, but were direct ed to buy the bonds by the GOK . The
information from the secondary sources referred to above supports this conclusion."(emphasis
added)
96 Preliminary Determination, paras. 42-45.
97 Final Determination, para. 84.

funding, and not to influence the creditor banks or their decision to extend further credits to Hyundai
companies.98 They further indicated that the follow-up phone calls with the FSC/FSS officials and the
creditor banks were only conducted in the exercise of the normal prudential supervisory role of the
FSC/FSS.99 The EC considers that, in light of the fact that this information was withheld from the
authorities and that the FSS official present at the meeting was its vice-chairman, this explanation is
"hardly convincing". According to the EC, "the banks were not freely and independently deciding on
the issue of the CB purchase on the basis of commercial considerations, but were directed to buy the
bonds by the GOK."
100
7.100 The EC considered important, in the evalua tion of the evidence concerning the presence of
the government officials, the fact that this inform ation was not provided by th e parties concerned, but
was discovered only through press reports. While it is clear that the investigating authority enjoys a
wide discretionary authority in weighing the evidence before it, we consider that an authority cannot,
in the absence of other supporting information, si mply assume that, in case certain information was
not provided, the information is necessarily incrim inating or that the investigating authority is
justified in reading the information in the most nega tive light. In our view, there is a clear difference
between the situation with regard to the May 200 1 Restructuring Programme and the earlier discussed
Syndicated Loan. In the Syndicated Loan, we considered that the EC was justified when assessing the
letter as a critical piece of evidence to take into account the fact that this letter was withheld form the
investigating authority. In the case of the Sy ndicated Loan, the non-cooperation was an additional
element that entitled the authority to read the dir ect evidence in a certain light. In the case of the
May 2001 Restructuring, however, as we will discu ss below, we find that the facts on the record do
not, as such, seem to support the EC's reading that the government was directing the eighteen creditor
banks to purchase the CBs. In such circumstanc es, the mere fact that the information was not
provided when requested, is not sufficient to reach a conclusion which is not sufficiently supported by
the facts on the record. This is why in this case we do not find that the non-cooperation was sufficient
to tilt the balance in favour of the EC's conclusion of government direction. In this case, the EC
rejected the explanation given by Korea and some of the banks involved in the March meeting of the
presence of the FSS officials, without any further adequate explanation, mainly because the presence
of the government officials was not revealed by Kore a, when pertinent questions were put to it by the
investigating authority. In our view, the fact that such information was not provided may be a factor
in the overall assessment of the evidence but it is not, in our view, sufficient to relieve the authority of
demonstrating direction or entrustment where this is required for a finding of a financial contribution
by the government.
7.101 Moreover, the fact that an important FSC/FSS offi cial was present at the meeting is certainly
relevant, but in our view cannot be considered to be determinative of government entrustment or
direction. It may be instructive as to the importa nce of Hynix or reveal the interest of the Korean
government in Hynix, but it is, in our view, insu fficient as a basis for the conclusion that this
government interest went beyond that and that the government was actually entrusting or directing the
private creditors to invest in Hynix.
7.102 As we explained earlier, the terms "entrust or direct" refer to the government using the private
bodies as the instrument through which the government is providing a financial contribution, either by
giving the private body a command or by delegating a task to the private body which involves a
financial contribution. We consider that the maximum one can conclude from this high ranking
government official's presence is that the pr ivate bodies may have felt that the government was
interested in seeing the creditor banks reach agre ement to rescue Hynix, and that the government
would also be doing what it could to achieve that goal by acting through its public bodies for example.
This, however, is not the same as the government entrusting or directing the banks to accept the terms

98 Id., para. 94.
99 Ibid.
100 Ibid.

of the May 2001 Restructuring Programme.
101 In a similar vein, we read the press reports that
financial support to Hynix, and acceptance of the CBs by the reluctant banks, became more likely
after the request by Hynix's financial advisor C itibank for financial support from the government for
Hynix and the positive position expressed by the FS C chairman, as an indication that the general
government interest in Hynix may have facilitated the restructuring.102
7.103 We do not wish to imply that this information is therefore irrelevant, simply that it is not
enough, in and of itself. We will therefore now ex amine the remainder of th e evidence the EC relied
on in reaching its conclusion that the creditor bank s were directed by the government to buy the
bonds. On the basis of the Final Determination, we consider that the EC based its conclusion on the
following additional arguments. 103 First, the EC argues that the "totality of the facts" reveals that the
government had been directing banks and other ins titutions since November 2000 to take measures in
order to alleviate the liquidity problems of Hynix and to promote the electronics industry policy. 104
We found earlier in our Report that with regard to the Syndicated Loan, the KEIC Guarantee and the
KDB Debenture Programme, the financial contributi ons provided, were mainly those provided by
public bodies , while the May 2001 Restructuring Progr amme raises the question of alleged
entrustment or direction by the government of private bodies. While we considered consistent with
the SCM Agreement the EC's determination that the KEB, a private body, had been directed by the
government to participate in the Syndicated Loan , we fail to see how evidence relating to what
happened in December 2000 can support the specific finding that in May 2001 the creditor banks
were directed to buy bonds.
7.104 The EC also relies on the argument that the in formation on the record shows that creditors
had no commercial reasons in June 2001 to pu rchase KRW 1 trillion worth of CBs from Hynix.
According to the EC, the banks acknowledged the inability of Hynix to service its debts already at the
beginning of May 2001, in the 7 May 2001 CFIC resolution. According to the EC, several banks also
increased their loss provisions with respect to Hynix debt.
105 In addition, the EC points to the sharply
declining Hynix stock price between mid-June and 20 June 2001, when the banks purchased the CBs,
and the fact that the banks reported certain portions of the acceptance price of Hynix CBs as losses in
settling their accounts at the end of June 2001.
7.105 We wish to note that we do not share Kore a's view that the commercial reasonableness of a
private body's actions is a matter which relates only to the question of benefit and cannot be used as
evidence of government entrustment or direction. In our view, entrustment or direction can be
demonstrated by all means of evidence as long as the overall conclusion is re asonable and adequately
explained. In the absence of a clear and explicit government order, the evid ence to be relied on will
inevitably be circumstantial. The fact that priv ate parties act in a strange or not commercially
reasonable manner can form part of the proof that someone was requiring these private parties to act
in this abnormal way. Such evidence of non-co mmercial behaviour is, however, not enough to
establish government entrustment or direction.
7.106 In our view, the information the EC is pointing to certainly reveals the less than rosy state of
affairs for Hynix, but it fails to support a finding of en trustment or direction with regard to the private
bodies participating in the May 2001 Restructur ing Programme. The banks were obviously well-
aware that their investment in Hynix was very risky and that it could well go terribly wrong. But we
do not consider that the situation was such that one can reasonably conclude from this that the only
explanation for the banks' participation was that th ey were directed by the government to buy Hynix

101 As we will discuss later, it may have an impact on the use of the creditor banks as market
benchmarks in determining the existence of benefit.
102 Final Determination, para. 91.
103 Id., paras. 81-98.
104 Id., para. 86.
105 Id., paras. 88-89.

bonds in June 2001. Moreover, some of the elements mentioned by the EC are not informative of the
situation in May 2001 when the banks committe d themselves to purchasing Hynix bonds. For
example, of the banks mentioned 106 to have increased their loan loss provisions with respect to Hynix
debt, only one bank, Shinhan Bank, had actually done this at the time of the May 2001 Restructuring
Programme. We fail to see how a similar action ta ken by certain banks in late September 2001 and
late October 2001 can be relevant in assessing the commercial reasonableness of a decision taken in
May 2001. In a similar vein, the fact that stock prices were going down between mid-June and
20 June 2001 when the banks purchased their CBs a nd that they continued to go down thereafter is
hardly informative of the situation in May 2001 wh en the decision to participate was taken by the
banks in question. The purchase of the CBs on 20 June 2001 was only the execution of a commitment
taken well before that date.
7.107 In addition, we note that the EC's analysis of the financial situation of the DRAMs industry
in the Preliminary Determination seems to contradict the very negative situation it is portraying in the
Final Determination. As the EC noted in the Preliminary Determination, DRAMs prices were going
up again in March 2001 at the time the SSB report was made, which would become the basis for the
May 2001 Restructuring Programme. The SSB for ecast indicated that the DRAMs market would
recover in the third quarter of 2001 so that the e quity infusion and the extension of maturities would
be sufficient to help Hynix to overcome its liquidity crisis. It further stated that the credit rating of
Hynix at the time of the measures was set at BB+ by Korean rating agencies and B- by international
ones.
107 While these are clearly not good ratings, they ar e not such as to make investment decisions
automatically suspicious or extraordinary. More over, and this we find particularly relevant, the
banks made their participation in the measures conditional upon the success of the GDRs issuance,
which was successfully carried out by 15 June 2001 . It was only thereafter that the banks executed
the remainder of the SSB re-capitalisation plan, and purchased the CBs. 108 In sum, we do not find
reasonable the conclusion that the only possible e xplanation for the banks' participation in the
May 2001 Restructuring Programme was government direction.
7.108 Finally, the EC refers in support of its conclu sion of direction by Korea of the eighteen banks
participating in the May 2001 Restructuring Prog ramme to the press allegations of government
pressure exercised on one bank, the KorAm Bank. The press report suggests that the FSS threatened
the KorAm Bank into participating, which it finally did.
109 According to the KorAm Bank itself, it
was simply waiting for a memorandum to be delivered by Hynix pledging to make its best efforts to
reduce its debt. The KorAm Bank went ahead w ith the CBs purchase as soon as it received this
memorandum. In the absence of any additional suppor ting material and in light of the uncontested
fact that the KorAm Bank indeed only particip ated after having received the memorandum, we
consider that allegations in a press article are insu fficient as a basis for a conclusion of direction by
the government of the KorAm Bank to purchase Hynix bonds. Moreover, and even assuming,
arguendo, that this press report would demonstrate government direction of the KorAm Bank, we
consider that evidence of one bank having been directed to participate does not, without any

106 These banks are mentioned in footnote 1 to para. 89 of the Final Determination.
107 Preliminary Determination, para. 43.
 108 In para. 44 of the the Preliminary Determination, the EC came to the following conclusion:
"[u]nder these circumstances, the behaviour of the banks is considered to be equal to that of
other market investors who invested in Hynix GDR's at the same time. However there is some
evidence in the records that indicate that the investor's interest to invest in Hynix GDR's at the
time might have been influenced by the belief that the GOK would ultimately make sure that
Hynix does not default on bonds and loans. The Commission however has no indication that
there was an actual GOK guarantee granted for the bonds in question."
109 According to the press report, the FSS stated that it would not forgive the bank if it did not
participate, adding that it would take stern measures against the bank, such as disapproving new financial
instruments and subjecting the bank to a tighter audit. (Final Determination, para. 92. Korea Times,
21 June 2001; Dow Jones International News 20 June 2001)

additional supporting evidence, provide sufficient su pport for a finding that the totality of the CBs
purchase in which seventeen other banks partic ipated was a government-directed financial
contribution.
7.109 We wish to add, by way of conclusion, that we are not blind to the problems of evidence
gathering in countervail investiga tions, and do not want to be seen as requiring an investigating
authority to come up with the smoking gun in the sense of a written order by the government to a
private body to provide a financial contribution. We understand that, in most cases, the authority will
have to base its decision on a number of argume nts and pieces of evidence which perhaps when
considered in combination may all point in the di rection of government en trustment or direction,
especially in cases where the level of cooperation by th e interested parties is low. However, practical
evidence gathering problems are not an overriding jus tification for finding that financial contributions
by private bodies meet the entrustment or direction standard set by the SCM Agreement. Nor should
such problems create the impression that an authority is entitled to assume a lot from very little. If the
overall picture is such, however, that it is reasona ble to conclude that the government entrusted or
directed the private body to do something which involves a financial contribution, then its
determination is consistent with the SCM Agreement. While the May 2001 Restructuring Programme
is a close case, we consider that the evidence befo re the investigating authority was insufficient to
reasonably conclude that the govern ment entrusted or directed the private banks to purchase the
Hynix CBs.
110
7.110 In sum, we find that the EC's determination that the creditor banks were directed to participate
in the May 2001 Restructuring programme and that their purchase of KRW 1 trillion of CBs as part of
that Programme therefore constitutes a financial c ontribution by the government was not consistent
with Article 1.1(a) of the SCM Agreement.
(vi) October 2001 Restructuring Programme
7.111 The fifth and final programme considered to constitute a subsidy was the October 2001
Restructuring Programme. On 4 October 2001, a second Hynix CFIC was set up in accordance with
the provisions of the Corporate Restructuring Pr omotion Act ("CRPA"). The CRPA was enacted in
August 2001 and its purpose was to facilitate corporate restructuring, which before was based on
agreements between creditor banks and the companie s concerned. The CFIC consisted of a hundred
and ten financial institutions including seventeen banks and fifteen investment trust companies. The
decisions of the CFIC were taken by a 75 per cent majority. The votes were allocated in proportion of
each institution's exposure to the total loans to Hynix. Any financial institution exercising its
dissenter's rights by disagreeing with a CFIC resolution would be ex cluded from the CFIC
permanently. In its second meeting held on 31 October 2001, the CFIC decided on a "second
restructuring package" for Hynix. The following measures were proposed:
(a) provision of new loan of KRW 1 trillion to Hynix with an interest rate of 7 per cent;
(b) debt to equity swap by provision of bonds convertible into shares;
(c) extending the maturities of existing loan s until 31 December 2004, converting the
maturing corporate bonds into corporate bonds with a three year maturity and an

110 If, for example, evidence on the record demonstrat ed (akin to the evidence in the Syndicated Loan
programme) that the FSC/FSS vice-chairman had esse ntially pressured the banks to pledge, then non-
cooperation by Korea could, in our view, have sufficed to tilt the balance in favour of the reasonableness of the
EC's determination as to the May 2001 Restructuring Programme. However, mere speculation that the vice-
chairman's presence turned the March meeting into a ple dging session does not, in our view, suffice to justify
the EC's determination.

interest rate of 6.5 per cent and adjusting th e interest rate of the remaining loans in
Korean currency to 6 per cent.
7.112 The financial institutions were given three opti ons by the CFIC in the 31 October meeting.
The first option was to agree with the proposals by extending new credit and participating in a debt-
to-equity swap ("Option 1"). Secondly, the banks wh ich did not want to participate in the new loan
were obliged to swap 28.5 per cent of their loans in to equity and waive the rest of the Hynix debt
("Option 2"). Thirdly, the CFIC also decided th at those banks which objected to the measures and
used their dissenter's rights would have their loans purchased back at the liquidation value as
established by Arthur Andersen, the firm that wa s commissioned to conduct a study on the financial
situation of Hynix at the time ("Option 3").
7.113 Nevertheless, only six banks agreed to extend new credit, which amounted to
KRW 658 billion instead of the planned KRW 1 trillion. These banks swapped a considerable amount
of their loans into equity. These so-called Op tion 1 banks were the KE B, Woori Bank, Chohung
Bank, KDB, NACF and Citibank. 111 Eight banks refused to extend new loans, so they swapped
approximately one-third of their loans into equity and wrote-off the rest as a loss. The remaining
banks objected to the restructuring and elected to re ceive the liquidation value of their loans, and had
to write the remaining debt off as a loss. The lo ans remaining with the banks of the first category
were subject to maturity extensions an d interest rate cuts as explained above. 112 The EC considered
that the participation by the six Option 1 banks in the October 2001 Restructuring Programme
constituted a financial contribution by the government which conferred a benefit on Hynix. The rate
of subsidization for this October 2001 Restructuring Programme was calculated to be 19.4 per cent.
7.114 In the Final Determination, the EC determined that the Option 1 banks were either public
bodies or entrusted or directed by the government to participate in the October 2001 Restructuring
Programme.
113 The EC came to the conclusion that no mark et investor would have invested in Hynix
in October 2001. The EC put particular emphasis on the seriously deteriorating situation of Hynix
from June 2001 onwards. 114 From June 2001 to August 2001, 128 megabit DRAMs prices fell on
average by 68 per cent and continued to fall by a further 52 per cent by November 2001, with similar
developments for 64 megabit DRAMs prices. 115 Hynix stock prices collapsed almost immediately
after the 15 June 2001 GDRs issuance, and, by 6 September 2001, the price of GDRs had fallen by
72 per cent resulting in great losses for the purchasers.
116 According to the EC, these developments
were recognised by the Hynix creditor banks as th ey downgraded the credit rating for Hynix and for
the semiconductor industry in general during 2001. 117 Standard & Poor downgraded Hynix to CC in
September and SD (selective default) in October 2001. 118 In October 2001, the debts of Hynix were
six times greater than its equity. 119 Hynix was, according to the EC, virtually bankrupt. 120 Therefore,
the EC considered that the six Option 1 banks which extended new loans to Hynix, extended the
maturities of the existing loans, and held a great amount of Hynix shares, did not behave in a

111 Preliminary Determination, para. 77. The KDB did not participate in the new loan of
KRW 658 billion.
112 Id., paras. 69-71.
 113 Final Determination, paras. 120-135; Preliminary Determination, para. 99. Only the financing by
the Option 1 banks was treated as a subsidy and, consequently, countervailed. In order to avoid double-
counting, where earlier subsidies were effectively subsumed within the October 2001 Restructuring Programme,
only one countervailing duty was imposed.
114 Final Determination, paras. 101-112.
115 Preliminary Determination, para. 73.
116 Id., para. 74.
117 The six Option 1 banks rated Hynix internally from "precautionary" to "doubtful". (Final
Determination, para. 104)
119 Final Determination, para. 106.
120 Preliminary Determination, para. 76.

commercially reasonable manner. The EC went on to examine whether the apparently non-
commercial behaviour of the six Option 1 banks was due to the involvement of the government in the
banks concerned.
121 Before conducting a bank-by-bank analysis, the EC pointed to the fact that, of the
nine banks which stopped financi ng Hynix in October 2001, seven were private banks, while of the
six Option 1 banks, the four largest creditors were ei ther totally or by a large majority owned by the
government.122 It added that one of them was a special bank with a public policy role and that three
others were under government control due to the fa ct that they were themselves under restructuring,
had agreements with the government regulati ng their business operations and received capital
injections from the government.123 The EC further concluded that the KDB was a public body.124
7.115 The Final Determination also addresses the argument made by parties that certain banks, in
spite of being government-owned, did not take pa rt in Option 1 of the October 2001 Restructuring
Programme. Korea argued that this fact contradict s the EC's conclusion, based to a large extent on
government shareholding power, that the six Option 1 banks were directed by the Korea to participate.
In the Final Determination, the EC explains that , of the four government-owned banks that did not
participate in Option 1 ( i.e., government-owned Option 3 banks), two – the Kwangju Bank and the
Kyongam Bank – were to be merged with Woori Bank that did take part. Similarly, a third one – the
Seoul Bank – was going to be sold to Hana Bank following the IMF's recommendations. As for the
fourth, the Industrial Bank of Korea ("IBK"), the EC considers that to force it to participate again
would be such an obvious breach of IBK's mandate as a specialized bank for SME's that it was better
not to.125
7.116 We recall that, under Article 1.1(a)(1) of the SCM Agreement, when a financial contribution is
provided by a public body, there is no need for an a dditional finding of "entrustment or direction" by
the government. The EC found the KDB to be a pub lic body and its participation in the October 2001
Restructuring Programme by, inter alia , extending new loans was considered to be a financial
contribution in the sense of the SCM Agreement.126 Korea does not object to the EC's determination
that the KDB is a public body. In this respect, we find that Korea has not made a prima facie case
that the EC's finding that the KDB provided a fina ncial contribution to Hynix was inconsistent with
Article 1.1(a) of the SCM Agreement.
7.117 With respect to the five other banks which the EC considered not to be public bodies, we will
examine whether the EC made reas onable and reasoned conclusions on th e basis of the facts before it
that these banks were directed by Korea to carry out the measures in question.127
Woori Bank
7.118 In its bank-by-bank analysis, the EC asserts that Woori Bank was aware of the gloomy
financial state of Hynix and took part on the b asis of public policy considerations, which are not
commercial and can only be explained by the governme nt using its 100 per cent shareholder status to
influence decisions.128
7.119 It is not contested that Woori Bank was 100 per cent government-owned via the Korea
Deposit Insurance Corporation ("KDIC") since late 2 000. The EC did not consider Woori Bank to be

121 Ibid.
122 Id., para. 79.
123 Ibid.
124 Final Determination, para. 120.
125 Id., paras. 134-135.
126 Id., para. 120.
127 Ibid.

a public body. 129 This implies that, in order for a loan by this bank to be considered a financial
contribution in the sense of Article 1.1(a)(1) of the SCM Agreement, the EC was required to establish
that the government entrusted or directed the bank to provide the financial contribution in question.
In our view, even if an investigating authority decides that such 100 per cent government ownership is
not sufficient to qualify an entity as a public body, the extent of government ownership still remains a
very relevant factor in the evaluation of the evid ence concerning possible entrustment or direction by
the government. It is clear that, as the sole sharehol der, it is easier for the government to direct the
bank to act in a certain manner than in a situati on of no or only minor government involvement. At
the same time, it should be clear that, in our view , government ownership, in and of itself, is not
sufficient to establish entrustment or di rection under Article 1.1(a)(1) of the SCM Agreement . We
consider that Article 1.1(a)(1) of the SCM Agreement is clear: either a financial contribution is
provided by the government or a public body, or it is provided by a private body, in which case it will
be covered by the SCM Agreement only in case this private body acted under the direction or the
entrustment of the government to behave in this manner, in which case the private body's action may
be attributed to the government, and the SCM Agreement applies.
7.120 In the case of a 100 per cent government-owned bank, such as Woori Bank, it thus needs to
be demonstrated that the government actually exercised its shareholder power to direct the bank to
support to Hynix. In light of our standard of re view, we will therefore ex amine whether on the basis
of all the facts before it, the investigating author ity made a reasonable and reasoned conclusion when
it found that Korea directed Woori Bank to participate in the October 2001 Restructuring Programme.
7.121 The record of the investigation shows that Woori Bank participated as an Option 1 bank in the
October 2001 Restructuring Programme, inter alia, on the basis of public policy considerations,
referring to the impact on the national economy of Hynix going bankrupt. While we agree with Korea
that important national banks such as Woori Bank may well take into account the broader picture
rather than pursuing a pure strategy of profit maximiza tion, we do not agree that this consideration is
irrelevant.
7.122 We further find highly relevant in the assessmen t of the evidence before the EC, the seriously
deteriorated situation of Hynix in October 2001 compar ed with the situation of Hynix at the time the
creditor banks agreed on the May 2001 Restructuri ng Programme. We recall that the uncontested
figures mentioned in the Preliminary and Final Determination show that, between June 2001 and
August 2001, 128 megabit DRAMs prices fell on aver age by 68 per cent and continued to fall by a
further 52 per cent by November 2001, with simila r developments for 64 megabit DRAMs prices. 130
Hynix stock prices collapsed almost immediately after the 15 June 2001 GDRs issuance, and, by
6 September 2001, the price of GDRs had fallen by 72 per cent resulting in great losses for the
purchasers.131 According to the EC, these developments were recognised also by the Hynix creditor
banks as they downgraded the credit rating of Hyni x and for the semiconductor industry in general
during 2001. Standard & Poor downgraded Hyni x to CC in September and SD in October 2001. 132
Korea does not contest the accuracy of this account of events. In our view, these developments are
very relevant in evaluating the behaviour of these non-public bodies.

129 We do not wish to imply that it would not be possible or justified to treat a 100 per cent government
owned entity as a public body, depending on the circumstances. Our task, however, is to review the
determination actually made by the EC, not to make our own de novo interpretation of the facts in this case.
Since the EC considered Woori Bank to be a private body, we will examine the question of entrustment or
direction by the government with regard to Woori Bank. A similar consideration applies to our discussion and
analysis of Chohung Bank and the KEB in which the government of Korea held 80 per cent and 43 per cent of
the shares, respectively, at the time of the investigation.
130 Preliminary Determination, para. 73.
131 Id., para. 74.
132 Id., para. 75.

7.123 Another important difference between the May 2001 Restructuring Programme and the
October 2001 Restructuring Programme is, in our view, the fact that the second Hynix creditors'
council – the CFIC – was set up in October 2001, in accordance with th e CRPA. The CRPA was
enacted in August 2001 with the purpose of fac ilitating corporate restructuring through a majority
voting procedure. Before, such restructuring w as based on individual private agreements between
creditor banks and the distressed companies. In our view, this difference indicates that the May 2001
Restructuring Programme took place under an info rmal approach that allowed small dissenting
creditor banks the option of not participating in the re-financing programme. By the time of the
October 2001 Restructuring Programme, a government-d riven policy considerably circumscribed the
options of dissenting creditors.
7.124 Korea argues that the MOU between Woori Ba nk and the government is irrelevant for
October 2001 Restructuring Programme and, in an y case, only provided general prudential rules for
Woori Bank as the recipient of public funds.
133 We first wish to note that we do not consider that the
MOU between Woori Bank and the government formed the basis of the EC's decision of direction by
the government with regard to this bank. We not e that it is explained in the EC's Preliminary
Determination, that in December 2000, Woori Ba nk concluded an agreement for the implementation
of the management improvement plan for the bank in the form of a MOU with the government, which
gave the government important powers in case of a failure to implement the plan. A further MOU
was entered into with the government in July 2 001 to implement a business plan. While these MOUs
are not directly relevant to the October 2001 restru cturing of Hynix, and did not appear to have
formed the basis for the EC's decision, we can se e how an investigating authority could reasonably
take these MOUs into account as evidence of a possible means for th e government to intervene in the
daily operations of the bank in question.
7.125 In our view, Korea failed to demonstrate that the EC finding of government direction of
Woori Bank in the October 2001 Restructuring Programme was not a reasonable and reasoned
conclusion. The EC based its finding on the combin ation of a 100 per cent government ownership of
Woori Bank, the disastrous financial situation of Hynix in October 2001, the recognised public
interest considerations in deciding to participate in the Programme, and the fact that the restructuring
took place in the framework of a formal government act, the CRPA. We thus reject Korea's claim that
the EC finding of a financial contribution with re gard to the Woori Bank's participation in the
October 2001 Restructuring Programme was inconsistent with Article 1.1(a) of the SCM Agreement.
Chohung Bank
7.126 With regard to Chohung Bank, in which the government held 80 per cent of the shares at the
time of the investigation, the investigating authorit y considered that the internal rating did not support
the decision to invest in Hynix, and noted that this bank immediately raised its loss reserves after
participating in the measures and approved th e measures by reference to its MOU with the
government. This, in the view of the investigati ng authority showed that banks under restructuring
were restricted in their business decisions to comp ly with government conditions. According to the
EC, it is clear that the government used its 80 per cent shareholder status to influence the decisions.
134
The EC also considered relevant the fact that it found that the government directed Chohung Bank to
support Hynix on earlier occasions, in particular in the May 2001 Restructuring Programme.135

133 We note that Korea also argued before us that the EC ignored the fact that in October 2001 there
were still two banks (Woori Bank and P eace Bank) which later merged to become Woori Bank and that the EC
failed to examine the involvement and alleged government direction of Peace Bank. We consider reasonable the
investigating authority's approach in light of the EC's reply that Peace Bank no longer existed at the time of the
investigation and that nobody made an y arguments about the n eed to examine Peace Bank at the time of the
investigation.
135 Final Determination, para. 129.

7.127 We are of the view that a very similar reas oning as the one developed above with regard to
Woori Bank applies to Chohung Bank, in which the government held 80 per cent of the shares. 136 We
agree with Korea that shareholding does not equal di rection. But, as we stated earlier, it remains a
relevant fact which, in combination with other rele vant facts, may lead to a conclusion that the power
of a majority shareholder may have been used to direct the private body to provide a financial
contribution. In this respect, we do not see much of a difference in prac tical terms between 80 per
cent shareholding and 100 per cent shareholding. In both cases, it is clear that, if the government
wants to impose a decision on the private bank, its proposed action will not be seriously scrutinized.
7.128 The situation would, of course, be different in case the government, in spite of being a 80 per
cent shareholder of a bank would not be able to de facto impose its decision on the bank because, for
example, a majority of the directors were appoint ed by the minority shareholders. Korea has argued
that Chohung Bank explained to the EC that Korea had no direct or indirect influence on its
management activities, and that, in spite of the gove rnment ownership of 80 per cent of the shares, it
remained a commercial bank that took its d ecisions on the basis of purely commercial
considerations.
137 In particular, Chohung Bank pointed to the fact that all of its directors started their
careers in that bank and that Korea thus did not force the Chohung Bank to have directors nominated
by the government or any other public body. 138 The career-director argument, however, could equally
be cited for the proposition that these were not independent-minded pe rsons, dedicated to the
management of Chohung Bank strictly on commercial principles.
7.129 In our view, the amount of shareholding by th e government determines the extent to which it
can influence the decision-making process set out in company law and the articles of association of
the company concerned. 139 Korea has not provided any evidence that the government shareholding
power did not allow the government to exercise s ubstantial management power . We thus consider
reasonable the conclusion of the EC that this im portant government shareholding power enabled the
government to control and direct the actions of Ch ohung Bank. As such, this potential direction and
control is not, however, sufficient to establish actual direction in the sense of Article 1.1(a)(1)(iv) of
the SCM Agreement. We therefore examine additional evid ence that the EC relied upon in reaching
its conclusion.
7.130 The EC refers to the internal rating by Chohung Bank of Hynix as "inappropriate for
investment". The EC also notes that the bank imme diately raised its loss reserves after participating
in the October 2001 Restructuring Programme, and a ccounted the whole debt-to-equity conversion as
a loss. It also refers to the fact that Chohung Bank itself approved the measure by reference to its
need to comply with a MOU it signed with the government in November 1999, which was amended
in May 2000. Korea argues that the EC ignored the explanations provided by Chohung Bank itself
concerning, inter alia, the fact that the MOU only concerned the restructuring measures imposed by
the government in response to the 1997 financia l crisis. Chohung Bank also argued to the
investigating authority that, in th e Board's meetings held during the POI, there was no mention made
of the fact that the government w as willing to subsidize Hynix, or that it directed the Chohung Bank
to inject funds into Hynix. Rather, Chohung Bank submitted to the investigating authority that the
decisions concerning Hynix were taken by three sp ecifically trained teams and following a generally
applied procedure.140 The EC replied to these concerns by simply stating that Chohung Bank did not
provide any new evidence in its comments which woul d alter the Commission's conclusion. It further
referred to alleged earlier cases of government dire ction in respect of the May 2001 Restructuring
Programme, the letters to the KEIC and KEB re garding the Syndicated Loan, the FSC lending limit

136 We refer to our consideration in footnote 129 concerning the nature of this bank as a private body.
137 Korea First Written Submission, para. 552. Chohung Bank's Comments on the Preliminary
Determination of 19 May 2003. (Exhibit GOK-24)
138 Chohung Bank's Comments on the Preliminary Determination of 19 May 2003. (Exhibit GOK-24)
139 Final Determination, para. 121.
140 Chohung Bank's Comments on the Preliminary Determination of 19 May 2003. (Exhibit GOK-24)

waiver and the KEIC Guarantee. We do not consider that such information is highly relevant to the
question of possible government direction of Chohung Bank in October 2001 . As far as the alleged
government direction in the May 2001 Restructuri ng Programme is concerned, we found that there
was insufficient evidence to reach a conclusion of direction or entr ustment, and thus we also fail to
see how that same evidence could somehow confirm or strengthen the EC reasoning with regard to
the October 2001 Restructuring Programme.
7.131 What remains, however, is the EC reliance on the disastrous financial state of Hynix at the
time the October 2001 Restructuring Programme was ag reed on, as explained earlier. In our view,
given the deterioration of the situation since May 2001, and taking into account the credit rating for
Hynix both from independent sources such as Standard & Poor and internally by Chohung Bank, it
seems to us to have been a reasonable conclusion of the EC that the renewed investment in Hynix by
Chohung Bank did not correspond with normal commercia l behaviour. In combination with the very
important amount of government shareholding pow er, and the absence of any convincing evidence of
the commercial reasonableness of such investments, we consider that the EC was acting in a
reasonable manner when it concluded that Chohung Bank had been directed by the government to
participate in the October 2001 Restructuring Programme of Hynix.
7.132 We therefore reject Korea's claim that the EC's determination of a fi nancial contribution by
the Chohung Bank in October 2001 was inconsistent with Article 1.1(a) of the SCM Agreement.
KEB
7.133 With respect to the KEB, the EC asserts that th e bank's internal rating of Hynix did not justify
granting further financing, especially in light of th e fact that the KEB was undergoing restructuring
itself and should have avoided risky investments. The EC also notes that this bank used to be a
specialized government bank and that Korea remained the largest shareholder with 43.17 per cent of
the shares. Given the fact that the loans were made available at rates for financially sound companies,
and based on the available facts, the EC conclu ded that Korea must have used its shareholder
influence to influence decisions. The EC also refe rs to the reports disclosing government pressure on
the KEB at the time of the Syndicated Loan, supporti ng the view that as majority shareholder, the
government did influence decisions.
141
7.134 We find relevant the EC's considerations that this bank used to be a specialized government
bank and that the government of Korea remains th e largest shareholder with 43.17 per cent of the
shares.142 We are of the view, as explained above, that the fact that the government is the largest
shareholder of the KEB is an important but not a determinative factor in establishing government
direction of private bodies in the sense of Article 1 of the SCM Agreement. It is a factor which may
be taken into account when assessing all the ev idence concerning government direction. The
remainder of the evidence relied on by the EC shows that the KEB's internal rating of Hynix was very
bad, but that the loans were nevertheless made av ailable at rates for financially sound companies.
While Korea argues that Commerzbank, the second la rgest shareholder of the KEB, controlled the
lending practices of the KEB, we find relevant the fact that only four of the twenty directors of the
KEB were from Commerzbank, and that the governme nt, as the largest shareholder, was able to
influence appointments of the other directors.143 On this basis, and in light of the particularly negative

142 We refer to our consideration in footnote 129 concerning the nature of this bank as a private body.
143 The EC also relied on the letters concerning the results of the Ministers meeting of
28 November 2001, which were discovered following the Preliminary Determination and had been withheld by
the parties concerned. The EC asse rts that, through these le tters, the government on this earlier occasion had
already directed the KEB to act in a cer tain manner, which thus confirms its view that Korea was able to use its
majority shareholder power to direct the KEB. As we discussed earlier, we do not find unreasonable this
conclusion. In any case, and, at the very least, the letter could reasonably be considered as evidence of the
government's power to direct the KEB to request a lending limit waiver.

financial state of Hynix in October 2001, we co nsider reasonable the EC conclusion that the
government must have been using its shareholder power to influence decisions. 144 We wish to
emphasize that we consider particularly relevant the precarious financial state of Hynix at the time of
the October 2001 Restructuring Programme, which was di fferent from the situation that existed at the
time of the May 2001 Restructuring Programme. In our view, the combination of important
government control and the extremely negative financ ial state of Hynix justifies, in the absence of
strong evidence to the contrary, the reasonable c onclusion by the EC of the actual exercise of
government control to direct the bank to partic ipate in the October 2001 Restructuring Programme,
and to provide a financial contribution.
7.135 We therefore reject Korea's claim that the EC 's finding of a financial contribution by the
government with regard to the KEB was inconsistent with Article 1.1(a) of the SCM Agreement.
NACF
7.136 The EC considered the NACF to be a bod y which carries out an economic policy of
supporting the agricultural sector. It adds that the NACF had an underwriting from the government of
the losses incurred resulting from its activities, and th at the NACF's internal rating for Hynix did not
justify further financing, and certainly not at inter est rates below market rates. In sum, according to
the EC, there can be no other explanation for th e non-commercial behaviour than the government
direction.145
7.137 We recall that it is not contested that the NACF is a body which carries out an economic
policy of supporting the agricultural sector, and is jointly managed by the Ministry of Economy and
Finance and the Ministry of Agriculture and Forest ry, and has specialized f unctions as an agricultural
policy bank, such as implementation of Korea's agricultural policy. We note that the EC argued
before us that, for that reason, the NACF was to be considered as a public body. It seems, however,
that at the time of the investigation, the EC did not consider the NACF to have this public body status.
While it is clear that the NACF was not acting in its agricultural role when investing in Hynix, we do
not agree with Korea that, for that reason, its general public policy orientation is completely
irrelevant. We note again that it is uncontested th at the bank's own internal credit rating for Hynix
was not such as to justify further financing. Once agai n, in light of the deteriorated situation of Hynix
and given Korea's role in the NACF, and its public policy orientation, we consider that it was not
unreasonable of the EC to conclude that a quasi public body like the NACF was directed by the
government to participate in the October 2001 R estructuring Programme. We do not consider, as
Korea seems to be arguing, that the EC should ha ve simply accepted the NACF's statement that it had
commercial reasons for participating in the Oc tober 2001 Restructuring Programme, and was not
directed to take part by the government, given th e other facts on the record which the EC reasonably
explained to have led it to the opposite conclusion.
146
7.138 We therefore reject Korea's claim that the EC 's finding of a financial contribution by the
government with regard to the NACF was inconsistent with Article 1.1(a) of the SCM Agreement.
Citibank
7.139 In the Final Determination, the EC notes that Citibank had very close relationship with the
government, as it was one of the first foreign banks to operate in Korea in 1967. The EC considers

144 Preliminary Determination, para. 91.
146 We note that Korea only contested the EC determination with respect to the NACF in its First
Written Submission and did not further elaborate on this argument in the subsequent submissions or statements
before us. In response to a question by the Panel concerning the NACF, Korea merely replied that the EC did
not consider the NACF to be a public body at the time of the investigation, and that it was therefore precluded
from doing so before the Panel. (Korea response to question 79 of the Panel)

that Citibank failed to cooperate and that its assertions that it was not acting under the direction of the
government could therefore not be verified vi a a proper response to the questionnaire and a
verification visit. According to the EC, Citiba nk failed to explain why it became involved in Hynix
only in January 2001, when the situation was alre ady sufficiently bad to deter most private banks,
outside the context of special programmes such as the May 2001 Restructuring. By October 2001,
Citibank rated Hynix as "D" (doubtful). The EC conc ludes that Citibank's links with the government
were intensified during the financ ial crisis which made it particularly vulnerable to government
direction. The EC considers that Citibank's failure to cooperate suggests that Citibank had something
to hide. The EC considers that the bank's internal rating for Hynix did not justify new financing. In
light of the failure to cooperate, the EC consider s that the only conclusi on for such non-commercial
behaviour can be government direction.
147
7.140 In our view, in the case of Citibank, the situati on is considerably different in one important
respect with regard to the alleged direction by th e government of Citibank. The government had no
shareholder power in Citibank. While it is correct that Citibank had a close relationship with the
government since the late 1960's, and was clearly an important player in assisting Korea's economic
recovery after the 1997 financial crisis, this does not necessarily demonstrate that the government had
some form of control over Citibank. Hence, the qua lity of the evidence with regard to Citibank will
have to be higher to demonstrate that the government actually directed Citibank to participate in the
October 2001 Restructuring Programme. In our vi ew, had Citibank from the outset fully cooperated
with the investigating authority the evidence relied on by the EC would not be sufficient to reasonably
conclude that the government actually directed Citiba nk to participate. As with the other banks, we
consider relevant the fact that the commercial reasonableness to take part in the October 2001
Restructuring Programme appears doubtful, given Citib ank's internal rating of Hynix and the general
state of Hynix and the industry at the time. But we do not consider this distre ss context sufficient to
conclude that Citibank had been directed to particip ate. For the other banks that participated, we are
of the view that the important government share holding position was precisely that bit of additional
evidence that could justify a reasonable investigating authority's conclusion of direction. In the case
of Citibank, it appears that the non-cooperation by Citibank was considered the additional element
that led the EC to the conclusion of government dire ction. As we conclude elsewhere in our Report,
we consider that the EC was entitled to consider that Citibank had failed to respond to the EC
questionnaire and, thus, did not provide any spec ific and verifiable information concerning its
involvement in the October 2001 Restructuring Programme.
7.141 We recall that in the Final Determination, th e EC reached the following conclusion based on
Citibank's failure to cooperate:
"(133) As for the GOK direction, information on the record indicates that there were
considerable links between the GOK, Hynix and Citibank. For the GOK and
Citibank these went beyond the loans investig ated. Such links can be interpreted in
two ways. Firstly, they can be interprete d as indicating that Citibank may well have
had commercial reasons for providing financi ng to Hynix, or as alleged by one of the
parties, they could be interpreted as pl acing Citibank in a vulnerable position with
regards to direction by the GOK. Due to the non-cooperation it was not possible to
establish whether Citibank acted on coercion or whether this was in accordance with
their normal business practice. In this respect, it is recalled that the reason for non-
cooperation was to prevent access to Hynix's cost, finance and accounting data. In
the absence of any other explanation, this can reasonably be taken as an indication
that this data in Citibank's possession contai n information revealing that there were
no commercial reasons to provide the financ ing in question, and that the financing
was provided due to GOK direction. This reason is also the one suggested in the
complaint. In addition, as explained in recital 94 of the provisional Regulation,

147 Final Determination, paras. 130-133; Preliminary Determination, paras. 93-94.

Citibank has had an unusually close and symbiotic relationship with the GOK since
1967, when it was authorised to operate in Korea. This close relationship between
the GOK and Citibank is witnessed in the ro le played by Citibank in assisting the
GOK to extricate itself from the Korean fina ncial crisis of 1997. Citibank led and
successfully completed Korea's bank debt restructuring for a total of USD 21,75
billion in 1998. Moreover, Citibank helped the GOK and government-related
institutions to access capital markets dur ing the Korean financial crisis by
successfully sponsoring a USD 4 billion global bond offering. All these facts confirm
that Citibank has a very close relationship to the GOK. On the b asis of these facts,
and of the refusal of Citibank to grant access to the information in its possession, and
failing any other verifiable evidence being av ailable, the conclusion to be drawn in
accordance with Article 28(6) of the basic Regulation is that the GOK was involved
and directed Citibank to provide the financing in question." 148
7.142 As we explain in a separate section of our Report dealing with Korea's claims concerning the
application of Article 12.7 of the SCM Agreement, we consider that the EC was justified in making its
determinations with regard to Citibank based on the facts available, given the fact that information
reasonably considered as necessary was not provided. We note that Korea argues that Citibank
should not have been considered as an un-cooperative party in light of its good faith efforts to provide
the information. In addition, Ko rea argues that Hynix is not to be blamed for Citibank's failure to
provide the information either, and that, therefor e, the EC was not allowed to draw any adverse
inferences from Citibank's failure to provide the requested information. In other words, Korea argues
that it was not Hynix's fault that the information was not provided but that this non-provision was due
to Citibank's internal policies. At the same time, it argues that it was not Citibank's fault either as
Hynix did not consent to the disclosure of the in formation and that without such consent Citibank
would risk legal liability problems under Korean law. It appears that Korea wants to have its cake and
eat it at the same time. In any case, it is clear that necessary information was not provided within a
reasonable period and the EC was thus entitled to resort to the use of the facts available under
Article 12.7 of the SCM Agreement.
7.143 In our view, this non-cooperation by Citibank was that bit of additional evidence that could
justify a reasonable authority's conclusion that Citiba nk had been directed by Korea to participate as
an Option 1 bank in the October 2001 Restructur ing Programme. As we did when discussing the
Syndicated Loan, we wish to em phasise that we do not believe that the non-cooperation, in the
absence of any additional supporting evidence, as such would be sufficient to reach the conclusion of
government direction. Article 12.7 of the SCM Agreement allows an authority to make
determinations on the basis of the facts available, not on the basis of mere assumptions or inferences.
We do not consider that Article 12.7 allows an aut hority to automatically reach a conclusion which is
negative for the un-cooperative party in the ab sence of additional facts, simply because the
information was not provided. We do not consider th at Article 12.7 can be interpreted in this punitive
manner. However, if there are, as in this case, certain facts on the record which point in a certain
direction, then it is not unreasonable of an investigati ng authority to read these facts in the light of the
non-cooperation by the interested party concerned. To deny the authority, when faced with such
blatant non-cooperation, the right to take this un- cooperative behaviour into account as an element of
relevance in assessing the facts before it would in e ffect make the "stick" of Article 12.7 meaningless.
It would, in our view, mean that an investiga ting authority, which lacks any significant evidence
gathering powers, is deprived of the limited possib ility of inducing interested parties to provide the
information necessary to make preliminary and final determinations.
7.144 In sum, the complete refusal by Citibank to provide any meaningful and verifiable
information requested by the authority, combined with the close relationship between Korea and
Citibank, as well as Citibank's role as Hynix's princi pal financial advisor and the doubtful commercial

148 Final Determination, para. 133.

reasonableness of participating in the October 2001 R estructuring Programme justify, in our view, the
reasonable conclusion by the EC that Citibank w as directed by Korea to participate in the
October 2001 Restructuring Programme.
7.145 We therefore conclude that the EC determ ination of a financial contribution by the
government through Citibank was consistent with Article 1.1(a) of the SCM Agreement.
Conclusion
7.146 For the reasons set forth above, we thus find that the EC finding of the existence of a financial
contribution by the government of Korea by the participation in the October 2001 Restructuring
Programme of the KDB, Woori Bank, Chohung Bank, KEB, NACF and Citibank is consistent with
Article 1.1(a) of the SCM Agreement.
2. Claims regarding the EC's determinations of the existence and amount of benefit
(a) Korea
7.147 Korea argues that the EC's finding and measure ment of "benefit" was inconsistent with
Articles 1.1(b) and 14 of the SCM Agreement . According to Korea, under these provisions, as
clarified by the Appellate Body in the Canada – Aircraft and US – Lumber IV cases, the EC was
under an obligation in measuring benefit to compare what was received by Hynix with what was
available on the market. Instead, the EC ignored the available market benchmarks, and simply
considered all loans, loan guarantees, bonds and eq uity as grants, thereby disregarding the specific
obligations contained in Article 14 of the SCM Agreement with regard to the determination of
benefit.
149
7.148 In addition, Korea asserts that the EC did not adequately explain why Korean market
benchmarks could not be used, nor did it demonstrate why its alternative grant methodology was
related or connected with prevailing market co nditions in the Korean market, as required by
Article 14. Korea is of the view that Article 14 of the SCM Agreement clearly establishes a
requirement to examine benefit by using the privat e market in the country under investigation as a
benchmark. According to Korea, if this is not po ssible, the authority should provide a justification for
departing from this benchmark and must demonstrate that the alternative benchmark chosen is related
to the prevailing market conditions in the country of investigation.150
7.149 Korea further argues that in the case of (1) the Syndicated Loan, (2) the KEIC Guarantee, and
(3) the May 2001 Restructuring Programme, the change of position of the EC from "no benefit" in the
Preliminary Determination to "benefit" in the Final Determination, and this without any explanation,
confirms that the EC strove to achieve a pre-orda ined outcome from this investigation and provides
the context in which Korea invites the Panel to c onsider the EC's benefit analysis. According to
Korea, the argument offered by the EC concerning "new information" about the Economic Ministers'
meeting151 and the presence of government officials at a meeting between the creditors 152 may affect
the conclusions on financial contribution and entrustment, but it is unrelated to the question of benefit.

149 Korea First Written Submission, para. 572. Korea asserts that the EC treated all of the various
financial instruments as grants, as it simply assumed, without any positive evidence to support this assumption,
that the banks involved in the restructuring process were not counting on seeing their money back. It thus
ignored the reality of the instrument s used which required the payment of interests and failed to examine the
conditions in light of the market benchmarks required by Article 14 of the SCM Agreement.
150 Korea finds support for its argument in the report of the Appellate Body in the US – Lumber IV case
dealing with Article 14(d) of the SCM Agreement.
151 In so far as it concerns the Syndicated Loan and the KEIC Guarantee Programme.
152 Where the May 2001 Restructuring Programme is concerned.

Syndicated Loan
7.150 Korea argues that the EC improperly treated the amount of the loans in excess of the waived
lending limit as grants. Such loans carried interest payment requirements and the loans extended by
the KEB, KFB and the KDB should therefore, accordi ng to Korea, have been compared to the loans
granted by seven other banks involved in the pr ogramme which were not alleged to have been
directed or entrusted to grant such loans. Ko rea submits that the loans extended by these banks
provided an adequate market benchmark for the determination of benefit.
KEIC Guarantee
7.151 Korea takes issue with the EC finding that, under this programme, no "adequate premium"
was required which, according to the EC, turned what it considered to be a loan guarantee into a grant.
According to Korea, under Article 1. 1(b), and Article 14 in the context of Item (j) of Annex I of the
SCM Agreement, the EC should have examined the differe nce between the actual fee paid by Hynix
and the fee that covers the operating costs and loss es of the export insurance programme in order to
determine the existence of a benefit. Korea subm its that the EC failed to even examine what an
adequate premium would have been. Second, even if the EC was correct in considering the export
insurance programmes as a loan guarantee, Korea submits that Article 14(c) of the SCM Agreement
then required the EC to examine the difference be tween the financial alternatives that could be
obtained with the guarantee and those obtainable wit hout the guarantee. The EC's general assertion
that no alternative financing woul d have existed without the guarant ee is economically unsustainable
as an alternative will always exist, albeit at a high interest rate. In any case, Hynix did pay a premium
and the EC's analysis of the KEIC Guarantee programme as a grant is thus flawed.
KDB Debenture Programme
7.152 Korea argues that the EC's treatment of the Programme's bonds as grants was based on the
unsubstantiated assumption that the KDB would not r ecover the money invested. Korea argues that
the EC thus failed to make a comparison betwee n the KDB interest rate and available market
benchmarks such as those offered by the Syndicated Loan 153 or the GDRs offering, which provided
clear evidence that it was commercially reasonable to participate in the KDB Debenture Programme.
In addition, Korea argues that the largest part of the Hynix bonds were not ultimately purchased by
the KDB but rather by the creditor banks (20 per cen t) and private investors (70 per cent), for which
the EC simply assumed that their participation also constituted a grant.
May 2001 Restructuring Programme
7.153 Korea takes issue with the treatment of a CBs purchase of KRW 1 trillion as a grant, as the
CBs carried clear interest obligations and had the potential of being converted into equity. Korea
argues that the EC conclusion that it was obvious that the money invested by the creditors would not
be recovered is not supported by the facts. 154 The success of the GDRs i ssuance disproves the EC's
point. According to Korea, the EC should have co mpared the CBs' interest rates with applicable
market interest rates.

153 Korea submits that this Syndicat ed Loan provides a viable privat e market benchmark as it included
loans by seven banks not entrusted or directed to provide such loans and as the interest rate charged by the KDB
programme was actually higher than that of these Syndicated Loan.
154 Korea refers to (1) th e positive market forecasts for DRAMs, (2) priv ate investor confidence
expressed in the GDRs, (3) the fact that the purchase was conditioned on the success of the GDRs, (4) the
requirement to hold the m oney in escrow accounts, and (5) the fact that the type of bonds chosen were
convertible which also showed the expectation of future gains.

October 2001 Restructuring Programme
7.154 Korea is of the view that the EC improperly considered the three measures
155 that together
formed the October 2001 Restructuring Programme as grants. The new loans granted, under the
Programme, were not grants as the EC concluded. Korea argues that they were secured by a priority
collateral on the Hynix factory. In addition, neutral third party analysis commissioned by the
creditors156 showed that, by granting new loans, the cr editors substantially in creased their chances of
recovering at least part of their investments made in previous years. Neither was it correct to consider
the maturity extensions as debt forgiveness measu res, as by extending the maturity the aim of the
creditors was precisely to increase the likelihood of recovering their money. Similarly, the debt-to-
equity swap was incorrectly considered a debt-fo rgiveness measure as it constituted a normal, albeit
risky, investment decision by creditors hoping to partic ipate in the expected recovery of the company.
Korea points out that the prices charged for the swap were similar to, and even a bit lower than the
share prices of Hynix on the stock exchange, which implied that the shares obtained in the swap could
easily be sold on the stock exchange. In any case, Korea submits, it would not make sense to go
through the pains of engaging in a complex swap if all that was going on was simply a form of debt
forgiveness. Option 1 banks could then have elected Options 2 or 3.
Additional calculation errors
7.155 Finally, and in case the Panel were to reject Ko rea's claims on the benefit analysis performed,
Korea argues that the EC made several important erro rs in the actual calculation of benefit. First,
Korea asserts that the EC failed to take into account the part of the KDB Debenture Programme bonds
which were later swapped into CBs in the May 2 001 Restructuring Programme. Korea argues that,
similar to the reduction in benefit the EC calculated when considering that part of the CBs of the
May 2001 Restructuring Programme were converted into equity in the October 2001 Restructuring
Programme, the EC should have reduced the part of the benefit from the KDB Debenture Programme
bonds that was changed into CBs in the May 2001 Restructuring Programme. By not doing so, Korea
submits that the EC committed a double-counting error.
7.156 In addition, Korea asserts, the EC failed to deduct from the alleged benefit the interest paid by
Hynix under the KDB Debenture Programme. Similarl y, Korea argues that the EC did not take into
account the actual interest payments made to Op tion 1 banks in the October 2001 Restructuring
Programme, in violation of Article 1.1(b) and 14 of the SCM Agreement . Finally, Korea is of the
view that the EC ignored information from the a udited books of Hynix on the actual value of the
maturities issued under the October 2001 Restructur ing Programme, namely KRW 1.579 trillion, and
instead continued to use the incorrect amount of KRW 1.825 trillion. This is a violation of
Articles 1.1(b) and 14 of the SCM Agreement.
(b) EC
7.157 The EC considers that Article 1 of the SCM Agreement does not provide a definition of
"benefit". Neither does Article 14 of the SCM Agreement contain such a definition as this provision
merely sets forth guidelines for calculating the amount of a s ubsidy in terms of benefit to the
recipient. Article 14 of the SCM Agreement leaves much discretion to the authority in determining the
method best suited for establishing and calculating the benefit.
157 According to the EC, the general

155 The October 2001 Restructuring Programme consisted of the granting of new loans, the extension of
the maturity of existing loans, and a debt-to-equity swap.
156 Korea mentions the Arthur Andersen study, the technology report by Abbie Gregg, and the Monitor
Group's report.

157 According to the EC, paragrap h (a) of Article 14 of the SCM Agreement sets forth a basic rule
concerning benefit in the case of the provision of equity or risk capital, but, unlike paragraphs (b), (c) and (d), it
does not contain a precise method for calculating the benef it. The EC asserts that this absence of any express

guiding principle, as expressed by the Appellate Body in the Canada – Aircraft case is that the
benchmark for determin ing benefit is the financing available on the market, and the extent to which
the recipient is better off than it would have been absent the government contribution. 158 In assessing
the alternative sources of financing available on th e market, the EC considers that this should be
assessed on an ex ante basis at the time of the provision of the financing, not when the risk has passed.
The EC argues that, at a certain point, the risk is such that the market will simply not provide any
further financing, even when there is less than 100 per cent certainty that no money will be recovered.
Any so-called "loans" granted by the government in such circumstances should then not be compared,
as required by paragraph (b) of Article 14, to othe r comparable loans available on the market, as there
are none, but instead can be considered as the provision of risk capital, the full amount of which
constitutes the benefit which may be countervailed. In such a situation, the EC argues that an
investigating authority can establish benefit based on any reasonable method in accordance with the
general guiding principles of Article 14 of the SCM Agreement.
7.158 In response to some of the arguments made by Korea, the EC argues that the authorities are
not obliged to use a market benchmark if the mark et in question is so distorted by government
influence that participation by so-called market ac tors is not a sign of viability of the company but
rather evidence of the success of government efforts to salvage a company which is "too big to fail".
According to the EC, to accept Korea's assertion, would allow the public powers to change the very
benchmark by which commercial activity is to be identified.
7.159 The EC further rejects the Korean argument th at the benchmark chosen should be related to
prevailing market conditions in Korea, as there is no such obligation in the applicable paragraphs (a)
to (c) of Article 14 of the SCM Agreement. Korean reliance on the US – Lumber IV case dealing with
Article 14(d) is irrelevant to the factual situati on at hand, which does not involve the provision of
goods by the government.
7.160 Finally, in response to the Korean argument th at the EC failed to consider the investment
decisions from the perspective of an inside investor seeking to increase its chances of at least partial
recovery of at least part of the money invested, th e EC emphasises that it considered this perspective
and concluded there was little difference in whether the commercial reasonability of the financing was
considered from an inside or outside investor perspe ctive. More importantly, the EC is of the view
that, from the point of view of WTO law, this distin ction is irrelevant as the benchmark relates to the
market in general and not to specific companies al ready in a relationship with the company receiving
a subsidy.
7.161 The EC asserts that the fact that the benefit determination changed from the Preliminary to
the Final Determination in the case of the Syndicat ed Loan, the KEIC Guarantee, and the May 2001
Restructuring Programme is irrelevant. The EC explains that the situation changed between the
Preliminary and Final Determination due to the di scovery of new facts and evidence showing less
than full disclosure from the Korean side and demons trating the intervention of the government in the
market, thereby vitiating the argument that certain market actors were financing Hynix of their own
free will.
7.162 The EC considers that Korea failed to demonstrat e that the EC determination of a benefit in
all five of the programmes found to constitute a fina ncial contribution by the government of Korea to
Hynix was inconsistent with Articles 1.1 and 14 of the SCM Agreement.

obligation when it comes to calculating the amount of benefit in a risk scenario indicates that the amount of
benefit in the provision of equity capital will depend on future risk which is difficult to assess.
158 According to the EC, the more insecure a loan is, the more one moves from the paragraph (b)
situation concerning loans, to a general risk scenario under paragraph (a) for which the SCM Agreement contains
no express obligations when it comes to calculating the amount of benefit.

Syndicated Loan
7.163 The EC argues that the information on the record shows that the EC reasonably took the view
that Hynix had reached the point where, given th e economic environment and the precarious financial
situation of the company, the market would make no further capital availabl e, absent the intervention
of the government. According to the EC, Korea faile d to show that there was any loan available from
a market undistorted by the government's intervention.
159 Therefore, Korea failed to demonstrate that
the method adopted for determining benefit by the EC was inconsistent with the general principle
expressed in Article 14 of the SCM Agreement.
KEIC Guarantee
7.164 The EC argues that the record indicates that the creditor banks were only willing to extend
their loans by USD 600 million due to the KEIC Guarantee which assured payment to the banks in
case Hynix would go bankrupt. This, the EC argues, is evident from the disastrous financial situation
of Hynix at the time, internal bank documents 160, and the fact that some banks had reached their
prudential limits and needed an FSC waiver to ex tend their loans. There is, moreover, evidence on
the record that the KEIC itself only provided the gua rantee due to government intervention, and that it
was in fact the government that was ultimately unde rwriting the guarantee. As Hynix would not have
obtained the credit extension without the guarantee, it was reasonable for the EC to consider the full
amount of the credit as the benefit provided by the KEIC Guarantee.
7.165 The EC considers that it was not obliged to conduct an interest rate comparison as there
would not have been an alternative source of f unding at any interest rate in the absence of
government intervention. The EC thus rejects Ko rea's allegations that, unde r Article 14(c), the EC
should have examined the terms of the loans obtaine d on the basis of the guarantee with the terms of
loans available without the guarantee, as no such loans were available. 161 The EC also considers the
reference by Korea to Item (j) of Annex I of the SCM Agreement to be misplaced, as it does not
concern a long-term guarantee programme but rather an ad hoc guarantee by the government to Hynix
through the KEIC.
KDB Debenture Programme
7.166 With regard to the KDB Debenture Programme , whereby the KDB helped roll-over maturing
bond obligations and repackaged the debt for investors, the EC considers that the record again showed
that Hynix would not have been able to obtain any further financing through the market, and that it
was thus reasonable of the authority to consider the full amount of the financing as the benefit
conferred. The EC argues that, for all of the reas ons discussed above with regard to these loans, the
Syndicated Loan is no evidence of the availability on the market of financing for maturing bonds. 162
Even the government in its questionnaire response i ndicated that only companies rated A+ were able
to obtain financing, while already by the end of 2000 Hynix was heavily indebted and was given a
very poor credit rating.163

159 The EC argues that paragraph (b) of Article 14, by referring to the words "commercial" and
"market", is a clear reference to a market undistorted by government intervention.
160 Chohung Bank Questionnaire Response. (Exhibit EC-15)
161 According to the EC, Article 14(c) also refers to the underlying transaction, and it was thus not
improper for the EC to look at the amount of the loan s otherwise not available as the basis for determining
benefit.
162 If the Syndicated Loan is relevant at all, accord ing to the EC, it is because the amount provided
through the Syndicated Loan was far less than requested and needed by Hynix which again shows the reluctance
of banks to provide financing to Hynix.
163 The EC argues that, should the Panel consider the terms of the KDB Debenture Programme
relevant, the EC asserts that Hynix was admitted to the programme with a BBB rating and that it was

May 2001 Restructuring Programme
7.167 The EC notes that, by May 2001, Hynix was heav ily indebted and its situation could not be
characterized as a temporary cash-crunch. The EC argues that the alleged success of the GDRs
issuance has to be seen in light of the distor ted market due to the long-term commitment of the
government. The GDRs offering memorandum put particular emphasis on the government's support
for Hynix in order to lure international investors into investing in Hynix. 164 The EC asserts that it
considered the inside investor perspective, but th at under any circumstances it would not have been
commercially reasonable to provide further financing to Hynix at that time.165
October 2001 Restructuring Programme
7.168 The EC argues that the benefit determinati on for this Programme was based on two main
grounds: (1) that Hynix would not have been able to obtain the necessary financing on the market;
and (2) that, at the time of the financing, it was obvious that the money would not be recovered,
therefore justifying the EC consideration of this financing Programme as a grant. The EC emphasises
that the record showed that, throughout the summe r 2001, Hynix's financial situation continued to
worsen and, by 5 October 2001, its credit rating was SD (selective default). In addition, Hynix had a
bad history of servicing debts and its stock price had collapsed immediately after the GDRs issuance
on 15 June 2001, and there was clearly no proposal of a new GDRs issuance. The interest rates
charged in the October 2001 Restructuring Programme were nevertheless those applied to financially
sound companies and lower than the rates applied to Hynix in January 2001. The EC argues that the
record showed that Hynix's problems were no su rprise and existed even during the so-called boom
year 2000. According to the EC, the banks ma de their financing decision without any viability
assessment of their own. The two reports relied on, the SSB report and the Monitor Group report,
were not viability assessments and, in the case of the Monitor Group report, consisted of only 10
pages describing certain technical and market related issues in a general way. The EC argues that it
was reasonable of the authority to conclude in these circumstances that the decision of the six
Option 1 banks to participate in the October 2001 R estructuring Programme was not the decision of
commercially reasonable actors. With regard to the Arthur Andersen report which allegedly did
contain a viability study, the EC recalls that only on e page was provided to the investigating authority
which was clearly insufficient to take this report in to consideration, and that this report had in any
case not been available to the Option 1 banks at the time they made their decision.
7.169 With regard to the fixed priority collateral provided by Hynix, the EC argues that the
collateral was considered, but that it was irrelevant as it could never have been sufficient to convince
the Option 1 banks to give money to a SD rated company, and in fact none of the Option 1 banks
mentioned the collateral as the reason for investing. The EC notes that even Hynix did not consider it
important during the investigation. As to Korea' s argument that the bonds could be traded, the EC
emphasises that, by the time the conve rtible bonds could be converted, i.e., 1 June 2002, their value
had plummeted from 3,100 in October 2001 to 708. In any case, it is evident that no reasonable
person would have actually bought shares of a SD rated company in October 2001, whether they
could be traded or not. Finally, the EC points out that for Hynix there was a clear tax advantage in

subsequently downgraded such that, by August 2001, it was disqualified from the programme with a CCC+
rating. Moreover, the EC emphasises that the intere st rate under the KDB Debenture Programme was lower
than those under the Syndicated Loan, and this in spite of the fact that Hynix never serviced its interest
obligations under the Syndicated Loan and that interest arrears were turned into equity in the October 2001
Restructuring Programme.
164 According to the EC, international investors have a less profound insight into the situation of the
company than inside investors which should have known the real situation of Hynix better. Between mid-June
and 20 June 2001, stock prices plummeted and still the banks purchased Hynix bonds.
165 The EC also fails to see how the fact that amount s had to be placed on an escrow account are at all
relevant with regard to the banks' existing debts and that this would clearly not enable them to recover their
money more easily.

having the operation in the form of a debt-to-equity swap rather than a simple write-off of debt. A
simple write-off would put an end to the liabilities but would give rise to an extraordinary – and
taxable – gain.
Additional calculation errors
7.170 The EC also rejects Korea's claim of any errors in the calculation of the benefit. With regard
to the KDB Debenture Programme, the EC refers to the explanation provided in the Final
Determination.
166 The EC emphasises that Hynix never argued at the time of the investigation that the
amount allegedly double-counted was included both in the KDB Debenture Programme and in the
May 2001 Restructuring Programme, and that it never claimed that any interest paid should have been
deducted.
7.171 With regard to the October 2001 Restructuring Programme, the EC argues that there is no
obligation in Article 14 of the SCM Agreement to take into account any in terest paid once it has been
determined that no reasonable investor would have provided the financing. Hynix never claimed such
deduction of interest during the investigation. The interest in question was not paid at the time the
new "loan" was granted in any case, and whether any interest was actually paid is further irrelevant.
7.172 With regard to the amount of KRW 1.825 trillion, this amount was provided by the main
creditor bank of Hynix, the KEB, in Annex 18 of its questionnaire response, and was communicated
to Hynix in a letter of 11 July 2003.
(c) Panel Analysis
7.173 Korea's claims relate to the existence and amount of a benefit conferred by the alleged
financial contribution. We note that Article 1.1 of the SCM Agreement provides that a subsidy can
only be deemed to exist if there is a financial contribution by the government which confers a benefit.
The existence of a financial contribution by the go vernment is thus necessary but not sufficient in
order to conclude that a subsidy has been provided . Only when this financial contribution confers a
benefit will a subsidy be deemed to exist. The SCM Agreement does not provide a definition of what
constitutes a benefit. In our view, the ordinary meaning of the term "benefit" is that of an
"advantage", something which leaves the recipient "better off".167 In light of the fact that the notion of
a "benefit" appears to us to be a relative notion, it becomes important to establish the benchmark for
determining whether the recipient is better off thanks to the financial contribution. Article 14 of the
SCM Agreement entitled "Calculation of the Amount of a Su bsidy in Terms of the Benefit to the
Recipient" provides in our view highly relevant context for interpreting the term "benefit" of
Article 1.1(b) of the SCM Agreement.
7.174 Article 14 of the SCM Agreement reads as follows:
"[f]or the purpose of Part V, any method used by the investigating authority to
calculate the benefit to the recipient conf erred pursuant to paragraph 1 of Article 1
shall be provided for in the national legisl ation or implementing regulations of the
Member concerned and its application to each particular case shall be transparent and
adequately explained. Furthermore, any such method shall be consistent with the
following guidelines:
(a) government provision of equity capital shall not be
considered as conferring a benefit, unless the investment decision
can be regarded as inconsistent with the usual investment practice

166 In particular, the EC refers to paragraph 79 of the Final Determination.
167 The equivalent term used in the French version of the SCM Agreement is tellingly "avantage".

(including for the provision of risk capital) of private investors in
the territory of that Member;
(b) a loan by a government shall not be considered as
conferring a benefit, unless there is a difference between the
amount that the firm receiving the loan pays on the government
loan and the amount the firm would pay on a comparable
commercial loan which the firm could actually obtain on the
market. In this case the benefit shall be the difference between
these two amounts;
(c) a loan guarantee by a government shall not be considered
as conferring a benefit, unless there is a difference between the
amount that the firm receiving the guarantee pays on a loan
guaranteed by the government and the amount that the firm would
pay on a comparable commercial loan absent the government
guarantee. In this case the benefit shall be the difference between
these two amounts adjusted for any differences in fees;
(d) the provision of goods or services or purchase of goods by
a government shall not be considered as conferring a benefit
unless the provision is made for less than adequate remuneration,
or the purchase is made for more than adequate remuneration.
The adequacy of remuneration sha ll be determined in relation to
prevailing market conditions for the good or service in question in
the country of provision or purchase (including price, quality,
availability, marketability, transpor tation and other conditions of
purchase or sale)."
7.175 Article 14 of the SCM Agreement thus refers on each occasion to the market place as the
appropriate benchmark for determining the existence of a benefi t to the recipient of the financial
contribution. In other words, only in cases wher e the financial contribution provides the recipient
with an advantage over and above what it could have obtained on the market will the government's
financial contribution be considered to have conferred a benefit and will a subsidy thus be deemed to
exist. It is clear that the SCM Agreement provides for a number of disciplines on government
behaviour when a public or publicly directed or en trusted financial contribution might have a trade
distorting effect. Without this objective of curtailing trade distortion, it would not make sense to
impose these disciplines in an intern ational trade agreement. In our view, if the public or publicly
directed financial contribution is provided under the same conditions as a private market player would
have provided, then there would be no reason to impose any discipline, simply because the financial
contribution was provided by the government. In sum, if the financial contribution is not provided by
the government (or directed or entrusted by the govern ment), it is of no concern to us. If the financial
contribution is provided (or directed or entruste d) by the government but still does not confer an
advantage over what was available on the market, there is no need to di scipline such government
behaviour which lacks a trade distorting potential.
7.176 We, therefore, agree with this statement of the Appellate Body in the Canada – Aircraft case
concerning the tem benefit in Article 1.1 of the SCM Agreement:
"[w]e also believe that the word "benefit" , as used in Article 1.1(b), implies some
kind of comparison. This must be so, for there can be no "benefit" to the recipient
unless the "financial contribution" makes th e recipient "better off" than it would
otherwise have been, absent that contribu tion. In our view, the marketplace provides
an appropriate basis for comparison in determining whether a "benefit" has been

"conferred", because the trade-distorting potential of a "financial contribution" can be
identified by determining whether the recipient has received a "financial contribution"
on terms more favourable than those available to the recipient in the market."
168
7.177 We note that the parties as well agree on the prin ciple that the market place is the appropriate
basis for comparison. However, Korea is arguing: (1) that the EC failed to use the available market
benchmark in Korea to assess whether a benefit was conferred on Hynix and this without any
justification; and (2) that the EC ignored the real nature of the financial contributions as loans or loan
guarantees and simply treated all alleged financial contributions as grants. The argument of the EC is,
in essence, that the record showed that the financial situation of Hynix was such that no reasonable
private investor would have been willing to provide funds to this company, whether in the form of a
loan, a loan guarantee or an equity infusion, as it was clear that the chances of ever recovering the
money invested were minimal. In sum, the market would not have provided the financing to Hynix.
In such a situation, the funding provided, in whatever form, is equal to the provision of risk capital for
which Article 14(a) of the SCM Agreement does not provide a precise method for calculating benefit.
It simply states that a benefit is conferred if the investment decision can be regarded as inconsistent
with the usual investment practice – including for the provision of risk capital – of private investors in
the territory of that Member. According to the EC , the record showed that this was the case. The
benefit then consisted of the fi nancing which no reasonable investor would have provided to Hynix,
and the alleged subsidy programmes were all, irre spective of their terms and conditions, treated as
grants.
7.178 In our view, there are two distinct questions to be addressed. The first relates to the existence
of a benefit, the second deals with the calculation of the amount of the benefit. In other words, a
finding that the financial contribution was provided on terms more favourable than what the market
place provided for is, in our view, sufficient to find th at a benefit existed. Our view is based on our
interpretation of the term benefit as it appears in Article 1.1 of the SCM Agreement which determines
when a subsidy is deemed to exist, read in the context of the SCM Agreement and Article 14 thereof,
in particular. Whether such a finding allows an au thority to consider the full amount of the financial
contribution as the amount of the benefit and treat it like a grant, is, in our view, a different question
which relates to the calculation of the amount of the benefit, rather than its existence.169
7.179 Both questions are at issue in this case. Whils t the existence of a benefit under Article 1.1(b)
is legally and logically distinct from the calculati on of the amount of the benefit under Article 14, we
will address both of these questions in this section of our Report, and to the extent necessary to
resolve this dispute, primarily because this was the way in which the EC's findings with regard to each
of the alleged subsidy programmes, as well as each of the parties, handled these two issues.
7.180 We consider it best to address these questions in turn, and to the exte nt necessary to resolve
the dispute, in the specific context of the EC's fi ndings with regard to each of the alleged subsidy
programmes. We will first discuss the EC's findings w ith respect to the existence of a benefit in each
of the five programmes.
(i) Existence of a benefit in the sense of Article 1.1(b) of the SCM Agreement
Syndicated Loan
7.181 In its Final Determination, the EC explained that the participation in the Syndicated Loan by
the three banks examined, the KDB, KEB and KFB conferred a benefit of the amount by which the

 168 Appellate Body report, Canada – Aircraft, para. 157.
169 We are of the view, however, that it would not be necessary nor appropriate for us to address these
questions concerning the calculation of the amount of benefit, if we were to conclude that the investigating
authority failed to properly establish the existence of a benefit in the first place.

legal lending limits were exceeded as this is the amount that Hynix was able to receive only due to the
FSC lifting of the lending limits. The EC found that, without the lifting of the limits, these amounts
would not have been granted by the banks in ques tion, and considered that there was no evidence of
an alternative source of similar financing available to Hynix.
170
7.182 In a benefit analysis, the question to be answer ed is whether the financial contribution leaves
the recipient better off than it would otherwise have been, absent that contribution, in case it had to
turn to the market to be provided the financial contri bution in the form of, as in this case, a loan. In
our view, the EC partly mixed the financial contributi on question with that of benefit to the recipient.
The fact that a public body like the KDB was only able to provide the financial contribution due to the
lending limit waiver received from another public body reveals the extent to which the government
was willing to provide a financial contribution to H ynix, but is uninformative as to the question of
benefit to the recipient. We also wish to point out that the question in a subsidy context is whether the
specifically identified financial contribution confers a benefit on the recipient, such that it constitutes
a subsidy. The EC concluded that the financial c ontribution in question was the loan extended by the
KDB, KEB and KFB in December 2000 to Hynix, not the waiver of the lending limit by another
public body, the FSC. The alleged be nefit conferred is thus the benef it conferred by the loan, and not
the alleged benefit conferred by another government action which was not determined to constitute a
financial contribution in the sense of Article 1.1(a) of the SCM Agreement. In other words, the benefit
analysis is not about the KDB and what it had to do in order to be able to take part in the loan, it is
about the recipient of the loan Hynix and whether it obtained the loan from the KDB on more
advantageous terms than would have been available on the market.
7.183 In this respect, we find very relevant the fact that in total ten banks participated in the
Syndicated Loan and extended loans on similar terms to Hynix. Of these banks, the Final
Determination discusses the KDB, KEB and KFB, an d leaves unmentioned the seven others. Among
the remaining seven banks, a certa in number such as, for exampl e, Citibank, the KorAm Bank and
Chohung Bank were not considered to be public bodies by the EC in its investigation. We consider
that it does not suffice for the EC to simply assert th at the seven other banks were not examined and
that it may or may not be the case that these banks were directed to take part in the Syndicated Loan
to ignore them as possible market benchmarks. If a number of parties provide the same type of
financing as the public body, such as in the case of the Syndicated Loan, their participation is an
obvious aspect of a benefit analysis.
171

170 Final Determination, para. 37, reads as follows:
"(37) According to Article 5 of the basic Regulation, the amount of countervailable subsidy
shall be calculated in terms of the benefit confer red to the recipient. The participation of the
three banks in the Syndicated Loan confers a benefit to Hynix to the amount by which the
legal lending limits have been exceeded, since th is is the amount that Hynix was able to
receive only due to the lifting of the limits. Without the lifting of the limits these
amounts would not have been granted to Hynix by the banks in question. There was no
indication that any other source of similar financing was available to Hynix at the time of the
measures. The amounts exceeding the credit limits are therefore considered as subsidies.
Since these subsidies are ad hoc measures granted to only one company, they are specific
pursuant to Article 3 of the basic Regulation and therefore countervailable. It is noted,
however, that the shares of KDB and KEB of th e syndicated loan are already countervailed as
part of the October 2001 measures. Therefore, in order to avoid double counting, these
measures are not countervailed in the context of the January 2001 syndicated loan. As regards
the KFB share of the loan ex ceeding the legal lending limit, the information on the record
indicates that any benefit resulting from the lifting of the loan limits would be negligible.
Therefore, it is not countervailed in this context." (emphasis added)
171 Again, we emphasise that we do not wish to imply that it is necessarily the end-point of such an
analysis, as it will need to be determined whether the behaviour of these market players is so distorted by the

7.184 In our view, this is precisely what Article 14(b) of the SCM Agreement provides for, in so far
as it refers to the existence of a benefit in the contex t of a financial contribution in the form of a loan.
A loan shall not be considered to confer a benef it unless there is a difference between the amount that
the firm receiving the loan pays on the government loan and the amount the firm would pay on a
comparable commercial loan which the firm could actually obtain on the market. This requires an
authority to first examine whethe r such a comparable commercial loan could actually be obtained on
the market by the recipient of the government lo an. The EC ignored the loans provided by seven
other banks without examining whether these loans were commercial or whether their provision was
so influenced by the alleged government interventi on that they did not represent loans that could
actually be obtained on the market.
7.185 We consider relevant the fact that, in its Preliminary Determination, the EC examined the
participation of all ten banks in the Syndicated Loan and found that there actually was no basis "to
conclude that the interest rate of the loan and the maturity periods were not in conformity with market
conditions" and for these reasons, it was c oncluded that "there was no benefit".
172 It appears from the
Final Determination that the only new information th at was discovered related to the alleged pressure
exercised by the government on the KEB to particip ate in the loan and the fact that FSC would
provide a lending limit waiver to enable the KDB, KEB and KFB to participate in the Syndicated
Loan. While this information may have been relevant to the question of financial contribution and the
alleged government direction of the KEB and KFB, we fail to see how it could also invalidate the
market benchmark conclusions the EC had earlier reac hed itself with regard to the other seven banks
involved in the Syndicated Loan.
7.186 We therefore find that the EC failed to establis h the existence of a benefit from the financial
contribution provided by the KDB and KEB as part of the Syndicated Loan in a manner consistent
with Article 1.1(b) of the SCM Agreement.
KEIC Guarantee
7.187 In the Final Determination173, the EC found that the financial contribution by the KEIC in the
form of an export credit guarantee conferred a bene fit on Hynix. The EC concluded that, without the

government's intervention that they can no longer serv e as the benchmark against which to measure the alleged
government distortion.
172 Preliminary Determination, paras. 30-31.
173 Final Determination, paras. 45-46, read as follows:
"(45) Thus the guarantee was given by KEIC due to specific GOK direction in pursuing the
public policy goal of alleviating the difficult financial situation of Hynix for reasons of
industrial development. Ther efore, KEIC, despite being a public body, was specifically
directed by the GOK to carry out a function and follow practices normally vested in the GOK.
Consequently, the guarantee is a financial contribution by government within the meaning of
Articles 2(1)(a)(iv) and (i) of the basic Regulation. This guarantee conferred a benefit to
Hynix, since without the guarantee Hynix wa s not able to receive the D/A extension of
USD 600 million. At the same time, the GOK's assurance that KEIC would be compensated
in case of default showed that the premium paid by Hynix could not cover the risk undertaken
by KEIC to guarantee the D/A extension and, therefore constituted a non-commercial act.
The GOK effectively underwrote the risk of failure of payment by Hynix without asking for
any compensation for it. According to the in formation on the record, the banks would not
have granted the D/A facility without the guarantee. Moreover, there is no information that
Hynix could have obtained comp arable financing from other sources. This coverage of
the guarantee, without any adequate premium being paid, is ther efore considered to
have conferred a benefit to Hynix within th e meaning of Article 2(2) of the basic
Regulation. In view of the provisions of Article 6(c) of the basic Regulation, since no
comparable commercial loan could have been obtained without the guarantee, the coverage of

guarantee, no further financing would have been av ailable for Hynix, and that Hynix never raised
such a possibility of alternative financing absent the guarantee. It thus concluded that there existed no
benchmark for the cost comparison requested by the parties and considered the benefit for Hynix to be
the full amount of the D/A extension of USD 600 million.
7.188 We recall that the standard for determining the existence of a benefit conferred by a financial
contribution is whether this financial contribution has left the recipient better off than he would
otherwise have been, absent the financial contribution by the government. In this case, the question is
thus whether the EC correctly concluded that the KEIC Guarantee gave Hynix an advantage
compared to the situation it would have been in had it been required to go to the market.
7.189 We consider that the question of the existe nce of a benefit in the case of a government
guarantee can be examined from more than one angl e, depending on the circumstances. Based on our
general conclusion that a benefit in the sense of Article 1.1 of the SCM Agreement is determined in
relation to the market place, it appears to us th at one possible approach for examining whether a
benefit existed would be to compare the guarant ee provided by the government with a comparable
guarantee provided by the market. If the government charges less than a market fee for its guarantee
in light of the specific circumstances of the case, ther e would be a benefit to the recipient. We note in
this respect, that none of the parties either before th e investigating authority or before us in the course
of the panel proceedings has argued that a privat e market operator would have provided an export
guarantee similar to the one that was provided by the KEIC so that the fees could be compared. This
implies that, if one opts to examine benefit by looking at the difference between the government
providing a financial contribution, and the market doi ng so, then it would be clear that a benefit was
provided, as no private market operator was even argued to have been willing to provide such a
guarantee. In fact, it appears from the evidence before the investigating authority that even the public
body – the KEIC itself – was hesitant to provide th e guarantee and needed a governmental assurance.
Such a government backing was given by the letter of 10 January 2001 signed by the Minister of
Finance and Economy informing the KEIC, FSS and KEB of the results of the Economic Ministers'
meeting of 9 January 2001 by which the government promised that support would be provided from a
separate source of funding in case the KEIC would found itself confronted with a shortage of reserve
payment capacity as a result of the guarantee.
174
7.190 If, on the other hand, one examines the question of benefit in light of Article 14(c) of the SCM
Agreement concerning loan guarantees, it appears that the examination is to focus on the difference
between the amount paid on a loan guaranteed by the government, compared to the amount that would
have to be paid on a comparable commercial loan , absent the government guarantee. In this case

the D/A extension is effectively a grant. The benefit to Hynix and thereby the amount of
the subsidy is the amount of the D/A extension, USD 600 million.
(46) In its comments on the final disclosure the GOK and Hynix argued that KEIC did not
provide funds to Hynix, only insurance, and that Hynix paid market interest rates to banks for
the D/A financing. Therefore, the benefit conferred on Hynix by the measure should have
been the difference in costs between what Hynix paid for the D/A financing and what it would
have paid without the KEIC guarantee. It is noted that the benefit to Hynix is the whole
amount of the loans which would not have been granted in whole or in part without the KEIC
guarantee which was underwritten by the GOK. There was no indication that an
alternative financing without guarantee was available to Hynix at the time, and Hynix
never raised such a possibility. Therefore there is no benchmark for the cost comparison
requested by the parties. In addition, Hy nix paid no extra premium for the complete
underwriting of the full amount of the loans by the GOK. Under these circumstances, the
benefit for Hynix is considered to be the full amount of the guarantee underwritten by the
GOK." (emphasis added)
174 GOK Document of 10 January 2001 from the Ministry of Finance and Economy to the KEIC, FSS
and KEB. (Exhibit EC–3(e))

there does not seem to have been any evidence on the record, and none has been brought to our
attention, to contradict the EC's conclusion th at, absent the government guarantee, the banks would
not have been willing to agree to the D/A extension by USD 600 million, at all. Korea considers that
the amount of benefit should be examined by compar ing the costs/interest paid for the D/A financing
with the costs/interest that Hynix would have paid without the KEIC Guarant ee. We find reasonable,
however, the conclusion of the EC that:
"[t]here was no indication that an alte rnative financing without guarantee was
available to Hynix at the time, and Hynix ne ver raised such a possibility. Therefore
there is no benchmark for the cost comparison requested by the parties".
175
7.191 In addition, Korea argues that Item (j) of Annex I to the SCM Agreement requires that in a
government export credit guarantee situation, benef it has to be assessed by examining whether the
fees paid by the recipient of the guarantee were adequate to cover long-term operating costs and
losses. We note that Annex I of the SCM Agreement sets forth an illustrative list of export subsidies
and Item (j) of Annex I is thus relevant in determ ining whether a prohibited export subsidy exists, not
whether a benefit exists. Item (j) applies a cost -to-government standard rather than a benefit-to-
recipient standard, and as such, the test set forth in Item (j) is simply irrelevant, in our view, in
determining whether a benefit in terms of Article 1.1 of the SCM Agreement exists.
7.192 In sum, in so far as the existence of a benefit is concerned, we consider that the EC made a
reasonable and reasoned conclusion on the basis of the record before it that the KEIC Guarantee
conferred a benefit on Hynix in a manner consistent with Article 1.1(b) of the SCM Agreement.
7.193 This does not necessarily mean that we agree with the EC's approach when it comes to
calculating the amount of the subsidy under its gr ant methodology. We will discuss the question of
the calculation of the amount of the subsidy an d the EC's grant methodology in a separate section
following our discussion of the EC's findings in so far as the existence of a benefit is concerned in the
remaining programmes.
KDB Debenture Programme
7.194 The Final Determination sets forth the conclusi ons of the EC concerning the existence of a
benefit conferred by the KDB Debenture Programme in the following manner:
"(63) Considering the explanations in rec itals 50 to 62, the KDB programme can be
seen to have conferred a benefit to Hynix also bearing in mind that no
comparable financing was available to it in the market . Hynix was not able to
finance its maturing bonds through bank lo ans, since it had exhausted its possibilities
of receiving loans due to its already high exposure in its creditor banks and its weak
financial situation which did not allow furthe r credit to be granted to it by any other
bank. Refinancing of the bonds in the bond market was not possible due to its
weak credit rating which did not allow the market to accept its maturing bonds ,
as admitted by the GOK in its questionnaire response. For these reasons, the
conclusions on the point of existence of benefit and thereby the existence of a
subsidy, in recital 61 of the provisi onal Regulation are hereby confirmed." 176
(emphasis added)
7.195 We recall that the KDB Debenture Programme was set-up by the government in response to
financial instability in Korea caused by the fact that a large amount of bonds issued by a few
companies (including Hynix) were due to matu re simultaneously. Unde r the programme, maturing

175 Final Determination, para. 46.
176 Id., para. 63.

debt was to be rolled-over and re-packaged for inv estors. Participating companies had to pay 20 per
cent of the due debt, 80 per cent being assumed by the KDB. 177 In other words, the purpose of the
programme was to provide financing for those comp anies for which the market would not be willing
to provide such financing. Indeed, as confirme d by the government during the investigation, the
Korean bond market applied extremely strict cond itions in 2001 and companies with moderate credit
ratings were not able to refinance their bonds in th e market. As explained by the government in its
questionnaire response:
"[c]ompanies with moderate grade ratings, that previously could have issued bonds,
were not able to do so. Since many of the companies were otherwise viable, the KDB
programme sought to provide the liquidity dur ing this period. As a practical matter,
if companies had a credit rating above A-, they could issue bonds through the normal
bond market. If companies had credit ratings of either BBB+, BBB, BBB-, BB+ or
BB and otherwise met the eligibility requirem ents they could participate in the KDB
programme."
178
7.196 The record shows that, by January 2001, Hynix's credit rating was BB+ 179, which implies that
under the government's own admission Hynix would not have been able to issue bonds on the market.
It is therefore clear to us that the KDB purchase of Hynix bonds as part of the KDB Debenture
Programme, provided an advantage to Hynix compared to what it would have been able to obtain on
the market. We find further relevant the fact th at none of the parties at any time presented evidence
that Hynix could have re-financed its bonds in a foreign market, and as the EC noted in its Final
Determination, the speculative rating B given to Hyni x by the international rating agency Standard &
Poor's in January 2001 did not support such a possibility either.
180
7.197 Korea argues that the successful GDRs offering is proof of the viability of Hynix and of the
existence of a market for Hynix bonds. Korea also re fers to the participation of the creditor banks in
the refinancing of the 80 per cent of Hynix bonds purchased by the KDB, and the fact that other
private investors also purchased bonds through th e CBOs/CLOs programme on the same terms as
other participating companies. We note that the sa me arguments were made before the investigating
authority, which in the Final Determination responded to such arguments in the following manner:
"(56) As regards the GDR issuance, it is accepted that Hynix raised money in the
capital market through this instrument in June 2001. However, by that time 80 per
cent of its bonds financed via the KDB pr ogramme had already matured and they had
been taken over by KDB before that da te. The GDR issuance was therefore not
helpful as regards these bonds and another wa y had to be found for their financing,
already as from January 2001. As such, the GDR issuance is not, therefore, an
indication that Hynix would have had access to the capital markets in January 2001.
Furthermore, without the KDB programme Hynix would already have been bankrupt
due to failure to pay these bonds by the time of the GDR issuance. It is also noted
that as explained under recitals 73 to 76 of the provisional Regulation, the Hynix
stock price collapsed almost immediately after the issuance in June 2001 and the
investors who bought Hynix stocks suffere d considerable losses. Therefore its

 177 As we explained earlier, 20 per cent of the 80 pe r cent was taken on by the company's creditor
banks in proportion to their current debt exposure to the company; 70 per cent was re-packaged for sale to
investors as CBOs and/or CLOs, guaranteed by the KCGF; and 10 per cent was retained by the KDB. The
participating company, in this case, Hynix, had to re purchase at least 3 per cent of any CBOs and 5 per cent of
any CLOs.
178 Response of Korea to the EC Questionnaire, p. 37-38. (Exhibit GOK–6)
179 Final Determination, para. 51.
180 Id., para. 52.

possibilities to raise money in such a way we re ruled out, in particular considering
that its total liabilities still reached KRW 7,2 trillion in July 2001.
(57) Indeed, the timing of the measures is an important factor. It needs to be stressed
that the decision of the investors to buy Hynix GDR in June might have been
influenced by the very fact that most of Hynix's maturing liabilities were abolished by
the GOK-inspired KDB programme betw een January and June 2001. The KDB
programme was well known and attracted a great deal of public comment. The Hynix
GDR offering memorandum also refers to the "KRW 2,9 trillion anticipated
continued availability under the KDB Programme to provide refinancing for maturing
bonds in 2001". Consequently, the investors' decision to invest in Hynix in June 2001
might well have been influenced by the belief that the GOK would continue making
sure that Hynix did not fail. This point is referred to also in recital 44 of the
provisional Regulation. Therefore, the information on the record indicates that the
KDB programme might have influenced the d ecisions of the investors to invest in
Hynix in June 2001.
(58) As regards the Hynix argument that its bonds were resold into the CBO/CLO
programme on the same terms as other participating companies' bonds, it is noted that
the terms of the existing CBO/CLO progra mme were very different, and were not
available to Hynix.
(59) The CBO programme was created in or der to increase the bond financing going
to relatively small firms with lower cred it ratings. The programme could not have
been available to Hynix because of its size. In addition, Hynix could not have sold
the same amount of bonds to the progra mme because of the concentration limits,
which only allowed a maximum of 10 per cent of the pool of bonds backing any
CBO/CLO to be from any one company. It is also noted that KDB bought all Hynix
bonds, even those allegedly intended for the CBO programme. Even after the KDB
programme ended, KDB still held Hynix bon ds designated for sale to CBO funds.
KDB also delayed the sale of the bonds into CBO funds and retained control over the
bonds in the KDB programme even after they were placed in CBO funds, and
directed their roll-over into new long-term bonds when Hynix was unable to pay them
upon maturity. The Korea Credit Guarant ee Fund ("KCGF") also increased the
guarantee level on CBOs from 34 per cent to 53 per cent to account for the inclusion
of the KDB programme. Consequently, it cannot be claimed that the normal terms
and conditions of the progra mme were applied to Hynix bonds. Indeed, they were
treated very differently.
(60) The way the KDB programme was carried out is also very different from the
way comparable transactions would have been carried out in the market. According
to the KDB programme, KDB bought all the maturing bonds, converted them to
much lower interest rates than that held by the original bonds, placed 20 per cent of
them to creditor banks and 70 per cent to CBOs/CLOs. Moreover, the conditions
applied differed significantly from those of the CBO/CLO programme, including the
application of increased State guarantees. The bonds were not sold by public offering
but through private placement to existing creditors. This does not correspond to
refinancing of bonds under market terms.
(61) KDB also argued that the KDB programme is not a subsidy since KDB makes its
decisions on funding and fund utilisation on a commercial basis and is engaged in
profit-earning business focused on corporate finance.

(62) As regards the KDB argument that the KDB programme is not a subsidy due to
the nature of the activities of KDB, it is noted that recitals 55 to 59 of the provisional
Regulation set out the reasons why the financing provided by KDB constitutes a
financial contribution by a Government within the meaning of Article 2(1)(a)(i) of the
basic Regulation. Since KDB has not provided any new evidence in its comments
that would alter the assessment made in the provisional Regulation, the conclusions
set out in recitals 55 to 59 of the prov isional Regulation are hereby confirmed."
181
(footnotes omitted)
7.198 We consider reasonable the explanations provide d by the EC on the basis of the facts on the
record. In particular, we wish to underline that we consider that the specific circumstances of the
GDRs offering, which was concluded on 15 June 2001 (and thus well after the intervention of the
KDB), and which may have been profoundly influe nced by the intervention of the government
through the KDB, render the GDRs offering unsuited as evidence of a market that would be equally
willing to invest in Hynix as the government was at the time the KDB purchased the bonds.
7.199 In our view, the EC has drawn a reasonable and reasoned conclusion, based on the facts
before it, that the KDB purchase of Hynix bonds under the KDB Debenture Programme conferred a
benefit to Hynix. In other words, we find that Ko rea failed to demonstrate that the EC established the
existence of a benefit conferred to Hynix by the KDB Debenture Programme in a manner
inconsistent with Article 1.1(b) of the SCM Agreement, and therefore we reject Korea's claim in this
respect.
7.200 Our ruling does not necessarily imply that we agree with the EC calculation of the amount of
the benefit under its grant methodology, a question that will be discussed later in our Report.
May 2001 Restructuring Programme
7.201 We recall that, in the earlier section of our Re port concerning the existence of a financial
contribution, we concluded that the EC failed to est ablish that the private bodies which participated in
the May 2001 restructuring through a bond purchase of KRW 1 trillion were directed to do so by the
government. In the absence of a proper determination of the existence of a financial contribution, the
principle of judicial economy suggests that it is not necessary for us to discuss the question of benefit
conferred by the private creditor bank's behaviour.
7.202 However, for purposes of implementation and in case of an appeal which would overturn our
financial contribution determ ination, and thus assuming, arguendo, that the EC properly determined
that all banks that took part in the May 2001 Restructuring Programme were directed by the
government to do so, we will now examine whether th e EC was justified on the basis of the record
evidence to consider that a benefit was conferred by the purchase of the CBs by the creditor banks in
May 2001.
7.203 With regard to the existence of a benefit it see ms that, in this case, the basis for concluding
that the creditor banks were directed to partic ipate in the May 2001 Restructuring Programme was
precisely the fact that no reasonable market i nvestor would have purchased Hynix's CBs in May-
June 2001. If this conclusion is assumed, arguendo, to have been reasonable, it seems difficult to
conclude otherwise when it comes to the question of benefit.
182 In sum, and assuming, arguendo, that

181 Final Determination, paras. 56-62.
182 We wish to point out nevertheless that we do not consider that, in each case of government direction
or entrustment of a private body, a benefit will necessarily be conferred on the recipient. In case the government
provides a loan, and thus a financial contribution, it may well do this on market terms and thus without
conferring a benefit. Similarly, ev en in a case where a private body has be en directed by the government to
provide a financial contribution, it may still be the case, albeit a less likely one, that this private body provides
the financial contribution on market terms, and thus without conferring a benefit.

the existence of a financial contribution by the purchase of CBs in May 2001 was properly
established, we find that the EC's conclusion that a benefit was thereby conferred was consistent with
Article 1.1(b) of the SCM Agreement. Our ruling does not necessarily imply that we agree with the EC
calculation of the amount of the benefit under its gr ant methodology, a question that will be discussed
later in our Report

October 2001 Restructuring Programme
7.204 The investigating authority concluded that the financial contribution provided by the six
Option 1 banks participating in the October 2001 R estructuring Programme conferred a benefit on
Hynix as the company was rated "selective default" at the time and therefore no financing was
available to it on the commercial markets. 183 We will therefore examine whether the EC conclusion
concerning the existence of a benefit was justified by the facts on the record.
7.205 We first recall that, with regard to the existence of a benefit, it seems that in this case the basis
for concluding that the creditor banks were direct ed to participate in the October 2001 Restructuring
Programme was precisely the fact that no reasonable market investor would have purchased Hynix
CBs in May-June 2001, and that, therefore, the only logical explanation for the participation by the
six Option 1 banks was that they had been directed by the government, among other means of
persuasion by using its shareholder power. In our view, this conclusion was reasonable, and thus it
seems difficult to conclude otherwise wh en it comes to the question of benefit.
184 In sum, given the
reasons why we considered the existence of a financial contribution by the October 2001
Restructuring Programme to have been properly estab lished, we find that the EC's conclusion that a
benefit was thereby conferred in a manner was consistent with Article 1.1 of the SCM Agreement.
7.206 In this respect, it may be worth recalling so me of the evidence on record concerning the
existing possibilities, or lack thereof, for Hynix to find comparable financing on the market. It seems
uncontested that, by October 2001, the financial s ituation of Hynix was disastrous. Throughout the
summer 2001, Hynix' s financial situation had wor sened and by 5 October 2001 its credit rating was
selective default. In addition, Hynix had a bad hi story of servicing its earlier debts. Moreover, its
stock prices had collapsed immediately after the GDRs issuance on 15 June 2001, and there was no
proposal for a new GDRs issuance. The record indicates that, between June and September 2001, the
stock price had fallen by 72 per cent. When the CFIC decided on the second restructuring package on
31 October 2001, the creditor banks were given thr ee options. The large majority of the creditor
banks chose Options 2 and 3, and refused to exte nd further loans to Hynix as did the six Option 1
banks. The eight Option 2 banks swapped 28 per cent of their debt to equity, and waived the rest,
while the Option 3 banks simply received the liquidation value of their loans. By contrast, the six
Option 1 banks that participated fully in the October 2001 Restructuring Programme granted new
loans, extended maturities and agreed to a debt-t o-equity swap. Of these six Option 1 banks, five
banks are either public bodies (the KDB), totally (Woori bank) or in large part government owned
(Chohung Bank (80 per cent) and the KEB (43 per cent) or have, at least, in part a public policy
objective (the NACF, in which the government also took an important equity share in 2001).
185 In our

183 Preliminary Determination, paras. 100-102.
184 In this respect, we refer to our considerations set forth in footnote 182.
185 We wish to note that, while we found such government ownership not to be sufficient in and of
itself to conclude that the government had actually used its shareholding power to direct these banks to provide
the financing, we do believe that it casts serious doubts over their use as a market benchmark. This is all the
more so given the prima facie non-commercial behaviour of these banks at the time of the October 2001
Restructuring Programme. We note that, in our view, even if we ha d not accepted as reasonable the EC
conclusion that all private banks were directed by the government to participate in the October 2001
Restructuring Programme, we do not consider that these banks could necessarily have been valid benchmarks
for the benefit analysis. While it is certainly true that Citibank, and its subsidiary SSB, are not government-
owned at all, we consider that the EC sufficiently demonstrated that the close relationship with the government
and the specific role as financial advisor to Hynix throughout the restructuring make Citibank particularly inapt

view, the EC determination that the six Option 1 banks were directed to provide a financial
contribution to Hynix was reasonable. In add ition, by comparison with the choices made by the
Option 2 and 3 banks, the participation by the Op tion 1 banks could reasona bly be found to have
conferred a benefit on Hynix.
7.207 In addition, we consider that the EC conclusi on is supported by the low interest rates of the
new loans and the maturity extensions. The new loan for Hynix – a company which we recall was
rated selective default – was set at 7 per cent while the Syndicated Loan in January 2001, when Hynix
was still rated BBB+, was 13 per cent. The maturity extension of October 2001 led to a decrease of
the interest rate by 6 per cent, although the whol e reason for the extension was precisely the inability
to pay off the debt. As the EC correctly pointed out, one would reasonably expect a commercial bank
to have increased the interest rate to reflect the in creased risk of loosing the money invested. The fact
that the opposite occurred is highly remarkable. All this is uncontested. It is similarly uncontested
that the participating banks themselves were raising their loan loss provisions. The record shows that
Chohung Bank immediately raised its loss reserves af ter participating in the measures to cover 80 per
cent of the Hynix debt and accounted the whole de bt-to-equity conversion as a loss. Woori Bank
referred to public interest considerations as a reason for participating.
7.208 The only real argument of Korea in support of the commercial reasonableness of the Option 1
banks' participation in the October 2001 Restructuri ng Programme is that the banks invested in Hynix
because they believed the going concern value of H ynix was greater than its liquidation value. For
that reason, their decision to provide further financing made commercial sense from an inside investor
perspective. As the EC points out, the banks do not seem to have based this conclusion on
independent assessment studies, as could be expected given the situation of Hynix. The reports
referred to – the SSB report, the Monitor Group Au gust and November reports, or the Abbie Gregg
report – were not viability assessments on which a decision to further invest in Hynix might
reasonably be considered to have been based. As the EC stated, the Monitor Group report, for
example, consisted of only 10 pages describing certain technical and market related issues in a general
way. Only the Arthur Andersen report was a vi ability study which actually examined the liquidation
value of Hynix. It did this, it seems, mainly fo r the purpose of the Option 3 banks which would have
their loans purchased back at the liquidation value, as established by Arthur Andersen. However, as
we discuss elsewhere in our Report, this Arthur Andersen report was effectively withheld from the
investigating authority for reasons of confiden tiality. In our view, it was reasonable for the
investigating authority to refuse to take this report into consideration as only one page of a more than
200 page long document had been provided. Moreove r, it appears that this Arthur Andersen report
was only finalized in December 2001 and, like the Monitor Group report of November 2001 cannot
have been the basis for the decision of the banks in October 2001. In sum, it appears from the record
that the reports allegedly supporting the insider inv estor argument were either not provided to the
authorities, or were not informative of the decision-making process by the Option 1 banks.
7.209 For all of the above reasons, we consider reasona ble the conclusion of the EC that none of the
six Option 1 banks involved in the October 2001 Restructuring Programme acted in a commercially
reasonable manner. Neither at the time of the inve stigation, nor before us, has it been argued that
Hynix could have obtained similar funding in Oct ober 2001 from another source. As the EC points
out in the Final Determination:
"(110) (...) The largest creditor of Hynix at the time of the measures was KDB, which
held 44 per cent of the total of Hynix loans in December 2001.

to serve as an appropriate market benchmark for assessing whether the government's financial contribution was
in line with normal market conditions, or whether it, on the contrary, conferred a benefit to Hynix. This is
especially so given the very small participation in Hynix by Citibank whose share of the total Hynix loans in
October 2001 was 1.3 per cent. (Preliminary Determination, para. 93)

(111) Prior to 1998, Hynix had received loans from French and Japanese banks,
including the Bank of Tokyo, Société Géné rale and Credit Lyonnaise. Since then,
however, none of these banks has participated in the restructuring of Hynix. The
outstanding loans from foreign banks, including those from Citibank Seoul,
accounted for only 5 per cent of the total Hynix loans in 2000 to 2001. It is noted that
the assessment of the role of Citibank is explained in recitals 130 to 133.
(112) The lack of participation of foreign banks suggests that further investment in
Hynix was not considered to be rational and economically justified. It is noted that
the outstanding amount of KRW 37,5 billion of the Syndicated Loan from foreign
borrowers granted in 1996 and led by Soci été Générale was declared for default and
cross default in 2001." (footnotes omitted)
7.210 The facts and figures used in these paragraphs of the Final Determination were not contested.
For all the above reasons, we find that the EC dete rmination concerning the existence of a benefit was
consistent with Article 1.1(b) of the SCM Agreement.
(ii) Calculation of the amount of the benefit – The EC's grant methodology
7.211 We recall that, in essence, the investigating aut hority found that the r ecord showed that the
financial situation of Hynix was such that no reaso nable private investor would have been willing to
provide funds to this company, whether in the form of a loan, a loan guarantee or an equity infusion,
as it was clear that the chances of ever recovering the money invested were minimal. In sum, the EC
considered that the market would not have provided th e financing to Hynix. In such a situation, the
funding provided, in whatever form, is equal to th e provision of risk capital for which Article 14(a) of
the SCM Agreement does not provide a precise method for calcula ting benefit. It simply states that a
benefit is conferred if the investment decision can be regarded as incons istent with the usual
investment practice – including for the provision of ri sk capital – of private investors in the territory
of that Member. According to the EC, the record showed that this was the case. The benefit then
consisted of the financing which no reasonable i nvestor would have provided to Hynix, and the
alleged subsidy programmes were all, irrespective of their terms and conditions, treated as grants.
7.212 In our view, there is a basic problem with the EC's grant methodology, and that is, simply put
that a loan, a loan guarantee, a debt-to-equity swap that requires the recipient to repay the money or to
surrender an ownership share in the company is not the same as a grant and can not reasonably be
considered to have conferred the same benefit as the provision of f unds without any such obligation.
For the recipient, a loan clearly h as a different value than a grant as it involves a debt that is owed to
someone and will appear as such in a company's bala nce sheet. It is thus obviously less beneficial for
a company to be given a loan than it is to be give n a grant. Similarly, the issuance of new equity,
directly or through a debt-to-equity swap dilutes th e ownership claims of existing shareholders. We
note that, in a benefit analysis, it is the perspective of the recipient that is important, not that of the
provider of the financial contribution. In that sen se, we find erroneous the starting point of the EC's
calculation of the amount of benefit, which focuses on the expectation of the provider of the funds to
see his money back. The question of benefit is not about the cost to the provider of the financial
contribution, it is about the benefit to the recipient.
7.213 We realize that it may be difficult to directly apply Article 14 of the SCM Agreement which
contains guidelines for the calculation of the subsidy in terms of the amount of the benefit. In the
absence of a comparable commercial loan, it may well be difficult to apply for example Article 14(b)
dealing with loans and referring the investigating authority to a comparable commercial loan that
could actually be obtained on the market. Article 14(c) refers to a comparable commercial loan,
which may well be difficult to fi nd. In light of these problems dealing with the prescribed
methodology for calculating benefit in Article 14 of the SCM Agreement , we consider that an
investigating authority is entitled to considerable leeway in adopting a reasonable methodology. As

we stated earlier, we do not consider that the EC's grant methodology passes this basic reasonableness
test. Any methodology used must, in our view, reflect the fact that the situation of Hynix is less
favourable in case it has to repay the money pr ovided, or dilute the ownership of existing
shareholders, compared to the situation that it c ould keep the money provided in the form of a
grant.186
7.214 In light of our findings in this respect, we see no need to address Korea's alternative claims of
errors – such as the alleged double-counting as discussed in paras. 7.155-7.156, supra – made by the
EC in calculating the amount of the subsidy.
7.215 In sum, and for the above reasons, we find that the EC's calculation of the amount of benefit
conferred by each of the financial contributions w as inconsistent with Articles 1.1(b) and 14 of the
SCM Agreement.
3. Claim regarding the EC's determinations on specificity
(a) Korea
7.216 Korea asserts that the EC made a determination of de facto specificity of the alleged subsidies
under the KDB Debenture Programme based on (1) the limited number of users of the subsidies and
(2) the predominant use of the subsidy progra mmes by Hynix, without providing any positive
evidence to substantiate such conclusions.
7.217 Korea argues that the KDB Debenture Programme was not a free ticket and the circumstances
of each enrolment depended upon the very specific c onsiderations of the company and its creditors
who could file the application for enrolment of the company. The more relevant question, and one the
EC does not provide any insight on, is whether firm s that fulfilled the eligibility criteria and sought
participation were prevented from doing so. The EC 's conclusion that the programme was specific
because of the limited number of users is thus pur ely speculative. Moreover, Korea asserts, the fact
that Hynix used up almost 41 per cent of the funds does not necessarily mean that it was the
predominant user of the alleged subsidies, as such data needs to be considered in light of the
importance of the DRAM sector in Korea. 187 Finally, Korea argues that the EC failed to take account
of the extent of diversification of the Korean economy and the length of time the programme had been
in operation as explicitly required by Article 2.1(c) of the SCM Agreement.
7.218 In any case, Korea submits, 70 per cent of the KDB bonds were repackaged in the May 2001
CBOs/CLOs programme, and, as this programme w as not specific, such bonds should have been
excluded. Korea argues that the EC's allegation that the bonds were sold via the CBOs under different
conditions is simply incorrect and unsupported by evidence.188
7.219 With regard to the May and October 2001 Restructuring Programmes , Korea argues that the
EC's specificity analysis is not clearly substantia ted or based on positive evidence and failed to take
into account the overall context in which these restru cturing efforts took place. According to Korea,
all the transactions were executed under the broader fr amework intended to bring creditors together to

186 In our view, the EC must base its calculation of benefit on alternative benchmarks, in Korea or
elsewhere, and such an alternative methodology could, fo r example, include the investment practices related to
"junk bonds" and "vulture funds".
187 Korea asserts that the six companies involved in the KDB Debenture Programme were different in
size, different in industry, and different in terms of their financial circumstances, and that these differences
constitute the qualitative distinctions by which any quantitative measure of specificity must be tempered.
188 According to Korea, the 10 per cent concentration limit did apply to bonds sold by Hynix via the
CBOs/CLOs programme, there was no delay in the sale of the bonds by the KDB, an d there is no evidence that
the guarantee level associated with the CBOs/CLOs programme was increased due to the inclusion of Hynix in
the KDB Debenture Programme.

work out debt of troubled but viable companies, in a manner recommended by the IMF and based on
the so-called "London approach". To find specificity in this context, Korea submits, is like saying
that a country's bankruptcy laws are company specific.
7.220 In sum, Korea submits that the EC violated Articles 1.2 and 2 of the SCM Agreement because
the EC made an erroneous finding of de facto specificity with respect to the KDB Debenture
Programme and failed to clearly substantiate, on the basis of positive evid ence, the existence of
specificity with respect to the May and October 2001 Restructuring Programmes.
189
(b) EC
7.221 With regard to the KDB Debenture Programme , the EC argues that there was ample reason to
believe that it was in fact specific, as only six co mpanies made use of the Programme and, of these
few, Hynix was the dominant user. The EC asserts that the authority considered all the factors
mentioned in Article 2.1 of the SCM Agreement and took into account the exte nt of diversification of
the Korean economy and the length of time the Progra mme had been in operation. The EC considers
that the specificity of the measures is to be examined by looking at the scope of the measures vis-à-vis
the beneficiaries. In addition, the EC argues that the number of eligible companies is not relevant,
what matters is the limited actual use by the companies of the Programme.
7.222 With regard to the May and October 2001 Restructuring Programmes , the EC emphasises that
Korea admits that the transactions were unique, an d that it is therefore disingenuous to argue that
these Programmes are equivalent to the normal application of generally applicable bankruptcy laws.
(c) Panel Analysis
7.223 The EC concluded that the KDB Debenture Programme constituted a de facto specific
subsidy to Hynix based on the limited use of the programme by a small number of companies – six
out of a potential of more than 200 eligible comp anies – and the disproportionate use of the funds
under the programme by Hynix – which used up to 41 per cent of the total funds under this
programme. In the Final Determination, the EC found as follows:
"(65) As explained under recitals 62 to 64 of the provisional Regulation, it was
concluded that, whilst the KDB programme was not specific in law under
Article 3(2)(a) of the basic Regulation, it was nevertheless de facto specific under
Article 3(2)(c) of the basic Regulation, si nce three of the four criteria of that
provision were fulfilled: the use of the programme by a limited number of companies,
predominant use by certain companies and the granting of disproportionately large
amounts of subsidy to certain companies. Since specificity in law was not claimed,
further analysis of the terms and conditi ons of the programme is not relevant.
However, the number of firms potentially eligible under such criteria is relevant.
Regarding de facto specificity, it is concl uded that the programme was only used by
six companies, four of which belonged to Hyundai Group, and that Hynix used 41 per
cent of the funds of the programme. It is noted that the information on the record
indicates that more than 200 companies in Korea would have fulfilled the selection
criteria of the programme. Against th e background of this group of potential
recipients, the large proportion of Hyundai Group of companies in the participants
and the predominant use by Hynix of the total funding of the programme clearly
fulfils the specificity criteria under Article 3(2)(c) of the basic Regulation."

189 Korea also submits that the EC acted inco nsistently with Articles 1.2 and 2 because, inter alia, the
EC disregarded the fact that many Korean companies underwent debt restructuring similar to that undergone by
Hynix, and, therefore, the EC did not establish that all of the alleged subsidies were specific on the basis of
positive evidence. (Korea First Written Submission, para. 676).

7.224 We understand Korea's argument with regard to the KDB Debentur e Programme to be that it
does not suffice in order to find specific ity in the sense of Article 2 of the SCM Agreement to simply
note that the programmes were only used by a lim ited number of companies if, for example, the
eligibility criteria are broad enough and the restrict ed use of the programme depends on the extent of
the commitments companies are willing to make rather than on any government behaviour.
7.225 Article 1.2 of the SCM Agreement provides that a subsidy is only countervailable if "such a
subsidy is specific in accordance with the provisions of Article 2". Article 2 of the SCM Agreement
provides, in relevant part, as follows:
2.1 In order to determine whether a s ubsidy, as defined in paragraph 1 of
Article 1, is specific to an enterprise or industry or group of enterprises or industries
(referred to in this Agreement as "certain en terprises") within the jurisdiction of the
granting authority, the following principles shall apply:
(a) Where the granting authority, or the legislation pursuant to
which the granting authority opera tes, explicitly limits access to a
subsidy to certain enterprises, such subsidy shall be specific.
(b) Where the granting authority, or the legislation pursuant to
which the granting authority operates, establishes objective criteria or
conditions2 governing the eligibility for, and the amount of, a
subsidy, specificity shall not exist, provided that the eligibility is
automatic and that such criteria and conditions are strictly adhered to.
The criteria or conditions must be clearly spelled out in law,
regulation, or other official document, so as to be capable of
verification

(c) If, notwithstanding any appearance of non-specificity
resulting from the application of the principles laid down in
subparagraphs (a) and (b), there are reasons to believe that the
subsidy may in fact be specific, other factors may be considered.
Such factors are: use of a subsidy programme by a limited number of
certain enterprises, predominant use by certain enterprises, the
granting of disproportionately large amounts of subsidy to certain
enterprises, and the manner in which discretion has been exercised by
the granting authority in the decision to grant a subsidy.
3 In applying
this subparagraph, account sha ll be taken of the extent of
diversification of economic activiti es within the jurisdiction of the
granting authority, as well as of the length of time during which the
subsidy programme has been in operation.

2.4 Any determination of specificity under the provisions of this Article shall be
clearly substantiated on the basis of positive evidence.
2 Objective criteria or conditions, as used herein, mean criteria or conditions which are neutral,
which do not favour certain enterprises over others, and which are economic in nature and
horizontal in application, such as number of employees or size of enterprise.

3 In this regard, in particular, information on the frequency with which applications for a
subsidy are refused or approved and the reason s for such decisions shall be considered.
(emphasis added)
7.226 We are of the view that an authority when it has reasons to believe that the subsidy is de facto
specific in the sense of Article 2.1(c) of the SCM Agreement may consider such other factors as the
use of a subsidy programme by a limited number of certain enterprises, predominant use by certain
enterprises, the granting of disproportionately large amounts of subsidy to certain enterprises, and the
manner in which discretion has been exercised by the granting authority in the decision to grant a
subsidy. The EC determined that (1) the subsid y programme was used by a very limited number of
companies, as only six out of an eligible two hundr ed companies used the programme; (2) that it was
predominantly used by the Hyundai group companies among which Hynix 190; and (3) that a
disproportionate 41 per cent of the total subsidy amount of KRW 2.9 trillion was granted to Hynix.
These figures are uncontested and clearly constitute "positive evidence". 191 In addition, the EC
pointed out that, after the participants to the programmes had been announced, there was a lot of
criticism within Korea from companies in similarly di fficult situations complaining about the lack of
transparency and the eligibility criteria. These cr iticisms indicate that the EC also considered the
manner in which discretion was exercised in admitting companies to the KDB Debenture
Programme.192
7.227 In sum, the EC's conclusion is based on the disproportionate use of the Programme's funds for
Hynix, which led it to the reasonable conclusion that the KDB Debenture Programme, as applied,
constituted a de facto specific subsidy to Hynix.
7.228 We do not consider that the fact that the bonds, once purchased by the KDB, were
subsequently sold via the CBOs/CLOs programme h as any bearing on the specificity analysis. The
subsidy that is countervailed consis ts of the financial contribution through the purchase of a bond and
thus the granting of a loan by the KDB – a public body – to Hynix. The fact that the KDB later resells
the bonds via the CBOs/CLOs programmes, together w ith bonds of other participating companies, is
not relevant in this respect.
7.229 As to Korea's argument that the EC failed to take account of the econom ic diversification of
the Korean economy and the length of time the progra mme has been in place, we consider that Korea
has failed to provide any supporting evidence to this effect. In our view, the record does not indicate
that the parties ever raised the i ssue that the disproportionate use of the Programme's funds for Hynix
was somehow to be explained by the lack of dive rsification of the Korean economy or the length of
time the programme had been in operation. We th erefore do not find it unreasonable that the EC did
not include in the Final Determination any explicit statement regarding these matters.
7.230 In our view, having considered all four factors mentioned in Article 2.1 of the SCM
Agreement for de facto specificity, and having reasonably conclu ded that under all four factors the
KDB Debenture Programme was de facto specific for Hynix, we consider that the EC determination
of specificity with regard to the KDB Debentur e Programme was consistent with Article 1.2 and
Article 2.1 of the SCM Agreement.
7.231 With respect to the May and October 2001 Restructuring Programmes , we fail to see the
relevance of Korea's arguments, as the EC determin ation did not relate to the CRA or the CRPA as
such, but rather to the specific restructuring operations undertaken under this general framework. The

190 79 per cent of the total expenditure under the programme went to Hyundai group companies.
(Preliminary Determination, para. 64)

191 We agree with the Appellate Body's view concerning the term "positive evidence", as set forth in its
report in the US – Hot-Rolled Steel case. (See para. 7.272, infra)
192 Final Determination, para. 69.

EC never made any findings with respect to the CRA or the CRPA as such, but its determination
related to the unique bail-out operation for Hynix. These restructuring operations were not simply the
application of a generally available support pr ogramme. Rather, the CRA and the CRPA provide
merely a procedural framework for restructuring and do not th emselves involve any financial
contributions. What is relevant is that th e EC found that, under the May and October 2001
Restructuring Programmes, and taking into acc ount our earlier findings concerning financial
contribution and benefit, a specific restructuring exercise was undertaken for Hynix. Hynix received
financial contributions whic h were specifically given to Hynix as the banks granted new loans or
rolled-over debt and swapped debt-to-equity of Hynix. In our view, and given the arguments made by
Korea, the EC determinations of specificity with regard to the specific contributions to Hynix in the
May and October 2001 Restructuring Programmes are consistent with the Articles 1.2 and 2 of the
SCM Agreement.193
7.232 We therefore find that the EC did not act in a manner inconsistent with Articles 1.2 and 2 of
the SCM Agreement and reject Korea's claims with respect to specificity.
4. Claim regarding Articles 19.4 of the SCM Agreement and VI:3 of the GATT 1994
(a) Korea
7.233 Korea submits that the EC violated Article 19.4 of the SCM Agreement and Article VI:3 of
the GATT 1994 because of the EC's failure to measure the benefit in accordance with the principles of
Article 14 of the SCM Agreement , and its failure to utilize Hynix 's consolidated turnover in the
denominator of its margin calculation. Accordi ng to Korea, the EC confuses the scope of the
investigation with the question which product and which companies benefit from the alleged
subsidies, which is the relevant question for the calculation of the subsidy amount. As the alleged
subsidies were not specifically given to the production of DRAMs, Korea argues that the denominator
to be used should not only be the unconsolidated sales of Hynix, the DRAMs producing mother
company, but also include all of its consolidated subsidiaries, as they all benefited from the alleged
subsidies. This failure inevitably led to a duty be ing imposed in excess of the subsidy found to exist,
in violation of Article 19.4 of the SCM Agreement.
(b) EC
7.234 The EC argues that, as the countervail proceedings covered imports of DRAMs from Korea,
the relevant denominator consisted of the sales of the Korean DRAMs producer found to have
received subsidies. The EC explains that the i nvestigating authority allocated such subsidies over
time and distinguished between the export subsidi es which were allocated over Hynix's exports and
the untied subsidies which were allocated over Hynix total sales. According to the EC, all of Hynix
subsidiaries are separate legal entities with separate accounting. There is no reason to assume that
such subsidiaries benefited from the programmes. The EC asserts that, while the results of the
subsidiaries affect the parent company, the opposite is clearly not necessarily the case. The EC argues
that the clear assumption in the SCM Agreement is that the recipient of the subsidy, in this case Hynix,
is also the legal person benefiting from the subsidy. As the scope of the investigation was limited to
DRAMs from Korea, the EC concludes that it was only normal not to include the sales of non
examined subsidiaries.

193 We note that our ruling deals with the arguments made by Korea in respect of "specificity" and has
to be read in light of our earlier findings with regard to the financial contribution and benefit determinations
made by the EC with respect to these programmes.

(c) Panel Analysis
7.235 In light of our earlier findings concerning the flaws in the determination of the existence and
amount of a subsidy, we consider that it would be neither necessary nor appropriate for us to make
any findings on the claims concerning the calculation of a subsidy we find was not properly
established by the EC. We, therefore, do not make any ruling in respect of this claim.
5. Claim regarding the EC's application of "facts available"
(a) Korea
7.236 Korea argues that on four occasions the EC resort ed to the use of facts available in a manner
inconsistent with Article 12.7 of the SCM Agreement. Korea submits that the EC ignored relevant
information duly submitted and drew adverse inferences from an alleged failure to cooperate in a
manner which can only be considered as punitive. In particular, Korea rejects the EC's use of facts
available in two cases of alleged failure to cooperat e by Korea with regard to the Economic Ministers'
meetings (of 28 November 2000 and 9 January 2001) and the attendan ce of an FSS official at the
creditors meeting of 10 March 2001. In addition, Korea argues that the EC acted in a manner which is
inconsistent with Article 12.7 of the SCM Agreement in the case of Hynix's alleged refusal to allow
Citibank to cooperate and in respect of Hynix's alle ged failure to provide th e Arthur Andersen report
which formed the basis for the banks to participate in the October 2001 Restructuring Programme.
7.237 With regard to the Korea's failure to provide information concerning the Economic Ministers'
meetings and the attendance of the FSS official, Ko rea explains that this was simply due to a
misunderstanding which was a consequence of the very general and vague nature of the EC's
questions during the investigation. Korea submits that it replied to all the questions to the best of its
abilities, explaining that it had not been invol ved in negotiating or coordinating the Hynix
restructuring process. In addition, Korea asserts that , when notified of the EC's specific inquiry about
the Economic Ministers' meetings and related documents, Korea pr omptly submitted its comments in
its 30 May 2003 submission explaining, in detail, the nature of the meetings, the situation surrounding
the meetings held in late 2000 and early 2001, an d the reasons why releva nt information was not
included in the questionnaire response or examined during verification. Korea asserts that if the
information and explanation promptly provided by Korea was deemed to have been somehow
unsatisfactory or deficient, the EC should have requested Korea to provide further information and
explanation. In the view of Korea, this is exactly the two-way communication the WTO
jurisprudence requires. Korea thus takes issue with the EC using the misunderstanding over the
information with respect to the Economic Ministers' meetings and the attendance by an official of the
FSS of a creditors' meeting as an excuse to ignore th e information submitted. In the view of Korea,
this form of punishment has absolutely no basis in the SCM Agreement. In sum, Korea argues that the
EC's resort to the use of facts available under Article 12.7 of the SCM Agreement was unjustified and
its application disproportionate to the alleged non-cooperation.
194
7.238 With respect to the two cases of alleged failure to cooperate by Hynix, Korea submits that the
EC refused to use information that was provided wi thin a reasonable period of time, thereby acting in
a manner which is inconsistent with Article 12.7 of the SCM Agreement . First, with regard to the
Arthur Andersen report, Korea takes issue with th e EC's contention that Hynix refused to provide a
copy of the report prepared by this consulting fi rm, which was highly relevant to the question of
alleged direction by Korea, as it demonstrated the commercial reasonableness of the investment

194 In this respect, Korea argues that Article 12.7 of the SCM Agreement differs from its counterpart in
the AD Agreement , as it relates to interested Members as well as interested private parties. In addition, the
absence of an Annex II to the AD Agreement in the SCM Agreement, according to Korea, supports its view that
investigating authorities should be more careful when applying the facts available vis-à-vis interested Members'
governments.

decisions of the creditor banks. Korea asserts that initially Hynix had submitted a copy of the report
but that, at a later stage, it asked the EC to remove it from the file, for reasons of confidentiality due to
the contractual relationship between Hynix and the consultant firm that authored the report.
However, Korea asserts that Hynix invited the EC to consult the report in the course of the
verification visit. Moreover, at a later stage in the investigation, and responding to a question from
the EC, Hynix enclosed a translation of the relevant page of the report establishing the liquidation and
going concern value of Hynix. Korea states that Hynix made a number of references to the report at
different stages of the investigation. Korea is of th e view that the EC was not justified in completely
disregarding the report and its conclusions. More over, the EC applied facts available and drew
adverse inferences from the alleged failure to provide the report in a manner which was
disproportionate and punitive.
7.239 Secondly, with regard to Citibank's allege d non-cooperation, Korea argues that the EC's
finding that Hynix prevented Citibank from coopera ting with the investigation thereby "seriously
impeding" the investigation is not correct. Korea asserts that Citibank duly replied to the original
questionnaire. Although Citibank was not able to provi de certain information requested by the EC in
its deficiency letter, Korea asserts that Citibank con tinued to try to cooperate. In particular, Korea
refers to the submission of an affidavit in Ma y 2003 setting out Citibank' s reasons for lending to
Hynix. Korea asserts that Hyni x and Citibank explained the reasons why the latter could not disclose
certain information requested by the EC in its de ficiency letter. Korea asserts that there is no
evidence on the record that Hynix requested or instructed Citibank to refuse cooperation with the EC's
investigation. Finally, Korea takes issue with th e EC's conclusion that Citibank's lack of cooperation
could be taken as an indication that it had participat ed in debt restructuring at the direction of the
government of Korea.
(b) EC
7.240 The EC submits that Article 12.7 of the SCM Agreement allows an investigating authority to
use the facts available in case necessary information is not provided with a reasonable period of time
or in case interested parties refuse access to such necessary information or significantly impede the
investigation. The EC is of the view that, in the four instances referred to by Korea, the investigating
authority was entitled to use the facts available a nd did not use these in a punitive manner. The EC
considers that Article 12.7 of the SCM Agreement would not be of much use if it would not entitle an
authority to take the non-coopera tion into account when weighing the evidence. The EC asserts that
the essential point of a provision like Article 12.7 is, and can only be, the possibility of drawing
adverse inferences.195
7.241 With regard to the Economic Ministers' meeti ngs and the meeting that was attended by an
FSS official, the EC asserts that the facts conc erning these meetings are actually not contested by
Korea.196 The EC considers that the documents whic h revealed these facts were not provided by
either Korea, or any of the interested Korean par ties, in spite of the fact that they were obviously
relevant and had clearly been requested by the inve stigating authority. This non-provision of such
information legitimately cast a shadow over the conduct of the parties being investigated and it means
that the investigating authority has some flexibility when it comes to assessing the facts available to it.
Since the information ultimately pr ovided was used by th e authority, the EC is of the view that
Article 12.7 of the SCM Agreement is actually irrelevant to the way the EC used this information,
which is purely a question of weighing the evidence. The EC takes issue with Korea's assertion that it
did not "reasonably believe" that the fact of the ministerial meeting, the subject matter of the
Ministers' discussions, and the various outcomes and associated documents might be considered
germane to the investigation.

196 Id., paras. 206 and 217.

7.242 Regarding the Arthur Andersen report, the EC asserts that neither Korea nor Hynix ever
provided the investigating authority with a copy of the report. A sixteen page summary in Korean
which was first submitted was later wi thdrawn for confidentiality reasons.
197 In the end, what was
provided in response to a deficiency letter, was one page of the report which sets forth the conclusions
on the average pay-back ratios in case Hynix is treated as a going concern and in case Hynix is
liquidated. Such a one page excerpt of the report is clearly insufficient in order to be able to make an
informed decision about the implications of the report, as it does not enable the authority to analyze
how the authors of the report arrived at the final figures and whether their assessment was correct and
justified. The EC also takes issue with Korea's argument that the EC never indicated any concern or
problem about the report, as it was clear from the Preliminary Determination that the authority had not
taken account of the report or its alleged findings. In any case, the EC notes that the importance of
the report should not be overestimated as it was onl y finalized in December 2001 and could thus not
have been the basis for the creditors' deci sion in October 2001 regarding the October 2001
Restructuring Programme.
7.243 Finally, with respect to Citibank, the EC asser ts that Hynix's refusal to give consent to
Citibank to supply the requested information and doc uments to the investigating authority constituted
a clear failure to provide necessary information an d significantly impeded the investigation. The
investigating authority was, therefore, entitled under Article 12.7 of the SCM Agreement to base its
determination with regard to Citibank on the facts av ailable, which included, in so far as relevant, the
evidence submitted by Citibank in the form of an affi davit. The EC asserts that it is undisputed that
the reason for Citibank's non-cooperation was Hynix's refusal to give its consent, and that the
authority was justified in taking this refusal into account when reviewing and weighing all
information concerning Citibank.
(c) Panel Analysis
7.244 Korea's claims concern the use of facts ava ilable by an investigating authority under
Article 12.7 of the SCM Agreement, which provides as follows:
[i]n cases in which any interested Member or interested party refuses access to, or
otherwise does not provide, necessary info rmation within a reasonable period or
significantly impedes the investigation, preliminary and final determinations,
affirmative or negative, may be made on the basis of the facts available.
7.245 Article 12.7 thus allows an authority to ma ke determinations on the basis of the facts
available in case certain necessary information is not provided within a reasonable period, or if access
to such information is refused, or in case an inte rested party or interested Member significantly
impedes the investigation. Article 12.7 thus enabl es an authority to continue with the investigation
and make determinations based on the facts that are available in case the information necessary to
make such determinations is not provided by the inte rested parties, or, for example, verification of the
accuracy of the information submitted is not allowed by an interested party, thereby significantly
impeding the investigation. In other words, Ar ticle 12.7 identifies the circumstances in which
investigating authorities may overcome a lack of inform ation, in the response of the interested parties,
by using "facts" which are otherwise "available" to the investigating authority.
198

197 The EC notes that Hynix did submit a copy of the report to US Department of Commerce in a
parallel investigation carried out against DRAMs from Korea, in spite of Hynix's explanation to the EC that, due
the contractual relationship in force between Hynix and the author of the report, Hynix was not allowed to copy
in full or in part the report.
198 We note that the Appellate Body was also of this view, when examining Article 6.8 of the AD
Agreement dealing with facts available in the context of anti- dumping investigations. (Appellate Body report,

7.246 Korea argues that, on four occasions, the EC resort ed to the use of facts available in a manner
inconsistent with Article 12.7 of the SCM Agreement. We examine each of Korea's claims in turn.
(i) Economic Ministers' meetings / Attendance by an FSS official at a creditors' meeting
7.247 We recall that, following the Preliminary Dete rmination, the EC discovered, through press
reports, a couple of documents of Korea and letters reporting the results of meetings of the Economic
Ministers that took place on 28 November 2000 a nd 9 January 2001 which relate to Hynix's
restructuring process. In addition, it was discovere d that a high ranking FSS official attended an
important meeting of the Creditors Council on 10 March 2001. Korea recognizes the veracity of these
documents and confirmed the presence of this public official at that meeting.
7.248 The EC relied on these documents when making its determination of the existence of a
financial contribution by the government, in particul ar in respect of the Syndicated Loan and the
KEIC Guarantee, as well as the May 2001 Restructuring Programme. The EC also considered that the
fact that the letters of Korea, and the public offi cial's presence at the meeting, were not disclosed by
Korea, when requested, allowed the authority to use other sources of information as well, such as
press reports.
7.249 We do not understand Korea to be arguing th at the EC should not have relied on these
documents or should have used othe r information that it provided instead. Rather, Korea appears to
be arguing that the EC gave undue weight to the documents and th at its reading of these documents
was improperly coloured by the alleged failure of Korea to provide these documents itself. That, in
our view, is not a matter of relevance to the use of Article 12.7 of the SCM Agreement which deals
with a situation in which information is not prov ided, or cannot be used and other secondary source
information is used instead. The weighing of the in formation and the evidence before it, is part of the
discretionary authority of the investigating authorit y. Under our standard of review, we will examine
whether the investigating authority came to reasonabl e conclusions on the basis of all of the evidence
properly before it. There is no rule in the SCM Agreement that stops the investigating authority from
taking into account information from all sources, incl uding press reports. In this particular case, we
do not consider that the EC should have necessaril y accepted at face value the interpretation of the
letters and explanation of the course of events offere d by Korea. Whether, in the end, the EC had a
sufficient basis for making a determination of the ex istence of a financial contribution in the case of
the Syndicated Loan, the KEIC Gu arantee and the May 2001 Restructuring Programme is a question
which can only be answered by looking at all the evidence before the authority. We conducted this
review earlier in our Report.
7.250 In any case, and even if one would want to examine the facts in the light of Article 12.7 of the
SCM Agreement, we are of the view that it was not unreasonable of the EC to reach the conclusion
that necessary information had been requested but no t provided by Korea. In the questionnaire that
was sent to Korea, the EC requested the following:
"[e]xplain the role of government or public officials in negotiating or co-ordinating
this [Syndicated Loan] process, including deta ils of their participation in relevant
meetings and the nature of their invol vement with Hynix and/or the banks
concerned."199
7.251 And with regard to the KEIC Guarantee, the following question was asked:

199 Response of Korea to the EC questionnaire, question 1, p. 30. ( Exhibit GOK-6) For a complete
list of questions posed by the EC in this respect see EC response to question 58 of the Panel, paras. 143-154.

"[g]ive details of the involvement of govern ment or public officials in this process
[KEIC Guarantee] including details of their participation in relevant meetings."
200
7.252 In the response by Korea, no mention was made of the Economic Minister s' meetings or the
letters that were sent to the KEB and KEIC followi ng those meetings. Similarly, with regard to the
May 2001 Restructuring Programme, the EC asked the following:
"[p]lease describe the involvement of gove rnment or public officials in the above
process, including their participation in relevant meetings, and explain what functions
and powers they had in decisions."201
7.253 In response to this question, Korea replied
"complying with the relevant statutes, no g overnment or public officials attended the
relevant meetings or were involved in the above process."202
7.254 In our view, the EC reasonably concluded that its questions were specific enough to have
informed Korea that it was to provide information concerning any meetings of the kind documented in
the letters relating to the 28 November 2000 and the 9 January 2001 meeti ngs. As is acknowledged
by Korea, the ministers of three ministries dealing with economic matters met to discuss, inter alia,
ways for "alleviating the cash crunch of Hyunday Electronics [Hynix]". 203 We do not find
unreasonable the EC's conclusion that Korea was suffi ciently informed that these were precisely the
kind of documents that the EC was asking about. Si milarly, with regard to the presence of the FSS
official, we consider that the question of the EC made it clear that any presence of a government or
public official at the Creditors Council meeti ng of 10 March 2001, in which further Hynix
restructuring was discussed, was to be reported in an swer to the EC's questions. The fact that the FSS
official in question was the vice-chairman, and th at there were subsequent contacts between the
FSS/FSC and the creditor banks, are further support fo r the EC's conclusion that Korea's answer was
not a simple misunderstanding or a minor oversight, but rather a deliberate, less than full, disclosure
by Korea.
7.255 The information contained in the discovered doc uments and the fact that a high ranking FSS
official was present at a meeting of the Creditors ' Council is obviously rele vant to establishing the
existence of a financial contribution by the govern ment and the question of government entrustment
or direction of private bodies in particular. We ther efore conclude that, in so far as this is a question
of the use of facts available, the EC was not acti ng in a manner inconsistent with Article 12.7 of the
SCM Agreement by considering that necessary information had not been provided and by resorting to
certain information from secondary sources such as press reports as part of its subsidy determination.
(ii) The Arthur Andersen report
7.256 With regard to the Arthur Andersen report, the EC concluded the following in the Final
Determination:
"KEB, Woori Bank, CHB, NACF and Citibank Seoul all argued that they participated
in the October 2001 package since they wanted to maximise their recovery rate for
the loans already granted to Hynix. They considered that the value of Hynix as a
going concern was higher than the immediat e liquidation value. They argued that

200 Response of Korea to the EC questionnaire, p. 35. (Exhibit GOK-6)
201 Id., p. 46.
202 Ibid.
203 Document of 28 November 2000, Results of Discussions at the Economic Ministers' Meeting.
(Exhibit EC-3)

their participation in the October 2001 package was determined on the basis of their
credit evaluation of Hynix, supported by anal ysis from outside consultants. It should
be noted, however, that Hynix has refused to provide a copy of the analysis
determining the liquidation value on the basi s that it was confidential. Consequently,
it has not been possible to assess its merits and, therefore, final findings in this regard
have been determined in accordance with Article 28 of the basic Regulation."
204
7.257 Korea argues that the Arthur Andersen report was evidence of the commercial reasonableness
of the creditor banks' decision to participate in the October 2001 Restructuring Programme, as it
allegedly demonstrated that the going concern valu e of Hynix was higher than its liquidation value.
The EC did not take this report into account for a number of reasons, the mo st important one being
that it had not been provided to the investigating authority.
7.258 It appears that a sixteen page executive summar y of the report in Korean was attached to
Hynix's questionnaire response, but that one week la ter Hynix requested the EC to remove the report
from the record as "the contractual relationship in force between Hynix and the author of the report
attached to the injury submission as Annex 17 does not allow Hynix to copy in full or in part the
report".205 Hynix added that the EC could, nevertheless, have access to the report at the time of the
verification visit. Following a deficiency letter from the EC on 8 November 2002 in which the EC
asked for the Arthur Andersen report to be provided, Hynix enclosed in its reply of
21 November 2002, a translation of one page of the report setting forth the conclusions on the average
pay-back ratios in case Hynix is treated as a going concern and in case Hynix is liquidated. The EC
never verified the report as it considered it was unde r no obligation to do so as the report had not been
properly provided in the first place.
7.259 We are of the view that the EC was justified in considering that Hynix failed to provide the
necessary information by providing only one page of a report of more than two hundred pages. It
appears that Hynix itself considered the report to be relevant and necessary; otherwise, it would not
have submitted the report in the first place. Hynix then withdrew the report without sufficient
justification. As the investigating authority point ed out in a letter to Hynix, if there was any
confidentiality concern, this could be taken care of through the normal confidentiality procedures.
Hynix never even asked for the report to be treated in a confidential manner. Neither is there anything
on the record, and no argument has been made before us, that Hynix ever tried to obtain the approval
of Arthur Andersen to submit the report, if it considered it needed such approval.
206
7.260 Korea argues that Hynix was under the impression that, by submitting the one page
conclusion of the report, the EC was satisfied. Ko rea argues that, by not informing Hynix that it
would not be able to rely on the report unless the fu ll report was submitted, the EC failed to respect
the "two-way" communication that is essential to a proper application of Article 12.7 of the SCM
Agreement. First of all, we consider that the EC re quested the information, and after the report had
been removed from the record at the request of Hy nix, sent a deficiency letter to Hynix again asking
for the report to be submitted. Even assuming that such a basic due process requirement of informing
a party concerned that certain information is cons idered not to have been properly provided to the
authority is inherent in a proper application of Article 12.7 of the SCM Agreement, we consider that
the EC complied with its procedural obligation. It requested the information to be provided on two

204 Final Determination, para. 136.
205 Hynix's letter to the European Commission Regarding the Monitor Group and Arthur Andersen
reports (26 September 2002). (Exhibit GOK-28)
206 In fact, we note that Hynix's argument that the contractual relationship between the consultant and
Hynix prevented the latter from submitting the report in full or in part, seems to be contradicted by the facts. In
the end, part of the report (one page) was submitted to the EC, in apparent breach of the alleged contractual
obligations of Hynix. Moreover, in a parallel investigation by the United States, Hynix submitted a larger
excerpt from the report to the US Department of Commerce, apparently because it was told by its American
advisors that the US would never accept a mere one page excerpt as sufficient.

occasions and recalled that any confidentiality concerns could be taken care of through its confidential
information procedures. In the absence of any specific procedural requirements in the SCM
Agreement with regard to the application of Article 12.7 of the SCM Agreement, we consider that the
EC was justified in considering that the report was not provided within a reasonable period and basing
its determination on the remainder of the facts available.
7.261 We therefore reject Korea's claim that by disregarding the Arthur Andersen report the EC
acted in a manner inconsistent with Article 12.7 of the SCM Agreement.
(iii) Citibank
7.262 We recall that Citibank was Hynix's financial advi sor at the time of the 2001 restructuring.
As a non-government owned bank, Citibank's role, particularly in the October 2001 Restructuring
Programme was considered important in determin ing the commercial reasonableness of the creditor
banks in participating in the restructuring process.
7.263 In the Final Determination, the EC reached the following conclusions:
"(131) In terms of its role as a lender in this investigation it should be noted that the
non-cooperation of Citibank prevented any reliable information being obtained on the
precise functions and practices of Citibank in relation to the financial package given
to Hynix. Thus, Citibank's assertions th at it was not acting under GOK direction
could not be verified via a proper res ponse to a questionnaire and a subsequent
verification visit. The same applies to the lending practices of Citibank. It should
also be noted that the failure of Citibank to cooperate significantly impeded the
investigation, not just in terms of identif ying Citibank's precise functions in relation
to its role as a lender, but also in respect to its role as the financial adviser to Hynix.
Due to the non-cooperation the true stat us of Citibank as regards Hynix and the
nature and intensity of its overall relationship to the GOK remain unknown. The
importance of cooperation and ve rification visits is demonstrated by the fact that as
regards some of the other banks involved in the case, it was proper cooperation and
verification that was instrumental in allo wing definitive conclusions to be drawn as
regards the relations between them, Hynix a nd the GOK. What the investigation has,
however, shown, due to information given by other parties, is that Citibank was a
central figure in discussions between the GOK, Hynix and other parties involved in
this case. Indeed, Hynix stated that Citibank should not cooperate in the investigation
because "such disclosure may divulge informa tion relating to Hynix's cost, finance or
accounting". It is recalled that Hynix w as majority-owned by the GOK via the banks
at the time of this intervention.
(132) In these circumstances, the final findi ngs had to be based on the facts available
with regard to whether Citibank as a le nder acted under GOK direction and whether
the benefit to Hynix equated to the full financial contribution made by Citibank to
Hynix. In this respect, it is uncontested that unlike the other participants in these
measures, Citibank's first intervention as a creditor bank of Hynix was in
January 2001 when the financial situation of Hynix was already sufficiently bad to
deter any other new bank from getting financially involved. Citibank's own rating for
Hynix in October 2001 was D "doubtful". Nevertheless, Citibank provided financing
to Hynix. Citibank was requested to expl ain their general lending policy and whether
it was normal to provide financing to doubtfu l companies. As already explained,
Citibank did not provide any details which would have e xplained their motivation in
participating in the measures investigated.

(133) As for the GOK direction, informati on on the record indicates that there were
considerable links between the GOK, Hynix and Citibank. For the GOK and
Citibank these went beyond the loans investig ated. Such links can be interpreted in
two ways. Firstly, they can be interprete d as indicating that Citibank may well have
had commercial reasons for providing financi ng to Hynix, or as alleged by one of the
parties, they could be interpreted as pl acing Citibank in a vulnerable position with
regards to direction by the GOK. Due to the non-cooperation it was not possible to
establish whether Citibank acted on coercion or whether this was in accordance with
their normal business practice. In this respect, it is recalled that the reason for non-
cooperation was to prevent access to Hynix's cost, finance and accounting data. In
the absence of any other explanation, this can reasonably be taken as an indication
that this data in Citibank's possession contai n information revealing that there were
no commercial reasons to provide the financ ing in question, and that the financing
was provided due to GOK direction. This reason is also the one suggested in the
complaint. In addition, as explained in recital 94 of the provisional Regulation,
Citibank has had an unusually close and symbiotic relationship with the GOK since
1967, when it was authorised to operate in Korea. This close relationship between
the GOK and Citibank is witnessed in the ro le played by Citibank in assisting the
GOK to extricate itself from the Korean fina ncial crisis of 1997. Citibank led and
successfully completed Korea's bank debt restructuring for a total of USD 21,75
billion in 1998. Moreover, Citibank helped the GOK and government-related
institutions to access capital markets dur ing the Korean financial crisis by
successfully sponsoring a USD 4 billion global bond offering. All these facts confirm
that Citibank has a very close relationship to the GOK. On the b asis of these facts,
and of the refusal of Citibank to grant access to the information in its possession, and
failing any other verifiable evidence being av ailable, the conclusion to be drawn in
accordance with Article 28(6) of the basic Regulation is that the GOK was involved
and directed Citibank to provide the financing in question."
7.264 We note that it seems undisputed that Citibank did not provide certain information requested
by the EC in its follow-up questions of 8 November 2002.
207 It appears that the reason for this was the
fact that, under Korean law, banks operating in Korea are prohibited from disclosing to third parties
any information concerning banking relationships with other companies except with the prior written
consent of those companies. Citibank requested Hynix to give its consent to disclosing the
information the EC was requesting. Hynix consider ed that such information was highly confidential
and that Citibank's reply may divulge informati on relating to Hynix's cost, finance or accounting. 208
Hynix thus refused to provide such consent with out examining first Citibank's files, something
Citibank refused to accept as it would have vi olated long-standing Citibank policy prohibiting
disclosure of such internal analysis to the customer. 209 The record shows that, in a letter dated
26 November 2002, the EC reminded Citibank of th e possibility of submitting the information in a
confidential manner such that the information woul d receive proper protection. Citibank replied that
this would not solve its legal liability problem unde r Korean law. Further written exchange between
the EC and Citibank of 29 Novemb er and 2 December 2002 merely repeated these same points.
While Korea argues that Citibank "invited the EC for a verification visit" 210, it appears that all that
was offered by Citibank was to meet with an EC o fficial during the official's verification visit to
Korea.211

207 Hynix's Comments of 4 July 2003. (Exhibit GOK-37)
208 Hynix's letter to Citibank in annex to Hynix's Comments of 4 July 2003, referred to in note 207,
supra.
209 Citibank's Affidavit, para. 6. (Exhibit GOK-15)
211 Citibank Affidavit, para. 6, referred to in note 209, supra.

7.265 Korea does not contest that the information re quested was necessary information, nor that it
was not provided to the investigating authority. Ko rea's argument is that Citibank did provide some
information in an affidavit of 14 May 2003 and that the EC should have based its decision on this
information, rather than on information obtaine d from other sources. In our view, the EC was
justified in making its determinations on the basis of the facts available given the fact that information
reasonably considered as necessary was not provided. The fact that an affidavit was submitted which
contains certain general information that could be verified by the investigating authority does not alter
that conclusion. We do not consider that the affi davit can be considered to have replaced the actual
data and information requested. Especially, in light of the fact that an authority is to satisfy itself as to
the accuracy of the information submitted, we do no t consider that the EC should have accepted at
face value the response of Citibank contained in the affidavit.
7.266 We note that Korea argues that Citibank shou ld not have been considered as an un-
cooperative party in light of its good faith efforts to provide the information. In addition, Korea
argues that Hynix is not to be blamed for Citibank's failure to provide the information either. As we
stated earlier, Korea argues that it was not Hynix' s fault that the information was not provided, but
that this non-provision was due to Citibank's internal policies. At the same ti me, Korea argues that it
was not Citibank's fault either as Hynix did not cons ent to the disclosure of the information and that
without such consent Citibank would risk legal liabili ty problems under Korean law. Whomever is to
blame, it is clear that necessary information was not provided within a reasonable period. There is no
dispute that the EC clearly request ed this information and informed Citibank of the consequences of
non-cooperation. Neither Citibank nor Hynix for that matter ever made any serious attempt at finding
a solution to the alleged problem that they had with providing the information. We thus conclude that
the EC was entitled to resort to the use of the facts available under Article 12.7 of the SCM
Agreement. On the other hand, whether the investig ating authority made reasonable conclusions
based on the facts before it and assigned the appropria te weight to the information provided, is a
matter we deal with as part of our substantive review of the measures taken.
7.267 In sum, we reject Korea's claim that the EC acted in a manner inconsistent with Article 12.7
of the SCM Agreement by relying on the facts available with regard to Citibank.
C. C
LAIMS CONCERNING THE EC'S INJURY AND CAUSALITY DETERMINATIONS
1. Claim concerning Article 15.1 of the SCM Agreement
(a) Korea
7.268 Korea submits that the EC acted inc onsistently with Article 15.1 of the SCM Agreement
because, inter alia , the EC determinations on injury and causation were not based on positive
evidence and an objective assessment of the effects of the allegedly subsidized imports. Korea is of
the view that Article 15.1 of the SCM Agreement is a fundamental and overarching provision such that
all the obligations expressed in Articles 15.2-15.5 of the SCM Agreement have to be read in the light
of the requirement to base the determination on positive evidence and to conduct an objective
examination. Korea asserts that this implies that the evidence be "affirmativ e, objective, verifiable,
and unbiased" and that the injury investigation process be "unbiased". 212 Korea argues that the EC's
injury determination is inconsiste nt with the obligations found in Articles 15.2, 15.4 and 15.5 of the
SCM Agreement and that each of these specific inconsiste ncies is necessarily an inconsistency under
Article 15.1 of the SCM Agreement.
7.269 In the view of Korea, any assessment of whether an investigating authority acted
inconsistently with, for example, Article 15.2 of the SCM Agreement necessarily requires an

212 Korea First Written Submission, para. 75. Korea refers to Appellate Body report, US – Hot-Rolled
Steel, paras. 192-193.

examination of whether the conclusions reached by the investigating authority under Article 15.2 of
the SCM Agreement meet the positive evidence and objective examination requirements of
Article 15.1 of the SCM Agreement. However, Korea adds, even if the Panel does not agree with this
interpretation of the inter-relationship between Ar ticle 15.1 and the rest of Article 15 of the SCM
Agreement, the Panel must still assess whether Article 15.1 itself imposes such an obligation, and
whether the EC actions in this case meet that independent obligation under Article 15.1 of the SCM
Agreement.213
(b) EC
7.270 The EC agrees with Korea that Article 15.1 of the SCM Agreement contains both an
overarching obligation that informs the rest of Ar ticle 15 and an independent obligation of its own
right. The EC considers that the in vestigating authority did not act inconsistently with the obligations
contained in Article 15 of the SCM Agreement . The EC asserts that its injury determination was
based on positive evidence and involved an objective examination.
(c) Panel Analysis
7.271 Article 15.1 of the SCM Agreement reads as follows:
[a] determination of injury for purposes of Article VI of GATT 1994 shall be based on
positive evidence and involve an objective examination of both (a) the volume of the
subsidized imports and the effect of the s ubsidized imports on prices in the domestic
market for like products and (b) the consequent impact of these imports on the
domestic producers of such products. (footnote omitted)
7.272 Accordingly, an investigating authority must ensu re that its determination of injury, and more
specifically, its findings under Articles 15.2, 15.4, and 15.5 of the SCM Agreement, are made on the
basis of "positive evidence" and involve an "objective examination." In this regard, we note that the
Appellate Body has interpreted "positive evidence" as follows:
"[t]he term "positive evidence" relates, in our view, to the quality of the evidence that
authorities may rely upon in making a determin ation. The word "positive" means, to
us, that the evidence must be of an affirma tive, objective and verifiable character, and
that it must be credible."214
7.273 We also note that the Appellate Body has defined an "objective examination":
"[t]he term "objective examination" aims at a different aspect of the investigating
authorities’ determination. While the te rm "positive evidence" focuses on the facts
underpinning and justifying the injury determination, the term "objective
examination" is concerned with the i nvestigative process itself. The word
"examination" relates, in our view, to th e way in which the evidence is gathered,
inquired into and, subsequently, evaluated; that is, it relates to the conduct of the
investigation generally. The word "objective", which qualifies the word
"examination", indicates essentially that the "examination" process must conform to
the dictates of the basic principles of good faith and fundamental fairness." 215
(footnote omitted)

213 Korea Second Written Submission, paras. 53-54.
214 Appellate Body report, US – Hot-Rolled Steel, para. 192.
215 Id., para. 193.

7.274 The Appellate Body summed up the requirement to conduct an "objective examination" as
follows:
"...an "objective examination" requires that the domestic industry, and the effects of
[subsidized] imports be investigated in an unbiased manner, without favouring the
interests of any interested party, or group of interested parties, in the investigation.
The duty of the investigating authorities to conduct an "objective examination"
recognizes that the determination will be influenced by the objectivity, or any lack
thereof, of the investigative process."
216
7.275 We also note that the Appellate Body in Thailand – H-Beams confirmed the fundamental
nature of a provision analogous to Article 15.1 and its importance as a guiding principle underlying all
aspects of an injury determination. Thus, in respect of Article 3.1 of the AD Agreement, the Appellate
Body stated:
"Article 3 as a whole deals with obligations of Members with respect to the
determination of injury. Article 3.1 is an overarching provision that sets forth a
Member’s fundamental, substantive obligation in this respect. Article 3.1 informs the
more detailed obligations in succeeding pa ragraphs. These obligations concern the
determination of the volume of dumped imports, and their effect on prices
(Article 3.2), investigations of imports fro m more than one country (Article 3.3), the
impact of dumped imports on the domestic industry (Article 3.4), causality between
dumped imports and injury (Article 3.5) , the assessment of the domestic production
of the like product (Article 3.6), and the determ ination of the threat of material injury
(Articles 3.7 and 3.8). The focus of Article 3 is thus on substantive obligations that a
Member must fulfil in making an injury determination."217 (emphasis in original)
7.276 Like the parties, we are also of the view that Article 15.1 of the SCM Agreement is an
overarching provision which informs the more detaile d obligations set forth in the remainder of
Article 15 of the SCM Agreement. This implies that we can only r each a conclusion that the authority
acted in a manner that is consistent with the specific obligations of, inter alia, Articles 15.2, 15.4 and
15.5 of the SCM Agreement if it based its determination of in jury on positive evidence and conducted
an objective examination of the various injury elem ents as required by these more specific provisions.
On the question of whether we will separately ex amine the question of consistency of the same
measures with Article 15.1, we will not do so because Korea did not advance any arguments that
raised a prima facie case of violation by the EC of Article 15.1 on its own. Rather, Korea's arguments
were invariably focussed on the specific obligatio ns of Articles 15.2, 15.4 and 15.5 of the SCM
Agreement, and any arguments that it raised in rela tion Article 15.1 were not of a substantive
nature.
218

216 Ibid.
217 Appellate Body report, Thailand – H-Beams, para. 106.
218 This is not to say that we consider that Article 15.1 of the SCM Agreement does not impose any
independent obligations in its own right. Indeed, we ag ree with Korea that, if an investigating authority lacks
positive evidence and has not examined the evidence before it objectively, then the investigating authority
would have acted inconsistently with Article 15.1, regardless of any conclusions that might be reached about the
other – more specific – obligations under Article 15. In this case, however, we were not presented with any
prima facie arguments that this had occurred. In addition, we are also inclined to believe that it is more
appropriate for a panel to start its analysis by examin ing the consistency of a measure with the more specific
obligation read in light of the general obligation, rather than the other way around.

2. Claim concerning the EC's determination regarding the volume of the subsidized
imports
(a) Korea
7.277 Korea asserts that the EC analysis of the allege d increase in imports of DRAMs is flawed and
gives a distorted picture of the actual situation. According to Korea, the EC's finding of a significant
increase in Hynix imports was not based on an objective examination of positive evidence and is
therefore inconsistent with Articles 15.1 and 15.2 of the SCM Agreement.
7.278 First, Korea argues that Article 15.2 of the SCM Agreement requires an investigating authority
to determine that there has been a significant increase of subsidized imports. According to Korea, the
EC examined whether imports from Korea as a whole increased, instead of focusing on subsidized
imports alone, as required by Article 15.2 of the SCM Agreement. Korea is of the view that, although
the EC determination provides some discussion on imports from Hynix alone, the focus is on imports
from Korea as a whole – including imports from Samsung which were found not to have been
subsidized – and its determination is thus inconsistent with Article 15.2 of the SCM Agreement.
7.279 Second, Korea argues that the EC failed to ta ke into account the merger that took place in
1999 between Hyundai Electronics Industries ("HEI") and LG Semiconductors ("LGS"), which later
led to the formation of a new company called Hynix. Korea asserts that the EC should have joined
the volume of imports of HEI and LGS for the first year and a half of the injury POI (1998–July 1999)
in its examination of the volume of imports from Hynix. By considering Hynix to be the successor
only of HEI and by thus ignoring the volume of imports and the market share held by LGS prior to the
merger in 1999, the EC conducted a result-oriented an alysis as it was inevitable that the volume of
imports of Hynix at the end of the injury POI was going to be higher than the volume of imports of
just one of the two companies that constituted Hynix prior to the merger, at the beginning of the injury
POI. According to Korea, had the EC combined th e data for the two companies (HEI and LGS) prior
to the merger, it would have found that market share had actually decreased during the injury POI.
7.280 Korea rejects the reasons invoked by the EC for ignoring the effect of the merger. According
to Korea, the petitioners mentioned the merger a nd so did Hynix in its first submission to the
investigating authority as well as during the in jury presentation prior to the Preliminary
Determination. According to Korea, the EC as a reasonable investigating authority should have
further inquired about the relevance of this merger and should have requested more ample data, if
such was necessary. Korea is of the view that the EC is improperly hiding behind the fact that none of
the interested parties provided sales data for LGS for 1998–1999, since the EC never asked for such
information to be submitted.
219
7.281 Korea also rejects the EC argument that th e merger with LGS was no more than a new
acquisition by HEI increasing its capacity with no retroactive effect. To view the merger as a simple
investment by Hynix ignores market reality as th e obvious effect of the merger was that LGS'
previous presence in the EC market disappeared a nd its sales were incorporated into Hynix's sales
figures. In addition Korea argues, the EC itself in investigating the existence of a subsidy for Hynix,
considered the merger as obviously relevant as it took into account the inheritance of the LGS debt by
Hynix and countervailed all the loans granted to LGS.
220 According to Korea, if the EC desired to
countervail the LGS loans before the merger, as it did in its Final Determination, it should also have
properly considered the full effect of the HEI–LGS merger in its injury analysis.

219 Korea thus refutes the EC assertion that the combined data for LGS and HEI constituted "new
information" which could not be accepted for the Fi nal Determination as it was submitted only after the
Preliminary Determination and well after the verifications took place.
220 Korea also considers that the EC was acting in contradiction with its own treatment in the
Preliminary Determination of Micron's acquisition of a competitor, Texas Instruments.

7.282 Third, Korea is of the view that the EC failed to put the volume data in its proper context, as
required to determine the "significance" of the alle ged increase. Korea asserts that volume data of
DRAMs imports measured in megabits will always incr ease, given the nature of the industry and the
product. Consequently, Korea argues that the EC should have focused on the market share of Hynix
which, if properly calculated by taking into account the merger between HEI and LGS, showed that
Hynix was losing market share throughout the POI, as the increase in EC consumption was much
higher than the increase in imports by Hynix.
221 Korea submits that, by ignoring this important
context in which to assess the significance of the alleged increase in imports, the EC failed to make an
objective determination based on positive evidence.
(b) EC
7.283 The EC argues that Article 15.2 of the SCM Agreement requires an investigating authority
only to consider whether there has been a significant increase in subsidized imports and provides that
such increase may be considered in absolute or relative terms. The EC asserts that the authority fully
complied with this requirement by finding that imports of DRAMs from Hynix increased
significantly, both in absolute and in relative te rms. The EC rejects Korea's arguments to the
contrary.
7.284 First, the EC argues that its determination is based on a separate examination regarding
volume, price and market share of subsidized imports, i.e., imports from Hynix, but that imports from
Korea as a whole were also examined due to the sc ope of the investigation into imports of DRAMs
from Korea. The simultaneous examination of the exis tence of a subsidy and of injury implied that it
became clear only during the investigation that not all imports from Korea could be considered to
have been subsidized.
7.285 Second, the EC considers that it did not act inconsistently with Article 15.2 of the SCM
Agreement by not adding the volume of imports and the mark et share held by LGS prior to its merger
with HEI in July 1999 to the 1998 – 2001 data for Hynix. The EC is of the view that the acquisition
of LGS increased Hynix's production for the future bu t did not have any retroactive effect. The EC
considers that the merger is comparable to the purchase of assets from a former competitor in order to
increase a firm's capacity. Moreover, in the absence of any information conc erning subsidization of
LGS, which no longer existed at the time the subsidi es were provided, it would have been incorrect to
consider such imports from LGS during 1998–1999 as s ubsidized imports. The EC does not consider
that there is any inconsistency in the fact that the investigating authority in the subsidy analysis added
LGS' debts to those of Hynix, as this is in line with its approach that the purchase of the company
increased production capacity for the future but also implied that its debts for the future increased.
222
7.286 In any case, and alternatively, if the Panel were to find that the EC's treatment of the LGS
merger was inconsistent with Article 15.2 of the SCM Agreement, the EC argues that Hynix failed to
supply the necessary data concerning LGS sales for the years 1998 and 1999 in a proper and timely
fashion. The EC asserts that only at the 19 May 2003 meeting of the investigating authority with
Hynix was it clearly stated by Hynix that the da ta it had provided in the questionnaire response did
not include LGS data. In its 27 May 2003 letter, Hynix provided only summarized data for LGS. The

221 Korea asserts that EC consumption increased by 316 per cent during the injury POI, while imports
from HEI and LGS, which together formed Hynix, increased by only 155 per cent, inevitably leading to a loss in
market share by Hynix. (Korea First Written Submission, para. 126)
222 The EC rejects the allegation that its treatment of Hynix was different from its approach concerning
the take-over of Texas Instruments by a European producer, as it did not include the volume or market share
data of the period before the acquisition to the data for the purchasing company either. The EC also rejects the
Korean argument concerning the alleged inconsistency be tween the subsidy and the injury analysis, as the
inheritance of the debts from LGS played no role in calculating the amount of the subsidy, nor in the injury
analysis.

data provided four months after verification visits took place and in summarized form were therefore
not verifiable and thus could not be used.
7.287 Third, the EC asserts that the investigati ng authority found a "significant" increase in
subsidized imports, as indicated in the Preliminary and Final Determinations. The EC asserts that the
various import figures were carefully analysed a nd explained, and their significance in the overall
assessment of injury were discussed at length.
7.288 In sum, the EC is of the view that Korea has failed to demonstrate that the EC determination
concerning the increased volume of subsidized impor ts of DRAMs from Korea was inconsistent with
Articles 15.1 and 15.2 of the SCM Agreement.
(c) Panel Analysis
7.289 Korea claims that the EC's determination rega rding the volume of imports was not consistent
with Articles 15.1 and 15.2 of the SCM Agreement. Article 15.1 has already been cited in para. 7.271,
supra. Article 15.2 reads in relevant part as follows:
[w]ith regard to the volume of the subsid ized imports, the investigating authorities
shall consider whether there has been a significant increase in subsidized imports,
either in absolute terms or relative to production or consumption in the importing
Member. (...) No one or several of th ese factors can necessarily give decisive
guidance. (emphasis added)
7.290 We have set forth our understanding of the oblig ations imposed by Article 15.1 in paragraphs
7.272-7.276, supra. Article 15.2 of the SCM Agreement elaborates on this requirement and sets forth
the specific obligation with regard to the volume of subsidized imports. Article 15.2 requires an
investigating authority to consider whether there has been a significant increase in subsidized imports.
It is clear to us that this specific obligation has to be read in light of the general requirement of
Article 15.1 of the SCM Agreement; hence, the investigating authority's consideration of the volume
of subsidized imports should be objective and based on positive evidence. Finally, we note that
Article 15.2 is part of the overall injury and cau sation analysis set forth in Article 15 of the SCM
Agreement. The consideration of the volume of subsid ized imports under Article 15.2 is not alone
determinative in an injury determination. Rather, it forms part of the overall assessment of injury to
the domestic industry and is conducted so as to provide guidance to the investigating authority in the
context of this assessment of injury and causation.223
7.291 We wish to emphasise that our task is not to perform a de novo review of the information and
evidence before the investigating authority, nor to substitute our judgment for that of the EC
investigating authority. Rather, we examine the evidence on which the investigating authority based
its determination and review wh ether the determination made was the result of an objective
determination based on positive evidence. With th e above in mind, we now examine the various
aspects of Korea's claim.
(i) Was the consideration based on data regarding subsidized imports?
7.292 Korea argues that the EC based its determin ation of a significant increase in subsidized
imports on data of both subsidized and non-subsidized imports from Korea as a whole in a manner
inconsistent with Article 15.2 of the SCM Agreement. According to Korea, by including data from
Samsung (the Korean producer found not to have been subsidized), the EC failed to conduct an
objective examination of volume of subsidized imports from Hynix as required by Articles 15.1 and
15.2 of the SCM Agreement.

223 In the same vein, Panel report, EC – Tube or Pipe Fittings, para. 7.278.

7.293 We note that the Final Determination provid es the following discussion of the volume of
subsidized imports in absolute terms:
"(176) The volume of imports from Korea as described in recital 118 of the
provisional Regulation was established on the basis of the aggregation of duly
verified import data provided by Samsung and Hynix in their respective questionnaire
responses. The volume of imports from Korea thus established increased by 331 per
cent during the period under consideration. It is confirmed that imports from Hynix
increased faster, i.e. by 361 per cent during the period under consideration.
(177) Even if import data of LG Semicon Co., Ltd for 1998 and 1999 as provided ad
hoc by Hynix and the GOK, and which coul d not be verified, were taken into
account, they should be added to the volume of imports from Korea and not to the
volume of imports from Hynix. The volume of imports from Korea would then have
increased by 219 per cent during the period under consideration."

7.294 In our view, the EC's examination of the volume of imports in absolute terms, thus covered
both subsidized Hynix imports and non-subsidized Samsung imports. Similarly, when examining the
volume of imports in relative terms, the EC exam ined data concerning both Hynix imports alone and
Hynix imports together with Samsung imports. As the following excerpt from the Final
Determination clearly shows, the focus of the EC was on imports from Hynix:
"(183) Hynix, supported by the GOK, claimed that contrary to the upward trend of
its market share as described in recital 124 of the provisional Regulation its market
share decreased during the period under consid eration. This claim is not warranted
since the market share figures provided by Hynix to justify its claim were initially
based on the total sales of its subsidiaries in the Community of the product concerned
to unrelated customers in the Community during the period under consideration and
not on the volume of its imports of DRAMs produced in Korea. After it was clarified
to Hynix that its market share as described in recital 124 of the provisional
Regulation was calculated on the basis of dul y verified import data which it had itself
reported in its questionnaire response, Hyni x indicated that in establishing the trend
of its market share during the period unde r consideration, imports from LG Semicon
Co., Ltd that occurred before the date of the merger of this company with Hyundai
Electronics Industries Co., Ltd should have been included in its import data. Hynix
and the GOK provided certain ad hoc data in this respect.
(184) For the reasons set out in recital 175 this claim is rejected and the provisional
findings concerning market shares as described in recital 124 of the provisional
Regulation are confirmed.
(185) Even if import data of LG Semicon Co., Ltd for 1998 and 1999 as provided ad
hoc by Hynix and the GOK, and which coul d not be verified, were taken into
account, they should be added to the market share of imports from Korea and not to
Imports 1998 1999 2000 2001 [POI]
Index Korea
of which:
Index Samsung
Index Hynix
Index LG Semicon
(data not verified)
100

100
100
100
128

110
194
90
185

181
372
0
319

414
461
0

the market share of imports from Hynix. The market share of imports from Korea
would then have decreased by 21 per cent during the period under consideration."

7.295 In the Preliminary Determination as well, Hynix imports and imports from Korea as a whole
are discussed side-by-side, with a particular focus on Hynix:
"(124) Korea increased its market share over the period considered. There was a
significant drop in the Korean market shar e between 1998 and 1999, but the market
share was more than recovered by the end of the [POI], when the Korean market
share was almost 7 per cent more than the 1998 level. In the case of Hynix, its
market share rose faster, i.e. by 20 per cent over the period. It is also reasonable to
assume that the Hynix market share, in terms of Mbit, was somewhat constrained by
its relative delay in moving from production of 64 Mbit to the 128 Mbit DRAMs."
224
Market shares 1998 1999 2000 2001 (IP)
Index Korea

100 80 91 107
Index Hynix 100 111 136 120

7.296 After having considered and examined these da ta, the EC draws the following conclusions
regarding the volume of the subsidised imports in paragraph 191 of its Final Determination:
"[a]s set out in recitals 176 and 177 [of the Final Determination], subsidised imports
from Hynix increased during the period under consideration even at a higher pace
than the Community consumption. Over th e same period, the development of their
market share followed the same trend, i.e. increased (see recitals 184 and 185 [of the
Final Determination]) and reached a very subs tantial level during the [POI]. Even if
the alleged volume of imports from LG Semic on Co., Ltd was to be added to that of
Hynix for the years 1998 and 1999, such an imports trend towards the [POI] would
still be increasing (increase of 155 per cent between 1998 and the [POI])."
7.297 In our view, the EC's findings with regard to the volume of subsidized imports are based on,
and relate only, to the volume of imports from Hynix. In other words, the EC thus drew conclusions
with regard to subsidized Hynix imports, after an examination which included data concerning both
Hynix and the other Korean producer Samsung, which were discussed both separately and in
combination. In sum, the determination concerni ng the volume effects clearly focussed on imports

 224 In addition to the above, we also point to the following statemen t contained in para. 115 of the
Preliminary Determination:
"[g]iven that for one exporting producer (Samsung) the subsidy provisionally established is de
minimis, certain injury indicators have been analysed with regard to the other exporting
producer only (Hynix). As far as imports from Korea are concerned, the injury and causal
link analysis focused on those from Hynix. This is due to the fact that there are only two
Korean exporters, i.e. Hynix and Samsung, with more or less similar export shares and that
only Hynix's exports were heavily subsidised."
Market shares 1998 1999 2000 2001 (IP)
Index Korea
of which:
Index Samsung
Index Hynix
Index LG Semicon
(data not verified)
100

100
100
100
73

63
111
52
68

65
136
0
79

100
120
0

from Hynix and its conclusions are based on data for Hynix. We therefore reject Korea's assertion
that "the discussion [in the EC's Determination] focuses on imports from all of Korea."
225
7.298 It is certainly correct that, in the sections d ealing with the consideration of the volume of
imports on absolute terms a nd relative to consumption 226, there are references not only to the volume
of imports of DRAMs exported or produced by Hynix, but also to Korea as a whole. The EC does not
deny that data for Korea include imports from Samsung, a company for which a de minimis margin of
subsidization was found. 227 This is explained by the fact that that the investigation was initiated
against Korea and not against Hynix only. Therefore, we do not find that the mere fact of referring to
the development of imports from Korea as a whole ne cessarily implies that the EC should be found to
have acted inconsistently with Article 15.2. What matters, in our view, is the use made by the EC of
those data. In the case before us, we are persuaded that the consideration required by Article 15.2, i.e.
whether there has been a significan t increase in subsidized imports, was made by the EC based on
data regarding Hynix alone.
(ii) Should data on imports of DRAMs produced or exported by LGS have been combined with
that of Hynix for the purpose of carrying out the consideration required under Article 15.2?
7.299 The undisputed facts are that Hynix and LG Se miconductors ("LGS") were two of the Korean
producers/exporters of DRAMs at the beginning of the injury POI, i.e. 1998. On 7 July 1999,
Hyundai Electronics Industries ("HEI") purchased LGS from LG Electronics. Hence, LG Electronics
ceased from that moment to be a producer/exporte r of DRAMs. LGS was then renamed Hyundai
Micro Electronics ("HME"). On 13 October 1999, HME merged with HEI. This company was
renamed Hynix on 29 March 2001. The issue before us regards the treatment of LGS' imports of
DRAMs between 1 January 1998 and 7 July 1999 for the purpose of Article 15.2's volume
consideration.
7.300 Hynix, supported by Korea, argued during the course of the investigation that the EC should
combine imports of LGS with Hynix's, for th e purpose of undertaking the consideration under
Article 15.2. The EC viewed the acquisition of LG S as a new investment made by HEI, without any
retroactive effects on its position on the market, for the reasons set out in pa ragraph 175 of its Final
Determination.
228 In essence, the EC rejected Hynix's clai m because LGS was a separate legal entity

225 See, inter alia, Korea First Written Submission, paras. 92, 95 and 97.
226 See excerpts cited in paras. 7.293 and 7.294, supra.
227 The EC does not dispute the fact that, when undertaking the consideration set forth in Article 15.2 of
the SCM Agreement, imports from those "exporters for which no subsidy margin above de minimis was found
may not be considered to form part of the "subsidized imports"." We note that this is in line with the view
expressed by panels and the Appellate Body when examining the provision parallel to Article 15.2 of the SCM
Agreement in the AD Agreement – Article 3.2 thereof. (See, for example, Panel report, EC – Bed Linen ,
para. 6.138, and Appellate Body report, EC – Bed Linen (Article 21.5 – India), para. 113)
228 Relevant paras. of the EC's Final Determination read as follows:
"(174) Hynix, supported by the GOK, also argued that, in establishing the trend of its imports
into the Community over the period under consideration, the imports of the product concerned
into the Community from LG Semicon Co., Ltd that occurred before the date of the merger of
this company with Hyundai Electronics Industries Co., Ltd (Hynix since 29 March 2001)
should have been included in its import data. Hynix and the GOK provided certain ad hoc
data in this respect, i.e. two figures concerning imports in Mbits from LG Semicon Co., Ltd in
1998 and 1999. Otherwise, it was claimed that imports form Hynix should be considered for
injury purposes only following the date of its merger with LG Semicon Co., Ltd in 1999.
(175) However, LG Semicon Co., Ltd was a dis tinct legal entity before Hyundai Electronics
Industries Co., Ltd acquired it from LG El ectronics Inc. and its related companies on
7 July 1999. After the acquisition, LG Semicon Co., Ltd was renamed Hyundai Micro
Electronics Co., Ltd and this company merged with Hyundai Electronics Industries Co., Ltd
on 13 October 1999. The acquisition of LG Semicon Co., Ltd was therefore a new investment

from Hynix during the time when Hynix claims that the volume of imports of both companies should
be combined, i.e., between 1 January 1998 and 7 July 1999. Korea argues before us that the EC's
treatment is purely legalistic and defies economic logi c. In the view of Korea, the EC should have
looked at all the imports from the production facilities that were under Hynix's control in 2001, even
if they were not under Hynix's control in the earlier years.
7.301 Article 15.2 of the SCM Agreement sets forth no specific rules concerning the treatment of
imports from companies which merged in the course of the period of investigation, thereby forming
the company found to have been subsidized. In li ght of our standard of review, the question under
Article 15.2 of the SCM Agreement is whether the EC reached a reasonable conclusion that, in
determining the volume of imports from Hynix, it could ignore the amount of imports from LGS that
entered the EC prior to LGS' merger with HEI.
7.302 In our view, Korea failed to establish that the EC's treatment of the merger as part of its
overall volume analysis of subsidized imports was un reasonable or inconsistent with its obligation to
conduct an objective examination based on positive ev idence. The EC considered that HEI was the
predecessor of Hynix, the company found to have b een subsidized. It examined import volume data
from HEI for a period of three years, from 1998–2001. During that period it considered that HEI had
increased its production capacity by purchasing LGS but that this acquisition did not have any
retroactive effects on HEI's position on the market. We do not find this to be unreasonable. Actually,
from the record, we conclude that Hynix itself consid ered this an appropriate way of dealing with the
merger as it did not include any LGS data in its questionnaire response.
229 We consider it important
to recall in this respect that the term "subsidized imports" in Article 15.2 of the SCM Agreement, in
our view, refers to imports from a source found to ha ve been subsidized. In other words, it is not
about an increase in the total volume of imports from Korea into the EC, it is about imports from a
particular source. In this case, the EC determined that during the year 2001 HEI/Hynix received
subsidies from Korea. In its injury analysis, the EC thus examined the volume of imports from this
source as part of its consideration of whether the im ports from this source had increased significantly.
The EC decided to examine import data from HE I/Hynix sales during a period of three years,
including the year in which it was determined that the subsidies had been provided to HEI/Hynix.
The EC noted that, in the course of the second year of the injury POI, HEI acquired additional
production facilities through the purchase of LGS. In this light, we do not find that it was
unreasonable of the EC to conclude that imports of DRAMs from LGS during 1998 and 1999 did not
have to be added to, or combined with, those made by Hynix (or its predecessor, HEI) during those
two years for the purposes of considering whether th ere had been a significant increase of subsidized
imports either in absolute terms or relative to consumption or production in the EC.
230

for Hyundai Electronics Industries Co., Ltd with out any retroactive effects on its position on
the market. In other words, Hyundai Electron ics Industries Co., Ltd, predecessor of Hynix,
which was the only company found to have benefited from subsidies, increased its production
capacity. Furthermore, no party, including Hynix, has reported any imports from LG Semicon
Co., Ltd for 1998 and 1999 in its questionnaire response or any other submission and as such
were not verified by the Commission. LG Semicon Co., Ltd data cannot constitute part of
Hynix's subsidised imports. For the reasons set out above, the claim made by Hynix and the
GOK is rejected."

229 As Hynix itself acknowledged in a submission to the EC, no such LGS data were provided because
"[i]n 1998 and until 13 October 1999, Hynix Semiconducto r Inc. (formerly Hyundai Electronic Industries) and
LG Semicon were two legally distinct entities". (Hynix Letter to EC dated 27 May 2003 (Exhibit GOK-35))
230 We note that, in any case, the text of Article 15.2 of the SCM Agreement requires that the volume of
subsidized imports need to be considered but does not requ ire a particular finding in this respect. Nor is it so
that in the absence of a significant increase in the volume of subsidized imports, these imports could not be
found to be causing injury. (In support of our view, see Appellate Body report, EC – Tube or Pipe Fittings ,
para. 111, note 114). Article 15.2 of the SCM Agreement is part of the overall injury analysis.

7.303 In terms of economic causation, it may well be true that the subsidies in question had no
effect on the measured change in the volume of im ports. Consider the following scenario. Firms A
and B each export 100 units to the EC in years 2000 a nd 2001. Firm A is subsidized to the extent of
USD 100 million in 2001, and in a totally separate transaction acquires Firm B in 2001. Firm A does
not alter its exports on account of the subsidies. Fi rm A's acquisition of Firm B was not facilitated by
the subsidies. However, following the EC's methodology, Firm A's exports increase from 100 in 2000
to 200 in 2001. In this scenario, the increase in im ports bears no relation to the subsidies. However,
Article 15.2 of the SCM Agreement imposes no obligation on the investigating authority to distinguish
a false association between increased imports and s ubsidies – as illustrated on our own scenario – and
a true association which would, for example, be the case if Firm's A acquisition of Firm B was
financed by the subsidies. The distinction between true and false associations is, in our view, to be
made in the context of Article 15.5, not in the cont ext of Article 15.2. If Members wish to impose the
additional – and heavy – analytic burden on investig ating authorities of distinguishing between true
and false associations in the context of Article 15.2, they can do so by amending the Article 15 SCM
Agreement. This is not, however, a matter for the Panel to decide by interpretation.
7.304 While not particularly relevant to the question before us, we find that there is no lack of
consistency between the EC's treatment of the LGS–HEI/Hynix merger question in the subsidy part of
the investigation compared with the injury part. As the EC points out, the Final Determination merely
states an uncontested fact, i.e. that the acquisition of Hynix incr eased Hynix's debt. We do not see
how this is inconsistent with its treatment of the merger in the injury context, as in both cases, the EC
acknowledges the future effects of the merger, an increase in production capacity but also an
inheritance of of debt. It appears that Hynix's i nheritance of LGS' debts did not play a role in the
determination of the amount of subsidization.
231
7.305 In any event, we note that even after rejecti ng Korea's contentions regarding the need to add
LGS' import volumes to those of HEI/Hynix, the EC did calculate the combined volume of these two
exporters/producers and considered whether there w as a significant increase of subsidized imports.
Based on this, it is stated in the Final Determina tion that there had been a 155 per cent increase of
subsidized imports, in absolute terms, during the injury POI.
232 This figure is not disputed by Korea.
(iii) Does the EC determination properly conclude t hat the increase was "significant" in terms of
Article 15.2?
7.306 Korea argues that the EC failed to place the volume data in the proper DRAMs context in
order to assess the significance of the alleged increas e in imports, thereby violating Articles 15.1 and
15.2 of the SCM Agreement . We note that Korea's argument concerning the alleged failure to
properly consider the volume data to show a significant increase is based on two premises. The first
is that it does not make sense to consider an absolu te increase in imports in megabits, since due to the
inherent characteristics of the DRAMs market, import s in absolute megabit terms will always be on
the rise. Rather the relevant parameter for exam ining the significance of any increase is the increase
in relative terms, and market share in particular . Secondly, when examining the relevant market
share, the EC failed to explain how, in light of a decreasing Hynix market share, it could reasonably
have concluded that there was a significant increase in the volume of Hynix imports.
7.307 We note that the latter argument of a decreasing market share is based on Korea's
understanding of the role of the merger between LG S and HEI/Hynix. Indeed, the EC examined the

231 Concerning the alleged inconsistent treatment of the mergers of HEI/LGS, on the one hand, and
Micron/Texas Instruments, on the other, we agree with the EC that in both cases the investigating authority took
account of the respective acquisition once it had occurred; and, in both cases, the investigating authority did not
add the acquired company's volume and market share relating to the period prior to the acquisition to the
acquirer's volume and market share.
232 See para. 191 of the EC's Final Determination.

market share and found that Hynix's market share actually increased. In light of our earlier finding
that the EC's approach of the merger was not unreasonable, and in light of the wide latitude
Article 15.2 permits for investigating authorities, we conclude that Korea's argument must fail. Even
assuming, arguendo, that given the specific characteristics of the DRAMs market it would not be
reasonable from an economic perspective of an inv estigating authority to reach conclusions about a
significant increase based on an in crease in absolute terms, the language of Article 15.2 confers
considerable latitude on an inves tigating authority. Article 15.2 allo ws an investigating authority to
consider a significant increase, either in absolute terms or relative to production or consumption. And
Article 15.2 goes on to state that no one or several of the factors considered can necessarily give
decisive guidance. It is up to WTO Members, if they so choose, by amending the SCM Agreement to
narrow this provision. It is not a matter for the Panel to circumscribe the investigating authority.
Moreover, in this case, the record shows that the EC evaluated the volume of Hynix imports both in
absolute and relative terms and concluded that, in both cases, imports increased, by 361 per cent and
20 per cent, respectively. We consider that these increases, as calculated under the EC's methodology,
can reasonably be considered to have been signi ficant. The ordinary meaning of "significant"
encompasses "important", "notable", "major", as well as "consequential",
233 which all suggest
something that is more than just a nominal or marginal movement. In our view, the increases
identified by the EC's methodology (361 per cent and 20 per cent, respectively) can be categorised as
"important", "notable", "consequential" and, most importantly, "significant".
7.308 In so concluding, we have taken into account the uncontested fact that Hynix's imports, as
properly determined by the investig ating authority, increased in abso lute terms at a higher pace than
domestic EC consumption. 234 We also deemed the fact that Hynix's market share increased over the
injury POI, as found by the investigating authority, to be relevant in de termining that the volume
increase was significant. 235 Finally, in our view, the fact that the DRAMs market is highly
transparent, and thus susceptible to rapid transmi ssion of price shocks, a finding not contested by
Korea, constitutes a factor that also pleads to the significance of the increases determined by the
investigating authority, both in absolute terms and relative to consumption in the EC.
(d) Conclusion
7.309 In sum, we find that Korea failed to establish th at the EC acted in a manner inconsistent with
Article 15.2 of the SCM Agreement, read in light of Article 15.1 of the SCM Agreement, when
considering the volume effects of subsidized imports.
3. Claim regarding the EC's determination concerning the effect of the subsidized imports
on prices
(a) Korea
7.310 Korea argues that the EC acted inconsistently with Article 15.2 of the SCM Agreement by
improperly assessing the significance of the price effects of Hynix imports. According to Korea,
Articles 15.1 and 15.2 contain specific obligations on an investigating authority to find that the price
effects found to exist were significant and to expl ain why it considers this to be the case. Korea
submits that the EC determination which simply f ound price undercutting failed to comply with this
requirement.
7.311 According to Korea, the EC finding that Hynix affected the market prices for DRAMs in the
EC (1) defies economic logic; (2) defies the EC's own logic as expressed in the Preliminary
Determination; (3) was based on an inappropriate pr ice comparison analysis; (4) ignored the evidence

233 The New Shorter Oxford English Dictionary, Third Edition, p. 2861.
234 Final Determination, para. 191, referring back to its findings in paras. 172 and 177 thereof.

concerning other factors that were affecting DRAM s prices; and (5) was not based on the most recent
data available. In sum, according to Korea, no reasonable investigati ng authority would have
concluded on the basis of the facts on record that the alleged price effects of Hynix imports were
significant.
7.312 First, Korea argues that economic logic provides that if it is price competition which
determines market share in the DRAMs industry, and considering that the data show that Hynix was
losing market share, any price undercutting found ca nnot have been "significant"; otherwise, Hynix
would not be losing market share. Moreover, accord ing to Korea, it is highly unlikely that a middle-
cost producer like Hynix would have been able to lead prices down in a "bust" period like the year
2001 where low-cost producers are normally determin ing prices. In any case, Korea argues, the
global nature of DRAMs pricing argues against the conclusion that one supp lier would be able to
determine prices in one particular market.
7.313 Secondly, Korea argues that the EC itself acknowle dged in its Preliminary Determination that
it is difficult to establish a price leader in the i ndustry, a finding which corresponds with the evidence
that Hynix was losing market share, in contrast to what would happen to a price leader in a price
competitive market.
7.314 Thirdly, although Korea recognizes that Article 15.2 does not prescribe any particular
methodology to assess price undercutting, it asserts th at Article 15 imposes obligations that must be
met with regards to the assessment of the price effect s. In particular, Korea asserts that Article 15.1
requires an "objective examination" with respect to price effects. Any methodology that skews the
analysis to favour one side fails to meet this obligation. Korea argues that the EC's factual
determination of pric e undercutting by Hynix was based on a flawed price comparison which
compared average monthly prices of Hynix with individual daily prices for EC producers. Two other
comparisons performed by the EC, including its customary methodology of making a comparison
based on weighted averages, did not lead to a positi ve finding on price undercutting by Hynix. Korea
argues that such a distorted and result-oriented analys is is not an objective examination. Korea is of
the view that by deviating from its usual methodol ogy, the EC had an obligation to justify its
approach.
7.315 Fourthly, Korea submits that the EC ignored abundant evidence on the record that factors
other than Hynix prices were affecting DRAMs prices. Korea argues that Article 15.2 of the SCM
Agreement does not permit an investigating authority to consider the alleged undercutting in the
abstract, and argues that the EC should have tried to distinguish between price declines due to the
inherent nature of the DRAMs market and declines cau sed by subsidized imports. Korea asserts that
the declining market share of Hynix, as well as th e serious drop by 77 per cent in prices worldwide in
2001 due to the cyclical nature of the DRAMs industr y, are important factors which should have been
included in the EC's analysis of the significance of the price effects of Hynix imports.
7.316 Finally, Korea argues that Article 15.2 of the SCM Agreement requires that a pricing analysis
include the most recent period prior to initiation.
236 The EC did not consider pricing data for the first
half of 2002, which, especially in light of the fact that 2001 was generally considered to be the worst
year for the industry in decades, to be suspici ous and does not correspond with the requirement to
conduct an objective examination based on positive evidence.

236 Korea argues that the language used in Article 15.2 of the SCM Agreement ("has been") clearly
suggests a focus on the most recent past. Korea al so refers to a recommendation by the WTO Committee on
Anti-Dumping Practices adopted in the context of a similar obligation in Article 3.2 of the AD Agreement, as
well as the views expressed by the US – Line Pipe panel which, in the safeguards context, found that an
investigation should cover the recent past.

(b) EC
7.317 The EC argues that Article 15.2 of the SCM Agreement merely requires an authority to
"consider" whether there has been a significan t price undercutting, price depression or price
suppression. The final sentence of Article 15.2 of the SCM Agreement moreover clearly states that no
one factor provides final decisive guidance. In light of the broad latitude envisaged for an
investigating authority in Article 15.2 of the SCM Agreement , the EC asserts that Korea fails to
demonstrate that the EC determination of signi ficant price undercutting by imports from Hynix was
inconsistent with paragraphs 1 and 2 of Article 15 of the SCM Agreement. The EC rejects all five of
Korea's arguments in this respect.
7.318 Regarding Korea's argument of economic logic, th e EC asserts that it is not for the Panel to
address Korea's abstract elaborations on economic theory and recalls that the issue before the
investigating authority at the time of the investig ation was whether or not Hynix's prices undercut or
depressed or prevented price increases vis-à-vis domestic prices. In any event, the EC disagrees with
Korea's premise, i.e. that Hynix's market share decreased during the injury POI. In addition, the EC
does not agree that a company with a declining mark et share cannot be engaged in price undercutting.
In addition, the EC does not agree that the capacity, whether limited or not, for individual companies
to influence market prices means that individual companies cannot be the source of subsidized, price
undercutting, imports.
7.319 Second, the EC considers that it is irrele vant for the purpose of Article 15.2 of the SCM
Agreement that Hynix was not a price leader, as there is no need to be a price leader for a company to
be able to engage in price undercutting.
7.320 Third, the EC takes issue with Korea's presentati on of the EC's analysis of the existence of
price undercutting. The EC underlines that it did ta ke into account the characteristics of the DRAMs
market: first, that competition takes place largely on pr ice; second, that there is great price flexibility;
and third, that there is great price transparency. The EC argues that it did not try out those three
methodologies and simply pick the one that showed price undercutting. The EC explains that the
third methodology, based on daily data was applied at the explicit request of Hynix and in fact, once
the non-comparable transactions are eliminated, confirmed the price undercutting found through the
second methodology, comparing weighted average prices of Hynix to individual transactions on a
monthly basis. The EC emphasises that the SCM Agreement does not prescribe a particular
methodology, and that the methodol ogy chosen by the EC was reas onable and objective. The EC
refers to its Final Determination wh ich explains in detail why, in light of the particular characteristics
of the DRAMs market, it was decided not to use a weighted-average to weighted-average comparison
in this case.
7.321 Fourth, the EC considers that its determina tion of significant undercutting was justified in
light of the circumstances of the case. It further rejects Korea's arguments concerning other factors
driving prices down as a question of causation, irre levant to the actual price undercutting examined
under Article 15.2 of the SCM Agreement . Nor does the EC consider the arguments concerning
absence of market leadership or the cost-neutral pricing practice in the industry to be relevant factors
in this examination.
7.322 Fifth, the EC considers that the choice of the injury POI was not unreasonable, and there were
no objective reasons why a different in jury POI should have been chosen. 237 Therefore, and in the
absence of any clear obligations in this respect in Article 15.2 of the SCM Agreement, the EC is of the
view that Korea failed to demonstrate that by havi ng the POI for the injury analysis ending at the

237 The EC explains that its internal regulations require the simultaneous investigation of subsidy and
injury and require that a subsidy analysis be based on the data for the most recent completed accounting year,
which in this case was year 2001. The EC notes that Korea did not challenge this EC regulation.

same time as the POI for the subsidy analysis, the EC acted inconsistently with paragraphs 1 and 2 of
Article 15 of the SCM Agreement.
238
(c) Panel Analysis
7.323 Korea claims that the EC did not comply with its obligations under paragraphs 1 and 2 of
Article 15 of the SCM Agreement when the investigating authority assessed the price effects of the
subsidized imports.
7.324 The relevant provisions are paragraph 1, which is cited in para. 7.271, supra, of this Report
and paragraph 2 of Article 15, which in relevant part reads as follows:
[w]ith regard to the effect of the subs idized imports on prices, the investigating
authorities shall consider whether there has been a significant price undercutting by
the subsidized imports as compared with the price of a like product of the importing
Member, or whether the effect of such imports is otherwise to depress prices to a
significant degree or to prevent price increases, which otherwise would have
occurred, to a significant degree. No one or several of these factors can necessarily
give decisive guidance.
7.325 Article 15.2 of the SCM Agreement provides that, with regard to the examination of price
effects of the subsidized imports, an investigating authority is to consider whether there has been (1) a
significant price undercutting by the subsidized impor ts as compared with the price of a like product
of the importing Member, or whether the effect of such imports is (2) otherwise to depress prices to a
significant degree or (3) to prevent price increas es, which otherwise would have occurred, to a
significant degree. In any event, no one or several of these factors can necessarily give decisive
guidance. As we explained earlier, we consider th at Article 15.2 has to be read in light of the
overarching requirement set forth in Article 15.1 of conducting an objective examination based on
positive evidence.
239
7.326 With the above in mind, we shall proceed with the various arguments of Korea in support of
its claim.
(i) Impossibility to reconcile market dynamics with the EC's conclusion that Hynix's imports had
an effect on domestic prices
7.327 Korea asserts that it defies economic logic to conclude that Hynix's imports had an effect on
domestic prices given the fact that it was losing mark et share. Korea argues that bearing in mind the
situation of the EC DRAMs market and the fact that Hynix was a mid-cost producer, the EC's
determination that Hynix was responsible for the decline in prices in 2001 could not be correct.
Korea contends that an objective investigating aut hority would, in light of the above considerations,
have "viewed skeptically" other evidence suggesting Hynix's price undercutting was significant.
7.328 We are of the view that the EC examined the price undercutting by Hynix and reached certain
conclusions which as a matter of fact are not contested by Korea. Korea's argument is rather that the
price undercutting was purely coincidental, as an expo rter who is losing market share, according to

238 The EC rejects Korea's reliance on a non-binding recommendation of the WTO Committee on Anti-
Dumping Practices which relates to the obligations contained in the AD Agreement, not the SCM Agreement.
Neither does the EC consider relevant the reliance on Appellate Body reports in the context of the Safeguards
Agreement, with its different requirements for imposition of a measure compared to the SCM Agreement, and its
different language. The EC emphasises that, while the Safeguards Agreement refers to increased imports in the
present tense (" being imported"), the SCM Agreement uses the present perfect (" has been" a significant price
undercutting).
239 See our discussion of Article 15.1, in paras. 7.272-7.276, supra, of this Report.

Korea's economic logic, can never be the cause of such price effects. In our view, Article 15.2 of the
SCM Agreement requires an investigating authority to consider whether there has been any significant
price undercutting by the subsidized imports. Article 15.2 does not require an investigating authority
to establish what caused the price undercutting. 240 Again, Article 15.2 confers wide latitude on the
investigating authority. A scenario can certainly be constructed in which a subsidized company is
both losing market share and causes price undercutting. 241 Moreover, we note that the EC found that
Hynix's market share actually increased. For all these reasons, we conclude that the EC did not act in
an unreasonable manner when it established significant price undercutting.
(ii) Absence of a "price leader" in the DRAMs market
7.329 Korea asserts that the EC's finding that there is no price leader in the DRAMs market calls
into serious doubt the EC's determination that Hynix's price undercutting was significant.
7.330 In our view, there is nothing in the text of Article 15.2 of the SCM Agreement precluding an
investigating authority from concluding that the pric e undercutting is significant in the absence of a
concurrent finding that the producer/exporter in qu estion is a price leader. Nor do we agree with
Korea's point from an economic point of view. Leaving aside the question of what is exactly meant
by price leadership and how one should determine such price leadership, we fail to see why only a
price leader could be engaged in price undercutting, thereby driving prices down. Indeed, we agree
with the EC that precisely in a situation where ther e is no one price leader, all competitors on such a
highly price sensitive market as th e DRAMs market may cause prices to go down. In our view, even
from an economic point of view Korea's argument ther efore fails, as we do not consider that a finding
of no-price leader would somehow be inconsistent with a finding of significant price undercutting.
(iii) Whether the EC's methodology complied with the requirements in paragraphs 1 and 2 of
Article 15
7.331 While acknowledging that Article 15.2 does not impose any particular methodology to
consider whether there has been a significan t price undercutting, price suppression or price
depression, Korea asserts that the particular methodolo gy used by the EC made it more likely to find
price undercutting. For this reason, Korea asserts that the methodology used by the EC was "biased
and therefore does not represent an "objective examin ation" of whether there is "significant" price
undercutting."242
7.332 The relevant paragraphs of the EC's Final Determination read as follows:
"(179) With regard to the provisional fi ndings on price undercutting as described in
recital 122 of the provisional Regulation, Hynix and the GOK claimed that the
reference to the fact that price undercu tting took place for some transactions is
irrelevant since price undercutting, in acco rdance with usual practice, is determined
on a weighted average basis. Hynix further argued that in order to conclude whether
its prices undercut a number of specific tran sactions of the [domestic] industry, either
a transaction-by-transaction comparison should be made or a daily comparison taking
also into account, where possible, the time within the day.

240 This does not mean that the considerations raised by Korea can be disregarded by the investigating
authority. In our view, if there are other producers/exporters which are selling at prices lower than Hynix's,
because the way the market operates, their cost structures, or any other reason, then the injurious effects of these
factors should not be attributed to the subsidized imports from Hynix. Thus, this information is highly relevant
to a proper causality assessment under Article 15.5 of the SCM Agreement.
241 For example, distressed Firm A may temporarily se ll its goods at bargain prices to raise cash and
pay off creditors. Later, Firm A may return to its no rmal price structure. Firm A's distress sales may well
undercut market prices for a time, but over the course of a year, Firm A's market share could still fall.
242 Korea response to question 38 of the Panel.

(180) However, there is no provision in the basic Regulation which stipulates that
price undercutting should be calculated on a weighted average or any other specific
basis. According to Article 8(3) of th e basic Regulation it should be considered,
when assessing the effect of subsidised imports on prices, whether price undercutting
has been "significant". It does not set out any requirement relating to the calculation
of the margin of undercutting, nor does it provide for a particular methodology to be
followed in this respect. Moreover, accord ing to the same Article, price undercutting
is not alone determinative in an injury de termination, rather it forms part of the
overall assessment of injury to the [dom estic] industry and is conducted so as to
provide guidance in the context of the assessment of injury and causation.
(181) Furthermore, it is noted that th e DRAM market is very transparent and
characterised by substantial price competition. Indeed fixed costs are very high.
Suppliers need to develop sufficient economies of scale and strive to maintain market
shares. Price undercutting will occur in speci fic competitive situations with specific
customers. But, if one supplier offers a price to a Community customer that
undercuts the price of a DRAM sold by a Community producer, competitive pressure
quickly eliminates such undercutting. Thus, in such markets, big customers can force
competing suppliers to meet any lower price offering. It is therefore difficult to
establish price undercutting over a given peri od. Such price depressing situations
prevented the Community producers from increasing prices, something which would
otherwise have occurred.
(182) Nevertheless, the Commission established significant price undercutting
ranging from 12 per cent to 32 per cent for the different DRAM densities on a
substantial portion (41 per cent) of th e Community producers transactions,
representing 32 per cent of their sales value. In order to eliminate the effect of the
sharp drop in prices during the [POI], the calculation was based on the monthly
average Hynix prices to independent customers by product type. Even if the daily
average Hynix prices (by product type) were used, and taking account of the fact that
the number of comparable transactions woul d be substantially reduced (by 38 per
cent), there would be significant undercutting within the range set out above on
29 per cent of the total Community producers transactions. It is also noted that
irrespective of whether the monthly or daily average of Hynix prices was used in the
calculation, the proportion of the Community producers undercut transactions in
relation to the total comparable transac tions remained the same, i.e. around 47 per
cent. (...) In the absence of further comments on price undercutting, the provisional
findings as set out in recitals 119 to 1 23 of the provisional Regulation are hereby
confirmed."
243

243 A cross-reference is made to the relevant paragraphs of the EC's Preliminary Determination:
"(120) For the determination of price undercutting, the Commission analysed price data in the
[POI]. The relevant sales prices of the [domestic] industry are prices to the first unrelated
customer after deduction of discounts and rebates, i.e. net prices. During the [POI], all sales
of Korean imports were made via related companies. Therefore, the relevant sales prices
compared are net resale prices to the first independent customer in the Community after
deduction of discounts and rebates.
(121) Different product families of the produc t concerned could be defined for comparison
purposes based on the following criteria: product type (i.e. dies, components, modules),
density, quality, DRAM type, performance (speed) and packaging.
(122) The [domestic] industry's sales prices and the resale prices of Korean imports of the
like product were compared at the same level of trade, namely independent users within the

7.333 The record shows that the EC examined th e question of price undercutting using three
different methodologies. Under the first methodology , the weighted average Community price was
compared to the weighted average Hynix price, by product type. As a result of this methodology, on
an overall basis, i.e. taking into account all product types, no price undercutting was found. 244 Under
the second methodology, the calculation was based on the monthly average Hynix prices to
independent customers by product type, as explained in para. 182 of the Final Determination. Those
monthly averages were compared to the domestic industry's individual transactions, by product type .
As a result of the application of this methodolog y, a price undercutting of 16.2 per cent was found. 245
Under the third methodology , the EC compared the daily average Hynix prices with individual
transaction prices of the Community producers, by product type. Using this methodology, it is stated
in para. 182 of the EC's Final De termination that "there would be significant undercutting within the
range set out above on 29 per cent of the total Community producers transactions.". 246,247 I t i s
therefore clear from the EC's Final Determinat ion that the EC established significant price
undercutting under two of the three methodologies.
7.334 In our view, Article 15.2 of the SCM Agreement does not set forth any particular methodology
for examining price undercutting, as long as the methodology chosen is reasonable and objective. 248
In our view, Korea has not been able to establish the contrary. We find no basis for Korea's assertion
that the EC kept trying alternative methodologies until it found one that showed some undercutting.
The EC clearly explained why it considered that a weighted-average to weighted-average comparison
was inappropriate in this context.249 It then explained that, in order to eliminate the effect of the sharp
drop in prices during the injury POI, the calcula tion was to be based on the monthly average Hynix
prices to independent customers by product type. As Hynix and Korea claimed that prices should be
compared on a daily average basis, the EC also cal culated the margin based on Hynix's daily average
prices. The EC concluded that:
"irrespective of whether the monthly or daily average of Hynix prices was used in the
calculation, the proportion of the [domestic] producers undercut transactions in

Community market, and for the same time period on the basis of weighted average prices per
product family. On this basis, it was found that price undercutting on an overall weighted
average basis was not taking place. However, price undercutting was found to be taking place
on a substantial proportion of transactions, namely 41 per cent of the transactions representing
32 per cent of the value of Hynix sales. This price undercutting, expressed as a percentage of
the [domestic] industry's prices, averaged 16.2 per cent.
(123) It was also found in the case of Hynix that this undercutting was predominantly taking
place on sales of the higher density DRAMs (the 128 Mbit and 256 Mbit DRAMs). These are
the technologically more advan ced DRAMs the comparatively hi gher sales returns of which
are used to finance the next generation products."
245 The last sentence of para. 122 of the EC's Prel iminary Determination asserts that "[t]his price
undercutting, expressed as a percentage of the [domestic] industry's prices, averaged 16.2 per cent." The EC
also disclosed the price undercutting for the different DRAMs densities. This ranged from 12 per cent to 32 per
cent, as stated in para. 182 of the EC's Final Determination.
246 Thus, we disagree with Korea's argument that, under the third methodology, no price undercutting
was found.
247 The actual ranges calculated for each product type by the EC under the third methodology are found
in a table provided to Hynix. (Exhibit EC-31)
248 We consider that Article 15.2 of the SCM Agreement does not limit the number of methodologies
used in analyzing the price effects of subsidized imports. We do not find anything in this provision that would
preclude an investigating authority from considering different methodologies in order to determine which is the
most appropriate one in view of the facts of a given case, as long as the overall injury determination involves an
objective examination in accordance with Article 15.1. In our view, in cer tain circumstances, it would might be
problematic to consider whether there is a significant price undercutting under just one methodology.

relation to the total comparable transac tions remained the same, i.e. around 47 per
cent."
250
7.335 We thus consider there is no basis in the f acts on the record to accept Korea's assertion that
the EC strove to find a pre-ordained outcome. Paragraph 181 of the EC 's Final Determination
contains the reasons why the EC considers that, in this particular case, the first methodology was not
appropriate to examine the effects of subsidized im ports on domestic prices. In this regard, we note
that the EC took into account the dynamics of th e DRAMs market (transparency; substantial price
competition; high fixed costs; need to develop econom ies of scale; etc.). Because of these dynamics
the EC found that "if one supplier offers a price to a Community customer that undercuts the price of
a DRAM sold by a Community producer, competitiv e pressure quickly eliminates such undercutting.
Thus, in such markets, big customers can force comp eting suppliers to meet any lower price offering.
It is therefore difficult to establish price underc utting over a given period. " We do not understand
Korea to dispute these facts; Ko rea simply asserts that "this rationale is unpersuasive" because the
features identified by the EC apply to all suppliers, and are not unique to Hynix. 251 We do not share
the view of Korea that an unbiased and objective investigating authority would have only moved
away from the first to the second or the third met hodologies where the facts justifying that decision
were unique to Hynix. We do not find any basis for such a position in the SCM Agreement. Having
carefully examined the reasons set forth in para. 181 of the Final Determination, we consider that the
explanation given by the EC is reasonable.
7.336 We do not consider that Korea has been able to demonstrate why the EC's choice of
methodology was inherently biased and therefore w ould not represent an "objective examination" of
whether there is "significant" price undercutting. 252 Korea argues that a transaction-to-transaction
comparison should have been made, or a daily comparison taking also into account the time within the
day. In our view, while such methodologies could al so have been used under Article 15.2, this does
not imply that the other methodology on which the EC based itself is necessarily biased. It appears to
us that every methodology has its strengths and wea knesses, but that, in the absence of any prescribed
methodology in the SCM Agreement, as long as the methodology used is not unreasonable, the Panel
cannot find against it. The shortcomings of the me thodology of the EC are a consequence of the use
of averages, but the transaction-to-transaction me thodology preferred by Korea will also inevitably
lead to certain transactions being included while others are not. In sum, in the absence of any specific
requirements in the SCM Agreement, and given the reasonable explanation provided by the EC for its
choice of methodology, we consider that the EC did not act in a manner inconsistent with Article 15.2
of the SCM Agreement when establishing significant price undercutting.
(iv) Other factors that affect DRAMs prices
7.337 Korea asserts that it was known to the EC that there were a number of factors which affected
DRAMs prices. These included (1) the general economic downturn and decrease in demand, which
caused an "inventory burn"; (2) excess capacity; and (3) imports from other suppliers. Information on
these factors was on the record. Ho wever, the EC failed to take them into account. In so doing,
Korea asserts that EC's price undercutting analysis did not involve an objective examination and the
EC's conclusion was not based on positive evidence.
7.338 In our view, Article 15.2 of the SCM Agreement does not, as such, require an investigating
authority to establish a causal link between the subsidized imports and the domestic prices which
would require it to examine all other factors affecting domestic prices at the same time. Again, if
Members wish to impose a heavier burden on inves tigating authorities, they can do so by amending

250 Id., para. 182.
252 Korea has presented certain numerical examples to show that this is the cas e. (See, for instance,
Korea First Written Submission, para. 156 or First Oral Statement (Opening), para. 27)

the SCM Agreement . As written, Article 15.2 focuses on the effect of the subsidized imports on
prices. The EC examined the effect of the subs idized imports on domestic prices and thus, in our
view, complied with Article 15.2. We note that Article 15.5 of the SCM Agreement , on the other
hand, does require that the effects found, including those with regard to price, must be put in context
by examining all other known factors affecting the i ndustry at the same time. In our view, Korea's
arguments are thus properly part of the question of causation, an issue discussed later in our Report.
7.339 In light of the above, we dismiss Korea's argument that, in not taking the above factors into
account when examining the effect of the subsid ized imports on domestic prices, the EC acted
inconsistently with Article 15.2 of the SCM Agreement read in light of Article 15.1 of the SCM
Agreement.
(v) Refusal to extend the injury POI
7.340 We recall that Korea argues that Article 15.2 of the SCM Agreement requires that a pricing
analysis include the most recent period prior to initia tion. Korea asserts that the EC did not consider
pricing data for the first half of 2002, which, especi ally in light of the fact that 2001 was generally
considered to be the worst year for the industry in decades, is suspicious and does not correspond with
the requirement to conduct an objective examination based on positive evidence.
7.341 In our view, there simply is no basis for r eading such a requirement into the text of
Articles 15.1 or 15.2 of the SCM Agreement. Article 15.2 does not contain any express obligations
with regard to the period of data collection. While an argument could certainly be made that the data
on which the injury analysis is based should be suffici ently recent in order for this data to be relevant
and probative such as to constitute positive evidence of injury caused by subsidized imports, we do
not consider that it was unreasonable or not objectiv e of the EC to refuse to extend the period of
investigation for injury purposes beyond the period u sed to establish subsidization in this case. The
EC gathered data which covered three years, incl uding the last full year for accounting purposes prior
to the initiation, and its analysis was therefore clearly based on the recent past.
7.342 As contextual support for its argument, Korea asserts that the interpretation given by panels to
provisions in the Safeguards Agreement and the recommendation of the WTO Committee on Anti-
Dumping Practices focus on the most recent period. This, Korea asserts, constitutes contextual
support for its argument. We disagree. As the EC has noted, the WTO Committee on Subsidies and
Countervailing Measures has not adopted a parallel recommendation. Moreover, we seriously doubt
that the Recommendation Concerning the Periods of Data Collection for Anti-Dumping
Investigations
253 would support Korea's case. That Recommendation states, inter alia, that the period
of data collection for dumping investigations norma lly should be twelve months, and in any case no
less than six months, ending as close to the date of initiation as is practicable; and that the period of
data collection for injury investigations normally should be at least three years. It also states that "[i]n
establishing the specific periods of data collection in a particular investigation, investigating
authorities may, if possible, consider practices of firms from which data will be sought concerning
financial reporting and the effect this may have on the availability of accounting data." The EC stated
that the most recent accounting year for Hynix was the year 2001. Korea has not challenged this.
Bearing this in mind, we do not consider it unr easonable for the investigating authority to have
established December 2001 as the end of the period of collection of data for the purposes of the injury
and subsidization investigations.
7.343 As for Korea's reference to certain findings of panels and the Appellate Body in the
safeguards context, we do not consider them relevant to our examination. In this regard, we note that
the wording in the Safeguards Agreement , particularly in Articles 2.1 and 4.2(b) is significantly
different from that to be found in Article 15.2 of the SCM Agreement. Leaving aside the question of

253 G/ADP/6, adopted 5 May 2000 by the WTO Committee on Anti-Dumping Practices.

whether those reports actually support the Korean argument, something we very much doubt, we wish
to note that safeguard measures are emergency measures which explains the particular emphasis on
the relevance of the recent past by panels and the Appellate Body interpreting those provisions of the
Safeguards Agreement.
7.344 In sum, we do not find that the EC has act ed inconsistently with Article 15.2 of the SCM
Agreement by rejecting Hynix's request that the EC extend its analysis of the effect of subsidized
imports on prices to the first half of 2002, i.e., beyond the injury and subsidy POI selected by the
investigating authority.
(d) Conclusion
7.345 For these reasons, we do not find that the EC h as acted inconsistently with its obligation
under Article 15.2 of the SCM Agreement, read in light of Article 15.1 of the SCM Agreement, with
respect to its examination of the impact of the subsidized imports on the domestic prices.
4. Claim regarding the EC's determination on the condition of the domestic industry
(a) Korea
7.346 Korea asserts that the EC's evaluation of th e condition of the domestic industry was not
consistent with paras. 1 and 4 of Article 15 of the SCM Agreement.
7.347 First, Korea argues that the economic downturn/business cycle is the single most important
factor in the DRAMs market. Ko rea asserts that this industry has endured a continuing history of
"boom/bust" cycles. Korea asserts that between 2000 and 2001 this industry had gone from the top of
the boom period, to the trough of the bust. In sp ite of all the evidence and comments submitted by
Hynix during the investigation, Korea asserts that, nowhere in its determinations did the EC address
this downturn alone, or as a context in understanding the factors enumerated in Article 15.4. While
acknowledging that the EC had examined the economi c downturn in its non-attr ibution determination
under Article 15.5, Korea asserts that Article 15.4 contains a separate obligation to examine this factor
as a "relevant economic factor".
7.348 Second, Korea argues that some findings made by the EC in the context of its injury
determination are inconsistent with certain statem ents made by an important EC producer, Infineon,
relating to its cash flows, ability to invest in new equipment and technology, ability to sell at prices
sufficient to cover costs, market shares and future prospects.
254 In the view of Korea, the EC failed to
consider the domestic EC industry's own choice of factors that describe success in the EC DRAMs
market and the domestic producers' own description of the state of the industry.
7.349 Third, Korea asserts that the EC failed to ex amine one of the factors listed in Article 15.4,
"wages". Korea recalls that established WTO ju risprudence regarding Article 3.4 of the AD
Agreement – a provision which is substantially identical to Article 15.4 of the SCM Agreement –
requires that each of the factors and indices listed therein must be evaluated by an investigating
authority. In addition, Korea is of the view that another factor, "export performance" of the domestic
industry, should have been considered by the aut hority as a relevant economic factor having a bearing
on the state of the domestic industry, even though it is not explicitly listed in Article 15.4. Korea
asserts that the fact that the EC evaluated this factor when carrying out the Article 15.5 causation

254 Korea First Written Submission, para. 194. Some of these statements were made by the Infineon's
CEO, one of the two EC producers th at cooperated in the investigation, in a November 2002 investor
conference. Others were included in Infineon's 2002 SEC Form 20-F.

determination is irrelevant to assess the EC's complia nce with Article 15.4, as a separate obligation to
evaluate "export performance" as a relevant factor exists under this provision.255
7.350 Fourth, Korea argues that only three out of 13 factors examined showed a negative trend
during the injury POI: average sales price, cash fl ow and capacity utilization. Korea asserts that the
EC acted inconsistently with paragraphs 4 and 1 of Article 15 because it did not explain adequately
why just 3 of 13 factors should compel its conc lusion that the domestic industry was suffering
material injury.
(b) EC
7.351 The EC rejects all of Korea's arguments and asserts that its injury analysis was consistent with
Articles 15.4 and 15.1 of the SCM Agreement . With respect to Korea's arguments concerning the
failure to examine the "boom/bust" cycle and the economic downturn, the EC argues that it examined
this factor as part of its causation analysis. Th e EC considers that it was therefore not necessary to
examine this factor as part of its assessment of th e condition of the domestic industry as well. Hence,
this question falls under the Article 15.5 of the SCM Agreement, rather than Article 15.4.
7.352 The EC asserts that the statements of Infine on's CEO were made outside the injury POI, i.e.,
in 2002. According to the EC, those statements we re not suited to demonstrate a contradiction with
an injury determination that covered the period 1998-2001. In any case, the EC submits, financial
advertisement statements aimed at potential investors are of limited value for the assessment of the
real state of a business.
7.353 The EC asserts that it examined all relevant factors having a bearing on the state of the
industry as required by Article 15.4 of the SCM Agreement . The EC argues that it considered
"output" or "production" in its Preliminary Determin ation, and that those findings were confirmed in
the Final Determination. The EC further asserts that Article 15.4 does not require an investigating
authority to examine "export sales" when examining th e state of the domestic industry. In accordance
with the SCM Agreement, the EC asserts that it examined "export sales" when it considered the
influence of other factors, under Article 15.5. With regard to the "wages" factor, the EC argues that
(1) the questionnaire responses from the domestic i ndustry contained information on wages and that
(2) the investigating authority examined that info rmation and concluded that the "wages" factor was
irrelevant for the injury assessment in the present case. The EC ac knowledges that the "wages" factor
was not discussed in the Preliminary and Final Determ inations. The EC gives four explanations for
the non-inclusion of "wages" in those determinations. First, wages were a minor factor for the cost of
production of DRAMs. Second, the wages in the Co mmunity were stable throughout the injury POI
due to the stability pact preceding the introduction of the Euro. Third, the injury findings would have
remained identical, irrespective of the development of wages. Finally, during the whole investigation,
neither the Government of Korea nor Hynix had raised the issue of "wages". In the view of the EC,
Korea must prove that the EC failed to examine or evaluate a relevant factor. According to the EC,
Korea has not done so.
7.354 On the issue of the overall evaluation of the s ituation of the domestic industry, the EC argues
that Article 15.4 imposes an obligation on Members to examine and evaluate all the relevant
economic factors and indices, but indicates at the same time that no one or several of those factors
necessarily gives decisive guidance. Regarding the substance of the injury determination, the EC
submits that for each factor the EC included availabl e relevant data in the determination, and in each
case the EC included an analysis or assessment in relation to such data. The EC then drew overall
conclusions. The EC disagrees with Korea's asser tion that it only found negative indicators for 3
factors. The EC asserts that it also determined and took into account 3 ot her negative or partially

255 Korea asserts that there was information on the file pointing to a positive development of the
domestic industry's export performance.

negative factors (losses in 2001; the magnitude of the subsidy amount and the volume of subsidized
imports). In sum, the EC considers that its dete rmination of material injury was based on a proper
overall examination and evaluation of all relevant factors having a bearing on the state of the industry.
(c) Panel Analysis
7.355 This claim concerns the consistency of the EC's injury analysis with Articles 15.1 and 15.4 of
the SCM Agreement. The latter provision read as follows:
256
[t]he examination of the impact of the subsidized imports on the domestic industry
shall include an evaluation of all rele vant economic factors and indices having a
bearing on the state of the industry, including actual and potential decline in output,
sales, market share, profits, productivity, return on investments, or utilization of
capacity; factors affecting domestic prices; actual and potential negative effects on
cash flow, inventories, employment, wages, growth, ability to raise capital or
investments and, in the case of agricultu re, whether there has been an increased
burden on government support programmes. This list is not exhaustive, nor can one
or several of these factors necessarily give decisive guidance.
7.356 In light of the overarching obligation set forth in Article 15.1 of the SCM Agreement , we
consider that Article 15.4 thus requires an objective examination and evaluation of all relevant factors
having a bearing on the state of the industry, based on positive evidence. Article 15.4 of the SCM
Agreement lists a number of these factors which are to be included in such an examination. We agree
with the view expressed by the Appellate Body, when interpreting an almost identical provision in the
AD Agreement , that the factors listed are deemed to be relevant in every investigation and must
always be evaluated by the investigating authoriti es. However, the obligation of evaluation imposed
by Article 15.4 is not confined to the listed factors, but extends to all relevant economic factors.
257
7.357 With the above remarks in mind, we shall ex amine whether the EC properly evaluated all
relevant factors, as mandated by Article 15.4, and whether the EC conducted an objective examination
based on positive evidence of the impact of the impo rts on the domestic industry, consistently with
Articles 15.1 and 15.4 of the SCM Agreement. Korea puts forth several main arguments in support of
these allegations. One set of arguments relate to the proposition that, in the view of Korea, the EC
should have evaluated a number of factors – th e economic downturn, the domestic industry's export
performance and wages – when examining the state of the domestic industry. Second, Korea points to
some inconsistent statements made by one of the two EC producers and the EC's findings in respect of
the state of the domestic industry. Finally, Korea takes issue with the EC's overall assessment of the
state of the domestic industry.
(i) Evaluation of certain economic factors: Economic downturn/Business cycle, Export
performance and Wages
7.358 Korea argues that one factor which is e xplicitly mentioned in Article 15.4 of the SCM
Agreement – "wages" – was not examined. Moreover, Korea argues that "export performance" and
the "boom/bust" cycle are two factors which are not explicitly listed in Article 15.4 but are clearly
relevant factors having a bearing on the state of the domestic industry which should therefore have
been examined by the EC as part of the injury analysis under Article 15.4.

256 Article 15.1 is already cited in para. 7.271, supra.
257 See, Appellate Body reports, Thailand – H-Beams and US – Hot-Rolled Steel , paras. 128 and 194,
respectively.

Wages
7.359 Article 15.4 requires a mandatory evaluation of all individual factors listed in that Article,
including "wages".258 The EC agrees with this and argues th at the investigating authority examined
information on wages and concluded th at this factor was irrelevant for the injury assessment in this
case, which explains why the "wages" factor is not discussed in the Preliminary and Final
Determinations.259 In response to a question from the Pane l, the EC states that "[n]aturally, the
investigating authority would have gone through an d considered all of the factors listed in the SCM
Agreement. However, there is no record of those considerations with regard to wages."260
7.360 We consider that, in the context of trade remedies investigations, which are subject to
multilateral rules and multilateral review, a Member is placed in a difficult position in rebutting a
prima facie case that an evaluation of a given factor has not taken place if it is unable to direct the
attention of a Panel to some contemporaneous written record of that process. In the particular case
before us, if – as acknowledged by the EC – there is no such written record of how the "wages" factor
has been interpreted or appreciated by the in vestigating authority during the course of the
investigation, there is no basis in our view on which the EC can now rebut a prima facie case that its
"evaluation" of that factor under Article 15.4 did not take place at all. In addition, and bearing in
mind the standard of review set forth in Article 11 of the DSU261, without a written record of the
analytical process undertaken by the investigating authority to evaluate "wages", we cannot examine
whether an adequate and reasoned explanation has been provided of how the facts support the injury
determination made by the EC a nd, consequently, whether that de termination was consistent with
Article 15.4. Without that written record, we would be forced to embark on post hoc speculation
about the thought process by which the investigating au thority arrived at its ultimate conclusions. We
consider that the standard of review in Article 11 of the DSU prevents us from embarking upon this
exercise.
7.361 The EC has argued that this factor was actually i rrelevant in this case. In the absence of any
similar indication in the record, we have to consider this to be an ex post rationalisation. The fact that
the exporter or Korea had not commented on this matte r at the time of investigation is not legally
relevant in light of the clear obligation imposed on the investigating authority by Article 15.4 to
examine and evaluate this factor.
262
7.362 In light of the above, we conclude that the EC acted inconsistently with Article 15.4 of the
SCM Agreement in not evaluating the "wages" factor when examining the impact of the subsidized
imports on the state of the domestic industry. 263 We would also note that the EC's omission in this
instance is somewhat surprising because this is not the first occasion in which an EC injury
determination has been reviewed by a WTO panel, based on similar grounds. 264 The EC should have
therefore been aware when it examined the state of the domestic industry that it had to evaluate all
relevant economic factors and indices bearing on the state of the domestic industry, including any

258 However, we are of the view that, in a given case, certain factors may be more relevant than others.
The weight to be attributed to any given factor may therefore vary from case to case.
260 EC response to question 86 of the Panel.
261 For a discussion of the standard of review applicable, see para. 7.4, supra.
262 Neither does the fact that an argument was not raised in the context of the underlying investigation
by the exporter concerned or the authorities of the exporting Member preclude a party from being able to raise it
at a later stage in a WTO panel proceeding. This was also the view held by the Panel in the Argentina – Poultry
case. (Panel report, Argentina – Poultry, para. 7.146 and note 123)
263 In reaching this conclusion, we note that neither has the EC argued that analysis of "wages" is
implicit in the analysis of other factors listed in Article 15.4, nor do we have any indication of record that that
was the case.
264 See, inter alia, Panel report, EC – Bed Linen, para. 6.153 et seq.

actual or potential decline in wages and that evidence of that evaluation should be part of the record in
order to allow for a meaningful review of its determination.
Other factors
7.363 With regard to Korea's arguments in respect of other factors that should have been examined
by the EC as part of its injury analysis, we note that neither economic downturn/business cycle nor
export performance are factors which are expressly listed in Article 15.4 of the SCM Agreement. We
consider that this provision imposes a clear obligation on authorities to examine all relevant economic
factors and indices having a bearing on the state of the domestic industry. Whether an economic
factor is relevant depends, inter alia, on the nature of the industry being investigated. In our view,
and different from the situation addressed earlier in wh ich a factor expressly listed in Article 15.4 is
not evaluated, it will be for the complaining party to demonstrate two things: (1) that a certain factor
which was relevant in assessing the impact of the subsidized imports on the state of the domestic
industry was not examined; and (2) that the question of evaluation was raised during the investigation.
7.364 In our view, the factors listed in Article 15.4 clar ify that what is required under this provision
is that the investigating authority examines and evaluates those factors and indices that provide it with
a full and objective picture of the state of the domes tic industry. Together with the results from the
analysis performed under Article 15.2 of the volume a nd price effects of the subsidized imports, this
may lead the investigating authority to a conclusion of material injury. Forces that may have caused
certain negative or positive developments are to be considered by the investigating authority as part of
its causation analysis, in respect of which Article 15.5 of the SCM Agreement contains specific
rules.
265
7.365 In our view, the economic downturn in the market ("boom/bust cycle") and the export
performance of an industry are precisely the kind of causal factors that will need to be addressed by
an investigating authority when establishing whether the subsidized imports caused the injurious state
of the domestic industry. The record clearly show s that the EC examined and evaluated the economic
downturn and the export performance as part of its causation analysis
266 and we will examine whether

 265 We find support for our reading in the report of the panel in Egypt – Steel Rebar (paras. 7.62-7.64)
dealing with the similar provision in the anti-dumping context, Article 3.4 of the AD Agreement, which stated
that:
"the term "having a bearing on" can mean relevant to or having to do with the state of the
industry, and this meaning is consistent with the fact that many of the factors listed in
Article 3.4 are descriptors or indicators of the state of the industry, rather than being factors
having an effect thereon. For example, sales levels, prof its, output, etc. are not in themselves
causes of an industry's condition. They are, rather, among the factual indicators by which that
condition can be judged and assessed as injured or not. Put another way, taken as a whole,
these factors are more in the nature of effects than causes.
This reading of "having a bearing on" finds contextual support in the wording of the last group
of factors in Article 3.4, namely "actual and potential negative effects on cash flow,
inventories, …" (emphasis added). Further contextual support is found in the cross-reference
to Article 3.4 contained in the first sentence of Article 3.5: "… the effects of dumping as set
forth in paragraph[] 4 [of Article 3]".
We note in addition that if Turkey were correct that the full causation analysis, including non-
attribution, were required by Article 3.4, this would effectively render redundant Article 3.5,
which explicitly addresses causation, including non-attribution. Such an outcome would not
be in keeping with the relevant principles of international treaty law interpretation, or with
consistent practice in WTO dispute settlement." (Panel report, Egypt – Steel Rebar ,
paras. 7.62-7.64)
In the same vein, Panel report, EC – Tube or Pipe Fittings, paras. 7.335 and 7.344.
266 EC's Final Determination, paras. 193 and 195.

it did so in a manner which is cons istent with Article 15.5 of the SCM Agreement when discussing
Korea's claims under that provision. We do not consider that the EC was somehow required to
include an additional, separate discussion or evalua tion of these factors in its injury analysis under
Article 15.4.267
7.366 In view of the above, we therefore find that the EC has acted consistently with its obligations
under paragraphs 1 and 4 of Article 15 of the SCM Agreement in not evaluating the economic
downturn/business cycle and the export performance of the domestic industry when examining the
state of the domestic industry.
(ii) Infineon statements
7.367 Korea argues that contradictory statements were made by the CEO of Infineon, one of the two
EC producers that cooperated in the investigation, in a November 2002 investor conference and in
Infineon's 2002 SEC Form 20-F. These statements alle gedly contradicted some of the findings of the
investigating authority concerning the state of the domestic industry.
7.368 It is not disputed by Korea that the investig ating authority made its findings based on data
received from the domestic industry. Korea does not challenge the correctness of those data, which as
stated in the EC's determinations were duly verifi ed by the investigating authority, but merely points
to some alleged inconsistencies between statements made by the CEO of Infineon, one of the two
domestic producers, in the context of the countervail investigation with other statements made before
the financial community on matters relating to some of the factors listed in Article 15.4. Leaving
aside the question of whether the statements were rele vant or not to the injury period of investigation,
we consider that a distinction must be made between positive evidence, on the one hand, and
unverified statements made in a context unrelated to the investigation, on the other. 268 We recall that
Article 15.1 requires that an injury de termination be based on positive evidence, i.e., evidence of an
affirmative, objective and verifiable character. Kore a has not argued that any of the data gathered by
the EC were not credible or not objective. Given th e fact that the accuracy of the data on which the
EC based itself to make its determination is not cont ested, we fail to see how statements made by one
of the two domestic producers for the financial co mmunity should have been preferred over such
objective, verifiable and verified data. For these reasons, we reject Korea's argument.
(iii) Overall assessment of the state of the domestic industry
7.369 Korea asserts that the EC failed to properly evaluate all the injury factors examined as
required by Article 15.4 of the SCM Agreement . In particular, Korea argues that the EC failed to
adequately explain why just three out of 13 factors examined, i.e., average sales price, cash flow and
capacity utilization, should compel its conclusion that the domestic injury was suffering material
injury. According to Korea, this shortcoming ev idences a lack of objective examination. The EC
asserts that it made its assessment on the basis of an overall evaluation of all relevant factors having a
bearing on the state of the industry, and points in pa rticular to three additional negative or partially
negative factors (losses in 2001; the magnitude of the subsidy amount, and the volume of subsidized
imports).

267 In its First Written Submission, Korea asserted that the EC had failed to examine output. This
argument, however, was not included in its subsequent submissions. In any event, even if Korea had maintained
its argument, we would have rejected it. It is clear to us that the EC evaluated the "output" factor, or as the EC
refers to it, "production". The evaluation of this factor can be found in para. 126, and its related table, of the
Preliminary Determination. In addition, we note that, in its response to question 87 of the Panel, the EC
confirmed that the "production" figure reported therein was inclusive of production for domestic and export
markets. (See also EC's response to question 42 of the Panel)
268 We recall that Article 12.5 requires investigating authorities to satisfy themselves as to the accuracy
of the information supplied by interested parties. We consider that this provision does not allow those
authorities to make their determinations on the basis of bare assertions made by interested parties.

7.370 We recall that Article 15.4 lists a number of f actors which must be examined in all cases in
order to examine the impact of subsidized imports on the state of the domestic industry. It also
emphasises that no one or several of these factors can necessarily give decisive guidance. From the
Final Determination, we conclude that the EC first examined and ev aluated various factors
individually,
269 before making an overall assessment of th e state of the industry on the basis of the
data gathered:
"(187) Following the publication of the provisional Regulation, Hynix and the GOK
claimed that most of the injury indicators show that the situation of the [domestic]
industry is improving. Therefore, no materi al injury could have been suffered by the
[domestic] industry.
(188) However, no arguments which could a lter the conclusions as set out in recitals
139 to 141 of the provisional Regulation were made. In accordance with the
provisions of Article 8(5) of the basic Re gulation, these conclusions were based on
the evaluation of all relevant economic factors and indices having a bearing on the
state of the [domestic] industry. The details are set out in recitals 125 to 138 of the
provisional Regulation and they have not been challenged. Though the position of
the [domestic] industry improved in cer tain respects during the period under
consideration because of the growing market for DRAMs, this was more than offset
by the very substantial injury caused by the drastic drop in sales prices and the
consequent heavy losses suffered by the Co mmunity producers during the [POI].
These losses had a negative effect on their retu rn on investments and their cash flow.
Consequently, taking into account all the fact ors, the conclusions reached in recitals
139 to 141 of the provisional Regulation that the [domestic] industry has suffered
material injury within the meaning of Ar ticle 8 of the basic Regulation are hereby
confirmed."
7.371 Paragraphs 139 to 141 of the Preliminary Determination, which are incorporated by reference,
read as follows:
"(139) Due to technological developments in the DRAM industry, demand in Mbit
terms, has risen each year as the user industry changed over to higher density
DRAMs to increase system performance. This growth of demand in Mbit terms
explains why, during the period considered the [domestic] industry benefited from the
favourable evolution of the Community c onsumption of the product concerned in
terms of sales volume and market share. In addition, it increased its market share.
However, almost half the increase was the result of one Community producer
replacing its share of imports from the United States, prior to 1998, with actual
Community production thereafter.
(140) In addition, the apparently highe r increase of the market share of the
Community industry can be explained to a certain extent by the fact that the sales
volume measured in Mbits reflects the gene rally more advanced technological stage
of the Community industry as compared with th at of Korean exporters. That is, the
[domestic] industry moved more swiftl y from production of 64 Mbit DRAMs to
production of 128 Mbit DRAMs than at least one of the their Korean counterparts.
This results in a considerable leap in capacity, and thereafter sales (which are
measured in Mbits), given that each unit produ ced and sold is twice the previous size
in terms of Mbits.

269 Paragraphs 187-188 of the EC's Final Determination incorporating by reference paras. 125-141 of
the Preliminary Determination.

(141) The sales prices of the [domestic] i ndustry, however, fell dramatically between
the year 2000 and the [POI], i.e. by 77 pe r cent and this fall had immediate and very
serious consequences for the [domestic] industry. The impact of the massive fall in
prices during the [POI] was quickly reflected in negative effects on cash flow,
profitability and return on investment of the [domestic] industry and hence the ability
to raise capital. The effect on profitability was huge since during the [POI], every
unit was sold with heavy losses which on average amounted to 96 per cent. Although
investments of the [domestic] industry as well as productivity and employment grew
in absolute terms during the period consider ed, the levels fell well short of what is
normal for this industry to remain competitive, to maintain the state of art facilities, to
continue with a high level of investment s on research and development and to keep
abreast with leading-edge technology."
7.372 In our view, the EC examined and evaluated a ll factors both individually and in an overall
context. In our view, the EC did not consider each factor in isolation, as Korea is claiming. While
acknowledging certain positive developm ents, we are of the view that the EC provided an adequate
explanation as to how the facts supported the de termination made. We consider that the EC
conducted an overall evaluation of the data in cont ext. The EC acknowledged, for example, that
investments of the domestic industry as well as produc tivity and employment grew in absolute terms
during the period considered, but explained that it consid ered that the levels fell well short of what is
normal for this industry to remain competitive, to maintain the state of art facilities, to continue with a
high level of investments on research and developm ent and to keep abreast with leading-edge
technology. It is therefore clear to us that the assessment of the state of the domestic industry, and the
conclusion that it was materially injured, did not just rest on the negative development of the three
factors mentioned by Korea, but took into account other factors such as the negative effects on cash
flow, profitability and return on investment and hence, the ability to raise capital.
270 In sum, we are of
the view that the record does not support Korea's cl aim that the EC examined the various factors only
in isolation. We therefore reject Korea's claim in this respect.271
7.373 In light of the above, we consider that Korea failed to demonstrate that an unbiased and
objective investigating authority, based on the info rmation that was before the EC at the time of
determination, could not have re ached a conclusion that the domestic industry was suffering material
injury. For the foregoing reasons, we reject Korea's claim.
(d) Conclusion
7.374 In sum, we find that the EC acted inconsistently with Article 15.4 of the SCM Agreement in
not evaluating the "wages" factor. For the remain der, we reject Korea's arguments that the EC
evaluation of the state of the domestic industry was inconsistent with Article 15.4 of the SCM
Agreement.

270 It seems that the difference between the EC and Ko rea's analyses is that, while Korea makes a static
end-point-to-end-point comparison, comparing data for 1998 to data for 2001 (with the exception of cash flow,
for which the investigating authority only had data for 2000 and 2001), the EC took into account the intervening
changes in circumstances and conditions which the DRAMs industry faced during the injury POI. We consider
that a proper evaluation of the impact of the subsidized imports on the domestic industry is dynamic in nature
and should take account of changes in the market that determine the current state of the industry.
271 We do not understand Korea to be arguing that no reasonable investigating authority could have
reached the conclusion of material injury that the EC reached, but merely th at the EC evaluated these factors in
isolation. There is, therefore, no need for us to examine the EC's overall analysis in further detail.

5. Claim regarding the EC's causation determination
(a) Korea
7.375 Korea argues that the EC failed to comply with the two important obligations set forth in
Article 15.5 of the SCM Agreement. First, Korea submits that the EC failed to establish the existence
of a causal link between the investigated imports a nd any material injury to the domestic industry.
Second, Korea argues that the EC failed to ensure that injury caused by other factors was not being
attributed to the investigated imports.
(i) Causation determination
7.376 Korea contends that Members seeking to impose countervailing duties must demonstrate, in
accordance with Article 15.5, an explicit "causal relationship" between the subsidized imports and any
material injury suffered by the do mestic industry. Korea argues that the first and second sentence of
Article 15.5 serve to connect the examination requ ired under Article 15.2 with respect to import
trends, including volume and price effects, and the examination under Article 15.4, with respect to
indicia of domestic industry performance. A correla tion should be established between import trends
on the one hand, and industry performance on the other, if a "causal relationship" is to be proved.
Korea asserts that, although the presence of a correlation may not be dispositive as there may be other
more significant factors that are causing material injury, the absence of a positive correlation between
the subsidized imports and material injury strongl y suggests that the subsidized imports are not the
cause of the material injury.
272
7.377 Korea asserts that evidence before the EC de monstrated that there was no correlation between
the trends in Hynix imports and either the domestic industry's market share or the domestic industry's
financial performance. Thus, with respect to mark et shares, data show that Hynix was losing market
share while Micron and Infineon – the complainants – gained market share. As far as profitability is
concerned, data show that, after the "boom" year of 2000, Micron and Infineon faced increased losses
even as Hynix suffered eroding market share.
(ii) Non-attribution/Examination of "any known factors other than the subsidized imports"
7.378 Korea asserts that in order to act consistently with Article 15.5, it is insufficient to establish a
mere correlation between subsidized imports and inju ry. Article 15.5 also requires an investigating
authority not to impute to subsidized imports any injury caused by other factors. Korea asserts that an
investigating authority must "separate" and "distingu ish" the injurious effects of factors other than
subsidized imports to ensure they are not attributed to the subsidized imports.273 Korea recalls that the
Appellate Body in US – Line Pipe stated that an investigating authority must also "establish explicitly,
through a reasoned and adequate explanation, that injury caused by factors other than increased
imports is not attributed to increased imports." Moreover, as with all the provisions of Article 15,
Korea recalls that the non-attribution analysis mu st also be based on positive evidence and on an
objective examination, as required under Article 15.1. Korea considers that the EC failed to comply

272 In support of its understanding, Korea refers to the Appellate Body's determination in US – Line
Pipe, interpreting the causal relationship requirement under Article 4.2(b) of the Safeguards Agreement. Korea
also refers to the Argentina – Footwear (EC) Panel report, which in a finding endorsed by the Appellate Body
stated that: "[w]hile (...) a coinciden ce [between an increase in imports with a decline in the relevant injury
factors] by itself cannot prove causation (…), its absence would create se rious doubts as to the existence of a
causal link, and would require a very compelling analysis of why causation is still present." (emphasis in
original)
273 Korea cites in support various findings made by the Appellate Body examining claims under
Articles 4.2(b) and 3.5 of the Safeguards and Anti-Dumping Agreements, respectively. (Appellate Body reports
in US – Wheat Gluten , US – Lamb, US – Line Pipe , and US – Hot-Rolled Steel , and Panel report in US – Steel
Safeguards)

with this non-attribution requirement with respect to a number of factors which the EC acknowledged
were also contributing to the injury found to exist.
Treatment of the drop in demand
7.379 Korea asserts that the EC improperly dismissed the effects of the unprecedented drop in the
underlying demand for computer and telecom equipment and the fact that 2001 was the worst year in
decades for these industries and the DRAMs industry.
7.380 Korea asserts that the demand for DRAMs is a de rived demand; that is, it is based solely on
the downstream demand for products that u se DRAMs, such as personal computers and
telecommunications equipment. Factors affec ting the demand for these downstream products thus
affect demand for DRAMs. In support of its alle gations, Korea submits a table regarding the DRAMs
demand growth.274 The data in that table shows that ra te of growth in DRAMs consumption during
2001 had fallen from its historical average. Over the 1995-1999 period, the average growth rate had
been 80 per cent annually. In 2001, however, this rate had dropped sharply to only 49 per cent.
Korea explains that the primary reason for the drop in demand growth for DRAMs was the
unprecedented drop in demand for the major users of DRAMs. The evidence before the EC
demonstrated that 2001 was the first year in history in which the level of demand for PCs was actually
negative. Korea asserts that even the domestic i ndustry admitted the deleterious effects of weaker
demand on its operations. Korea notes that the EC c oncluded in para. 193 of its Final Determination
that "the general economic downturn of the PC and telecommunication markets in 2001 may have had
some downward effect on prices." However, Korea asserts the EC never explained what that
"downward effect" was, or how that "downward effect" differed from the impact of the subsidized
imports.
"Inventory burn"
7.381 Korea asserts that, in the DRAMs market, slow demand leads to "inventory burn" which in
turn affects market prices in a negative way. Ko rea argues that the EC's position, that there was no
basis to assume the existence of an "inventory burn" – as no company would build up stocks when the
prices were high and release stock when prices are lo w – is completely at odds with the dynamics of
the DRAMs market. Korea asserts that there was c onsiderable evidence on the record regarding the
effects of an "inventory burn" which was ignored by the EC.
Changes in relative capacity
7.382 Korea argues that the EC failed to properly ta ke into account the role played by capacity
increases of companies other than Hynix. Korea asserts that the evidence before the EC demonstrated
that Hynix played a relatively trivial role in capacity expansions that occurred during the period
examined, while other suppliers – most notably, Mi cron, Infineon, and Samsung – had been the most
aggressive in expanding total DRAMs output. Korea contends that this evidence was ignored by the
investigating authority in its analysis of othe r known factors that affected the condition of the
domestic industry during the period examined. Korea su bmits that this failure demonstrates that the
EC did not comply with the requirements of Article 15.5, namely that an investigating authority
separate and distinguish injury caused by other fact ors so as not to attribute that injury to the
subsidized imports.
The volume of unsubsidized imports/Samsung's imports
7.383 Korea asserts that the EC failed to properly take into account the adverse effects of the
increasing volume of imports from other suppliers. Ko rea asserts that Hynix's market share decreased

while the market share of other imports increased su bstantially and was larger than Hynix's. Korea
submitted a table that compiled information on mark et share provided in Infineon's application,
which, Korea asserts, demonstrates that non-subsidi zed import market share was 58 per cent in 2001,
against a 15 per cent market share held by Hynix. Korea asserts that the relative market shares mean
that other imports had at least three times the competitive impact as Hynix's.
7.384 Korea argues that this table also showed th at suppliers from Chinese Taipei dramatically
increased their share of the EC market. Korea s ubmits that a logical hypothesis is that, for a
commodity product, the primary means by which su pplies from Chinese Taipei achieved such market
share gains was by offering prices below the competitors . In spite of this evidence, Korea asserts that
the EC did not conduct any analysis of suppliers from Chinese Taipei.
7.385 Korea submits that the EC's statement that Sa msung's imports have also increased, but at a
lower pace than Hynix's imports, is not supported by the evidence. Accordi ng to Korea, the data
demonstrates that Samsung increased its market share; whereas Hynix lost market share. Indeed, at
the same time that Hynix was losing 6.2 percenta ge points of market share, Samsung was gaining 2
percentage points of market share. In addition, Korea asserts that the EC's finding that Samsung's
prices were on average higher than those of Hynix is irrelevant to the issue of the price impact of
other imports. A proper analysis would have comp ared Samsung's prices to those of the domestic
producers. Korea asserts that it is entirely possible that Samsung's prices could be higher than Hynix's
prices but lower than the prices offered by domestic producers. If so, then Samsung's prices might
have depressed prices or prevented price increas es. And, if true, since Samsung's volume was so
much larger than Hynix's, Samsung's shipments might well have had a much larger adverse impact on
prices than Hynix's.
(b) EC
7.386 The EC asserts that the investigating author ity complied fully with Article 15.5 of the SCM
Agreement when establishing the existence of a causal link between the subsidized imports and
material injury to the domestic industry. The EC submits that the investigating authority first
established that there was a causal link between the subsidy granted by Korea to Hynix and material
injury to the domestic industry. Next, the investig ating authority separated and distinguished each of
the other potential factors that might have contribut ed to causing the material injury experienced by
the domestic industry, and in each case considered that the causal link between the subsidized imports
and the material injury had not b een broken. The investigating authority addressed in detail all "other
known factors", including those raised by Hynix – that is, the general/cyc lical economic downturn
during the investigation period, non-subject impor ts and capacity increases. The investigating
authority found that these factors may have caused in jury, however, not to an extent that would break
the causal link between the subsidized imports and the injury caused by the subsidized imports.
(i) Causation determination
7.387 The EC asserts that the premise of Korea's allegations in respect of the EC's causation
analysis is incorrect, since the investigating au thority properly established – on the basis of an
approach that correctly and reasonably assessed Hyni x's acquisition of LGS's in 1999 – that Hynix's
market share increased during the in jury POI. Korea's elaborations on a causation analysis, based on
the addition of LGS's import figures to Hynix's figur es, are therefore entirely hypothetical. In any
event, the EC contends that the "correlations" that Korea asserts exist (market share of the domestic
industry versus market share of Hynix and market share of Hynix versus profitability of Infineon)
would not have any particular value for the causati on analysis, since the investigating authority needs
to "look at the whole picture". Market share, or the volume of subsidized imports, is only one piece
of the overall picture. The EC concludes that Korea's graphs are misleading, and their one-
dimensional approach is incapable of establishing any inconsistency with the SCM Agreement.

7.388 The EC rejects Korea's argument based on the im portance to be attached to the correlation of
the volume and price effects and the injury factors. The EC is of the view that Korea's argument is
based on a number of panel and Appellate Body repor ts in the safeguards context, in which increased
imports play an entirely different role as a cond ition for the imposition of a measure. The EC points
out that in a countervailing duty context, the volume a nd price effects of imports are merely factors to
be considered and taken into account when making an overall assessment of injury and causation. In
any case, the EC notes that during the injury POI, Hynix's imports increased by 155 per cent in
absolute terms, even when accepting, arguendo, the Korean argument with regard to the treatment of
the merger between HEI and LGS in 1999.
(ii) Non-attribution/Examination of "any known factors other than the subsidized imports"
7.389 The EC asserts that th e investigating authority properly separated and distinguished the
relevant other factors that were affecting the domestic industry at the same time as the subject imports
and thus ensured that injury caused by such other f actors was not attributed to the subsidized imports,
as required by Article 15.5 of the SCM Agreement.
Treatment of the drop in demand
7.390 The EC asserts that the investigating author ity recognized the potential for some downward
price effect in 2001 caused by a general economi c downturn of the PC and telecommunications
markets. The impact was held to be limited howev er, in comparison to the impact of the subsidized
imports. Moreover, the EC asserts that, while ma rket growth slowed, it remained around 59 per cent
measured in megabits. The investigating authorit y found that the impact of economic conditions on
prices, and thus on the state of the domestic industr y in 2001, was modest in comparison to the sharp
and sudden price decline triggered by the market's reaction to the billions of dollars of support
provided to Hynix the same year.
"Inventory burn"
7.391 The EC asserts that the investigating authorit y found that this argument was unsupported by
any factual evidence and was, in any event, rebutted by distributor testimony.
Changes in relative capacity
7.392 The EC asserts first that Korea's reference to re lative increases is irrelevant to the question of
who caused overcapacity. Overcapacity concerns th e relationship between total capacity and total
consumption. In this respect, the EC notes that the domestic industry's capacity did not even cover
the EC's consumption during the injury POI wh ile Hynix's production accounts for 17 per cent of
worldwide production and its capacity was higher than both the domestic industry's capacity use and
the overall EC's consumption. As the capacity of the domestic industry was insufficient to meet
domestic consumption, it is clear that no self-inflicted injury due to overcapacity can be attributed to
the domestic industry, as Hynix had alleged at the time of the investigation. The EC asserts that the
investigating authority acknowledged that structur al, worldwide overcapacity was present throughout
the injury POI, but also determin ed that overcapacity was due in substantial part to the subsidies
granted by Korea to Hynix. As to the impact of overcapacity on prices, the EC recognizes that global
capacity conditions affect pricing for DRAMs. Ho wever, the EC observes that global capacity was
surplus to demand at different times, and not just the period considered. Unprecedented price declines
in 2001 cannot, therefore, be explained simply by overcapacity.
The volume of unsubsidized imports/Samsung's imports
7.393 The EC explains that the authority consid ered separately the volume of imports from
Samsung, and the volume of imports from all other s ources. Regarding the latter, the EC asserts that

the investigation showed that Hynix imports in creased each year (361 per cent overall) from 1998 to
2001 (and by 24 per cent from 2000 to 2001), and that the Hynix import market share in 2001 was
20 per cent higher than in 1998. By contrast, DRAMs imports from other countries declined by
4.2 per cent from 2000 to 2001; and their EC market share fell from 41 per cent to 20 per cent during
1998-2001, and fell from 31.4 per cent in 2000 to 20 per cent in 2001. Given these trends, the EC
concludes that any injury caused by non-subject imports could not be – and was not – attributed to
Hynix imports.
7.394 The EC contends that the investigation showed that Samsung's imports, although significant,
increased at a lower rate than Hynix imports, and slower than the increase in domestic consumption.
Furthermore, it was found that Samsung's prices were on average higher than those of Hynix.
Therefore, the investigating authority concluded, although Samsung's imports may have caused some
injury to the domestic industry, that effect was not strong enough to break the causal link between
Hynix's subsidized imports and the material injury suffered by the domestic industry.
(c) Panel Analysis
7.395 Korea claims that the EC acted inconsistently with paragraphs 1 and 5 of Article 15 of the
SCM Agreement when it concluded that Hynix's imports caused material injury to the domestic
industry. Korea argues that the EC failed to sh ow that a causal relationship existed between
subsidized imports and any material injury suffered by the domestic industry, and that the EC failed to
properly separate and distinguish the injurious effects of certain other factors from the injurious
effects of the subsidized imports.
7.396 Article 15.5 of the SCM Agreement provides as follows:
275
[i]t must be demonstrated that the subsidized imports are, through the effects of
subsidies, causing injury w ithin the meaning of this Agreement. The demonstration
of a causal relationship between the subsidized imports and the injury to the domestic
industry shall be based on an examination of all relevant evidence before the
authorities. The authorities shall also ex amine any known factors other than the
subsidized imports which at the same time are injuring the domestic industry, and the
injuries caused by these other factors must not be attributed to the subsidized imports.
(footnote omitted)
7.397 Article 15.5 imposes two basic obligations on investigating authorities. First, it requires a
demonstration that the subsidized imports are, through the effects of subsidies as set forth in
Articles 15.2 and 15.4, causing injury within the meaning of the SCM Agreement. This demonstration
must be based on an examination of all relevant ev idence before the investigating authority. Second,
it mandates investigating authorities to examine any known factors other than the subsidized imports
which at the same time are injuring the domestic in dustry, and requires that the injuries caused by
these other factors not be attributed to the subsid ized imports. Each of these obligations will be
examined more in detail when we examine Korea's claims and arguments.

275 Article 15.1 is already quoted in para. 7.271, supra. We recall that the Appellate Body has found in
the anti-dumping context that Article 3.1 sets forth an ov erarching obligation that cove rs all of Article 3 of the
AD Agreement, the provision parallel to Article 15 of the SCM Agreement. Our analysis of Article 15.5 of the
SCM Agreement is thus based on our understanding that a causation analysis can only be consistent with
Article 15.5 of the SCM Agreement if it involved an objective examination based on positive evidence.

(i) Whether the EC properly demonstrated the existence of a causal relationship between
subsidized imports and injury
7.398 Korea argues that evidence before the EC de monstrated that there was no correlation or
coincidence between the trends in Hynix imports an d either the domestic industry's market share or
the domestic industry's financial performance. Korea relies on the following panel finding, confirmed
by the Appellate Body, in Argentina – Footwear (EC) : "[w]hile (...) a coincidence [between the
increase in imports with a decline in the re levant injury factors] by itself cannot prove causation (...),
its absence would create serious doubts as to the ex istence of a causal link, and would require a very
compelling analysis of why causation is still present." 276 (emphasis in original) The EC asserts that
Korea's assumption that Hynix's market share in the EC declines hinges on the assumption that the
investigating authority was wrong in not adding the volume of imports of LGS to Hynix's. According
to the EC, this argument should be dismissed. Moreover, the EC argues that the investigating
authority must look at the "overall picture", including the increase in absolute volume of Hynix
imports alone, rather than to the discrete correlations proposed by Korea.
7.399 We note that the Argentina – Footwear (EC) case concerned the causation standard under
Article 4.2(b) of the Safeguards Agreement . While the parties have made additional arguments
concerning the relevance of findings by various panels and the Appellate Body in respect of safeguard
cases to disputes involving countervailing duties, we do not consider it necessary to resolve this
issue.
277 This is because, in any event, Korea has fa iled to establish that there was an absence of
coincidence between absolute import volume and the injury to the domestic industry, whatever might
be said about the relative volume and market share.
7.400 Korea argues that there was no correlation between a rising market share of subsidized
imports and a falling market share and profitability of domestic producers. Korea asserts that the
market share of subsidized imports was decreasing at the same time that (1) the market share of the
domestic industry was increasing and (2) profitability of Infineon was decreasing.
278
7.401 We note that, in its tables showing correlati ons between Hynix's market share and the EC
producers' market share, on the one hand, and between Hynix's market share and Infineon's
profitability, on the other 279, Korea used information from the a pplication rather than information
relied on by the investigating au thority in its determinations. 280 In our view, correlations could have
been prepared based on data whic h the investigating authority had determined to be accurate for the

276 Appellate Body report, Argentina – Footwear (EC) , paras. 144-145, referring to Panel report,
Argentina –Footwear (EC), para. 8.238.
277 We note that while a finding of increased impor ts is a necessary condition for the imposition of a
safeguard measure, this appears not to be the case for countervail investigations since Article 15.2 of the SCM
Agreement provides that "[n]o one or several of these [vol ume and price effect] factors can necessarily give
decisive guidance." This provision suggests that a co untervailing measure may be imposed even in the absence
of a significant increase in the volume of subsidized imports, provided the requisite price effects exist. This
seems to be the interpretation of the Appellate Body, in the anti-dumping context. (Appellate Body report, EC –
Tube or Pipe Fittings , para. 111, note 114.) We concur with the opinion expressed by the panel in the parallel
challenge against the US countervailing measures on Kor ean DRAMs (DS296) that, since there is no need to
demonstrate some measure of increased imports in all cases, it follows that there is no generalized requirement
to establish a temporal correlati on between increased imports and injury in the context of a countervail
investigation. (Panel report, US – Countervailing duty on DRAMs , para. 7.320, note 283.) This interpretation
appears consistent with the quoted language on "decisive guidance". The absence of a temporal correlation
certainly raises a flag, but it is not an absolute barrier to a finding of injury.
278 This assertion reflects the development of market share and profitability between years 2000 and
2001, not the whole of the injury POI, which we recall runs from January 1998 to December 2001.
279 Korea First Written Submission, tables in paras. 214 and 217.
280 Id., para. 214, note 178 – concerning developments of the domestic industry's market share vs.
Hynix's market share – and para. 216, note 179 (page 17 of Exhibit GOK-31-(b)) – on Hynix's market share vs.
profitability of Infineon.

purposes of making its Final Determination. This da ta was available to Korea, at least in indexed
form. For this reason alone, we consider that we could dismiss Korea's argument. However, even if,
arguendo, Korea had used that data from the EC's Final Determination – or, for that matter, from the
application – we would also have rejected it b ecause those data would show a decrease in Hynix's
market share only if LGS's data had been combined with Hynix/HEI's prior to their merger. We have
examined this argument in section VII.C.2(c), supra, and rejected it, in the context of the Article 15.2
claim, for the reasons set out in paras. 7.299-7.305, supra. Nevertheless, suppose, arguendo, that
Korea is correct in asserting that LGS's import data should have been combined with Hynix's import
data for the purposes of Article 15. 5 "[demonstrating] that the subsidized imports are, through the
effects of subsidies, causing injury within th e meaning of this Agreement." In para. 7.303, supra, we
illustrated a scenario in which a false association ma y be created between rising imports of a merged
firm – by comparison with pre-merger imports of the surviving merger partner – and subsidies given
solely to the surviving merger pa rtner. But that is not the scenar io of the LGS/HEI merger, for the
simple reason that the combined imports of LGS an d HEI/Hynix, before and after the merger, rose in
absolute volume during the injury POI. Korea's ar gument could only prevail if we were persuaded
that absolute volume increases must be ignored in the DRAMs context. For the reasons set out in
para. 7.328, supra, we accept the EC's argument that th e absolute volume increases alone could
undercut prices. Hence, we are of the view that Korea's arguments, read in the most favourable light,
must be rejected.
7.402 Aside from the line of argument that we have rejected, Korea has not identified how, under
the facts of the case, as analysed by the investigating authority, the EC's determination that the
subsidized imports were, through the effects of subsidies, causing injury to the domestic DRAMs
industry should be found to be inconsistent with Article 15.5.
7.403 Therefore, we reject claim that the EC failed to properly demonstrate the requisite causal link
between subsidized imports and injury suffered by the domestic industry.
(ii) Whether the EC's causation analysis satisfies the non-attribution requirement
7.404 The second part of Korea's claim is whether the EC's causation analysis satisfies (1) the non-
attribution requirement set forth in Article 15.5 the SCM Agreement and (2) the overarching principle
set forth in Article 15.1, i.e., that a determination under Article 15 must be based on an objective
evaluation of positive evidence. We recall that Article 15.5 of the SCM Agreement requires an
investigating authority to ensure that injury caused by any known factors, other than the subsidized
imports, which at the same time are injuring the dom estic industry, must not be attributed to the
subsidized imports. We note that a parallel obligation in the AD Agreement has been interpreted by
panels and the Appellate Body to require an inv estigating authority to sep arate and distinguish the
injury caused by such other known factors.
281 In light of the identical wording and role of the non-

 281 In the EC – Tube and Pipe Fittings case, the Appellate Body summarized its interpretation of the
non-attribution requirement as follows:
"[Article 3.5] obligates investigating authorities in their causality determinations not to
attribute to dumped imports the injurious effects of other causal factors, so as to ensure that
dumped imports are, in fact, "causing injury" to the domestic industry. In US – Hot-Rolled
Steel we described the non-attribution obligation as follows:
… In order that investigating authorities, applying Article 3.5, are able to
ensure that the injurious effects of the other known factors are not
"attributed" to dumped imports, they must appropriately assess the injurious
effects of those other factors. Logica lly, such an assessment must involve
separating and distinguishing the injurious effects of the other factors from
the injurious effects of the dumped imports . If the injurious effects of the
dumped imports are not appropriately separated and distinguished from the
injurious effects of the other factors, the authorities will be unable to

attribution requirement in the SCM Agreement, we are of the view that Article 15.5 contains a similar
requirement to separate and distin guish the injury caused by factors other than subsidized imports.
We note that the parties are in agreement with respect to the legal standard that applies, but differ in
view as to the question whether the EC complied with this standard in its DRAMs investigation.
7.405 It is clear that Article 15.5 does not impose any particular methodology when conducting the
causation analysis set forth therein, provided that an investigating authority does not attribute the
injuries of other causal factors to subsidized impor ts. The Appellate Body has not provided guidance
as to how an investigating authority should examine other known factors in order to make sure that
the non-attribution requirement is fulfilled. In our view, it does not suffice for an investigating
authority merely to "check the box". An investiga ting authority must do more than simply list other
known factors, and then dismiss their role with ba re qualitative assertions, such as "the factor did not
contribute in any significant way to the injury", or "the factor did not break the causal link between
subsidized imports and material injury." In our view, an investigating authority must make a better
effort to quantify the impact of other known factors, relative to subsidized imports, preferably using
elementary economic constructs or models. At the very least, the non-attribution language of
Article 15.5 requires from an investigating author ity a satisfactory explanation of the nature and
extent of the injurious effects of the other factors, as distinguished from the injurious effects of the
subsidized imports.
282

conclude that the injury they ascribe to dumped imports is actually caused by
those imports, rather than by the other f actors. Thus, in the absence of such
separation and distinction of the different injurious effects, the investigating
authorities would have no rational basis to conclude that the dumped imports
are indeed causing the injury which, under the Anti-Dumping Agreement ,
justifies the imposition of anti-dumping duties. (emphasis added)
…
… [I]n order to comply with the non-attribution language in [Article 3.5],
investigating authorities must make an appropriate assessment of the injury
caused to the domestic industry by the other known factors, and they must
separate and distinguish the injurious effects of the dumped imports from the
injurious effects of those other factors. This requires a satisfactory
explanation of the nature and extent of the injurious effects of the other
factors, as distinguished from the injurious effects of the dumped imports .
(emphasis added)
Non-attribution therefore requires separation and distinguishing of the effects of other causal
factors from those of the dumped imports so that injuries caused by the dumped imports and
those caused by other factors are not "lumped together" and made "indistinguishable".
We underscored in US – Hot-Rolled Steel, however, that the Anti-Dumping Agreement does
not prescribe the methodology by which an investigating authority must avoid attributing the
injuries of other causal factors to dumped imports:
We emphasize that the particular methods and approaches by which WTO
Members choose to carry out the process of separating and distinguishing the
injurious effects of dumped imports from the injurious effects of the other
known causal factors are not prescribed by the Anti-Dumping Agreement .
What the Agreement requires is simply that the obligations in Article 3.5 be
respected when a determination of injury is made.
Thus, provided that an investigating authority does not attribute the injuries of other causal
factors to dumped imports, it is free to choose the methodology it will use in examining the
"causal relationship" between dumped imports and injury." (footnotes omitted) (Appellate
Body report, EC – Tube or Pipe Fittings, paras. 188-189)
282 Appellate Body report, US – Hot-Rolled Steel, para. 226.

7.406 In its determination, the EC identified certain factors, other than subsidized imports, that were
potentially causing injury to the domestic industry including: the general economic downturn during
the injury POI; imports of the product concerned from countries other than Korea; export activity of
the domestic industry; overcapacity; stocks and Sams ung's imports. With respect to each of these
factors individually, the EC conducted a separate examination and found that "whilst the economic
downturn may have had some downward effect on pr ices, it can be assumed that, with consumption
rising, this effect was not substantial.";
283 that "imports from other countries than Korea have not
contributed in any significant way to the injury suffered by the [domestic] industry"; 284 that "given
the lower volume of exports in relation to the volu me of sales in the Community during the [POI], the
injury suffered by the [domestic] industry cannot be attributed to its exports."; 285 and that "though
Samsung imports may have caused some injury to the Community industry, this was not sufficient to
break the causal link between Hynix's subsidised im ports and the material injury suffered by the
Community industry."286 In addition, the EC rejected Korea's arguments that "any injury suffered by
the [domestic] industry during the [POI] was self-inflic ted by its investments made during the period
under consideration"287 and that "another reason for the dec lining prices of DRAMs during the [POI]
was a significant "inventory burn"".288
7.407 Having considered each of the above factors separately, the EC arrived in its Final
Determination at the following overall conclusion:
"(202) Factors other than the subsidised imports originating in Korea, such as other
imports, the general economic downturn, the export activity of the [domestic]
industry and the pre-existing overcapacity in the market, may well have contributed
to the injury suffered by the [domestic] i ndustry during the [POI]. However, their
injurious effect, both individually and collectively, was considered of some
importance but insufficient to undermine the ma terial injury attributable to subsidised
imports.

(205) .... In view of the analysis, which has properly distinguished and separated the
effects of all known factors on the situation of the [domestic] industry from the
injurious effects of the subsidised imports, it is hereby concluded that these other
factors are not such as to break the causal link between subsidisation and injury.
Accordingly, it is concluded that these im ports have caused material injury to the
[domestic] industry within the meaning of Article 8(6) of the basic Regulation."
7.408 In sum, the injurious effect of the factors othe r than subsidized imports that were examined,
both individually and collectively, was considered of some importance but insufficient to undermine
the material injury attributable to subsidised impor ts. In other words, the EC concluded that these
other factors were not such as to break the causal link between subsidisation and injury, but did not
present any thorough qualitative analysis of the nature and extent of these effects. Neither did it
provide any quantitative analysis whatsoever of th e relative importance of subsidized imports and
other factors.
7.409 Korea argues that the EC failed to comply with its obligation to separate and distinguish
injury caused by certain other factors so as not to attribute that injury to the subsidized imports.

283 EC's Final Determination, para. 193, read in conjunction with Preliminary Determination, para. 150.
287 Id., paras. 196-197.
288 Id., paras. 198-199.

Korea also argues that the EC did not go beyond stating conclusions in its determination. Korea
asserts that no reasoning and factual basis supporting that reasoning can, in Korea's view, be found in
that determination.
7.410 Bearing the above in mind, we shall examine whether the EC properly separated and
distinguished the injurious effects of each of these other factors from the injury caused by alleged
subsidized imports.
Economic downturn in the market
7.411 Korea argues that the EC failed to properly ex amine and distinguish th e injury caused by the
economic downturn in the market and the decline in demand.
7.412 In the Final Determination, the EC addressed the decline in demand as a intervening causal
factor in the following manner:
"(193) Hynix and the GOK argued that the Commission did not take into account
the impact of the cyclicality of the DR AM market. They further argued that
worldwide demand for DRAMs grew in 2001 only by 59 per cent whilst the average
year on year rate was 75 per cent. It is noted that these alleged worldwide growth
rates are highly subjective and contradict ot her information available on the record.
As set out in recital 150 of the provisional Regulation, it is recognised that the general
economic downturn of the PC and telecomm unication markets in 2001 may have had
some downward effect on prices. However, it was found that DRAM consumption in
the Community continued its upward trend throughout the period under
consideration. The increased consumption in terms of Mbits during the [POI]
stemmed to a large degree from the intr oduction of Microsoft XP, which has much
higher Mbit requirements than previous sy stems, and increased sales of "upgrade"
products generated by the low prices. In fact, the consumption in Mbits in the
Community increased almost at the same rate between the year 1999 and the good
year 2000 (57 per cent) as compared to the increase between the good year 2000 and
the bad year 2001 - the [POI] (51 per cent). It is therefore concluded that, whilst the
economic downturn may have had some dow nward effect on prices, it can be
assumed that, with consumption rising, this effect was not substantial."
7.413 In sum, the EC recognised that the ge neral economic downturn of the PC and
telecommunication markets in 2001 may ha ve had some downward effect on prices.
289 In spite of
this, and based on its analysis of the development of consumption in megabits in the EC between
1999-2001, the EC concluded that whilst the general economic downturn of the PC and
telecommunication markets in 2001 may have had some downward effect on prices, it could be
assumed that, with consumption rising, the inju rious effect of the economic downturn was not
substantial. By way of conclusion the EC st ates that the economic downturn may well have
contributed to the injury suffered by the domestic industry during the POI through its impact on
prices.290 The record is devoid of even elementary quantitative analysis of the importance of the
economic downturn, or a thorough qualitative analysis of the nature and extent of this factor.
7.414 The question before us is whether the effects of this factor were separated and distinguished
so that injuries caused by the subsidized imports and those caused by the economic downturn were
not lumped together and made indistinguishable. In our view, a satisfactory explanation of the nature

289 The basis for this conclusion is not stated in the EC's Final Determination.
290 We recall that the development of prices constitutes one of the main factors on which the EC based
its finding of material injury. The central role of the development of sales prices can, inter alia, be seen in
paras. 188, 192 and 205 of the EC's Final Determination.

and extent of the injurious effects of the factor "decline in demand", as distinguished from the
injurious effects of the subsidized imports, is required. We note that, after acknowledging that the
economic downturn may well have contributed to the injury suffered by the domestic industry, the EC
turns to the examination of the development of c onsumption in the EC. While the developments in
domestic consumption may be a relevant factor to take into consideration, we fail to see to what
extent the EC's analysis of domestic consumption is sufficient for separating and distinguishing the
injurious effects of the economic downturn, which the EC acknowledged existed, and the injurious
effects of the subsidized imports. The EC ac knowledged that the downturn in the market had a
negative effect on prices but failed to examine the ex tent of this negative effect. Since we do not find
either in the EC's Final Determination or elsewhere on the record before us a satisfactory explanation
of the nature and extent of the injurious effects of the economic downturn, as distinguished from the
injurious effects of the subsidized imports, we concl ude that the EC has acted inconsistently with its
obligation under Article 15.5 of the SCM Agreement not to attribute to subsidized imports injury
caused by other factors.
"Inventory burn"
7.415 With regard to the allege d "inventory burn", which Korea argues always accompanies a
decline in demand in the DRAMs market, the releva nt EC's findings are contained in paragraphs 198-
199 of its Final Determination:
"[f]ollowing the imposition of provisional measures, Hynix also argued that another
reason for the declining prices of DR AMs during the [POI] was a significant
"inventory burn". It was argued that during the "near record year" 2000 when DRAM
prices increased significantly, many cust omers (e.g. distributors) built up their
DRAM inventory because users feared shorta ges. During the [POI], when it became
clear that the collapse of the PC and telecommunications markets would depress
demand, these inventories were disposed of quickly and further exacerbated the
already declining prices.
However, first of all this argument is not supported by any factual evidence.
Secondly, it is based on a wrong premise: during the [POI] DRAMs consumption
continued to increase in the Community. Finally, it is not plausible: no company will
build up stocks when the prices are high, in particular when a product like DRAMs
has a short life cycle; on the contrary they may build up stocks when the prices are
low. In this respect, it is recalled that the stocks of the [domestic] industry as a
percentage of production in Mbits dec lined during the good year 2000 as well as
during the bad [POI]. This has been conf irmed by the sole cooperating distributor
which stated in its response to the questionnaire that "at present manufacturers move
to just-in-time ordering". The same distri butor indicated during a hearing that its
DRAMs stocks are renewed four times a month. Therefore, no link can be made in
this regard between stocks and prices, and accordingly, this argument has to be
rejected."
7.416 The above paragraphs show clearly that the EC pursued this matter with relevant interested
parties and that evidence obtained in the course of the investigation from the sole cooperating
distributor did not support Hynix's contention that there was a significant "inventory burn" during
2001. Korea asserts that "there was considerable evidence on the record th at the EC refused to
address" and which pointed to a significant "inventory burn".
291 We have examined the documents
referred to by Korea, which contain st atements referring to "inventory burn". 292 However, these

291 Korea response to question 89 of the Panel, para. 56 and note 23.
292 We have examined the documents referred to in note 23 to para. 56 of Korea's response to
question 89 of the Panel.

statements lacked any factual support and, since Korea has not pointed to any other evidence of record
in support thereof, we are of the view that it was reasonable of the investigating authority to conclude,
based on evidence from the sole cooperating distri butor, that there was no factual basis supporting
Korea's argument that the "inventory burn" contributed to the injury suffered by the domestic
industry.
7.417 In light of the above, we reject Korea's argumen t that the EC failed to take into account the
"inventory burn" when analyzing other factors affecting the domestic industry.
Overcapacity
7.418 Korea argues that the EC failed to properly take into account the injury caused by excess
capacity. In paras. 196-197 of the EC's Final Determination, the following analysis of overcapacity as
a possible cause of injury is provided:
"[f]ollowing the imposition of provisional measures, Hynix and the GOK claimed
that any injury suffered by the [domestic] industry during the [POI] was self-inflicted
by its investments made during the period under consideration. They further claimed
that these investments have largely contribut ed to the overcapacity during the [POI].

As set out in recital 153 of the provisional Regulation, the worldwide DRAMs market
still suffered during the [POI] from structural overcapacity resulting from the
expectations of the late 1990s that the mark et would continue its rapid growth. This
overcapacity can be said to have contributed to the severity of the current downturn
from which this industry is suffering. However, it is noted that the capacity of the
[domestic] industry in Mbit terms did not reach the consumption in the Community
during the [POI]. Furthermore, it is gene rally recognised that the DRAMs industry
constantly needs a high level of invest ment, in particular in research and
development, to keep abreast with leading-edge technology. The investments of the
[domestic] industry during the period under consideration can therefore be viewed as
reasonable and were undertaken in order to maintain its competitiveness in a growing
market. In this respect, it is noted that both Korean producers made significant
investments during the period under consideration. In fact, the worldwide
investments of the [domestic] industry were less than half the investments of the two
Korean producers during that period. It is therefore reasonable to assume that any
overcapacity was not created by the [domes tic] industry alone. On the contrary, it
was the Korean industry which has main ly contributed to such overcapacity
worldwide. It is also reasonable to assume that, had the Korean government not
intervened with the subsidi es, the situation in both the Community and worldwide as
regards overcapacity would not have been so pronounced."
293

293 The EC also refers us to its finding in para. 153 of the Preliminary Determ ination. This reads as
follows:
"[t]he worldwide DRAM market still suffers from structural over-capacity resulting from the
expectations of the late 1990s that the market would continue its rapid growth. This over-
capacity can be said to have contributed to the severity of the current downturn from which
this industry is suffering. As is the case with all downturns, it is reasonable to assume that this
one had downward effect on prices. However, it is also reasonable to assume, that had the
Korean government not intervened with the s ubsidies, the situation in both Community and
worldwide as regards overcapacity would not have been so pronounced. It should be noted
that during the [POI], Hynix was the third biggest DRAM producer in the world (around
17 per cent of world production) after Samsung and Micron. Furthermore, the over-capacity
existed, albeit to varying degrees, throughout the period considered, but only during the [POI]

7.419 We also find the following finding in paragraph 204 of the EC's Final Determination to be
relevant:
"[a]s far as overcapacity is concerned, th is worldwide situation existed during a
number of years including the period unde r consideration. Therefore, this
overcapacity cannot be considered alone as the cause of the very significant sudden
drop in prices that led to the injury suffere d by the [domestic] industry. Furthermore,
subsidised imports are themselves a substantial cause of oversupply."
7.420 In sum, the EC examined the factor "over capacity", both at the Preliminary and Final
Determinations, and acknowledged, through its examination of the EC and international markets, that
overcapacity indeed existed. The EC determined that "[t]his overcapacity can be said to have
contributed to the severity of the current downturn fr om which this industry is suffering." From these
statements, among others, we infer that overcapacity was considered by the EC to have caused injury
to the domestic industry. The question before us is again whether the effects of this factor were
separated and distinguished so that injuries cause d by the subsidized imports and those caused by
"overcapacity" were not lumped together and made indistinguishable. We recall that a satisfactory
explanation of the nature and extent of the in jurious effects of the factor "overcapacity", as
distinguished from the injurious effects of the subsidi zed imports, is required. But, again, the record
is devoid of even elementary quantitative analysis , or a more thorough qualitative analysis of the
nature and extent of the injury caused by this factor.
7.421 We have carefully examined the EC's determina tions and we have not been able to find in
them any indication that the investigating authority separated and distinguished the injurious effects of
overcapacity from the injurious effects of the subsid ized imports, let alone a satisfactory explanation
of the nature and extent of the injurious effects of the factor "overcapacity", as distinguished from the
injurious effects of the subsidized imports. Af ter acknowledging the existence of overcapacity, the
EC's discussion in para. 197 turns to an examinatio n of the domestic industry's investment decisions
and subsequently to determine who created the over capacity worldwide. In our view, who is to be
blamed for the overcapacity does not answer the ques tion of the effect this factor may have had on
driving prices down and on its role as a cause of the injury found to exist. While this discussion might
be relevant to one aspect of the argument – i.e., whether the domestic producers themselves are to
blame for the injurious state of the domestic industr y due to erroneous capacity decisions – it fails to
address the crucial question of separating and distinguis hing the effects of this factor, irrespective of
who is to blame for the overcapacity. We thus do not find an indication that the effects of this factor
were separated and distinguished from the injurious effects of the subsidized imports.
7.422 For the foregoing reasons, we conclude that the EC failed to provide a satisfactory
explanation of the nature and extent of the injurious effects of overcapacity as a factor causing injury.
We therefore conclude that the EC has acted inc onsistently with its obligation under Article 15.5 of
the SCM Agreement not to attribute to subsidized imports injuries caused by other factors.
Other (non-subsidized) imports
7.423 Korea argues that the EC failed to properly sep arate and distinguish the injurious effects of
imports from other suppliers, both non-subsidized Korean imports and imports from other sources,
particularly Chinese Taipei. Paragraph 194 of the Final Determination discusses the effects of
imported DRAMs from countries other than Korea in the following manner:
"[f]ollowing the imposition of provisional measures, no comments were received
concerning other imports. However, followi ng final disclosure Hynix argued that, in

did prices suddenly drop very sharply. Hence, it is considered that the overcapacity as such
did not significantly contribute to injury."

accordance with data in the complaint, imports from other countries than Korea
(mainly Taiwan) and imports from Samsung have increased more than Hynix's
imports, in particular between 2000 and the [POI], and thus any injury suffered by the
[domestic] industry could not have been caused by Hynix's imports. With regard to
Samsung's imports see recital 200. With regard to imports from all other countries
(including Taiwan), the investigation found that in Mbit terms they decreased
between 2000 and the [POI] by 4.2 per cent. In fact, their market share decreased
from 31.4 per cent in 2000 to 20 per cent durin g the [POI]. During the same period
Hynix's subsidised imports in Mbit terms in creased by 24 per cent. Therefore, the
argument is considered groundless and the findings set out in recital 151 of the
provisional Regulation that imports from other countries than Korea have not
contributed in any significant way to the injury suffered by the [domestic] industry
are hereby confirmed."
294
7.424 We start our examination addressing Korea's comment regarding the development of market
shares and the alleged competitive effect of other im ports. Both Korea and the EC appear to agree
that the relevant analysis, for the purpose of sep arating and distinguishing other imports, should be
conducted in terms of market shares (or, what comes to the same thing, absolu te increase in megabits
terms from one foreign supplier relative to anot her foreign supplier or relative to domestic
consumption). That agreed, it becomes critical whether LGS imports are added to Hynix imports
during the injury POI. When the two are added, th e Hynix market share of imports decreases. When
they are not, the Hynix market share of imports in creases. Thus, Korea asserts that the "non-subject
import market share was 58 per cent in 2001, against a 15 per cent market share held by Hynix." By
contrast, the EC's Final Determination reports a decrease of the market share of imports from
countries other than Korea, from 31.4 per cent in 2000 to 20 per cent during the POI.
295
7.425 Regarding Korea's argument that Hynix's market share decreased, we recall that we have
rejected this argument, for the reasons set forth in paras. 7.299-7.305, supra. If, arguendo, Korea's
argument about LGS imports is accepted, that would reinforce the conclusion we reach in
paragraph 7.436, infra, regarding the inconsistency of the EC's analysis with respect to its obligation
under Article 15.5. In addition, we note that th ere is a significant discrepancy between the data on
imports from other suppliers submitted by the EC and Ko rea. There appear to be two reasons for this
discrepancy. First, while Korea's argument is based on data from the application, the EC's
conclusions are based on verified data obtained from the parties during the investigation. Since there
is no indication that the data reported in the EC's Final Determination is inaccurate 296, and given that
this is the data on which the investigating authorit y based its determination, our examination must be
based on the data contained in the EC's determina tion rather than on data from the application.
Second, Korea seems to include in its "non-subject import market share" data imports from Samsung,
the second Korean producer/exporter. We note th at the EC decided to examine separately the
injurious effect of imports from Samsung, and imports from countries other than Korea. As far as the

 294 Para. 151 of the Preliminary Determination, which is incorporated by reference to para. 194 of the
Final Determination, reads as follows:
"[t]he imports of the product concerned from other countries (e.g. United States of America,
Japan, Taiwan) in market share terms dropped from 41 per cent to 20 per cent during the
period considered. This drop of market shar e reflects the fact that some producers closed
down their operations. The lost market share of third countries was to a large extent taken
over by the Community industry, though as indicated above the move in market share is
somewhat exaggerated both by the Mbit measurement and the faster move to more
sophisticated technology by the [domestic] industry. There is no evidence that imports from
countries, other than Korea, contributed in an y significant way to the injury suffered by the
[domestic] industry."

296 We do not understand Korea to have challenged the accuracy of that information.

treatment of Samsung's imports are concerned, we find that imports from Samsung were examined
and duly analysed as a separate factor by the EC.
7.426 The EC determinations jointly examined the impact of imports from Japan, Chinese Taipei
and the United States. Korea argues that imports from Chinese Taipei should have been examined
separately. Korea's argument is based on the "logical hypothesis (...) that for a commodity product the
primary means by which the supplies from Chinese Taipei achieved such market share gains is by
offering prices lower than its competitors." We note that Article 15.5 of the SCM Agreement provides
that non-subsidized imports may be examined as a causal factor but does not require that non-
subsidized imports be considered on a country -per-country basis. We therefore do not find
unreasonable the investigating auth ority's treatment of imports fro m Chinese Taipei, in combination
with those from other countries.
7.427 The EC determined that the market share of imports from all countries other than Korea was
approximately the same, in 2001, as Hynix's mark et share (approximately 20 per cent). Korea does
not contest this finding. Based on the similarity of market shares, the EC concluded that "imports
from countries other than Korea have not contributed in any significant way to the injury suffered by
the [domestic] industry." In our view, this conc lusory assertion, without any quantitative or thorough
qualitative support, does not suffice to separate and distinguish the injury that might have been caused
by imports from Hynix. Indeed, a simple-minde d evaluation might say that, if imports from two
sources are roughly the same proportion of total impor ts, they are equally responsible for injury
suffered by the domestic industry. The EC's anal ysis does nothing to refute this simple-minded
evaluation.
7.428 With regard to imports from Samsung, the EC made the following statement in paragraph 200
of its Final Determination:
"[d]uring the period under consideration, Samsung's imports have also increased but
at a lower pace than Hynix's imports and in any event slower than the increase of
Community consumption. It was also f ound that during the [POI] Samsung's prices
were on average higher than those of Hynix. Furthermore, Samsung's prices
decreased less than Hynix's prices duri ng the period under consideration. It was
therefore concluded that though Samsung imports may have caused some injury to
the Community industry, this was not su fficient to break the causal link between
Hynix's subsidised imports and the mate rial injury suffered by the Community
industry."
7.429 While acknowledging that Samsung's imports may have caused some injury to the domestic
industry, the EC concluded that this was not suffici ent to break the causal link. The EC reached this
conclusion by examining the development of 1) the volume of imports of Samsung as compared to
that of Hynix, and 2) Samsung's prices as compared to Hynix's.
7.430 Korea asserts that the EC's finding that Samsung' s imports have also increased but at a lower
pace than Hynix's imports is not supported by ev idence before it. Korea's argument is based on
market share developments – rather than the deve lopment of imports in ab solute terms – and again
presupposes that LGS's import volume data should be co mbined with those of Hynix. However, we
recall our conclusion that the EC was not required, for the purposes of its assessment of the
development of the volume of imports under Article 15.2, to combine imports from LGS and Hynix.
Moreover, we recall our conclusion that the EC, cons istent with Article 15.5, could conduct its causal
analysis on the basis of an increase in absolute vol ume. Korea did not refute the possibility, under
Article 15.5, of a causal analysis based on an incr ease in absolute volume from Hynix alone. For the
purposes of the non-attribution analysis, however, both the EC and Korea argue in terms of market
share (or, what comes to the same thing, abso lute increase in megabits terms from one foreign
supplier relative to another foreign supplier or rela tive to domestic consumption), which we believe is

the better approach for ensuring non-attribution. That said, the non-attribution analysis requires more
than a simple comparison of levels or changes in market share.
7.431 The following data are provided in the Fina l Determination regard ing developments in
imports from Samsung and Hynix:
 1998 1999 2000 2001
Imports:
Samsung
Hynix

100
100

110
194

181
372

414
461
Market shares:
Samsung
Hynix

100
100

63
111

65
136

100
120
Consumption: 100 175 276 416
 Source: EC's Final Determination, paras. 172, 177 and 185
7.432 We note that the figures for imports (in absolute terms) and market shares are indexed figures
in order to preserve confidentiality. Both sets of fi gures, calculated on the basis of data submitted by
the exporters in the underlying investigation and not disputed by Korea, show that the volume of
imports and market share of Hynix increased faster than Samsung's during the injury POI. Thus,
Samsung's imports increased by 314 per cent, while Hynix's did so by 361 per cent (ignoring imports
from LGS in 1998 and 1999). In terms of market share, Samsung's remained stable during the injury
POI, while Hynix's increased by 20 percentage point s. Imports from Samsung also increased, in an
indexed form, at a lower pace than domestic consum ption. Consequently, the EC's findings that
"Samsung's imports have also increased but at a lower pace than Hynix's imports and in any event
slower than the increase of Community consumpti on" are supported by the evidence before the
investigating authority.
297 However, as we have already stated, the non-attribution analysis must go
deeper than a simple comparative st atement of changes in market share. It is not enough to say that
Samsung's imports have increased more slowly than Hynix's imports; therefore, Samsung's imports
do not break the causal link between Hynix's imports and material injury.
7.433 Apart from the market share issu e, Korea further asserts that the EC did not conduct a proper
assessment as it should have compared Samsung's pr ices to those of the domestic producers rather
than Samsung's prices to those of Hynix.
7.434 The record reveals no analysis, by the EC, of the impact of Samsung's prices on the prices
charged by domestic producers. We note that, after having compared the pricing and import
behaviour of Samsung with that of Hynix, the EC immediately drew the conclusion that, although
Samsung's imports may have caused some injury to the domestic industry, this was not sufficient to
break the causal link. However, there is nothing in the EC's Determination that would indicate to us
that the EC assessed and determined the extent of the injury allegedly caused by Samsung imports.
Again, the EC analysis lacks a thorough qualita tive analysis or even a rudimentary quantitative
evaluation. It is not enough to say that, because firm A's import mark et share grew less than firm B,
injury that may have been caused by firm A' s imports can be ignored . However, the Final
Determination merely contains a statement ac knowledging that Samsung imports may have caused
some injury, without saying more. This does not c onstitute in our view a satisfactory explanation of
the nature and extent of the injurious effects of the other factors, as distinguished from the injurious
effects of the subsidized imports.
7.435 In view of the above, we conclude that the EC failed to provide a satisfactory explanation of
the nature and extent of the injurious effects of non-subsidized imports from other countries, or from
Samsung, as distinguished from the injurious effects of the subsidized imports. We therefore find that

297 Actual figures regarding exports by Samsung have not been made available to the Panel. Korea
only submitted data regarding Hynix and LGS, but not verified data regarding Samsung.

the EC's treatment of imports was inconsistent with its obligation under Article 15.5 of the SCM
Agreement not to attribute to subsidized imports injuries caused by other factors.
298
(d) Conclusion
7.436 In sum, we conclude that the EC has acte d inconsistently with its obligation under
Article 15.5 not to attribute to subsidized impor ts injuries caused by the economic downturn in the
market, overcapacity, and other non-subsidized im ports. For the remainder, we reject Korea's
arguments and claims under Article 15.5 of the SCM Agreement with respect to the EC's causation
analysis.
7.437 Our determination certainly does not preclude that, based on the facts as submitted by the
parties on the above "known factors", the EC could properly conclude that a causal relationship exists
between subsidized imports and the material injury suffered by the domestic industry, after ensuring
that the injury caused by other factors is not attrib uted to subsidized imports. However, the EC must
make an appropriate assessment of the injury cau sed to the domestic industry by the other known
factors, and must separate and distinguish the inju rious effects of the subsidized imports from the
injurious effects of those other factors. This re quires a satisfactory explanation of the nature and
extent of the injurious effects of the other f actors, preferably with quantitative analysis, as
distinguished from the injurious effects of the subsidized imports.
D. OTHER CLAIMS
1. Claim regarding the requirement of adequate public notice
(a) Korea
7.438 Korea argues that, in its Final Determinati on, the EC failed to provide, as required by
Article 22.3 of the SCM Agreement, sufficient detail on issues concerning volume and price effects of
the subsidised imports, as well as the existence of a causal relationship between the subsidized
imports and injury to the industry.299
(b) EC
7.439 The EC asserts that not all of the information/da ta available in the record of an anti-subsidy
proceeding has to appear in the published notices. In the case at stake, the EC points out that the
published notices discussed in great detail the facts, and analysed in detail both the subsidy and the
injury determinations. The EC argues that the essen tial question is whether or not Korea and Hynix
were in a position to understand the determinations made by the investigating authority, and make
their case accordingly. In the view of the EC, this is clear from Korea's First Written Submission.
(c) Panel Analysis
7.440 We note that Korea's Article 22. 3 claim is dependent on its claims under Articles 15.1, 15.2
15.4 and 15.5 of the SCM Agreement . Thus, to the extent that we reject those claims, and in the
absence of any additional independent arguments by Korea, we consider that Korea's claims
concerning the procedural requirement to provide sufficient explanation under Article 22.3 of the
SCM Agreement also fail. With respect to the substantive claims that were upheld, we consider that it
would not add anything to our finding to make any ruling on Korea's procedural claims under

298 In reaching this conclusion, we do not mean to say that the EC should adopt any particular
methodology in order to carry out the assessment of the injurious effects of Samsung's imports.
 299 In support of its contention, Korea refers to findings of the Mexico – Corn Syrup and EC – Tube or
Pipe Fittings panels.

Article 22.3 in respect of the same aspects of the EC determination. Since the EC's Final
Determination is inconsiste nt with paragraphs 4 and 5 of Article 15 in respect of part of the EC's
injury and non-attribution analysis 300, respectively, the adequacy of the EC's public notice in respect
of the relevant portions of the EC's Final Determin ation is immaterial. We therefore make no ruling
with regard to Korea's claim under Article 22.3 of the SCM Agreement.
2. Claim regarding Articles 10 and 32.1 of the SCM Agreement
(a) Korea
7.441 Korea argues that the EC violated Articles 10 and 32.1 of the SCM Agreement because the
countervail order imposed by the EC against DR AMs from Korea was not in accordance with the
relevant provisions of the SCM Agreement or the relevant provisions of the GATT 1994.
(b) EC
7.442 In the view of the EC, since the determinati on was entirely consistent with the obligations
contained in the SCM Agreement, Korea's consequential claim under Articles 10 and 32 must also fail.
(c) Panel Analysis
7.443 In light of the finding made above concerning th e inconsistency of the subsidy determination
with Article 1 of the SCM Agreement, and in the absence of any independent argumentation by Korea
in this respect, we do not find it necessary for the resolution of the dispute to address this Korean
claim concerning the inconsistency with Article 10 and 32.1 of the SCM Agreement.
VIII. CONCLUSIONS AND RECOMMENDATIONS
8.1 In the light of our findings above concerni ng the EC' s definitive countervailing measure
imposed on imports of DRAMs from Korea, we consid er that the EC acted in a manner inconsistent
with its WTO obligations under:
(a) Article 1.1(a) of the SCM Agreement in determining that the May 2001 Restructuring
Programme constituted a financial contribution by the government;
(b) Article 1.1(b) of the SCM Agreement in its determination of the existence of a benefit
in the case of the Syndicated Loan;
(c) Articles 1.1(b) and 14 of the SCM Agreement in applying, for the purposes of the
calculation of the amount of benefit, its grant methodology to all programmes found
to constitute a subsidy;
(d) Article 15.4 of the SCM Agreement by not evaluating the factor "wages" as a relevant
factor affecting the state of the domestic industry;
(e) Article 15.5 of the SCM Agreement by failing to make sure that injury caused by
certain other factors (in particular, declin e in demand, overcapacity, and other (non-
subsidized) imports) was not attributed to the subsidized imports.

300 The injury determination is considered to be inconsistent because the EC did not evaluate one of the
factors listed in Article 15.4, "wages", as determined by us in para. 7.374, supra, of this Report. With regard to
the non-attribution determination, we recall that the EC did not properly and adequately separate and distinguish
the injurious effects of certain factors other than subsidized imports from the effects caused by those subsidized
imports. This determination can be found in para. 7.436, supra.

8.2 For the reasons set forth in our findings above, we reject Korea's claims that the EC violated:
(a) Article 1.1(a) of the SCM Agreement because the EC failed to demonstrate the
existence of a financial contribution with respect to the Syndicated Loan, the KEIC
Guarantee, the KDB Debenture Progra mme, and the October 2001 Restructuring
Programme;
(b) Articles 1.1(b) of the SCM Agreement because the EC failed to demonstrate that a
benefit was conferred on the respondent Hynix by the KEIC Guarantee, the KDB
Debenture Programme, the May 2001 R estructuring and the October 2001
Restructuring Programmes, given availa ble market benchmarks among Hynix's
creditors, including a foreign bank operating in the Korean market;
(c) Articles 1.2 and 2 of the SCM Agreement because the EC made an erroneous finding
of de facto specificity, specifically with respect to the KDB Debenture Programme;
(d) Articles 1.2 and 2 of the SCM Agreement because the EC disregarded the fact that
many Korean companies underwent debt restructuring similar to that undergone by
Hynix in the May and October 2001 Restruct uring Programmes, and therefore, the
EC did not establish that the alleged subsidies were specific on the basis of positive
evidence;
(e) Article 15.2 of the SCM Agreement because , the EC determinations improperly
assessed the significance of the volume effects of Hynix imports;
(f) Article 15.2 of the SCM Agreement because the EC determinations improperly
assessed the significance of the price effects of Hynix imports;
(g) Article 15.4 of the SCM Agreement because the EC failed to consider all factors
relevant to the overall condition of the domes tic industry, in so far as Korea's claim
does not relate to the factor "wages";
(h) Article 15.5 of the SCM Agreement because the EC failed to demonstrate the requisite
causal link between Hynix imports and injury, while accepting Korea's claim
concerning the non-attribution aspect of the causation analysis, as stated above;
(i) Article 12.7 of the SCM Agreement because the EC did not justify its application of
"facts available" with respect to its subsidy investigation.
8.3 Having reached the conclusions set forth above,
301 we apply judicial economy and do not rule
on Korea's claims that the EC acted in a manner inconsistent with:
(a) Articles 19.4 of the SCM Agreement and VI:3 of the GATT 1994 in levying
countervailing duties in excess of the amount allowed under those provisions;
(b) Article 15.1 of the SCM Agreement because the EC determinations on injury and
causation were not based on positive eviden ce and an objective assessment of the
effects of allegedly subsidized imports;

301 For ease of understanding, the Panel's conclusions concerning the EC's subsidy and injury
determination are summarized in tabular form in Annexes F-2 and F-3 respectively.

(c) Article 22.3 of the SCM Agreement because the EC's injury determination did not set
forth in sufficient detail the EC's findings and conclusions on all material issues of
fact and law;
(d) Articles 10 and 32.1 of the SCM Agreement because inter alia, the definitive
countervailing duty order imposed by the EC against DRAMs from Korea was not in
accordance with the relevant provisions of the SCM Agreement or the relevant
provisions of the GATT 1994.
8.4 Under Article 3.8 of the DSU, in cases where there is infringement of the obligations assumed
under a covered agreement, the action is considered prima facie to constitute a case of nullification or
impairment of benefits under that agreement. Accordingly, we concl ude that to the extent the EC has
acted inconsistently with the provisions of the SCM Agreement, it has nullified or impaired benefits
accruing to Korea under that Agreement.
8.5 We note that Korea requests the Panel to reco mmend that the EC terminate the countervailing
duty order immediately.
302 Article 19.1 of the DSU is explicit concerning the recommendation a panel
is to make in the event it determines that a measure is inconsistent with a covered agreement:
[i]t shall recommend that the Member concerned bring the measure into conformity
with that agreement. (footnotes omitted)
Article 19.1 goes on to provides that:
[i]n addition to its recommendations, the pa nel or Appellate Body may suggest ways
in which the Member concerned could implement the recommendations.
8.6 We thus consider that the language of Article 19.1 of the DSU permits us to make suggestions
regarding implementation of the recommendation that the measure be brought into conformity with
the SCM Agreement . We have found various violations of the EC's obligations under the SCM
Agreement, which may necessitate differing responses in order to bring the measure concerned into
conformity with the EC's obligations under the SCM Agreement. In our view, the modalities of the
implementation of our recommendation are, in the first place, for the EC to determine. In this regard,
we note Article 21.3 of the DSU, which provides:
[a]t a DSB meeting held within 30 days af ter the date of adoption of the panel or
Appellate Body report, the Member concerne d shall inform the DSB of its intentions
in respect of implementation of the r ecommendations and rulings of the DSB.
(footnote omitted)
8.7 We therefore recommend that the Dispute Settlement Body request the EC to bring its
measure into conformity with its obligations under the SCM Agreement, and decline to make the
suggestion requested by Korea.