Document: WT/DS296/R Page A-1 ANNEX A SUBMISSION OF PARTIES AND THIRD PARTIES FOR THE FIRST SUBSTANTIVE MEETING Contents Page Annex A-1 Executive Summary of the Submission of Korea  A-2
Document codes: WT/DS296/R
Complainant: South Korea
Respondent: U.S.
Third parties: China, Taiwan, EU, Japan
Dispute stage: Appellate Body
Agreements cited: Art. 1, 2, 10, 12, 14, 15, 19, 22, 32  Subsidies and Countervailing Measures (SCM)Art. VI:3  GATT 1994

ANNEX A

SUBMISSION OF PARTIES AND THIRD PARTIES FOR THE
FIRST SUBSTANTIVE MEETING

Contents Page
Annex A-1 Executive Summary of the Submission of Korea A-2
Annex A-2 Executive Summary of the Submission of the United States A-11
Annex A-3 Executive Summary of the Third Party Submission of China A-20
Annex A-4 Executive Summary of the Third Party Submission of the
European Communities
A-25
Annex A-5 Executive Summary of the Third Party Submission of Japan A-29

ANNEX A-1

EXECUTIVE SUMMARY OF THE
FIRST WRITTEN SUBMISSION
BY THE REPUBLIC OF KOREA

I. ITC INJURY INVESTIGATION – CLAIMS OF ERROR

A. OVERVIEW OF THE US DRAM INDUSTRY

1. The US DRAM industry has a number of dis tinctive and unique conditions of competition.
Understanding and taking into account these distinctiv e conditions of competition should have been a
critical part of the competent authorities’ objectiv e examination required by Article 15 of the SCM
Agreement. Understanding these features will also be an important part of this Panel’s “objective
assessment” of the ITC determinations in this dispute.

2. There are four key conditions. First, the DR AM market is highly cyclical, with regular well-
known boom and bust periods. Sec ond, the trend toward even more extreme boom-bust cycle is
another feature of the DRAM market that compet ent authorities must take into account. Third,
DRAM product pricing is extremely volatile based on worldwide, not regional, supply and demand
phenomena. Fourth, most of the largest computer companies as well as DRAM suppliers have moved
a substantial part of their manufacturing operations to countries outside the United States. This trend
toward global production of DRAMs has reinforced the trend toward global pricing and attenuates the
volume and price effects in the United States. The ITC incorrectly argued for significant price effects
of subject imports in the US market and ignored th e economic reality that subject imports by a single
company like Hynix into the US market have at most a very limited ability to have any effect on
price. Moreover, both the ITC and the DOC failed to undertake serious analysis to show whether and
how these factors was being taken into account in violation of US WTO obligations.

B. ARTICLE 15.1 STANDARDS

3. Article 15.1 requires that the competent aut hority have “positive evidence,” and that evidence
receive “objective examination”. The Appellate Body has confirmed that evidence supporting a
finding of injury must be affirmative, objective, verifiable and credible and be based on an unbiased
investigation. Further, Article 15.1 is an overarc hing provision rather than a stand-alone provision
requiring each of the substantive provisi ons of Article 15 to be read in light of Article 15.1. Thus, all
aspects of the injury investigation must be based on positive evidence and an objective examination of
the facts.

C. SIGNIFICANT INCREASE IN SUBJECT IMPORTS

4. In this case, the ITC mechanically cited impor t statistics, but largely ignored any meaningful
analysis of the significance of those figures. The da ta showed that the Hynix brand lost market share
over the period of investigation, and that subject imports changed only slightly in reaction to the
temporary shutdown of the Hynix US operations in Eugene, Oregon. Because the shift in market
share was so small – regardless of how it is measured - the ITC instead cited a variety of other
statistics without putting any of them in proper context.

5. Given the unique nature of the DRAMs pr oduct – the continual movement to higher and
higher densities of chips and the ever-increasing tota l bits supplied and consum ed, an actual increase
in imports (on a billion bit basis) is meaningless. Rather, what is important in analyzing the volume
of DRAMs shipments is to examine the increased sh ipments relative to consumption and relative to
other suppliers. Thus, as the ITC itself acknowledged, the best measure of any volume effects of the
subsidized imports is to examine market share data.

6. The data before the ITC demonstrates the fo llowing important facts about trends in market
share based on US shipments from these different sources:

• The market share of Hynix’s imported DRAMs was 6.7 per cent in 2000, increased to 9.0 per
cent in 2001, decreased to 8.9 per cent in 2002 and decreased again to 5.8 per cent in 2003.

• The consistently small volume of Hynix’s impor ts was dwarfed by both domestic production
and non-subject imports. In 2002 non-subject impor ts were more than six-and-a half times
larger than Hynix’s imports.

• Although the market share of Hynix’s imports did increase over the three year (2000-2002)
period, the increase was only two percentage points.

• The increase in market share by non-subject imports from 2000 - 2002 was nearly five times
larger than the increase in market share by Hynix’s imports.

7. Taken as a whole, any objective assessment of this evidence would find that any increase in
the volume of allegedly subsidized imports was not “significant.”

8. The absolute level of imports might well have been increasing, but in this particular industry
where the measure of imports (billions of bits) is always increasing dramatically, this particular
measure alone cannot establish significance. More importantly, the market share of Hynix brand
DRAMs fell consistently over the period, while othe r suppliers expanded over the same period. Even
if one focus exclusively on Hynix imports, the Hy nix share remained modest throughout the period,
and fell in 2002 and the beginning of 2003. Any sm all increase in market share over the full period
can be explained by the shutdown of the Hynix facility in Oregon, requiring a modest increase in
imports simply to replace those sales previously made from the Hynix US facility. Korea submits that
a careful and critical examination of the ITC expl anation of the volume effects in this case reveals
insufficient positive evidence to justify the ITC findings. To the contrary, the evidence shows that the
volume effects of subject imports by Hynix were in significant, at least to any objective decision-
maker, and the ITC finding was inconsistent with Articles 15.1 and 15.2.

D. SIGNIFICANT PRICE EFFECTS BY SUBJECT IMPORTS

9. In this case, the ITC created the illusion of an alyzing price effects, without really doing so in
any meaningful way. The ITC dutifully identified certain particular and unique competitive dynamics
of the DRAM market, but then largely ignored th ose dynamics in its mechanical invocation of its
traditional methodologies. In particular:

• The ITC made factual findings about pricing at odds with the facts of this case, and with basic
economic logic. Hynix was losing market share in 2002 and the beginning of 2003, was not
the lowest cost supplier, and therefore had limited ability and incentive to drive down the
price. It defies logic to blame Hynix pricing, when Hynix was losing market share.

• The ITC largely ignored the important fact that no customer identified Hynix as the “price
leader”, calling into serious doubt whether Hyni x could be the source of “significant” price
effects.

• The ITC undertook two types of pricing analysis, but then inexplicably chose to focus on the
method that considered only subject imports, and ignored the effect of other non-subject
imports on pricing trends.

• The ITC brushed aside any discussion of other factors that affect pricing by simply
acknowledging they “played some role,” but without any further analysis.

10. The ITC’s traditional underselling analysis, whic h compares the weighted-average prices of
domestic producers only with wei ghted-average prices of subject imports, was not an objective
examination for the ITC’s pricing analysis in this case because it ignored prices of non-subject
imports. Prices of non-subject imports should have been considered particularly in this case because
(i) DRAMs are a commodity product with virtual complete interchangeability; (ii) non-subject
imports constituted the majority of the US marke t; (iii) the nature of DRAMs market has become
increasingly global; and (iv) the traditional underselli ng analysis disguised pricing dynamics reflected
in the evidence before the ITC, such as the frequency of the lowest price of respective imports.

11. The ITC’s reliance on a traditional underselli ng analysis disguised the following important
pricing dynamics reflected in the evidence before th e ITC. Overall, Hynix subject imports were the
lowest price in only a small number of instances. Put differently, an overwhelming per cent of the
time, other suppliers were offering lower prices than Hynix. Over time, the record shows that the
frequency of non-subject imports being the lowest price source grew. On a wei ghted basis, to reflect
the relative importance of different products, the frequency of non-subject imports being the lowest
price source almost doubled.

12. The ITC’s dismissal of the role of non-s ubject import pricing glosses over two fundamental
flaws: (i) that the average non-subject price may be higher than domestic prices does not mean very
much if there is an individual non-subject supplier that is underselling and offering the lowest price;
and (ii) if these patterns of underselling were considered together with trends in market share, the non-
subject imports were having a significantly greater impact on the market.

13. The ITC had available considerable evidence that a variety of factors can influence the
prevailing market price of DRAMs. This evidence before the ITC demonstrated that DRAM market
prices are affected by: (1) changes in worldwide demand growth; (2) changes in worldwide supply;
(3) how quickly competitors can climb the learni ng curve for new DRAM products, and (4) erratic
swings in inventory levels caused by the inability to have longer term reliable forecasts. Yet the ITC
did not adequately address any of these factors when explaining price declines.

14. As with the volume effects, any objective ass essment of this pricing evidence taken as a
whole would find that the price effects of allegedl y subsidized imports were not “significant”. If it
had an open and objective mind, the ITC should have realized that low priced non-subject imports that
were rapidly gaining market share caused the dominant price effects, and that any remaining effects of
subject imports could not reasonabl y be considered “significant”. The ITC finding was inconsistent
with Articles 15.1 and 15.2.

E. CONDITION OF THE DOMESTIC INDUSTRY -- INCONSISTENT WITH ARTICLES 15.1 AND
15.4 OF THE SCM AGREEMENT.

15. Article 15.4 requires an evaluation of a ll relevant economic factors and indices and
appreciates the fact that relevant economic factors and the weight to be given each of those factors
will differ from case to case. The evidence before the ITC in this case of global scale, strong capital

spending and R&D spending, all funded by strong cash flow and access to capital markets
demonstrates overall strength, not weakness. The IT C, however, largely ignored all this evidence in
its analysis of the condition of the domestic industry. Even more egregiously, the ITC failed to even
attempt to address the public statements that Micr on and Infineon made to the financial community
and their investors that they were doing quite fi ne, within the context of the business cycle and
relative to their competitors, which contradicted th e doom and gloom assessment adopted by the ITC.
Such an approach does not amount to an objective ex amination of the key facts, and thus violates
Articles 15.1 and 15.4.

F. CAUSATION

16. Pursuant to the first and the second sentences of Article 15.5, Members must demonstrate an
explicit “causal relationship” between the subsidized imports and any material injury suffered by the
domestic industry. In this case, the evidence be fore the ITC demonstrated that there was no
correlation between the trends in subject imports a nd the condition of the domestic industry. First,
Hynix was losing market share while the domestic industry gained market share, which proves the
absence of any correlation between the trend of subject imports and the market shares of US
producers. Second, after the “boom” year of 2000 , Micron and Infineon lost more and more money
even as Hynix suffered eroding market share. The IT C never even attempted to address this lack of
correlation. Further, the ITC should have considered the fact that Hynix trends in imports correlate
much more strongly with the shutdown of the Or egon facility than with the trends in domestic
industry performance.

17. Moreover, the non-attribution requirement in the third sentence of Article 15.5 obligates an
investigating authority not to impute to subsidized imports any injury caused by other factors.
According to the plain meaning of Article 15.5 as well as the unambiguous guidance of the Appellate
Body in the previous safeguards and anti-dumping c ontexts, the competent authority must “separate”
and “distinguish” the injurious effects of factors othe r than subsidized imports to ensure they are not
attributed to the subsidized imports, and thus to ensure it complies with the non-attribution
requirement. With respect to a number of key issues, the ITC provided either no analysis or
insufficient analysis:

• The ITC improperly dismissed the adverse effects of the increasing and much larger volume
of non-subject imports, when the evidence before it demonstrated that non-subject imports
accounted for 6 to 7 times greater share of the US market as do subject imports from Hynix.
The large and growing volume of non-subject imports cannot be so easily dismissed.

• The ITC completely ignored the arguments about changes in relative capacity that confirmed
the dominant role of non-subject suppliers who increased their capacity much more than
Hynix.

• The ITC dismissed the role of the drop in de mand for 2001, but ignored compelling evidence
by every industry observer than the demand drop was a critical factor for understanding 2001
prices.

• The ITC completely ignored the arguments a bout Micron’s own technical shortfallings, and
how the absence of certain products at certain times hurt Micron.

18. The ITC at least tried to address the role of non-subject imports
, but either ignored or
distorted the key evidence. It is not objective to dismiss contrary evidence without discussion. It is
not objective to average and thus obscure the prices of individual domestic and non-subject suppliers.
Particularly in a case where the individual supplier da ta is available and could be easily used, there is

no persuasive reason for an objective competent aut hority to present the data in such a way that
obscures rather than reveals.

19. In addition to this methodological flaw, the ITC finding had no sense of perspective. It is
simply not credible to find this small amount of additional underselling is significant when applied to
a small subject import volume averaging about 8 per cent market share over the 2000-2002 period,
compared to comparable levels of underselling by non-subject import volume averaging about 56 per
cent market share over the same period. For a commodity market, non-subject market share roughly
seven
 times as large would dwarf any price effects from a much smaller volume of subject imports.

20. Moreover, although the ITC recei ved substantial information and data that demonstrated other
suppliers increased DRAM production capacity much more than did Hynix during the period
examined, there is no discussion of this informati on in the ITC Report. The two types of data
presented to the ITC – wafer starts data and data me asured by both wafers and die shrinks – evinced
that Hynix’s Korean operations played a relatively trivial role in capacity expansions that occurred
during the period examined, while other suppliers, most notably, Infineon and Samsung have been the
most aggressive in expanding total DRAM output.

21. Further, the ITC improperly dismissed the unprecedented drop in underlying demand
 for
computer and telecom equipment and the fact th at 2001 was the worst y ear in decades for these
industries. Thus, to the extent that DRAM prices rise or fall because of the changing level of demand,
subject Hynix imports from Korea has not caused those price changes. There are two principal
problems with this casual brushing aside of demand. First, the alleged lack of correlation is just
wrong. In making its assertion, the ITC cites only a discussion in the Micron brief about trends in
DRAM output, which is an issue of growing supply, and says nothing about the underlying intrinsic
demand. In fact, the decline in demand growth in 2001 played a major role in the price decline in
2001. Second, the ITC ignored statements by many industry experts pointing to the decline in
demand as a key explanation of the 2001 downturn in price. Most noteworthy, of course, are the
statements by Micron and Infineon themselves. Micron’s own annual report for 2001 gave the
following explanation for disappointing 2001 earnings:

22. Lastly, the ITC completely ignored the technological and production difficulties
 of Micron
during the claimed period of injury. Specific information about Micron, the largest US producer of
DRAMs, and its successes and failure presented to the ITC had particular significance for
understanding the overall situation of the US DRAM industry. However, the ITC ignored this
important information in its analysis of other factors, and thus failed to provide an objective
examination. The ITC findings were inconsistent with Articles 15.1 and 15.5.

G. THE ITC REPORT OF ITS INVESTIGATION

23. As one of the most important procedural obligations, Article 22.3 requires authorities to
explain their determination in sufficient detail. In this case, however, the ITC failed to provide
sufficient detail on several important issues such as volume effects, price effects, and causation, as
explained above. This sparse and inadequate discussion by the ITC of these key issues triggers two
independent violations as recognized and applied by previous WTO panels: one vi olation of the
underlying substantive obligation, and other violation of the procedural obligation to explain the basis
of a particular decision. Thus, the discussion of findings must be directly discernable from the ITC
decision, yet inconsistent with Article 22.3.

II. DOC SUBSIDY INVESTIGATION – CLAIMS OF ERROR

A. OVERVIEW OF FINANCIAL RESTRUCTURING

24. The underlying investigation emerged from the commercially-driven financial restructuring of
a company, Hynix Semiconductor Inc., in the afte rmath of Korea’s 1997 financial crisis. Hynix’s
financial restructuring took place at a time of ex tensive and fundamental corporate and financial
sector reform within Korea. This structural reform sought to create independence for Korean banks to
make their own decisions, and to eliminate government interference in individual lending decisions.

25. Like many Korean companies, Hynix incu rred substantial debt during the 1997 financial
crisis. As a result, the Hynix management reta ined both Citibank and Salomon Smith Barney (SSB)
in September 2000 to embark on a restructuring process. Hynix’s financial restructuring and
recapitalization consisted of several separate transa ctions over two very distinct periods: the period
through June 2001 and the period after June 2001.

26. The intersection of these two events -- Hynix’ s financial restructuring on the one hand and
Korean corporate and financial reform on the ot her -- has essentially been misconstrued by the
United States as evidence of entrustment or directio n by the Government of Korea to save Hynix at
any cost. The facts of the case show that nothing could be further from truth. Rather, this case
illustrates the wisdom of the demanding standard in the SCM Agreement for demonstrating a
financial contribution through private bodies -- a standard not met by the United States -- that protects
innocent and fundamentally sound commercial co nduct from the reach of improper countervailing
duty actions.

B. FINANCIAL CONTRIBUTION

27. Under Article 1.1.(a)(1)(iv) of the SCM Agre ement, “entrustment” or “direction” can be
established only where there is government action so clear and unambiguous that the actions of
private bodies can be imputed to the government itself. Moreover, the text of Article 1.1 requires that
each alleged government delegation or co mmand be examined with respect to each
 party, and with
respect to each task or duty.

28. According to the US – Export Restraints case, the act of entrusting and that of directing carry
with them the following three elements: (i) an ex plicit and affirmative action, be it delegation or
command; (ii) addressed to a particular party; and (iii) the object of which action is a particular task
or duty. The panel in US – Export Restraints also made it clear that generalized statements of
government intent or desire, or even general interv entions in the market itself, are insufficient to
establish a financial contribution through a private body.

29. Authorities cannot meet this sta ndard with generalized findings of entrustment or direction. It
is insufficient to conclude that if some connection exists between government, certain events and
certain actors, then financing by all lenders to a particular party, no matter when or how it occurs, is
the result of entrustment or direction. Yet this is exactly what the DOC did in this case. It brought
together a patchwork of evidence, much of it based on press accounts, and much of it from early in the
period investigated, and determined that all lending to Hynix by Korean banks over a ten-month
period was directed by the GOK.

30. In light of the plain meaning of “entrustmen t or direction”, this finding of guilt by vague
association does not pass muster under Article 1.1(a )(1)(iv). Given the many commercial creditors
involved at various stages of Hynix’s financial rest ructuring, and the different ways in which they
participated, it makes no sense to find government “direction”.

31. The DOC’s “directed credit” findings in the underlying case, however, do not meet this
standard. In particular , nowhere in its 140-page Decision Memorandum does the DOC identify an
explicit and affirmative action of delegation or command by the GOK to all of Hynix’s commercial
creditors to engage in a ten-month long process of financial restructuring. Indeed, the only evidence
(i.e. the Economic Ministers meetings) offered by the DOC allegedly establishing or suggesting an
explicit and affirmative action by the GOK relates to narrow circ umstances that do not support the
DOC’s broad theory of entrustment or direction.

32. The additional evidence relied upon by the DOC to support its directed credit finding falls
short of establishing explicit GOK direction. For inst ance, the fact that the Financial Supervisory
Commission (FSC) granted waivers to certain Korean banks in connection with certain restructuring
transactions involving Hynix does not explain those ba nks’ decisions actually to participate in those
transactions, or the participation of any other ba nks therein, over the course of 2001. Moreover,
nothing in the Korea Development Bank (KDB) fast track programme involved any specific GOK
direction of any specific lender to participate. Al so, the presence of the Financial Supervisory Service
(FSS) official at the March 2001 creditors meeting is hardly a smoking gun of GOK
entrustment/direction, as clearly evidenced by th e contemporaneous FSC/FSS press release. In the
same vein, nothing in the Kookmin prospectus est ablishes an affirmative and explicit GOK action to
direct commercial bank lending to Hynix. Lastly, contrary to the DOC findings, the unverified
statements of anonymous experts secretly intervie wed by the DOC actually suggest the lack of GOK
control over Korean banks.

33. Furthermore, under Article 1.1(a) of the SCM Ag reement, it is insufficient to find simply that
the government commanded a particular result. The private body to which that government
delegation or command was addressed must also be ascertained, as well as the object of that
delegation or command. There is not a single instance in the DOC’s analysis where it could point to
any credible evidence linking all of Hynix’s creditors to its alleged “directed credit” conspiracy.
Rather, the evidence relied upon by DOC at best points to GOK interaction with certain banks at
certain times with respect to a particular financial transaction.

34. This absence of evidence is particularly egre gious for the financing transactions later in the
period of investigation (i.e. the October 2001 r estructuring). With respect to the October
restructuring, the only
 evidence the DOC provides to link the motives of all the banks involved in that
restructuring measure to its alleged GOK action is the unverified assertions of a single anonymous
“expert” interviewed by the DOC in Seoul. Moreover , with respect to the October restructuring, the
DOC determined that all banks participating in the programme were directed by the GOK no matter
what each bank did. Yet it defies both reason and co mmonsense to find that banks deciding to extend
new loans and banks deciding not
 to extend new loans were both directed to “save Hynix”.

35. As regards the May 2001 restructuring, the DOC paid inadequate heed to the fact that the
restructuring was expressly contingent upon a successful equity offering on global markets.
Moreover, in its quest for the conclusion that the GOK was behind the May programme, the DOC
effectively disregarded the active participation by private banks, including a foreign
 private bank (i.e.,
Citibank) in the restructuring process.

36. Perhaps the most troubling piece of “evidence” relied upon by the DOC to justify its finding
of entrustment or direction are the anonymous statements of certain so-called “experts” interviewed in
Korea. The DOC seriously distorted this evidence, and reached a conclusion without any evidentiary
support. A general finding of “influence”, or “some influence”, over certain commercial banks could
not be more ambiguous. It is even telling that out of the eight “experts” interviewed by DOC, the
DOC can cite only one
 for the observation that the GOK could still influence banks with less than
majority GOK ownership.

37. Moreover, on balance, the report of the eight “experts” actually suggests the lack of
meaningful GOK control over Korean banks. Indeed, the DOC’s treatment of the experts’ views as
discussed above is highly disingenuous. Nowhere addressed in the DOC’s decision are the several
statements found in the “experts” report indicating the extremely improbable nature of the DOC’s
grand directed credit theory, whether generally or with respect to specific banks.
38. The discrepancy between what the experts said and the conclusion drawn by the DOC is
simply breathtaking. The DOC sei zed upon the rather unsurprising view that the GOK continued to
have some influence over those banks in which it w as the majority shareholder. But in seizing upon
this point, the DOC conveniently ignored several far more relevant points: (1) that even for the GOK-
owned banks, the GOK role is primarily influence, not control or specific direction; (2) that the GOK
had no control and much less influence over the privat ely held banks, particularly those like Kookmin
with substantial foreign investment; and (3) that sev eral of the experts specifically indicated that the
GOK had nothing to do with the Hynix financial restructuring.

39. This last point is perhaps the most significan t. The DOC focused on the statements that the
GOK still has influence with GOK-owned banks, but then ignored the repeated statements that the
GOK “was unable to stop” banks from walking away from Hynix, that the Hynix workout “had
nothing to do with the government”, or that any GOK influence “could not have been a major factor
in the bank’s decisions”. Indeed, the DOC dete rmination to find evidence of GOK control over the
Hynix restructuring obscured the reality of what the experts told the DOC. As a result, the
United States simply believed what it wanted to believe regardless of the evidence. Taken as a whole,
the DOC has not justified with obj ective evidence its decision to imput e to the GOK the profit-driven
actions of various individual commercial banks.

C. FINDING AND MEASUREMENT OF “BENEFIT”

40. The second requirement under the SCM Agreem ent for establishing a countervailable subsidy
is that the competent authority must demonstrate that a “benefit is thereby conferred”. As noted by the
Appellate Body in Canada – Aircraft , a benefit analysis under Articles 1.1(b) and 14 requires a
comparison of what was received by an entity versus what was available on the market.

41. Moreover, the SCM Agreement defines benefit in the context of the experience of private
actors in the market of the Member under investig ation. In this regard, the Appellate Body in US-
Lumber recently decided that an investigating author ity should not discard a primary benchmark (i.e.
those in the market under investigation) in favour of some other benchmark, unless it (1) proves the
market distortion necessary to take such action; and (2) demonstrates the other benchmark is
connected with the prevailing market conditions in the market under investigation.

42. The DOC analysis of “benefit” provides a part icularly egregious example of results-oriented
analysis. Notwithstanding the need to find the mo st appropriate market-based benchmark to meet
WTO obligations, the DOC systematically dismisse d every single possible benchmark. The DOC
dismissed every single commercial bank in Korea, even though DOC also found that the GOK no
longer “directs” credit on an economy-wide basis. Basically the DOC found that because some
evidence hinted at some influence over some ba nks, then all Korean commercial banks should be
disregarded.

43. Even more egregious, the DOC rejected the use of Citibank as a benchmark. As a foreign
commercial bank operating in Korea, Citibank should have been the pe rfect commercial benchmark.
Yet the DOC labored mightily to reject Citibank, offering a host of reasons that made little sense
under US law and WTO jurisprudence alike.

44. In this case, the DOC had a wide range of possible commercial benchmarks. Hynix creditors
included a wide mix of public bodies, Korean ba nks with some government shareholding, other
Korean banks with little or no government sharehol ding, and even foreign commercial banks. These

various lenders participated in different stages of the restructuring transactions, participated in
different ways, and showed varying degrees of inde pendence in their decisions. One would certainly
think that an objective decision-maker could find so me commercial bank out of this mix that could
serve as a valid benchmark.

45. But the DOC approached the situation differe ntly. Rather than acknowledge the range of
facts, and search for the best possible benchmark, the DOC instead searched for reasons to disregard
all of the banks -- every last one. Thus, the DOC took its flawed conclusions about “financial
contribution” (that the GOK had “directed” all the Korean banks), and used this conclusion as an
excuse not even to examine the particular circum stances of each Korean commercial bank. So every
Korean bank was treated the same, whether governme nt owned or not, whether foreign investors
controlled the bank or not, or whether the bank lent to Hynix or not. Every Korean bank was rejected
out of hand. This assessment ignored the facts, and was not objective.

46. With respect to foreign private bodies, in bo th its preliminary and final determination, the
DOC specifically concluded that Citibank’s participation was not directed by the GOK. Nonetheless,
the DOC improperly rejected Citibank as an approp riate benchmark for the financing in which it
engaged. The DOC finding that the extent of Citib ank’s participation in the Hynix restructuring was
too small is erroneous with respect to both loans that Citibank made to Hynix in the earlier phases of
the restructuring (December 2000 and May 2001), and the equity infusion that was done as part of the
October 2001 restructuring. The record evidence clearly indicates that Citibank was an integral
participant in each of these restructuring measures, thereby contradicting the DOC benefit findings.
In addition, the evidence including sworn testim ony by Citibank, unequivocally refutes the DOC
determination that Citibank’s decision to partic ipate in the Hynix restructuring was somehow
influenced by the GOK.

47. In terms of measuring the a lleged benefit, the DOC also neve r explained how it justified the
use of US data on companies that have defaulted as a fair proxy for a Korean company that had not
defaulted. The Korean financial markets seek to avoid bankruptcy. Hynix never declared bankruptcy.
In fact, Hynix stock remained actively traded thr oughout this period. Investors were continuing to
“bet” on the future upturn in DRAM prices, hardly th e sign of a company in default. The reality is
that the DOC did not even attempt to identify Ko rean bond default rate data once it had determined
that Hynix was “uncreditworthy”. The DOC’s rationale for rejecting the data was unreasonable, as it
made no attempt to satisfy any doubts or concerns it expressed regarding the data.

D. SPECIFICITY

48. Korea submits that the DOC finding of specific ity is inconsistent with Articles 1.2 and 2 of
the SCM Agreement. Under these provisions, a finding of specificity must be “clearly substantiated”
on the basis of “positive evidence”. The DOC specif icity findings, on the cont rary, do not rise of the
level of precision required under the SCM Agreement.

E. PROCEDURAL ISSUES

49. In the underlying investigation, the DOC im posed an improper burden of proof with respect
to financial contribution and specificity, inconsistent with Articles 1 and 2 of the SCM Agreement. In
addition, the DOC’s finding of financial contribut ion and specificity was effectively predisposed,
based on prior findings concerning different sectors and periods unrelated to the investigation at hand.
Also, inconsistent with Article 12.6 of the SCM Agreement, the DOC conducted private verification
meetings in Korea, at which the GOK had no repr esentatives, over the explicit objection of the GOK.
Lastly, Korea submits that the DOC imposed countervailing duties in excess of the value of the
alleged subsidies, inconsistent with Article 19. 4 of the SCM Agreement and Article VI:3 of GATT
1994.

ANNEX A-2

EXECUTIVE SUMMARY OF THE
FIRST WRITTEN SUBMISSION
OF THE UNITED STATES

28 May 2004

I. GENERAL ISSUES

1. The Panel’s task is to determine whether a reasonable, unbiased person, looking at the same
evidence as the DOC and the ITC, could have – not would have – reached the same conclusions as did
those agencies. Even though Korea spends a good deal of time talking about “positive evidence”, at
its core, Korea’s argument is not really about th e nature of the evidence on which the DOC and ITC
determinations were based. Instead, Korea implores the Panel to reweigh the evidence in the hope of
obtaining a different outcome. Korea also asserts th at the investigating authority bears the burden of
proof. This is a remarkable assertion for which Ko rea offers no citation to authority, and for which
there is none. The determinations of the DOC a nd the ITC – including those aspects that are not
subject to a requirement of positive evidence – were based upon evidence that was “affirmative”,
“objective”, “verifiable” and “credible”.

II. THE DOC SUBSIDY DETERMINATION WAS PROPER

A. The DOC’s Finding of a Financial Contributions Was Proper

2. The DOC determined that the GOK entrusted and directed Hynix’s creditors to provide
financial contributions to Hynix The DOC ma de this determination based upon an objective
examination of all of the record evidence, which was, in Korea’s words, “complex and extensive”.
The totality of this evidence amply supports the DOC’s determination that the GOK entrusted and
directed Hynix’s creditors to provide financial contributions to Hynix.

3. The GOK’s policy with respect to Hynix was more than just some general interest in Hynix’s
prospects. Rather, the GOK’s policy was specific: do whatever necessary to prevent the failure of a
particular company – Hynix. As context for its policy, the GOK’s support of Hynix as a member of a
designated “strategic” industry predates the DOC’s period of investigation.

4. Following the 1997 financial crisis, the GOK engineered a merger between Hynix (then
Hyundai Electronics) and LG Semicon that exacerba ted Hynix’s financial problems. As early as
November 2000, the GOK began pursuing a policy (and ta king specific actions) to prevent the failure
of Hynix. Economic Ministers “[s]ignaled the GOK’s determination that Hynix would not be allowed
to fail”. A Hynix executive stated: “We won’t be going bankrupt. The Korean government won’t let
us fail.”

5. The GOK took affirmative actions to entrust a nd direct Hynix’s creditors to provide financial
contributions to Hynix. The GOK did so by exerci sing control over Hynix’s creditors in its multiple
roles as lender, owner, legislator and regulator.

6. The GOK’s Role as Lender: Financial contributions provided to Hynix by “public bodies”,
such as the KDB, were direct. These “public” Hyni x creditors played a significant role in the GOK’s

direction of the “private” Hynix creditors. Th e KDB’s presence as a lender was a signal to Korean
“private” banks that a particular investment decision had the GOK’s blessing, and that a company was
backed by the GOK.

7. The GOK’s Role as Owner: The GOK’s role as owner was crucial in its exercise of control
over Hynix’s creditors. In each of the major Hyni x restructuring and recapitalization transactions,
these government-owned and -controlled banks accounted for a major portion of either new loans or
debt that was swapped for equity. Through its in fluence over government-owned banks and its direct
control over specialized banks, the GOK was able to establish its dominant position over Hynix’
Creditors’ Councils, influence the outcome of the council meetings, and entrust the continuation of its
policies to the council. The GOK also demonstr ated control over banks with relatively small
government ownership shares. Kookmin Bank, which had less than 10 per cent government
ownership, admitted in sworn submissions to the US SEC that it had been, and still was, subject to
government influence in its lending decisions.

8. The GOK’s Role as Legislator: The GOK took legislative action that enhanced its ability
and the ability of Hynix’s creditors to effectuate the GOK’s policy to save Hynix. Prime Minister
Decree No. 408 legalized the GOK’s rights to inte rvene under the guise of stabilizing financial
markets or exercising its shareholder rights to el ect and appoint the banks’ decision makers and to
make credit policy decisions. The Public Fund Over sight Act required Korean private banks to sign
MOUs with the GOK in exchange for the mass ive recapitalizations they received from the
government. These MOUs provided the GOK with a cont ractual right to intervene in the day-to-day
business and credit decisions of Korean banks. The CRPA permitted a handful of Hynix’s creditors,
most of whom were majority owned by the GOK, to dictate restructuring terms to other Hynix
creditors. Record evidence show s that the GOK used these legislative measures during the period of
investigation to effectuate its Hynix policy.

9. The GOK’s Role as Regulator: The FSC approved three credit limit increases for Hynix’s
creditors “to allow them to participate in the Hy nix restructuring process”. The record evidence
shows that, far from applying “market principles”, the FSC waived the credit ceiling for three of
Hynix’s creditors participating in the December 2000 syndicated loan for economic, social and
political reasons. The FSS requested all creditor ba nks “to refrain from exercising [liquidation] rights
until 4 September 2001”. Without this intervention, Hynix’s creditors could have sought to liquidate
the company, thereby ending its prospects for restructuring.

10. The DOC assessed several instances in which the GOK threatened Hynix’s creditors to coerce
compliance with its policy to prevent the failu re of Hynix, such as the GOK’s pressure on KFB
(which was, at that time, 51 per cent owned by Newb ridge Capital, a US company) to participate in
the Fast Track Programme”. Through the FSC and FSS, the GOK also threatened to terminate banks’
relationships with either the government or their existing customers.

11. The totality of the evidence supports the DOC’s findings that the GOK entrusted and directed
Hynix’s creditors to provide financial contributi ons to Hynix. The GOK’s policy to prevent the
failure of Hynix and its actions to effectuate that policy were in evidence throughout the entire period
of investigation. Although the DOC was not require d to do so, much of this evidence can be tied to
the various specific phases of the Hynix bailout; i.e., the 800 billion won syndicated loan, the KDB
Fast Track Bond programme, the May 2001 restructuring package, and the October 2001 restructuring
package.

12. Based on the ordinary meaning of the terms us ed in Article 1.1(a)(1)(iv), when a government
“gives responsibility to”, “orders”, or “regulates the activities of” a private body such that one or more
of the type of functions referred to in subparagraph (iv) is carried out, there is entrustment or direction
by the government. Korea is wrong to suggest th at there is a special ev identiary standard for

entrustment or direction distinct from the general evidentiary standard that applies in any dispute
governed by Article 11 of the DSU, which is whet her there is a “reasoned and adequate” explanation
of how the facts support the investigating authority’ s determination. Likewise, there is no obligation
that the DOC have express proof of bank-by-bank, transaction-by-transaction government direction.
As an evidentiary matter, any piece of evidence or fact can be relevant, provided it demonstrates,
either individually or in conjunction with other ev idence, whether or not a government entrusted or
directed private bodies to provide financial contribu tions. The evidentiary question in this dispute,
therefore, is whether a reasonable, objective decision-maker, looking at all the evidence on the record,
could have concluded that the GOK’s actions in toto evince entrustment or direction. It was
eminently reasonable for the DOC, based on the ev idence before it, to conclude that the GOK’s
actions did evince entrustment and direction of pr ivate bodies to provide financial contributions to
Hynix.

13. Korea attempts to find textual support fo r its bank-by-bank, transaction-by-transaction
standard by citing the use of the singular “a” financia l contribution in the text of Article 1.1(a)(1).
Korea’s “a”/singular argument overlooks the fact that use of the singular does not rule out a meaning
that encompasses the plural of that term. In particul ar, the definition of the term “body”, as used in “a
private body” in subparagraph (iv), provides that the term “body” may refer to a singular entity or
more than one entity.

14. Korea’s reliance on Export Restraints for its bank-by-bank, transaction-by-transaction
evidentiary standard also is misplaced. Export Restraints addressed a very different issue; i.e.,
whether a hypothetical restriction on exports co uld constitute entrustm ent or direction under
Article 1.1(a)(1)(iv). Thus, the cited portion of the Export Restraints report is of limited (if any)
relevance to the instant dispute, in which there is a voluminous body of evidence that the GOK
affirmatively caused, and gave responsibility, to private entities to provide loans, equity infusions, and
debt forgiveness to save Hynix from bankruptcy.

15. Subparagraph (iv) requires that the financial contribution at issue “would normally be vested
in the government and the practice, in no real sense, differs from practices normally followed by
governments”. The functions at issue in this dis pute are financial restructuring and recapitalization
measures (all falling within subpara graph (i), transfer of funds) to bail out a major company that is
failing. As Korea acknowledges, governments “gen erally try to avoid the collapse of major
companies in their countries”. That is exactly wh at this case is about – a government’s orchestrated
and directed multibillion dollar bailout of one of its largest and most important manufacturers, i.e., the
GOK’s actions to effectuate the bailout of Hynix.

16. In sum, there is no distinct evidentiary st andard for government entrustment or direction
found in Article 1.1(a)(1)(iv) or elsewhere in the SCM Agreement. Rather, the evidentiary standard
in this dispute, as in any similar dispute where Article 11 of the DSU furnishes the standard, is
whether there is a “reasoned and adequate” explan ation of how the facts support the investigating
authority’s determination.

B. The DOC’s Determination of “Benefit” Was Proper

17. All financial contributions (i ncluding loans, equity infusions, and debt forgiveness) received
by Hynix during the period of investigation were provided either directly by the GOK through
“public” Hynix creditors, such as KDB and IBK, or i ndirectly by “private” Hynix creditors that were
entrusted and directed by the GOK to provide fundi ng to Hynix (with the exception of Citibank, the
only Hynix creditor that was wholly foreign-owned).

18. The DOC rejected loans from Hynix’s priv ate creditors for use as a benchmark because it
found those loans to be government financial contributi ons. It is axiomatic that loans determined to

be government financial contributions cannot them selves serve as benchmarks for determining the
benefit from such financial contributions.

19. The DOC also concluded that it was not appropriate to use loans from Citibank as
benchmarks due to certain unusual aspects concerning the extension of these loans. In its analysis, the
DOC looked at the circumstances surrounding Citibank’s extension of financing to Hynix. The DOC
concluded that Citibank’s risk assessment, like that of other Hynix creditors, was influenced by the
continuing and significant involvement of the GOK in propping up Hynix. The DOC’s findings are
supported by record evidence.

20. Finally, the DOC also considered Citibank’ s dual role as lender and financial advisor in
analyzing whether Citibank loans were appropriate for use as benchmarks. The DOC concluded that
Citibank was not only motivated by the fees that it stood to earn as Hynix’ s exclusive investment
advisor, but also by its desire to serve a broade r advisory role. The DOC reasonably concluded that
neither the incentive provided by potential fees as inv estment advisor to Hynix, nor the interest in
being positioned to provide advisory services more broadly in the Korean economy, was
demonstrative of commercial considerations typical of a lending institution independent of
government involvement. Furthermore, both factors significantly affect assessment of the risk
attendant to participation as a lender in the restru cturing measures and made the loans “problematic
for purposes of comparability”.

21. The DOC found that Hynix was not creditworthy during the period of investigation, and
calculated the amount of the benefit based on a formula that factors in a “risk premium” to account for
the higher probability that the borrower will defa ult on repayment of the loan. Korea is not
challenging, per se, the DOC’s finding that Hyni x was uncreditworthy at the time it received the
government-directed loans. Rather, Korea argues th at the DOC improperly ignored available data on
Korean default rates as part of its creditworthy analysis.

22. For purposes of determining the probability of default, the DOC relied on the average
cumulative default rates reported in Moody’s Investor s Service study of historical default rates for
corporate bond issuers, including international issu ers. The Moody’s data relied upon by the DOC is
comprehensive, reflecting the experience of 14,400 issuers of long-term debt over the cumulated
period, with non-US issuers accounting for up to 38 per cent of the companies included in the
statistics. Korea claims that the DOC should have used Korean default rates, but the guidelines in
subparagraph (b) of Article 14 require only that a benefit calculation be based on comparable
commercial loans that the Hynix could actually obtai n “on the market”. Nothing in this provision
indicates that the definition of the term “market” should be limited to the “Korean” market, or the
market “in the country of provision”. Furthermor e, the DOC found that Hynix failed to provide all
necessary information during the inves tigation regarding Korean default rates. The data provided by
Hynix were unreliable on their face, as the data sugg ested that the default rate for lowest rated debt
was lower than the default rate of the highest rate d debt. By contrast, in the Moody’s data, lower
rated bonds had higher default rates in every instance.

23. The DOC found that Hynix was not equityworthy in October 2001, and, therefore, treated the
entire amount of the equity infusions received by Hynix in October 2001 as a grant. Korea does not
challenge the DOC’s equityworthiness methodology. Instead, Korea claims that the DOC ignored
contemporaneous equity purchases and “third part y enthusiasm” and improperly rejected existing
(insider) creditor versus new (outside) creditor motiv ations. The DOC determined that no significant,
reasonably concurrent purchases of newly issued H ynix shares by private investors existed, and that
Hynix’s June 2001 GDS offering provided no indication as to whether Hynix was equityworthy
almost five months later. The DOC also examined Hynix’s financial indicators and performance as
part of its equityworthiness analysis. The DOC found that Hynix had been in poor condition
throughout the late 1990s and through 2001.

24. The DOC also determined that the SSB a nd Monitor Group studies were not prepared to
answer the question of whether Hynix was equityworthy. Moreover, Hynix’s creditors could not have
relied upon the Arthur Anderson report, because, as the DOC noted, the report was not finished until
two months after the creditors agreed to the October 2001 restructuring package. Finally, in
considering the usual investment practice of priv ate investors, the DOC explained its reliance upon a
rational investor standard, as opposed to the economic model advanced by Korea.

C. The DOC’s Finding of Specificity Was Proper

25. Because the subsidy programme is directed at a particular company – Hynix – it is specific
within the meaning of Article 2 of the SCM Agreement. Moreover, the DOC confirmed the
specificity of the Hynix bailout through an analys is of corporate usage of the CRA/CRPA. With
respect to the CRA/CRPA, the data, which was provi ded by the GOK, demonstrates that the Hyundai
Group companies received an extraordinarily larg e percentage of financial restructuring and
recapitalization aid and that Hynix alone received a very high percentage of such aid. Ironically,
having stressed the requirement for positive eviden ce, Korea then asserts that its own objective,
credible data on use of the CRA/CRPA is irrelevant to the specificity analysis. In the face of positive
evidence that the government specifi cally directed and entrusted the banks to bail out Hynix, Korea
argues that evidence of specificity for purposes of Article 2.1(c) must come from a “broader
examination” of the “benefits”. There is absolutely no support in the text of the SCM Agreement for
that assertion. As Korea itself acknowledges, the pr inciples that govern specificity findings are set
forth in Article 2. Article 2.1(c) contains explic it references to “quantitativ e” factors related to use,
and there is no requirement in Article 2.1(c) to “temper” those quantitative factors based on
“qualitative distinctions”, as suggested by Korea.

III. THE ITC’S INJURY DETERMINATION WAS PROPER

A. The ITC’s Volume Analysis Was Proper

26. While the ITC made it very clear that it re lied on a single consistent set of data from
questionnaire responses for its examination of the volu me of subsidized subject imports, Korea refers
to a varying set of data sources. Also, Korea’s first submission contains only selective confidential
data. For several reasons, the United States urges the Panel not to rely on the selective confidential
information that Korea has provided in this disp ute. The data “trends” described in Korea’s
submission are wrong and contradict those described in the ITC’s determination.

27. While there is no requirement in Article 15.2 that an authority find that the increase in
subsidized subject import volume relative to consum ption is significant, the ITC found not only that
the increase in subsidized subject import volume relative to US consumption was significant, but also
found that the volume of subsidized subject imports was significant both absolutely and relative to US
production. The ITC explained why subsidized subj ect import volume was significant stating that its
“findings about the volume of subject imports are reinforced by the substantial degree of
substitutability between subject im ports and domestic shipments”. It also noted that “[t]he
commodity-like nature of domestic and subject im ported DRAM products magnifies the ability of a
given volume of imports to impact the domestic ma rket and industry”. Korea does not contest the
high degree of substitutability between subsidized subject and domestic DRAM products.

28. The ITC specifically acknowledged in its opinion that “the use of bits as a unit of
measurement [could] present difficulties for [its] anal ysis, as total bits are a function of chip density
and product mix, both of which changed over the peri od of investigation”. In a portion of the opinion
omitted from Korea’s submission, the ITC explained that it nevertheless found the volume of

subsidized subject imports on an absolute basi s and the increase in that volume relative to US
production and consumption was “significant”.

29. Korea does not dispute or even address the ITC’s conclusion that the increase in the volume
of subsidized subject imports was significant relative to US production.

30. Finally, the ITC’s finding of a significant in crease in subsidized subject imports’ market share
is based on positive evidence and is consistent wi th US obligations under the SCM Agreement.
Subject imports gained market share between 2000 and 2001, while the domestic industry was losing
market share. Both subsidized subject imports and the domestic i ndustry lost market share between
2001 and 2002, but during this time of increasing, but slowing demand, subsidized subject imports
maintained their market position better than domestic producers . In addition to using a table
(figure 9) that is rife with errors, Korea focuses on the percentage-point increase over the period of
investigation, ignoring the magnitude of this per centage increase. By putting the volume data in
context, the ITC reasonably concluded that the in crease in subsidized subject imports’ market share
was significant in light of subsidized subject im ports’ high substitutability with the domestic like
product and the price effects of subsidized subject imports.

31. Korea argues that the increased subject imports were entering the US market to replace other
Hynix-brand products while Hynix’s Eugene facility was being upgraded. Even if this explanation
were accurate, the fact remains that a domestic producer was losing sales to subsidized subject
imports. More importantly, however, the ITC in its final determination explicitly identified a missing
factual predicate that explained why, in the DRAM s investigation, any declines in Hynix’s Eugene
production of DRAM products or in the Hynix-brand US market share were inapposite. Confidential
Figure US-1 identifies and explains this problem.

32. Another flaw with Korea’s argument is that it is premised on the notion that the ITC should
have examined the impact of subsidized subject imports on a “brand-name” basis. The brand names
of DRAM products did not indicate their country source, and did not correspond to the relevant
inquiry under the SCM Agreement. On the facts of the DRAMs investigation, the brand-name
approach suggested by Korea would not be consistent with the SCM Agreement. The approach by the
ITC in this investigation is consistent with th e SCM Agreement and with the approach endorsed in
reports by other reviewing panels.

33. Korea asserts that the ITC used “inconsiste nt definitions of domestic industry, subject
imports, and non-subject imports” that “prevented an objective examination of subject import
volumes”. Korea does not contest the ITC’s definition of subject imports. Instead, Korea would have
the ITC define the domestic industry for certain purposes as “producers of the domestic like product”,
but then abandon that definition when calculating indu stry shipments. The ap proach used by the ITC
here, which throughout the determ ination defined the domestic i ndustry as companies engaged in
domestic production of the domestic like product, is consistent with the SCM Agreement. Its
methodology was objective because it avoided double-counting data.

B. The ITC’s Analysis of the Price Effects Was Proper

34. The ITC found significant underselling by subsidized subject imports based on an analysis of
8 different representative pricing products that co mpared the weighted-average price of domestic
shipments with the weighted-average price of s ubsidized subject imports for each month between
January 2000 and March 2003. Korea does not ch allenge the data underlying the ITC’s pricing
analysis, nor is there any basis to do so.

35. A finding of underselling, let alone significan t underselling, is not a prerequisite to an
affirmative injury determination. Article 15.2 prov ides that “[n]o one or several of these factors can

necessarily give decisive guidance”. Nevertheless, it is clear that, under the analysis the ITC
conducted in this investigation, there was significant underselling by subsidized subject imports.
Korea merely asserts that the ITC’s analysis was “wrong for this industry”, but there is no
requirement in the Agreement to analyze price ef fects on a brand-name basis. The disaggregated
analysis by brand name urged by Korea would not reflect the source country of the DRAM products
and would be utterly inconsistent with the re quirement under the SCM Agreement to examine the
effect “of the subsidized imports” on the “like product”, the product produced by the domestic
industry. Moreover, Korea ignores that the ITC also examined the pricing data on a disaggregated
basis (broken down both by brand-name and by so urce). The ITC found that even a disaggregated
analysis showed that subsidized subjec t imports were the lowest-priced product “ more often than
DRAM products from any other source ”. (emphasis added). There is no requirement in the SCM
Agreement that subsidized subject imports be th e lowest-priced product throughout the investigation
based on a weighted-average pricing analysis, let alone based on a disaggregated analysis by brand
name. Low-priced subsidized subject imports, non etheless, were the lowest-priced product more
often than any other source even on a disaggregated b asis. Even when not priced lowest, they helped
purchasers pressure other suppliers on price.

36. Other than its argument that the ITC did not ad equately consider other factors in its analysis
of subject imports’ price effects, Korea does not challenge the ITC’s finding that there was significant
price depression by subject imports, evident in substa ntial price declines for nearly every product and
channel of distribution. Regarding price leadersh ip, Korea fails to identify any requirement under
Article 15 to find price leadership, because there is none. The ITC reasonably relied on the evidence
it had of lost sales and revenues to support its adverse price effects findings, and the fact that any were
confirmed in an investigation of a fungible good is noteworthy, even if Korea would weigh them
differently.

C. The ITC’s Analysis of the Impact of Subsidized Subject Imports Was Proper

37. Although a “checklist” approach is not required, it is also clear from the text of the ITC’s
narrative views (not to mention the accompanying data tabulations) that the ITC evaluated the
enumerated SCM Agreement Article 15.4 factors. The ITC concluded that “[i]n sum, the domestic
industry’s performance declined over the period of i nvestigation with respect to many indicators, and
its financial performance worsened precipitously. Declining prices are the primary reason for the
industry’s large operating losses, and as discussed above, subject imports contributed materially to the
steep price declines that occurred over the period”. The ITC’s evaluation of injury factors and its
consideration of the conditions of competition and business cycle distinctive to this industry
permeates its entire final determination. In its narrative views, for example, the ITC explicitly
incorporated its findings in other sections of its narrative views and frequently cited to the
accompanying data tabulations.

38. Korea does not dispute the positive evidence supporting the ITC’s conclusions. Instead,
Korea argues that the ITC should have weighed the f actors differently, and asserts that in this industry
there are only five key indicia. While Kor ea focuses on selective criteria, the ITC’s final
determination reflects evaluation of positive ev idence concerning a variety of factors showing
changes in the industry’s condition. Korea uses diffe rent time periods depending on the point that it
seeks to make, as illustrated in Figure US-2, and al though Korea cites bits of data about individual
producers, the ITC examined the domestic industry, as well as the record, as a whole. Furthermore,
even the criteria that Korea asserts are important showed declines during at least part, if not the entire,
period of investigation.

D. The ITC’s Causation Analysis Is Proper

39. Korea fails to identify any requirement in the plain text of the SCM Agreement to support its
argument that the investigating authority is to “t ake the added step of examining other factors to
ascertain their role in injury to the domestic indus try” in order to “isolate” subject imports or the
effects of the subject imports and other known factors on the domestic industry. Neither in US – Hot-
Rolled Steel nor in subsequent reports has the Appe llate Body found any requirement for the
investigating authority to “isolate” the injurious e ffects of the unfair imports. Instead, the standard
articulated has been whether the investigating au thorities provided a satisfactory explanation of the
nature and extent of the injurious effects of tho se other factors, as distinguished from the injurious
effects of the unfair imports.

40. In the DRAMs investigation, the ITC integrated into its analysis of the volume, price effects
and impact of subject imports the causation discussi on and its discussion of how it ensured that it did
not attribute material injury from other factors to the subject imports. The ITC clearly analyzed trends
in both impact factors and the volume and price eff ects of the subsidized subject imports. The ITC
evaluated the absolute volume of subsidized subj ect imports, the trends in subject import volumes,
and the relative increases in these volumes. The ITC evaluated the rate and extent of underselling and
price depression by subsidized subj ect imports. It also examined changes in the injury factors in
reaching its conclusion as to injury and causatio n. More specifically, the ITC explored the
relationship between the factors indicative of the vo lume and price effects of the subject imports and
the movements in injury factor s. This evaluation was central to its causation analysis and
determination. The ITC demonstrat ed an “overall” temporal relationship or coincidence between the
subsidized subject imports and the material injury of the domestic industry, and in demonstrating a
causal link between the subsidized subject imports a nd the injury to the domestic industry, the ITC
evaluated the relevant factors in the context of the business cycle and conditions of competition
distinctive to this industry.

41. The ITC also examined other factors to ensure that it did not attribute injury from those
factors to subject imports. With respect to non-s ubject imports, the ITC determined that a significant
portion of non-subject imports were Rambus an d specialty DRAM products for which domestic
producers had no significant production. Moreover, even those non-subject imports consisting of
“standard” products did not have the price effects that subsidized subject imports did during the
period of investigation. Thus, the ITC reasonably found that non-subject imports had less impact than
their absolute and relative volumes might otherwise have indicated. Furthermore, it also found that,
while non-subject imports’ market share grew, the “primary negative impact” on the domestic
industry was due to lower prices. On this point , the ITC found that subsidized subject imports,
themselves, were large enough and priced low enough to have a significant impact, regardless of the
adverse effects caused by non-subject imports. Thus, the ITC evaluated the nature and the extent of
the injurious effects of non-subject imports in a “comprehensive” way to ensure that it did not
attribute injury to subsidized subject imports. Its findings are based on positive evidence and an
objective examination. Korea wants this Panel to reweigh the evidence or ignore the ITC’s analysis.

42. Korea argues that the price declines during th e period of investigation were due to other
factors (such as product life cycles and business cycl e changes in demand and supply that lead to
“boom” and “bust” periods characteristic of this industry). Although Korea asserts otherwise, the ITC
explicitly evaluated these factors in its determination. It concluded that the substantial price declines
were far greater than what would be expected, ev en according to Hynix, an d that in the absence of
significant quantities of subsidized subject imports competing in the same product types at relatively
low prices, domestic prices would have been substantially higher.

43. The ITC also examined the domestic industry’ s actions to ensure that it did not attribute
injury to the subsidized subject imports. Its affi rmative findings in this investigation are based on a

factual record that sharply contrasts with the fact ual record in its previous investigation of DRAMs
from Taiwan that resulted in a negative determination.

44. Not only does Korea fail to prove any subs tantive violation of Article 15 of the SCM
Agreement, but it also fails to prove any inconsistency with Article 22.3.

IV. OTHER ISSUES

45. With respect to other issues raised by Korea’ s first submission: (a) the United States has not
acted inconsistently with Article 19.4 of the SC M Agreement or Article VI:3 of GATT 1994 because
it has not levied any countervailing duties; (b) Korea’s claims regarding the DOC countervailing duty
order should be rejected because Korea failed to co mply with Article 4.4 of the DSU and Korea has
failed to demonstrate an inconsistency with the SCM Agreement or GATT 1994; (c) the
recommendation requested by Korea is inconsistent w ith Article 19.1 of the DSU; and (d) the DOC’s
meetings with financial experts were not inconsistent with Article 12.6 of the SCM Agreement.

ANNEX A-3

EXECUTIVE SUMMARY
THIRD PARTY SUBMISSION OF CHINA

4 June 2004

I. INTRODUCTION

1. China concentrates in its third part y submission on the following legal issues:

 (1) Indirect financial contribution entrusted or directed by a government;

 (2) Selection of market benchmarks in th e establishment and calculation of benefits to
the recipient of a subsidy;

 (3) Determination of speci ficity under Article 2 of the SCM Agreement.

II. INDIRECT FINANCIAL CONTRIBUTION UNDER ARTICLE 1.1(A)(1)(IV) OF THE
SCM AGREEMENT

2. With respect to the issue of indirect financial contribution as provided for by
Article 1.1(a)(1)(iv) of the SCM Agreement, China has the following views.

3. First, from the ordinary meaning of the words “entrust” and “direct”, the Panel in US – Export
Restraint held that the act of entrusting and that of directing “necessarily carry with them the
following three elements: (i) an explicit and a ffirmative action, be it delegation or command;
(ii) addressed to a particular party; and (iii) the objec t of which action is a particular task or duty”.
China believes that these three elements establish a stringent standard for treating a financial
contribution directly out of the pocket of a private entity as one indirectly from the government.
China also believes that the first requirement of an “explicit and affirmative” action of delegation or
command manifestly dictates that the action of the gov ernment must be conducted in such an explicit
and affirmative way that justifies the imputation of a private action to the government.

4. Second, the negotiating history of the SCM Agreement supports the strict reading of the words
“entrust or direct”. A financial contribution is in cluded as one of the requisite elements of a subsidy
in order to limit the applicable scope of the defin ition of subsidy. Although Article 1.1(a)(1)(iv) was
intended as an anti-circumvention provision, it should not be carried too far so as to result in a far-
reaching finding of a financial contribution with respect to every instance where government
involvement exists. Furthermore, the fa r-reaching interpretation and application of
Article 1.1(a)(1)(iv) may lead to the abuse of countervailing duties that the negotiators of the SCM
Agreement endeavoured to prevent during the Uruguay Round.

5. In the respect of the evidentia ry standard for entrustment or direction, China believes that an
investigation authority must set out a “reasoned a nd adequate” explanation of how the facts support
the finding of the three elements of entrustment or direction, which is not a special evidentiary
standard.

6. Consequently, China is of the view that the words “entrust” and “direct” should be read
strictly in the process of finding an indirect financial contribution by the government through a private
entity.

III. SELECTION OF A MARKET BENCHMARK UNDER ARTICLE 14(A) and (B) OF
THE SCM AGREEMENT

7. In China’s view, by analogy to the Appellate Body report of US – Lumber CVDs Final (AB)
and on the basis of Article 14(a) and (b), the acts of Citibank may constitute a primary market
benchmark in the establishment of benefit. As su ch, in the current dispute, the key issues would
become: (1) whether an authority may abandon a prim ary market benchmark; (2) if yes, under what
circumstances it can do so; and (3) after rejecti ng the primary benchmark, whether the alternative
benchmark used by DOC is consistent with Article 14(a) and (b). In US – Lumber CVDs Final (AB) ,
similar legal issues also arose. China thinks the reasoning and finding of the Appellate Body in that
dispute may be helpful for this Panel in its assessment of the current dispute.

8. On the basis of the understanding of the Appellate Body’s ruling in US – Lumber CVDs Final
(AB), China believes that an investigating authority may use alternative benchmarks other than the
primary ones provided in Article 14(a) and (b) to est ablish and calculate the benefits to the recipient
of a subsidy on the condition that such a method is consistent with Article 14(a) and (b).

9. However, the Appellate Body in US – Lumber CVDs Final (AB) emphasized that “the
possibility under Article 14(d) for investigating auth orities to consider a benchmark other than private
prices in the country of provision is very limited”. In China’s view, these statements demonstrate a
very high threshold for abandoning a primary benchmark. In this respect, China believes that the
actual and available private prices in the country of provision should be the more appropriate market
terms under normal circumstances. Although there may be some factors that may affect such
comparison, adjustments may be made for the factors to the actual private prices. In contrast, if the
private prices are rejected due to certain factors of incomparability and a “market price” is constructed
accordingly, it is also not easy to take into account every key factors and ensure that such constructed
“market terms” fully reflect the real market situation.

10. Similarly, in the cases of equity infusion a nd loans provision, if there are investment activities
conducted by a private entity to the same company unde r investigation, it is preferable to use such
activities as the primary market benchmark instead of to reject the readily available and actual market
benchmark and to construct an additional set of “market terms”.

11. In the current proceeding, both parties disput ed whether on the basis of the three key factual
factors, the decision of Citibank should be abando ned. After analyzing two of these factors, China
thinks that they are not necessarily conclusive ev idence to support the rejection of Citibank’s decision
as primary market benchmark.

12. Further to the above views, China also have th e opinion that even if a readily available market
benchmark is properly rejected, due regard shou ld be given to mainta ining consistency with
Article 14(a) and (b) when constructing a market benchmark. In China’s view, the specific
requirements set out in Article 14(a) and (b) have the function of ensuring that only the advantage of a
subsidy is calculated through the application of gui delines contained therein. This understanding is
supported both by the Appellate Body report in US – Lumber CVDs Final (AB) and by the well
accepted interpretation of the term “benefit” in Article 1.1 by the Appellate Body in Canada –
Aircraft. Therefore, China believes that Article 14(a) and (b) impose an obligation of excluding any
factor that affects comparability of the terms that are being constructed by an authority.

IV. DETERMINATION OF SPECIFICITY UNDER ARTICLE 2 OF THE SCM
AGREEMENT

13. With respect to Article 2.1(c) of the SCM Agreement, it provides for a three-layer requirement
in the determination of de facto specificity: first, there shall be facts indicating the possible existence
of de facto specificity; second, consideration may then be turned to any or all of the four factors; third,
when looking at factual factors, one shall take into account two circumstan tial factors, i.e. the extent
of diversification of economic activities and the le ngth of time of the application of the subsidy
programme.

14. China notes that DOC in its Decision Memorandum adopted various evidence to show the
intention of the GOK to rescue Hynix which, in China’s view, at best only shows the “reason to
believe” that there may be de facto specificity. The panel in US – Lumber CVDs Final held that
“Article 2 [of] SCM Agreement is concerned with the distortion that is created by a subsidy which
either in law or in fact is not broadly available”. China thinks this is a proper statement of the purpose
and function of the element of specificity. The four factual factors and two contextual factors
contained in Article 2.1(c) serve to guarantee a justifiable finding of limited availability of a subsidy.

15. In short, China believes that the intent of a government does not necessarily prove that the
actual application of a subsidy or subsidies is of de facto specificity.

16. With respect to “the granting of dispropor tionately large amounts of subsidy to certain
enterprises”, Article 2.1(c) of the SCM Agreement clearly lists it as one of the factors that may be
considered in the determination of de facto specificity. China would like to put forward the following
opinion in the context of the current dispute.

17. First, DOC seemed to ignore the qualifier of “ disproportionate” on largeness of the amount
of subsidy in Article 2.1(c) of the SCM Agreement. The fact that a company accounted for a big share
in the debt restructuring provided by the government does not by itself conclusively establish that the
amount of granted subsidy is disproportionate. In China’s view, the disproportionate largeness should
be determined on the basis of comparison with othe r participants in the restructuring programme.
Such comparison should be conducted not only from th e perspective of the absolute amount of debt,
but also, more importantly , from the perspective of the scales and needs of financing of all
participants in the same programme.

18. Second, China shares the same view with Kor ea that, as manifestly required by Article 2.1(c)
of the SCM Agreement, the “extent of diversification of economic activities” and the “length of time”
have to be taken into account in the determination of specificity.

19. Third, in China’s view, though Article 2.1(c) does not require an authority to consider each
and every factual factor listed therein, when taking into account of the particular settings of the debt
restructuring, the consideration of the third factor , amount of subsidy, should be combined with the
fourth factor, the manner of exercising discretion. The authority should have looked into whether
there were other applications for debt restructuring by other companies of scale similar to Hynix and
in similar needs of financing and whether such appli cations were refused despite situations similar to
those of Hynix.

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

21. As a third key point, it is s ubmitted by China that Article 2 of the SCM Agreement requires
that specificity of subsidy programmes be dete rmined with respect to each separate subsidy
programme. Accordingly, an investigating au thority should refrain from taking a particular financial

contribution out of the context of the subsidy programme and considering it in isolation, or combining
various separate subsidy programmes as a whole and reviewing them as a single programme.

22. First, China believes that specificity should be examined on the basis of a subsidy
programme, instead of any individual financial c ontribution granted under the same programme. If
specificity is to be determined on the basis of any particular financial c ontribution under the subsidy
programme, there will be no subsidy programme that is not specific. One may not be wrong to argue
that a particular financial contribution under a subsid y programme is specific given the fact that it is
specifically made to a company. However, this is the specificity of the financial contribution instead
of that of the subsidy . Hence, the specificity of a financial contribution does not follow that the
subsidy programme, as a whole, is specific by nature.

23. Second, in China’s understanding of Article 2 of the SCM Agreement , China thinks that
specificity should be examined in relation to each separate and distinct subsidy programme that is
under investigation by the authority of a member. This understanding is supported by the following
grounds. First, within the legal framework of the SCM Agreement, specificity is a pre-condition for a
subsidy to be subject to countervailing duties. Consequently, the benefit of a subsidy could be
counted into the total amount of subsidies only afte r its specificity is confirmed. Practically, a
countervailing duty investigation may involve mu ltiple subsidy programmes. A finding of the
specificity of a subsidy under investigation does not necessarily extend to other subsidies
programmes. Second, as an explicitl y provided requirement, Article 2.4 of the SCM Agreement
provides that, “[a]ny determination of specificity under the provisions of this Article shall be clearly
substantiated on the basis of positive evidence. In Chin a’s view, this provision imposes an obligation
on the investigating authority to clearly inquire in to and demonstrate the specificity of each of the
subsidy programmes under investigation.

24. In the current dispute, DOC seemed to make no effort to establish that the various
programmes under the heading of “Direction of Cred it and Other Financial Assistance” are financial
contributions made pursuant to one single subsidy programme. If the “single programme” theory is
not substantiated by relevant facts, the finding of specificity of the “programme” as a whole would be
flawed, and therefore, no natural and logical conclu sion could be drawn that each individual subsidy
programme under this big “programme” is specific. If there is no such “single programme”, an
investigating authority shall establish the specifi city of each separate subsidy programme under
investigation.

25. In summary, China is of the opinion that Article 2 of the SCM Agreement requires an
investigating authority to enquire into and decide on the existence of specificity with respect to each
of the subsidy programmes under investigation.

V. CONCLUSION

26. In conclusion, China is of the opinion that,

 (1) The words “entrust” and “direct” in Article 1.1(a)(1)(iv) of the SCM Agreement
should be read strictly in the process of finding an indirect financial contribution by
the government through a private entity.

 (2) In establishment and calculation of the bene fit of a subsidy pursuant to Article 14(a)
and (b) of the SCM Agreement, an investigating authority may only use an alternative
benchmark other than the primary one with good cause and under very limited
situations; Article 14(a) and (b) impose an obligation of excluding any factor that
affects comparability of the terms that are being constructed by an authority.

 (3) With respect to establishment of specif icity, the intent of a government does not
necessarily prove that the actual applica tion of a subsidy or subsidies is of de facto
specificity; in the current dispute, the DOC finding of disproportionate granting of
subsidies does not seem well founded under Article 2.1(c) of the SCM Agreement ;
Article 2 of the SCM Agreement requires that an investigating authority inquire into
and decide on the existence of specificity with respect to each of the subsidy
programmes under investigation.

ANNEX A-4

EXECUTIVE SUMMARY OF THE THIRD PARTY
SUBMISSION BY THE EUROPEAN COMMUNITIES

14 June 2004

 The European Communities concentrates in its written submission on the following issues,

• the notion of “ entrustment” and “ direction” under Article 1.1.(a)(1)(iv) of the SCM
Agreement;

• the description of the DRAM market and the conclusions drawn by Korea;

• the application of Article 15.2 of the SCM Agreement in the context of a transparent market
for a homogenous product;

• and it submits that establishing a correlation be tween import volume and decline in domestic
industry performance is, depending on the facts of the case at hand, no more than a useful tool
for the determination of injury causation.

I. THE NOTION OF “ENTRUSTMENT” AND DIRECTION” UNDER
ARTICLE 1.1.(A)(1)(IV) OF THE SCM AGREEMENT

1. The EC disagrees with the interpretation of the notion of “entrustment” or “direction” in
Korea’s First Written Submission. Korea firstly essentially argues that these notions must be
interpreted in a very narrow sense and can only refer to an action which is “so specific and compelling
that the private body is not really making the d ecision at all – the private body has become the
instrumentality of the government ”. Korea interprets this to mean that “ any discretion left to the
private body transforms the situation, and the ac tion can no longer properly be imputed to the
government”. Against the background of this standa rd, Korea submits that the DOC should have
examined each alleged government delegation or command with respect to each party and with
respect to each transaction, in order to establish whether there was an “ explicit and affirmative ”
government action of delegation or command.

2. The EC submits that an interpretation requi ring a delegation or command in respect of each
individual measure is too narrow in respect of its scope and is not covered either by the wording of the
SCM Agreement, nor by the findings of the US – Export Restraints panel quoted by Korea. Secondly,
evidence of the nature and quality suggested by Kor ea, i.e. evidencing that each support measure is
the result of an affirmative and explicit instruction by the government is not required.

3. Firstly, in respect of the notion of entrustment, the EC recalls the wording of
Article 1.1(a)(1)(iv) of the SCM Agreement, and that the terms “entrust” and “direct” are not defined
in the SCM Agreement. The EC also recalls that in the US – Export Restraints case, the ordinary
meaning of “entrust” was defined and submits that on the basis of that definition, a situation of a
government entrusting one or more private body (i es) with the responsibility of executing a more
general task such as a public policy objective or to act in the public interest would be covered. In
such case it is submitted that there is no need to sh ow a specific entrustment or direction with respect
to each specific act leading to a financial contribution.

4. Secondly, in respect of the degree of evidence required for proving a government direction,
the EC submits firstly that the US - Export Restraints panel did not expressly address this point.
Secondly the EC submits that a government can express an “ affirmative and explicit action of
delegation or command” in a more subtle way than to issue a specific instruction. This could be done,
e.g. by providing for the implementation of a genera l policy. Hence, it is in accordance with the
special circumstances and the totality of the fact ual elements of the case at hand that the actual
delegation or command would have to be shown.

5. The EC also submits that it is very unusual in practice for an investigating authority to be able
obtain evidence that proves beyond reasonable doubt government direction of a private company.
The EC recalls the investigating authorities’ limit ed powers of investigation and their dependence on
information received from companies under investig ation and foreign governments. The EC submits
that, if the standard of proof to demonstrate govern ment direction or entrustment of a private party,
required conclusive documentary evidence, any government could easily circumvent
Article 1.1(a)(1)(iv) of the SCM Agreement by giving instructions e.g. over the phone, by exercising
other forms of pressure or by simply withholding documents during the investigation.

6. In practice, the information and evidence available to the institutions is most often
circumstantial. The relevant test, in the EC’s subm ission, is whether the tota lity of facts shows that
there was government entrustment or direction.

7. This interpretation, the EC submits , is supported by the fact that the SCM Agreement allows,
on the basis of its Article 12.7, for findings to be made on the basis of facts available, and this article
would become meaningless if, for the finding of govern ment direction, explicit documentary evidence
were necessary.

8. The EC submits that this in terpretation is in line with the US-Exports Restraints panel which
referred to the need to analyse the elements of action in the general context. The EC also submits that
the US - Export Restraints panel must be understood in the context of the special circumstances of
that case in which the notions to “ direct” and “entrust” were interpreted only to the extent needed in
order to decide the particular issues of that case. Accordingly, the findings in this case cannot be
transferred to cases with completely different facts raising completely different issues; the EC submits
that the present factual situation differs fundamentally from the one in US - Exports Restraints.

9. Furthermore, the EC refers to the reports by the Panel in Australia - Automotive Leathe r and
Appellate Body Canada Aircraft. These reports concern the standard of proof required for a finding
whether a subsidy is export contingent in the sense of Article 3.1 of the SCM Agreement, a notion that
is comparatively precise to the one of “entrustment” or “direction”. In that context the panel and
Appellate Body have held that such a finding has to be based on all the facts taken together, whilst
abstaining from stipulating that particular facts must necessarily be considered. This shows by
analogy, the EC submits, that an analysis of the tota lity of the facts is also warranted when examining
government direction.

10. Finally, the EC makes the following genera l observations. The threshold for demonstrating
entrustment or direction must take account of
the government’s degree of involvement in the private
body. If a private body has no government shareholding and operates at arms length from
government, it is defendable to expect a more ex plicit demonstration of government direction.
However, when the government is a shareholder, it is reasonable to expect the government to have a
more direct possibility to intervene in the undert aking’s decisions. Ther efore an investigating
authority should be entitled to take account of a gove rnment’s participation and influence in a private
bank as an important factor in establishing government direction.

II. THE DESCRIPTION OF THE DRAM MARKET AND THE CONCLUSIONS
DRAWN BY KOREA

11. Firstly, the EC submits that the particularities of the DRAM market, on which there is
agreement between the parties in ge neral terms, lead however to di fferent interpretations of their
implications for the injury finding. EC would subm it that in this market, contrary to the Korean
submission, injury can be caused particularly quick ly even be relatively few imports. The EC also
submits that the assumptions Korea draws from the functioning of the DRAM market partly leads it to
stretch the interpretation of provisions of the SCM Agreement.

12. The EC would submit that the Korean assertion that in the cyclical DRAM market, downturns
are not a sign of injury is, only part of the pictur e. The DRAM market, is essentially a world market
on which DRAMS are traded as a fungible commodity with highly transparent prices. The EC would
submit that precisely because of this fact, even comparatively small quantities of sales with
temporarily lower prices can exacerbate more ge neral industry downturns. Hence, in the DRAM
market comparatively low volumes of sales undercu tting the market level can have a major negative
impact on the situation of competitors. From the particularities of the DRAM market structure follow
a number of consequences; negative impacts from subs idized sales can possibly be felt in more than
just the US market, this implying that they are also felt in the US; in a hypothetical example of ten
transactions it is possible that two undercutting tran sactions had the most significant effect on prices,
e.g. if they were made at comparatively lower pr ices than the eight remaining ones; it is conceivable
that offering lower prices does not necessarily result in higher market shares, as this will depend on
the reaction of competitors.

13. The EC recalls that the wording of Article 15.2 of the SCM Agreement stipulates that the
investigating authority shall consider three asp ects when determining injury, two of which are
alternatives, but also clarifies that no one or sev eral of these factors can necessarily give decisive
guidance. The EC submits that this provision right ly provides for the flexib ility to analyse each case
according its particular characteristics, and that the present type of market s hows that this flexibility
can be required as here neither of the factors nece ssarily give decisive guidance. The EC rejects
Korea’s questioning of the “so called traditional underselling ” analysis and submits that Article 15.2
SCM Agreement requires investigating authorities to “consider” a comparison on this basis.

14. The EC submits that Korea overstates the requirement for, and indicative value of, a
correlation between the import volume and the de cline in domestic industry performance as an
indicator of injury causation.

III. CONCLUSION

15. Therefore the European Communities i nvites the panel to conclude that :

• the notion of government direction does not require this direction to have been
affirmatively and explicitly expressed in respect of every transaction and every
bank analysed;
• government direction can be established on the basis of the totality of facts
available and does not necessarily have to be established on the basis of explicit
documentary evidence of the direction;
• in the case of homogenous products traded on a transparent market, significant
injury can be caused by relatively small quantities and relatively minor
undercutting; and

• Article 15.2 of the SCM Agreement requires an undercutting analysis including a
comparison between subsidized imports a nd the price of the like product in the
territory of the importing Member, whilst none of the factors mentioned in it are
necessarily decisive for a determination of injury. In that context, a correlation
between import volume and decline in domestic industry performance is no more
than a potential indicator of injury causation.

ANNEX A-5

EXECUTIVE SUMMARY OF THE
THIRD PARTY SUBMISSION OF
THE GOVERNMENT OF JAPAN

4 June 2004

I. INTRODUCTION

1. The Government of Japan (“Japan”) wishes to address crucial systemic issues raised by the
Government of the Republic of Korea (“Korea”) rela ting to the material injury determination by the
United States International Trade Commission (“ ITC”) and the subsidy determination by the
United States Department of Co mmerce (“DOC”). While Japan do es not take any position with
respect to the factual aspects of th is case, Japan respectfully requests that this Panel carefully review
both legal and factual aspects of this case in light of this submission.

II. ARGUMENT

A. THE INJURY DETERMINATION BY THE ITC

1. The ITC Appears to Have Based Its Injury Determination on Evidence Inconsistent
with Article 15.1 and Footnote 46 of the SCM Agreement

2. According to Korea, the ITC applied a wafe r fabrication control approach to identify the
scope of imports from Korea, and an assembly control approach to identify the domestic like
products.
1 Therefore, the ITC applied different criteri a to identify domestic like products and imports
from Korea.

3. Footnote 46 of the SCM Agreement defines th at the scope of the “like product” must be
identical “in all respects” to the scope of the product under consideration. The phrase “in all respects”
encompasses all features and details of the product u nder consideration. Thus, the application of the
different criteria to define the scope of the product under consideration and the like product is
inconsistent with Footnote 46.

4. Article 15.1 requires that the authorities shall base its injury determination on positive
evidence of effects on price in a domestic market for the “like product” and the consequent impact of
subsidized imports on the domestic producers of the “like products”. Review of import data, which
were prepared on a different basis from domestic like product data, would not provide meaningful
analysis, rendering the injury determination incons istent with the requirement under Article 15.1 and
other provisions of Article 15.

1 See Korea’s First Written Submission (19 April 2004), paras. 123 - 124.

2. The ITC Appears to Have Failed to Demonstrate that Subsidized Imports Injured the
Domestic Industry

5. In its final injury determination, the ITC app ears to have failed to demonstrate that subsidized
imports caused material injury to the domestic i ndustry in accordance with Articles 15.1 and 15.5 of
the SCM Agreement.

6. In US–Lumber ITC Investigation
2, the panel stated that “increases in imports proportional to
the increase in demand would seem to be without any injurious effect” 3 where a situation of strong
and improving demand exists. Korea presented to this dispute the data which are similar to that those
presented in US-Lumber ITC Investigation case. This Panel should carefully review the evidence to
decide whether the ITC demonstrated that the subs idized imports caused the injury to the domestic
industry, taking into account the panel report in US –Lumber ITC Investigation.

3. The ITC Appears to Have Failed to Separa te and Distinguish Injury Caused by Other
Known Factors from Injury Caused by the Subsidized Imports

7. The ITC appears to have made no attempt to separate and distinguish effects of other known
factors on the domestic industry from effects of dumping of the subsidized imports thereon in
accordance with Article 15.5 of the SCM Agreement.

8. In EC–Pipe Fittings
4, the Appellate Body reconfirmed th at the authorities need to separate
and distinguish the injury caused by dumped imports from injury caused by other factors when
determining injury under Article 3.5 of the AD Agreemen t, which is equivalent to Article 15.5 of the
SCM Agreement. In this case, the ITC knew that three other factors actually or potentially
contributed to the material inju ry. It is not clear from the ITC Report how the ITC separated and
distinguished these known factors from the effects of the subsidized imports. Japan thus respectfully
requests that this Panel carefully review the ITC’s determination on this aspect.

B. THE SUBSIDY DETERMINATION BY DOC

1. The Panel Should Carefully Review DOC’s Fact Findings on Financial Contributions
within the Meaning of Article1.1 (a)(1) of the SCM Agreement

(a) Certain Financial Contributions Appears to Have Been Made by Public Bodies under
Article 1.1(a)(1)(i)

9. The authorities may find that a subsidy was gr anted to a recipient, only when a financial
contribution within the meaning of Article 1.1(a)(1 ) was made, and a benefit within the meaning of
Articles 1.1(b) was conferred to a recipient. Ar ticle 1.1(a)(1) of the SCM Agreement provides that
loans, loan guarantees and equity infusion are financ ial contributions under Article 1.1(a)(1)(i) if they
are provided by a public body. This Panel thus should review whether a bank of the public body
made any financial support to Hynix. Such financia l support, if any, is a “financial contribution”
under Article 1.1(a)(1) regardless of the government’s entrustment or direction.

(b) The Panel Should Apply Correct Evidentiary Standards to Review the Existence and the
Extent of Entrustment or Direction by the Government of Korea under Article 1.1(a)(1)(iv)

2 Panel report, United States -- Investigation of the International Trade Commission in Softwood
Lumber from Canada (“US – Lumber ITC Investigation”), WT/DS277/R, adopted 26 April 2004.
3 Id., para. 7.95.
4 Appellate Body report, European Communities - Antidumping Duties on Malleable Cast Iron Tube or
Pipe Fittings from Brazil (“EC – Pipe Fittings”), WT/DS219/AB/R, adopted 18 August 2003.

10. Article 1.1(a)(1)(iv) of the SCM Agreement se ts forth that the authorities may determine that
a privately-controlled bank provided a financial c ontribution thereunder, if the bank provided the
financial supports in compliance with entrustment or direction by the government.

11. The panel in US–Export Restraints5 analyzed the meaning of terms “entrust or direct”
in Article 1.1(a)(1)(iv) that acts of entrusting an d directing comprise the following three elements:
“(i) an explicit and affirmative action, be it delega tion or command; (ii) addressed to a particular
party; and (iii) the object of which action is a particular task or duty. 6” Its analysis shows that
Article 1.1(a)(1)(iv) provides elements, which the au thorities must find to determine that the financial
contribution was granted through a privately controlled bank. It also clarified that the Article does not
require that the government’s delegation or command mu st be so detailed to instruct every step that
the bank must follow.

12. The existence of these three elements may be shown by direct evidence such as the
governmental letter to a commercial bank, or circ umstantial or secondary evidence. It would be
sufficient for the authorities to find a financial contri bution, if the evidence is such that the authorities
can reasonably conclude that the government dele gated or commanded a privately-controlled bank to
provide certain financial supports to a specific company.

13. As Korea argues, the standard of review of th is Panel is set forth in Article 11 of the Dispute
Settlement Understanding. This Article requir es that this Panel review the DOC’s subsidy
determination based on “an objective assessment of the matter before it, including an objective
assessment of the facts of the case”.
7 Thus, this Panel must find that the facts are established
consistently with the WTO rules so far as an obj ective assessment of evidence on the record would
reasonably allow this Panel to reach the conclusion that the authorities reached . There are no further
requirements of the evidentiary standards.

2. The Panel Should Apply the Correct Legal Standards under Article 2 of the SCM
Agreement to Review Issues of Specificity in This Case

14. It appears that the DOC’s finding of the “entrust or direct” by the Government of Korea
sufficiently covers the issue of the specificity unde r Article 2.1(a). DOC stated that “[t]he objective
of this programme was the complete financial r estructuring of Hynix in order to maintain the
company as an ongoing concern”.8 This statement indicates that DOC found that the programme was
limited to Hynix and that the programme was speci fic under the terms of Article 2.1(a) of the SCM
Agreement.

III. CONCLUSION

15. For the reasons set forth above, Japan respect fully requests this Panel carefully review the
consistency of the injury determination by the IT C with Articles 15.1, 15.5 and Footnote 46 and the
consistency of the subsidy determination by DOC with Articles 1.1(a)(1) and 2.1.

5 Panel report, United States -- Measures Treating Ex port Restraints as Subsidies (“US – Export
Restraints”), WT/DS194/R, adopted 23 August 2001.
6 Id., para. 8.29.
7 Article 11 of the DSU.
8 Korea’s First Submission, para. 387, citing Decision Memorandum, at 48 (GOK
Exhibit 5).