Document: WT/DS296/R Page E-1 ANNEX E PANEL'S QUESTIONS, ANSWERS AND COMMENTS OF PARTIES Contents Page Annex E-1 Questions to the Parties following the First Substantive Meeting E-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 E

PANEL'S QUESTIONS, ANSWERS AND COMMENTS OF PARTIES

Contents Page
Annex E-1 Questions to the Parties following the First Substantive Meeting E-2
Annex E-2 Questions to the Parties follo wing the Second Substantive Meeting E-7
Annex E-3 Answers of Korea to Panel Questions, First Meeting E-10
Annex E-4 Answers of the United States to Panel Questions, First Meeting E-33
Annex E-5 Answers of Korea to Pa nel Questions, Second Meeting E-64
Annex E-6 Answers of the United States to Panel Questions, Second Meeting E-76
Annex E-7 Comments of Korea on Answers of the United States to Panel
 Questions, Second Meeting
E-115
Annex E-8 Comments of the United States on New Factual Information
 provided in Korea's answers to Panel Questions, Second Meeting
E-121

ANNEX E-1

QUESTIONS TO THE PARTIES FOLLOWING
THE FIRST SUBSTANTIVE MEETING OF THE PANEL

Each party may address/comment on questions addressed to the other party.

A. QUESTIONS TO THE UNITED STATES

1. Alleged subsidization

1. At paras 235 and 236 of its first written submi ssion, the US refers to "the Hynix bailout" as
the "the subsidy program". What are the rele vant constituent parts of that alleged subsidy
programme?

2. For each alleged financial cont ribution forming part of the "Hynix bailout" "program", please
specify which private entities participated in that financial contribution, and what evidence of
entrustment and/or direction the ITC relied on in respect of each of those private entities.

3. With regard to paras 139 and 146 of the US first written submission, please list which Hynix
creditors the DOC considered to be "government -owned and controlled", which were treated as
"government-owned", which were designated as "m ajority-owned by the government", and which
were treated as public bodies. Please explain how the US defines each of these terms for the purpose
of these proceedings, and the consequential rationa le for the designation made by the DOC with
respect to each of the relevant entities.

4. Did the DOC find that "government-owned and controlled" banks were entrusted/directed by
GOK, or did it find that they were the instruments through which GOK entrusted/directed other
entities?

5. Did the DOC find that "majority-owned by th e government" banks were entrusted/directed by
GOK, or did it find that they were the instruments through which GOK entrusted/directed other
entities?

6. Did the DOC find that "government-owned" banks were entrusted/directed by GOK, or did it
find that they were the instruments through which GOK entrusted/directed other entities?

7. Assume a government announces publicly that it is going to restructure a bankrupt industry
and that, although it would prefer to do so with the assistance of private investors, it would do so on
its own if necessary. Assume that private investors decide to participate in that restructuring, purely
on the basis of the government's statement that it is going to keep that industry afloat. Leaving aside
issues of benefit concerning the terms of the restruct uring, should an investigating authority find that
those private investors had been entrusted or directed by the government to participate? Why, or why
not?

8. Please comment on Korea's assertion (para. 51 of its oral statement) that many creditors
"walked away" from the October 2001 restructuring. Doesn't this suggest that those creditors were
able to act independently of any GOK desire to restructure Hynix? Please explain.

9. The US argued at the first substantive meeti ng that KFB was "brought into line" after initially
resisting GOK efforts to require it to participate in the Hynix restructuring. Korea denies this, arguing
that KFB ultimately did not participate in the October 2001 restructuring. Please comment.

10. The US asserted at the first substantive meeti ng that creditors were required to participate in
the October 2001 restructuring by virtue of the CRPA. Was such alleged mandatory participation
relied on by the DOC as evidence of entrustment and/ or direction? If yes, please indicate where this
issue is addressed in the DOC's determination. If not, why not?

11. With regard to the May and October 2001 restru cturings, the parties have referred to option 3
as the exercise of "appraisal rights". Please commen t. Was the exercise of appraisal rights any
different from liquidation? Please explain.

12. The US asserted at the first substantive mee ting that this case is not about a comparison of
different WTO Members' restructuring frameworks. At para. 21 of its oral statement, however, the
US seems to have argued that an investigati ng authority could reasonably have found that a
reasonable investor would not have invested in Hy nix because it was "technically insolvent". Doesn't
this suggest a per se rule that all "technically insolvent" companies should be liquidated? Please
explain.

13. At para. 17 of its oral statement, the US refe rs to alleged pressure on credit rating agencies. Is
this evidence of entrustment / direction of private creditors? If not, what is the relevance of this
evidence to the DOC's determination of subsidization? Please explain.

14. At para. 18 of its oral statement, the US refe rs to KEB's rationale for participating in the May
and October 2001 restructurings. Is it surprising th at a public body would act on the basis of social
and economic policy considerations? Why does the fact that a public body creditor acted on non-
commercial principles necessarily mean that other private body creditors also did so?

2. Alleged injury

15. At para. 316 of its first written submission, th e US states that the ITC explained that although
it opined that "the use of bits as a unit of measureme nt [could] present difficulties for [its] analysis", it
nevertheless found that the absolute volume of s ubsidized subject imports and the increase in that
volume relative to US production and consumption was "significant".

 (i) What were the reasons why
 the ITC nevertheless found that the absolute volume of
subsidized subject imports and the increase in that volume relative to US production
and consumption was "significant"?

 (ii) Where were those reasons set forth in its Determination and Views (Exhibit GOK-10)
(or any other relevant document)?

 (iii) The last paragraph of page 21 of the ITC's Determination and Views states that the
ITC's "findings about the volume of subject imports are reinforced by the substantial
degree of substitutability between subject imports and domestic shipments". If the
finding that the absolute volume of subsidized subject imports is significant is
"reinforced" by considerations of substituta bility, what is the initial basis for that

finding? In other words, what is the initial basis that is then "reinforced" by
considerations of substitutability?

 (iv) Was the ITC's determination of material injury and/or causation based on its finding
that the absolute volume of subsidized s ubject imports was "significant"? Was this
finding relevant to its determination? Would the ITC not have made its determination
of material injury and/or causation but for its finding that the absolute volume of
subsidized subject imports was "significant"?

16. Please comment on Korea's statement that ther e was no displacement of US workers resulting
from Hynix's Eugene facility "swapping customers" with Hynix's Korean facility.

17. At para. 40 of its oral statement, the US ass erts that the ITC determined that "a significant
portion of non-subject imports were Rambus and spec iality DRAM products". On the basis of a non-
confidential presentation/summary of the underlying proprietary information, please indicate what
percentage of non-subject imports were Rambus and speciality products?

18. On the basis of a non-confidential presen tation/summary of the underlying proprietary
information, please set out the basis for the ITC' s finding that the volume of subsidized subject
imports was "significant".

19. The US argued at para. 424 of its first wr itten submission that the causal analysis for
countervail was different than the causal analysis fo r safeguards. The US based its argument on the
different injury thresholds set forth in the SCM and Safeguards Agreements respectively. How does
the injury threshold determine the requisite degree of causal nexus? In other words, what is it about
the need to find serious injury in the case of safeguards that makes the causation standard different
than in countervail, where material injury need to be established?

20. The US noted at the first substantive meeti ng that Article 15.5 of the SCM Agreement refers
to a "causal relationship" between the subsidized imports and the material injury to the domestic
industry, whereas Article 4.2(b) refers to a "causal link" between increased imports and the serious
injury to the domestic industry. Does this explai n the alleged difference in the applicable causation
standards? Please explain.

21. The US asserts at para. 424 of its first written submission that "the 'causal relationship' of the
SCM Agreement is ... different from the 'causal link' requirement of the safe guards Agreement". At
para. 443 of its first written submission, the US re fers to the ITC "demonstrating a causal link". At
para. 419, the US refers to the need to establish a "causal relationship". How credible is the US
assertion that the term "causal link" differs from the term "causal relationship" if the US fails to
distinguish between those two concepts in its written submission?

22. At para. 424 of its first written submission, th e US appears to argue that the ITC applied the
"causal relationship" standard. Is this a correct understanding of the US argument? Please explain.

23. Please explain how the ITC complied with the causation standard described at para. 427 of
the US first written submission. In particular, how did the US "separate and distinguish" the injurious
effects of non-subject imports?

24. How do the causation standards of "causal link" (Article 4.2(b) of the Safeguards Agreement)
and "causal relationship" (Article 15.5 of the SCM Agreement) differ in practice?

25. Korea noted at the first substantive meeting that the Argentina-Footwear panel, in respect of a
safeguards dispute, stated (para. 8.238) that an ab sence of coincidence, or correlation, "would create

serious doubts as to the existence of a causal link, and would require a very compelling analysis of
why causation still is present" (italics in original). Does the US consider that such panel ruling is not
relevant to the present proceedings because it concer ns causation in the context of safeguards, and not
countervail? Please explain.

B. QUESTIONS TO KOREA

1. Alleged subsidization

26. Korea stated at the first substantive meeting that the more concrete the designated task, the
more specific the target entity, the more confident one could be of the existence of
entrustment/direction. Does the fact that concrete tasks and specific addresses increases confidence in
a finding mean that the finding is precluded in circumstances where the designated task is less
concrete and the addressee is not clearly specified? Isn't it simply more difficult – but not necessarily
impossible - to establish entrustment / direction in such circumstances? Isn't the discussion about
formal/explicit as opposed to informal/implicit entrustm ent / direction really an issue of evidence,
rather than law? Please explain / comment.

27. Korea asserts at para. 59 of its oral statement that "the plain meaning of 'entrusts or directs'
poses the core questions of 'who' is being directed to do 'what'". How does the plain meaning of that
text (leaving aside the ruling of the US - Export Rest raints panel) mean that such core questions can
only be answered by reference to explicit and formal acts of government?

28. Is Korea challenging the DOC's determination that the KDB Fast Track Program constitutes a
subsidy? If so, please refer to the relevant part(s) of Korea's first written submission.

29. How were the Creditors' Councils composed dur ing the period of the DOC's investigation?
How did the composition of those Creditors' Councils change over that period?

30. Korea indicated at the first substantive m eeting that participation in the October 2001
Creditors' Council was mandatory, by virtue of the CRPA.

 (i) Why did the CRPA make participa tion in Creditors' Councils mandatory?

 (ii) What, if any, sanctions applied to cred itors that (a) refuse to participate in the
Creditors' Council, and / or (b) refuse to abide by the terms of the restructuring agreed
on within the Creditors' Council?

 (iii) If participation in the Hynix Creditor's Council was mandatory, didn't that mean that
participation in the Hynix restructuring was mandatory? Please explain.

 (iv) Was there a statutory option available to creditors, other than the three options
designated by the Creditors' Council?

 (v) How were the terms of the three options determined?

 (vi) Was there any difference between the value of appraisal rights under option 3 and
liquidation value? Please explain.

31. At para. 45 of its oral statement, Korea asserts that DOC "reversed its prior finding" that all
commercial banks in Korea were controlled by GOK. When was any such "prior finding" made by
the DOC, and what is the relevance of that case to the Hynix restructuring?

32. Korea stated during the First Substantive mee ting with the Panel that Korean investors were
entitled to rely on the prospect theory. Is this case really about which economic theory the Korean
investors were entitled to rely on? Isn't it rather about which economic theory the DOC was required
to apply under the terms of the SCM Agreement?

2. Alleged injury

33. What is the relevance of note 47 to Article 15.5 of the SCM Agreement for the purpose of
establishing the requisite "causal relationship"?

34. Does Korea claim that the ITC's finding of significant price depression is inconsistent with
the SCM Agreement? If so, please specify where this claim is addressed in Korea's first written
submission.

35. Regarding para. 14 of Korea's oral statemen t, did subject Hynix imports and DRAMs from
Hynix's Oregon facility compete with other US produced DRAMs on the same terms / under the same
conditions of competition? Would th is be relevant to the issue of whether or not the ITC should have
treated subject Hynix imports as merely replacing production at Hynix's Oregon facility?

36. Korea argues that Hynix's subject imports were merely replacing sales by Hynix's Eugene
facility. Korea refers in this regard to "custo mer swapping". Leaving the present case to one side,
imagine a case in which the volume of imports in creases during the period of investigation because a
domestic company ceased manufacturing operations in order to "re-tool" up at the very beginning of
that period, and sourced its product (for resale) fro m unrelated subject exporters instead. If the
resultant absolute increase in imports during the pe riod of investigation was significant, would an
investigating authority be entitled to rely on that in its injury determination?

37. Is Korea arguing – as alleged by the US at para . 39 of its oral statement – that subject imports
must be the sole cause of injury in order for th e requisite causal link to be established between the
subsidized imports and injury? If so, please comment on the finding of the Hot-Rolled Steel panel
(DS184) that the USITC was not required to demons trate that dumped imports alone caused material

38. Please comment on para. 431 of the US first wr itten submission. Does Korea argue that the
ITC should have "'isolate[d]' subject imports or the effects of the subject imports and other known
factors on the domestic industry"? Please explain.

39. Please comment on the US remarks regarding Korea's use of volume / market share data
sources set forth at paras 292-294 of the US first written submission.

40. Please comment on the US argument (para. 32 of its oral statement) that there is no obligation
under the SCM Agreement for a brand-name analys is of price undercutting. If Korea disagrees,
please indicate which provisions of the SCM Agreement provide for this obligation.

ANNEX E-2

QUESTIONS TO THE PARTIES FOLLOWING
THE SECOND SUBSTANTIVE MEETING OF THE PANEL

Each party may address/comment on questions addressed to the other party.

A. QUESTIONS TO US

1. Please comment on the following paragraphs of Korea's Opening Statement at the Second
Substantive Meeting of the Panel:

 § 20 : the hypothetical of Hynix being the lo west price twice, but 98 other suppliers being
each the lowest price once;

 § 22 : the ITC's focus on relatively small ch anges in the frequency of underselling, while
ignoring dramatically different volumes of non-subject imports;

 § 26 : the issue of correlation, in the context of causal nexus: what changed from 2000, when
the domestic DRAMS industry had record performance, and 2001, when price fell and
industry profits plunged;

 § 33 : the selection of data on record about product substitutability;

 § 34 : the portion of subject imports underselli ng in 2001 was 5% of the market, whereas the
portion of non-subject imports underselling was 27% of the market;

 § 37 : the ITC does not explain why the effect of supplier competition was attributed to the
small change in subject import market share, rather than the much larger market share of non-
subject imports and the rate at which non-subject imports were gaining market share;

 § 39 : the key missing point – non-attribution re quired the ITC to separate and distinguish the
role of subject import supply sources from domestic and non-subject import supply sources;

 § 49 : appearance of control where none exists, nothing suggests that the GOK would
intervene in day-to-day credit decisions of various banks;

 § 76 : the argument regarding the size of Citibank's loan.

2. With regard to para. 32 of the Second Writte n Submission of the US, are the "actions that
directly evinced entrustment and direction" those set forth in section 1(a) – (c) of that submission? Is
the US arguing that there is both direct and indirect evidence of entrustment / direction? Why is
mandatory participation under the CRPA included as an "action [...] that directly evinced entrustment
and direction", when at para. 33 of its replies to th e Panel's questions, the US asserts that "[t]he DOC
did not find that mandatory participation under the CRP A constituted, in and of itself, entrustment or
direction"?

3. Please comment on Korea's argument (para. 128 of Korea's Second Written Submission) that
"there is simply no evidence indicating that Shinhan, Hana, or KorAm bank were entrusted or directed
by the GOK to extend their portion of the syndicated lo an". What evidence of entrustment / direction
did the US rely on in respect of the participation of these banks in the syndicated loan? Even if one
does not accept Korea's argument on th e need for specific banks to be directed to perform specific
tasks, is it not necessary for an investigating author ity to point to evidence showing that creditors
included in the finding of entrustment/direction were actually entrusted / directed ?

4. At para. 18 of its Answers to the Panel's questions, the US asserts that "The DOC did not find
specifically that government-owned and controlled private entities 'were instruments through which
the GOK entrusted/directed other entities'. Rath er, the DOC found, for example, that the GOK
exercised control over Hynix’s creditors generally through government-owned and controlled banks,
because those banks played a dominant role in the Creditors Councils." Does the US response mean
that control over creditors through government-owned and controlled private entities is not relevant to
the issue of entrustment / direction of those cred itors? How does the concept of the exercise of
control over creditors differ from the notion of entrustment / direction of those creditors?

5. At para. 20 of the US Answers to Panel questions, the US asserts that "the motives of private
investors are not germane" to the issue of entrus tment / direction. At para. 24, however, the US
argument of entrustment/direction relies on privat e creditors knowing what was good for them. If
entrustment/direction is based on creditors knowing what is good for them, doesn't that imply an
analysis of their motives?

6. At para. 33 of its Answers to the Panel's qu estions, the US asserts that "[t]he DOC did not
find that mandatory participation under the CRPA constituted, in and of itself, entrustment or
direction. Rather, the DOC found that the GOK us ed the CRPA as a vehicle to effectuate the GOK’s
Hynix policy". Does this mean that the alleged mand atory nature of the CRPA is not relevant to the
issue of entrustment/direction? How does the notion of entrusting / directing someone to carry out an
objective differ from using something as a vehicle to have someone effectuate that objective? If the
October 2001 restructuring had occurred in isola tion, would the CRPA in and of itself have been
sufficient evidence of entrustment/direction?

7. What was the evidence of entrustm ent / direction in respect of Pusan?

8. Regarding Figure US-4, the different proportio ns of council vote held by group A, B and C
creditors in respect of the October 2001 restructuring do not add up to 100%. Please explain.

9. What was the basis for the DOC's finding that Citibank was not entrusted/directed?

10. In its Second Written Submission to the Panel, the US refers to the Kookmin Prospectus in a
section entitled "GOK Ownership and Control of Hynix's creditors". Does the US argue that GOK's
15.1% shareholding resulted in GOK control over Kookmin?

11. In reply to question 1 from the Panel, the US stated that "the constituent parts of the subsidy
programme ... included the 800 billion won syndicated loan, th e KDB Fast Track bond program, the
May 2001 restructuring package, the October 2001 r estructuring package, and the benefits conferred
by these and other financial contri butions, such as D/A loans, made as part of the Hynix bailout."
Please specify an exhaustive list of the constituent parts of the alleged subsidy programme.

12. Please comment on para. 182 of Korea's Second Written Submission. In particular, does the
US accept that the Hynix-only import figures are a reasonable proxy for the total import figures ?

13. Please comment on Korea's argument regardi ng the difference between the US submission
and the ITC report regarding the extent of the "portion" speciality products (para. 211 of Korea's
Second Written Submission). Please comment on Korea's argument regarding the ITC's use of "value
estimates" in respect of those speciality products (para. 212 of Korea's Second Written Submission).

14. In response to Question 23 from the Panel, the US asserts that although the ITC determined
that non-subject imports were responsible for “the bulk of the market share lost by domestic producers
during the period of investigation”, it identified tw o reasons why it did not find the volume of non-
subject imports as significant as otherwise would be suggested. First, the ITC referred to the
composition of non-subject imports. Second, the ITC referred to the price effects of non-subject
imports. How do these two factors qualify the loss of market share ? Wouldn't any impact resulting
from the composition and price effects of non-subject imports already be reflected in the market share
data? For example, wouldn't the fact that non-s ubject imports include speciality products mean that
they would have taken less market share from domest ic producers, and that this consideration is
therefore already reflected in the market share data?

15. Did the DOC conclude that the KEB was entr usted or directed to (a) participate in the
Syndicated Loan and/or (b) seek a loan limit waiver ?

16. To what extent was the USD 1.35 billion GDS offering taken into account by the DOC with
respect to its finding of entrustment / direction of Hynix's creditors ?

17. Was the participation by "small" creditors accounting for approximately 20% of the debt in
the October Restructuring countervailed ?

B. QUESTIONS TO KOREA

18. Please comment on the following paragraphs of the Opening Statement of the US at the
Second Substantive Meeting of the Panel:

 § 24 : Korea's concession that the transactions made under the KFB Fast Track Programme
constitute financial contribution, but could still serve as benchmarks for determining benefit;

 § 45 : no requirement in the SCM Agreement that the period examined for the subsidies
enquiry cover the entire period examined for the injury determination.

19. With reference to Figure US-1, does Korea contest the DOC's conclusion that each of the
Group B creditors were controlled by GOK? Please explain.

20. With reference to Figure US-1, does Korea contest the DOC's conclusion that each of the
Group B creditors were entrusted or directed by GOK ? Please explain.

ANNEX E-3

REPUBLIC OF KOREA’S ANSWERS
TO THE PANEL QUESTIONS

9 July 2004

A. QUESTIONS TO THE UNITED STATES

 We only set forth below only those questions (for the United States) to which the GOK also
provides an answer.

1. Alleged subsidization

1. At paras. 235 and 236 of its first written submission, the US refers to “the Hynix
bailout” as the “the subsidy program”. What ar e the relevant constituent parts of that alleged
subsidy programme?

GOK ANSWER
: Korea simply notes that the four elements set forth at paragraphs 129 through
151 identify the same four elements that the Unite d States discussed in the first meeting with the
Panel: the December 2000 syndicated loan; the KDB Fast Track Programme, the May 2001
restructuring, and the October 2001 restructuring.

2. For each alleged financial contributio n forming part of the “Hynix bailout”
“programme”, please specify which private entities participated in that financial contribution,
and what evidence of entrustment and/or direction the ITC relied on in respect of each of those
private entities.

GOK ANSWER: This question is primarily for the United States to answer. Korea simply
notes that any evidence identified by the United St ates must be carefully reviewed to determine
whether and to what extent that evidence in fact relates to that specific constituent element of the
alleged subsidy programme.

3. With regard to paras. 139 and 146 of the US first written submission, please list which
Hynix creditors the DOC considered to be “go vernment-owned and controlled”, which were
treated as “government-owned”, which were designated as “majority-owned by the
government”, and which were treated as public bodi es. Please explain how the US defines each
of these terms for the purpose of these proceeding s, and the consequential rationale for the
designation made by the DOC with respect to each of the relevant entities.

GOK ANSWER
: This question is for the United States. Korea will review the answer provided
by the United States, and confirm for the Panel th e factual accuracy of the statements being made
about the various Korean banks.

4. Did the DOC find that “government-owned and controlled” banks were
entrusted/directed by GOK, or did it find that they were the instruments through which GOK
entrusted/directed other entities?

GOK ANSWER
: Korea looks forward to this clarification of the US position on this issue. We
note the text of Article 1.1(a)(1)(iv) requires that the government be the party taking the action to
entrust or direct. Korea believes that this provisi on does not allow actions by private parties to serve
as the factual or legal basis for a finding of entrustment or direction.

5. Did the DOC find that “majority-owned by the government” banks were
entrusted/directed by GOK, or did it find that they were the instruments through which GOK
entrusted/directed other entities?

GOK ANSWER
: See answer to Q4 above.

6. Did the DOC find that “government-owned” ba nks were entrusted/directed by GOK, or
did it find that they were the instruments through which GOK entrusted/directed other entities?

GOK ANSWER: See answer to Q5 above.

7. Assume a government announces publicly that it is going to restructure a bankrupt
industry and that, although it would prefer to do so with the assistance of private investors, it
would do so on its own if necessary. Assume that private investors decide to participate in that
restructuring, purely on the basis of the government’s statement that it is going to keep that
industry afloat. Leaving aside issues of benefi t concerning the terms of the restructuring,
should an investigating authority find that those private investors had been entrusted or
directed by the government to participate? Why, or why not?

GOK ANSWER
: No, this hypothetical would not justify a finding of entrustment or direction.
Article 1.1(a)(1)(iv) involves government actions that require private actors to take some action. Both
“entrusts” and “directs” convey the core meaning of a private party being told what to do.

 Article 1.1(a)(1)(iv) is not about government ac tions that may or may not have some effect on
the incentives of private parties to take actions. As the panel in US–Export Restraints recognized,
governments intervene in markets in many different ways.
1 For example, central banks set interests
rates that have enormous influence on whether and how financial transactions take place, and the risk
associated with those transactions. The key issue under Article 1.1(a)(1)(iv) is not about whether the
government is affecting the incentives, but whether th e government is requiring certain actions to be
taken through private intermediaries.

1 United States -- Measures Treating Export Restraints as Subsidies , Report of the Panel,
WT/DS194/R, 29 June 2001 (“US - Export Restraints”), para. 8.31.

8. Please comment on Korea’s assertion (para. 51 of its oral statement) that many creditors
“walked away” from the October 2001 restructuring. Doesn’t this suggest that those creditors
were able to act independently of any GOK desire to restructure Hynix? Please explain.

GOK ANSWER
: At the first meeting with the Panel, the United States stressed that these
creditors still had to take substantial write-offs of their Hynix debt, and suggested that such a situation
is not “walking away.”

 Korea would like to note two points. First, su ch write-offs were inevitable -- after all, the
situation involved a heavily indebted company in a restructuring. Write-offs are a very common part
of such restructuring. The United States has not indicated -- and indeed, cannot indicate -- any
scenario in which the creditors could have avoided such write-offs.

 Second, the key issue at play in the Oct ober 2001 restructuring was which creditors would
provide any new funds to facilitate the overall restructuring. Creditors were given an incentive to do
so -- they could convert a higher portion of their de bt to equity, lower the amount of the write-offs,
and see whether and to what extent the equity would allow the banks to recover a higher percentage of
their investment in Hynix. But ultimately, it was fo r each creditor to decide what to do. In Korea’s
view, any creditor that did not extend new loans wa s essentially “walking away,” particularly those
creditors who chose Option 3 and declined both new loans and any debt for equity swap.

9. The US argued at the first substantive me eting that KFB was “brought into line” after
initially resisting GOK efforts to require it to pa rticipate in the Hynix restructuring. Korea
denies this, arguing that KFB ultimately did not participate in the October 2001 restructuring.
Please comment.

GOK ANSWER
: To clarify for the Panel, KFB participated in the December 2000 syndicated
loan, and the May 2001 restructuring. KFB did not participate in the KD B Fast Track Programme,
and did not participate in the October 2001 restruct uring by refusing any new funds, by declining any
debt-equity swap, and by exercising its appraisal righ ts. KFB may have been part of the restructuring
at the outset -- under the CRPA, all creditors are pa rt of the overall process -- but KFB eventually
exercised its statutory rights under the CRPA to walk away with basically the same amount it could
have received in liquidation.

10. The US asserted at the first substantive meeting that creditors were required to
participate in the October 2001 restructuring by virtue of the CRPA. Was such alleged
mandatory participation relied on by the DOC as evidence of entrustment and/or direction? If
yes, please indicate where this issue is addressed in the DOC’s determination. If not, why not?

GOK ANSWER
: Korea addresses a similar issue in its response to Question #30 below.

11. With regard to the May and October 2001 restructurings, the parties have referred to
option 3 as the exercise of “appraisal rights”. Please comment. Was the exercise of appraisal
rights any different from liquidation? Please explain.

GOK ANSWER
: Korea addresses a similar issue in its response to Question #30 below.

12. The US asserted at the first substantive meeting that this case is not about a comparison
of different WTO Members’ restructuring frameworks. At para. 21 of its oral statement,
however, the US seems to have argued that an investigating authority could reasonably have
found that a reasonable investor would not have invested in Hynix because it was “technically
insolvent”. Doesn’t this suggest a per se rule that all “technically insolvent” companies should
be liquidated? Please explain.

GOK ANSWER
: Although the United States denied that its position was a per se rule, the logic
of the US position is in fact a per se rule. The US view is that a reasonable investor only looks at
narrow financial indicators. The US view preclude s a reasonable investor from considering broader
economic factors. The US view also precludes a reasonable investor from having a different
perspective as an “inside investor”. For example, under the US view, a bank that has a large amount
of outstanding debt is not allowed to consider the effect of a new loan on the probability of recovering
the existing loan. Given the narro w focus of the US-style “reasonabl e investor,” that investor is
applying a per se rule.

13. At para. 17 of its oral statement, the US refers to alleged pressure on credit rating
agencies. Is this evidence of entrustment / directi on of private creditors? If not, what is the
relevance of this evidence to the DOC’s determination of subsidization? Please explain.

GOK ANSWER
: In Korea’s view, this argument about credit agencies is an example of US
arguments that have nothing to do with the entrus tment or direction of specific Hynix creditors to
make specific transactions.

 We also note that the evidence of this alleged pressure is based on press reports that were
subsequently denied by the relevant Korean Government agencies.
2

14. At para. 18 of its oral statement, the US refers to KEB’s rationale for participating in
the May and October 2001 restructurings. Is it surprising that a public body would act on the
basis of social and economic policy considerati ons? Why does the fact that a public body
creditor acted on non-commercial principles nece ssarily mean that other private body creditors
also did so?

GOK ANSWER
: At the outset, we would like to clarify that KEB is a private commercial bank
in Korea, and is not a “public body ”. This appears to be a typogra phical error, and refers instead to
KDB.

 Korea would like to clarify one aspect of this qu estion. In Korea’s view, it is more accurate
to think of “commercial principles” as being a full consideration of all aspects of a proposed
transaction. Of course, a major focus will be on then profitability of the transaction. But it is also
appropriate for an institution to consider the broader economic and social context of proposed
transaction. For example, a loan that avoids bankruptcy for a major company might well prevent
bankruptcies of that company’s suppliers. Or a bank with a substantial presence in one national
market might well view loans that help deve lop the overall economy and a positive longer-term

2 See GOK Exhibit 58.

development for the bank. These factors are indeed “co mmercial” even if they do not all relate to the
short-term profitability of a particular loan.

2. Alleged injury

15. At para. 316 of its first written submission, the US states that the ITC explained that
although it opined that “the use of bits as a unit of measurement [could] present difficulties for
[its] analysis”, it nevertheless found that the absolute volume of subsidized subject imports and
the increase in that volume relative to US production and consumption was “significant”.

 (i) What were the reasons why
 the ITC nevertheless found that the absolute volume
of subsidized subject imports and the increase in that volume relative to US
production and consumption was “significant”?

GOK ANSWER
: Since the ITC determination does not state any reasons, and the US First
Submission is also quite unclear on this point, Korea also wonders what rationale and what
framework the ITC used for assessing the “significance”.

 (ii) Where were those reasons set forth in its Determination and Views (Exhibit
GOK-10) (or any other relevant document)?

GOK ANSWER: Korea believes that the ITC determination does not answer this key question.
The ITC determination stated these conclusions without any explanation.

 (iv) Was the ITC’s determination of material injury and/or causation based on its
finding that the absolute volume of subsidized subject imports was
“significant”? Was this finding relevan t to its determination? Would the ITC
not have made its determination of materi al injury and/or causation but for its
finding that the absolute volume of subsidized subject imports was
“significant”?

GOK ANSWER: We note that the ITC determination strongly suggests the outcome would
have been different. We note that at page 27 of the ITC Final Determination 3, the ITC states that
“subject imports, themselves, were large enough and priced low enough to have a significant impact”.
The ITC then goes on: “Given our findings about the significant volume of subject imports….”
Thus, the determination as written makes clear that the ITC determination rested very much on the
fact in this case that the ITC considered import volume to be significant.

16. At para. 40 of its oral statement, the US asserts that the ITC determined that “a
significant portion of non-subject imports were Rambus and speciality DRAM products”. On
the basis of a non-confidential presentation/summary of the underlying proprietary
information, please indicate what percentage of non-subject imports were Rambus and
speciality products?

GOK ANSWER
: We address this issue in our Second Submission, and provide concrete public
evidence about the lack of importance of Rambus DRAMs. Rambus DRAMs accounted for less than
10 per cent of total DRAM sales by Samsung, the major supplier of Rambus DRAMs. See also GOK
Exhibit 63. Given that Samsung was the predomin ate Rambus supplier, this fact means that at least
90 per cent of non-subject imports were standard DRAMs that competed directly with US production.

17. The US argued at para. 424 of its first written submission that the causal analysis for
countervail was different than the causal analysis for safeguards. The US based its argument on
the different injury thresholds set forth in the SCM and Safeguards Agreements respectively.
How does the injury threshold determine the requisi te degree of causal nexus? In other words,
what is it about the need to find serious injury in the case of safeguards that makes the
causation standard different than in countervail, where material injury need to be established?

GOK ANSWER
: Korea believes that the injury sta ndards and the causation standards are
distinct, and the higher injury standard in the safeguards context does not require a higher causation
standard. The causation standards in the SC M and Safeguards Agreements each speak for
themselves, as discussed below.

18. The US noted at the first substantive meeting that Article 15.5 of the SCM Agreement
refers to a “causal relationship” between the subs idized imports and the material injury to the
domestic industry, whereas Article 4.2(b) ref ers to a “causal link” between increased imports
and the serious injury to the domestic industry. Does this explain the alleged difference in the
applicable causation standards? Please explain.

GOK ANSWER
: Although the terms are different, in fact a careful review of the plain meaning
of both terms shows that there are for this purpos e interchangeable terms. If we start with the
dictionary definitions of both terms, we find that “link” is defined as a verb to mean “connect or join”,
connect causally”, to be joined or connected, and is defined as a noun as “a connecting part”, or “to
establish or maintain a connection”. Relationship is defined as “a connection, an association”, and
“related” is defined as “having relation”, or “connected”.
4 The common thread in all of these

3 GOK Exhibit 10.
4 See GOK Exhibit 46.

definitions is the core idea of some connection -- in other words, finding some causal connection
between the imports and the alleged injury (either serious or material) to the domestic industry.

 Moreover, the French and Spanish texts conf irm this reading. In the French versions,
Article 15.5 of the SCM Agreement uses the term “lien” where the English version uses the word
“relationship” and Article 4.2(b) of the Safeguard s Agreement uses the iden tical word “lien” where
the English version used the word “link”. This Fr ench word translates as “connection” or “link” or
“tie”.
5 The same pattern occurs in Spanish, wh ich uses the word “relacion” in both places. This
Spanish word translates as “connection”.6

 Thus, as a matter of the plain meaning of the En glish terms and the use of identical terms in
the French and Spanish versions, Korea submits th at the terms “relationship” and “link” have
essentially the same meaning -- having some causal “connection”.

19. Please explain how the ITC complied with th e causation standard described at para. 427
of the US first written submission. In particular, how did the US “separate and distinguish” the
injurious effects of non-subject imports?

GOK ANSWER
: For the reasons we set forth at some length in our Second Submission, Korea
believes ITC did not separate and distinguish these other causes.

20. How do the causation standards of “causa l link” (Article 4.2(b) of the Safeguards
Agreement) and “causal relationship” (Article 15.5 of the SCM Agreement) differ in practice?

GOK ANSWER: They do not. As we discuss in answ er to Question #20 above, the two terms
actually mean the same thing. Moreover, even if there were some very subtle difference in the nuance
of meaning, that nuance would not have any practical relevance. Korea believes that in both phrases
the key word is “causal,” the idea of the imports un der investigation bringing about the injury to the
domestic industry. The word “causal” conveys all of the substantive content in these phrases, and that
word is identical. The difference between “link” and “relationship” is not significant.

5 See GOK Exhibit 47.
6 See GOK Exhibit 48.

B. QUESTIONS TO KOREA

1. Alleged subsidization

21. Korea stated at the first substantive meetin g that the more concrete the designated task,
the more specific the target en tity, the more confident one could be of the existence of
entrustment/direction. Does the fact that concrete tasks and speci fic addresses increases
confidence in a finding mean that the findi ng is precluded in circumstances where the
designated task is less concrete and the addressee is not clearly specified? Isn’t it simply more
difficult – but not necessarily impossible - to establish entrustment / direction in such
circumstances? Isn’t the discussion about form al/explicit as opposed to informal/implicit
entrustment/direction really an issue of evidence, rather than law? Please explain / comment.

GOK ANSWER: Korea believes there are both legal and evidentiary aspects to this issue.
From a factual perspective, there must be sufficient evidence of “entrusts or directs”. By referring to
concrete tasks and specific entities, Korea’s comments at the first substantive meeting sought to
address this factual aspect of the issue.

 Korea also believes, however, there is an important legal dimension to this issue. “Entrusts or
directs”, when read in light of the plain meaning of these words, the context of these words, and their
object and purpose, imposes a legal minimum necessary to establish “entrusts or directs”. In other
words, there are some government objectives that are so vague and so loosely directed to no one in
particular that the legal standard for “entrustment or direction” simply cannot be said to have been
met.

 Put differently, there are some government ac tions that have so little connection to the
specific actions set forth in Article 1.1(a) or to specific entities that an authority simply cannot label
those actions as “entrustment or direction” of a private entity to do anything.

22. Korea asserts at para. 59 of its oral statem ent that “the plain meaning of ‘entrusts or
directs’ poses the core questions of ‘who’ is be ing directed to do ‘what’“. How does the plain
meaning of that text (leaving aside the ruling of the US - Export Restraints panel) mean that
such core questions can only be answered by reference to explicit and formal acts of
government?

GOK ANSWER
: The meaning of treaty text must be discerned by reference to the plain
meaning, when read in context and in light of th e object and purpose of the language. Korea believes
that all of these interpretative elements are im portant to understanding the proper meaning of
“entrusts or directs”. Moreover, Korea does not ar gue that the government actions must be formal
acts of government. Any such formal acts would probably fall more properly under one of the
specific government actions enumerated elsewhere unde r Article 1.1(a)(1). With these clarifications
in mind, we would like to address the specific ques tion. We discuss these interpretative issues at
more length in our second submission, but we would like to emphasize the main points in response to
this question.

 Both the word “entrusts” and the word “directs” convey the basic meaning of carrying out
some specific action. That is why Korea has stres sed the importance of “what” is being entrusted or
directed. The definitions cited by the Unite d States themselves underscore this point. In
paragraph 157 of its First Submission, the United St ates highlights that “entrust” means give a person

responsibility for a task
, or to commit the execution of a task to a person. Similarly, in paragraph 158
of its first submission, the United States highlights that “directs” means to do a thing.

 But both of these words are verbs, and to understand better the object of these verbs one must
turn to the context in which these words are being used. Article 1.1(a)(1)(iv) has important textual
guidance about the object of these two verbs, and what that object must be. There are several
elements worth noting.

 First, the entrustment or direction must apply to “a private body”. That is why Korea has
stressed the “who” that is being entrusted or directed. The text of Article 1.1(a)(1)(iv) requires such a
focus.

 This language makes clear that some kinds of entrustment or direction will not fall within the
meaning of Article 1.1(a)(1)(iv) because the government has not been targeting a “private body”. In
other words, if the government orders a public body to take some action, that entrustment or direction
of a public body is legally irrelevant to the issue of whether a private
 body has been directed. The text
is quite explicit in focusing on the government action toward a private body, and simply does not
allow authorities to string together a series of indirect and increasingly remote entrustment or
direction through one or more public bodies. Unless the government itself is entrusting or direction,
the requirement of the text has not been met.

 Similarly, the public body cannot be the source of entrustment or direction. The text of
Article 1.1(a)(1(iv) is quite explicit that the government
 must be the one entrusting or directing. Thus,
although a public body can make a loan that constitutes a “financial contribution”, a public body
cannot be the source of any entrustment or direction. Second, that private body must be entrusted or
directed “to carry out” something. This additi onal phrase reinforces the importance of “what” is
being entrusted or directed. There must be someth ing concrete that can be carried out. A Korean
bank can make a loan, but it cannot “save” a company.

 But at the same time, this language also sheds light on the proper interpretation of “entrusts or
directs”. The private body is not being entrusted or directed to consider some action, or to assist some
action, but to “carry out” some action. Any discreti on being left to the private body is fundamentally
at odds with this notion of “carry out”. Thus, any ti me banks have a choice, it is hard to imagine how
they can have been entrusted or directed to “carry out” a certain action.

 In this particular case, the Korean banks cons idered various loans to Hynix, but were never
entrusted or directed to “carry out” these specific loans. In fact, at no point of the various parts of the
Hynix restructuring did every bank participate. This poses a logical dilemma for the US argument in
this case. If the US theory is that all
 Korean banks were being entruste d or directed to save Hynix,
why were many banks able to ignore this entrustment or direction? The only logical answer is that the
individual banks were making their own decisions, and thus were not being entrusted or directed to
“carry out” anything.

 Third, the action to be carried out is “one or mo re of the type of functions illustrated in (i) to
(iii)”. In other words, the action being entrusted or directed is not some generalized policy or wish,
but rather one of the concrete actions specified earlier in Article 1.1(a)(1). The action must be a grant,
a loan, an equity transfer, or some other specific action, not some generalized act of “saving” a
company or of preventing bankruptcy. This specific language reinforces the importance of the “what”
that is being entrusted or directed.

 Finally, the text imposes an additional require ment. The private body must be entrusted or
directed to carry out some specific action, and that action must meet the additional requirement that it,
“in no real sense, differs from practices normally followed by government”. This idea of not differing

from normal government practices takes on particular importance in this dispute. A number of
aspects of the Hynix restructuring belie the notion th at banks were acting as mere extensions of the
government. Consider the May 2001 restructuring. This restructuring transaction was contingent on
the success of the new GDR equity offering, a feat ure hardly common on typical government loans.
If the Korean Government had truly wanted banks to “carry out” loans that they would otherwise not
make, there would have been no explicit contingency.

23. Is Korea challenging the DOC’s determin ation that the KDB Fast Track Programme
constitutes a subsidy? If so, please refer to the relevant part(s) of Korea’s first written
submission.

GOK ANSWER
: Yes. Korea does not challenge the conclusion that the KDB Fast Track
Programme constituted a “financial contribution”. Our argument at paragr aphs 481 and 482 of
Korea’s First Submission meant to clarify and respond to US efforts to infer from the KDB Fast Track
Programme entrustment or direction of other Hynix creditors.7

 A “subsidy” finding, however, has two other elem ents. Korea challenges the existence of any
benefit from the KDB Fast Track Programme. Ou r arguments in paragra phs 517 through 520 apply
generally to all aspects of the Hynix restructuring: private Korean banks and the average interests
being paid by Korean banks in general serve as a benchmark to establish that any refinancing obtained
under the KDB Fast Track Programme did not constitute a benefit.

 Our first submission addressed at some length the arguments about foreign private bodies
(paragraphs 521 through 546), because this aspect of the DOC decision was particularly egregious.
Citibank participated in the December 2000 syndi cated loan, the May 2001 restructuring, and the
October 2001 restructuring. Citibank did not par ticipate in the KDB Fast Track Programme, because
Citibank did not hold any maturing Hynix bonds at th at time. Citibank was a new lender to Hynix.
The failure specifically to mention the KDB Fast Track Programme in Section D.2(a)(2), however,
does not mean we did not intend the argument under Section D.2(a)(1) to apply to the KDB Fast
Track Programme. We apologize for any confusion on this point.

 In particular, Korea notes the following key points: First, the real i ssue about the KDB Fast
Track Programme related only to the portion of the bonds held by the KDB and by the other Korean
banks. The DOC did not countervail the 70 per cent of the refinanced bonds that were subsequently
repackaged as CBOs.
8 Thus, only 30 per cent of the total being refinanced is at issue.

 Second, the various private Korean banks th at refinanced Hynix bonds did so on the same
terms as those accepted by the KDB – in particular, at the same interest rates. Thus although the DOC
found KDB to be a public body, an y financial contribution associated with that public body did not
constitute a benefit.

 Third, the information before the DOC showed that the effect interest rates being paid on
refinanced Hynix bonds ranged from 10.99 per cent to 12.56 per cent, which was much higher than
the average interest rates prevaili ng in Korea at that time for third year loans -- 9.3 per cent in 2000
and 7.1 per cent in 2001.
9 For all of these reasons, the bonds refinanced through the KDB Fast
Track Programme did not constitute a benefit.

7 See also paragraphs 425-428 of the GOK First Submission.
8 See Decision Memorandum, at 82 provided in GOK Exhibit 5.
9 See GOK Exhibit 60.

 In addition, Korea challenges the specific ity of the KDB Fast Track Programme. The
arguments in Section E of our first submission, paragraphs 557 through 577 apply generally to the
various parts of the Hynix restructuring.

 As the United States acknowledges in paragra ph 57 of its first submission, the KDB Fast
Track Programme was designed to address systemic problems in the Korean capital markets.
10 The
United States then tries to argue that the Progra mme was designed for Hynix, and cites the fact the
announcement occurred before the recommendation even occurred. 11 The problem with this theory,
however, is that the United States has its facts wrong. As the DOC itself acknowledged at page 15 of
the Government of Korea verification report, there were two meetings of the creditors: one on 28
December and another on 4 January.
12 In fact, the creditors recommended Hynix for the KDB Fast
Track Programme at the 28 December meeting. T hus a key part of the US logic for finding the
Programme to be specific to Hynix rests on a factual misunderstanding.

24. How were the Creditors’ Councils composed during the period of the DOC’s
investigation? How did the composition of those Creditors’ Councils change over that period?

GOK ANSWER
: On 10 March 2001, the first Creditors’ Council was formed for Hynix
restructuring based on a private agreement between Hynix's creditors. The council consisted of the
following 17 banks: KEB, KDB, Woori, Chohung, Kookmin, H&CB, Shinhan, Hana, Koram, Seoul,
KFB, NACF, Peace, Busan, Kyungnam, Kwangju, a nd IBK. In August 2001, Citibank joined the
Council increasing the number of member banks to 18. The first Hynix Creditors’ Council consisted
of 17 banks with debt exposure to Hynix as of 30 November 2000. Since Citibank had no claims
against Hynix as of this date, which was befo re the December 2000 syndicated loan had been
finalized, it was excluded from the initial Creditors’ Council.

 On 4 October 2001, a new Creditors' Council was formed under the CRPA consisting of 104
financial institutions with debt exposure to Hynix. The breakdown of these 104 institutions was as
follows: Banks (21), investment trust companies (14), and others (69).

 On 10 October 2001, 3 banks (Kwangju, Kyu ngnam and HSBC) exercised appraisal rights
thereby severing their ties with the council.

 On 30 October 2001, the number of particip ating institutions increased to 115. The
breakdown was as follows: Banks (18), investment trust companies (15), and others (82).

 On 7 November 2001, the KFB walked away from the Council through its exercise of
appraisal rights.

25. Korea indicated at the first substantive m eeting that participation in the October 2001
Creditors’ Council was mandatory, by virtue of the CRPA.

 (i) Why did the CRPA make participatio n in Creditors’ Councils mandatory?

10 See also Decision Memorandum , at 22-23, provided at GOK Exhibit 5 (DOC discussion of Fast
Track Programme).
12 See GOK Exhibit 61.

GOK ANSWER: The CRPA was designed to facilitate rest ructuring indebted companies. The
broader the participation in such restructuring effo rts, the more effective the restructuring. Under
prior restructuring regimes, some creditors had tr ied to “free ride”, by leaving the burden of
restructuring on the larger creditors, but then insisting on complete payment of their smaller debts.

 Since this “free riding” made it more difficult to achieve fair restructuring arrangements, the
Korean legislature decided that all creditor must participate in restructuri ng under the framework of
the CRPA. Under Article 24.1 of the CRPA, a Credit ors’ Council consists of all financial institutions
with debt exposure to a potentially insolvent company.13

 Under this provision, however, participation in the Creditors’ Council lasts only for a minimal
period of time (usually until the first Creditors’ Council meeting) during which each creditor can
decide on its own whether to take part in the rest ructuring measure being contemplated by the council
or not.

 When a certain financial institution decides not to participate in the underlying restructuring
process, it can either choose not to attend the first c ouncil meeting, or participate at the first meeting,
and then subsequently exercise appraisal rights as provided under Article 29.1 of the CRPA. Thus
although the CRPA is mandatory in the sense that ev ery creditor is essentially deemed part of the
Creditors’ Council, and has the rights to participate, the CRPA does not require creditors to remain or
to participate against their wishes.

 (ii) What, if any, sanctions applied to creditors that (a) refuse to participate in the
Creditors’ Council, and / or (b) refuse to abide by the terms of the restructuring
agreed on within the Creditors’ Council?

GOK ANSWER
: Where a creditor institution refuses to participate in the Creditors’ Council,
that institution will be entitled to exercise appraisal rights. On ce these rights are exercised, that
creditor will no longer belong to the Creditors’ Council. According to Article 24.1 of the CRPA, a
Creditors’ Council consists of creditor financial ins titutions. Under Article 2.1, the term ‘creditor
financial institution’ means a legal or natural pers on who extends credits to the business enterprise
concerned. When a financial institution exercises it s appraisal rights, its claims against the distressed
company all extinguish, and as such, it no longer qualifies as a ‘credito r financial institution’ under
the CRPA. Accordingly, it can no longer belong to the council. There are no statutory limits or
restrictions imposed on exercise of appraisal rights.

 On the other hand, where a creditor does not exerci se its appraisal rights, it is deemed to have
agreed to the restructuring and is thus required to carry out applicable measures put forward by the
Creditors’ Council, subject to the constraint that an y measure must win the support of those creditors
representing at least 75 per cent of the outstanding debt.

 Where a creditor incurs damages to other cred itors by failing to keep the council resolution,
the aggrieved party(ies) can seek damages pursuant to Article 30 of the CRPA. We note that the
financial supervisory authorities or the government more generally do not have any legal rights to take
any measures against the breaching creditor.

13 See GOK Exhibit 22-(c).

 (iii) If participation in the Hynix C reditor’s Council was mandatory, didn’t that
mean that participation in the Hyni x restructuring was mandatory? Please
explain.

GOK ANSWER
: No. All creditors had to come to the table. Whether and how they
participated in the deliberations in the Creditors ’ Council was up to the individual creditor. In
addition, once the deliberations had hammered out a set of options, the individual creditors could
make their choice among those options, or exercise their other rights under the statute as described
below. Almost immediately after the Cred itors’ Council formed, two banks (Kwangju and
Kyungnam) with 100 per cent GOK ownership, and a foreign bank (HSBC) exercised their appraisal
rights and walked away. Any other bank could have exercised the same rights, and one other -- KFB -
- eventually did. So, no bank was forced to participate in the Hynix restructuring against its will.

 (iv) Was there a statutory option available to creditors, other th an the three options
designated by the Creditors’ Council?

GOK ANSWER
: At the outset, it is useful to distinguish Option 3 in the Hynix October 2001
restructuring and appraisal rights more generally. In the context of the October restructuring, Option
3 specifically referred to the buyout price (“BOP” ) and terms of payment for dissenting creditors as
crafted by the Hynix Creditors’ Council. As di scussed above, the terms and conditions of this
particular option were negotiable as the dissenting creditors group was entitle d to exercise appraisal
rights.

 Both in the context of the Hynix October 2001 restructuring and the CRPA framework more
in general, appraisal rights refer to the statut ory right bestowed on dissenting creditors under the
CRPA to decline such terms of payment and buyout price as may be proposed by the Creditor
Council, if these conditions are deemed unreasonabl e or otherwise unacceptable. Appraisal rights
thus reflect procedural rights for the dissenting creditors, including multiple layers of dispute
settlement mechanism as follows:

1) first, bilateral consultation phase unde r Article 29.4 during which the council
proposes a BOP and terms of payment for dissenting creditors; 2) if 1) fails, then
mediation phase under Article 29.5 begins where the mediation committee requests
the council and opposing creditors to jointly select an accounting firm to compute a
mutually agreeable BOP; and 3) lastly, court action pursuant to Article 33.2
The primary purpose of mandating appraisal rights is to ensure maximum procedural fairness and
transparency for opposing creditors as a group.

 It is to be noted that at the time of the October 2001 restructuring, the proposal for Option 3
by the Creditors’ Council prompted a negotiation be tween the Council and dissenting creditors about
the terms of payment for the latter as initially set out in Option 3. Unhappy with the outcome of this
bilateral consultation, the dissenting creditors gr oup went on to invoke the dispute settlement
apparatus under the CRPA as a means of reifying and protecting their appraisal rights.

 The CRPA does not limit or restrict the range of options that can be made available to creditor
institutions. The range and particulars of these opt ions are determined by the Creditors’ Council on
its own accord. In addition, the Creditors’ Counc il can amend the details of the existing options, as
well as add new options to the menu of choices that are already on the table by passing a resolution.

 (v) How were the terms of the three options determined?

GOK ANSWER: KEB, which is the principal creditor bank of the Hynix Creditors’ Council,
proposed Option 1 (including debt-to-equity swaps an d extension of new lines of credit) on the basis
of several market studies prepared by outside consultants for review by the creditor group.

 For those banks that opposed to the extension of new loans under Option 1, Option 2 was
proposed (debt to equity conversion & forgiveness of the remaining debt), which was finalized after a
Council resolution.

 In the meanwhile, the banks that balked at both of the options above were automatically
entitled to exercise appraisal rights under the CRPA. Under the CRPA, the buyout price ("BOP") and
terms of payment for dissenting creditors are decide d by a mutual agreement between the Creditors’
Council and the dissenting creditors. The Creditors’ Council proposes the BOP and terms of payment
for the dissenting creditors group in accord with the CRPA, and the parties then negotiate to resolve
this issue

 In the case of Hynix, the Option 3 banks objected to the Creditors’ Council proposal and
subsequently asked for mediation with the media tion committee as provided under Article 31 of the
CRPA.

 (vi) Was there any difference between the value of appraisal rights under option 3
and liquidation value? Please explain.

GOK ANSWER
: Under the CRPA, the buyout price (“BOP”) for opposing creditors is
determined by a consultation between the counc il and each opposing creditor. Upon mutual
agreement, the BOP can be something other than the liquidation value of the company at stake.

 On the other hand, where the Creditors’ C ouncil and the dissenting creditors fail to reach
agreement, a mutually appointed outside acc ounting firm will compute the BOP based on the
appraisal value of the company.

 In general, the BOP of secured debts is dete rmined by the value of the underlying collateral,
while that of unsecured debts largely by the liquidation value of the distressed company.

 In Hynix's case, the Option 3 creditors reje cted the initial BOP and terms of payment put
forward by the Creditors’ Council, asking for medi ation under the CRP. After mediation processes,
100 per cent of these creditors' secured debts and 25 .46 per cent of their unsecured debts were paid
out in cash. We note that the mediation process ended up using the same liquidation value that had
been determined by Arthur Andersen in its study of the liquidation value of Hynix.

 To put this 25.46 per cent in broader context fo r the Panel, Korea reviewed the other instances
in which creditors exercised appraisal rights in CRPA restructuring proceedings. Other than the
Hynix restructuring, creditors in various cases re ceived the following amounts as exercise of their
appraisal rights: 6.17%, 15.4%, 19.5%, 20.8%, 29.4%, 29.43%, 27.26%, 32.3%, and 35.56%. The
appraisal rights in the Hynix case were based on a ne utral third party study by Arthur Andersen, and
were well within the range of the value for apprai sal rights found in other cases. We can provide
whatever other details the Panel might consider useful . But the basic point is that the amount of the
appraisal rights in the Hynix case was quite typical.

26. At para. 45 of its oral statement, Korea asserts that DOC “reversed its prior finding”
that all commercial banks in Korea were cont rolled by GOK. When was any such “prior
finding” made by the DOC, and what is the relevance of that case to the Hynix restructuring?

GOK ANSWER
: This finding was made through a number of DOC determinations. They are
all cited in the DOC determination in this particular case.14

 These prior findings are not relevant in this case for two reasons. First, the DOC itself
reversed those prior finding based on the particular facts presented in this case about the post 1997
financial reforms and restructuring in Korea. 15 Second, those prior cases c overed different periods of
time and different factual circumstances.

27. Korea stated during the First Substantive me eting with the Panel that Korean investors
were entitled to rely on the prospect theory. Is this case really about which economic theory the
Korean investors were entitled to rely on? Isn ’t it rather about which economic theory the
DOC was required to apply under the terms of the SCM Agreement?

GOK ANSWER
: This case is not about any economic theory. Rather, this case is about
whether the DOC properly applied the standard set forth in Article 14(a) of the SCM Agreement.
That standard required the DOC to focus on the “usual investment practice” of private investors in the
“territory of that member”. In other words, th e standard required DOC to focus on the usual practice
of Korean investors.

 The evidence in this case demonstrated two key factual points. First, many of the Korean
investors in Hynix equity were inside investors. Second, these inside investors were very much
concerned about their existing investments, as we ll as the possible future return on any additional
investment.

 The legal error by DOC was to find that these concerns about existing investments were
irrelevant. This concern about existing investments was very much part of the usual practice of Korea
investors. Yet DOC simply deemed this factor to be irrelevant. The concerns of inside investors may
or may not be relevant under US law. But such co ncerns are very much relevant under the applicable
standard in Article 14(a).

 Moreover, the focus on investors in the “terr itory of that member” is critical. If Korean
investors feel a nationalist need to help save importa nt companies, that consideration can affect the

14 See Decision Memorandum, at 12-15, provided as GOK Exhibit 5.
15 See id. at 47-48 (not appropriate to follow past approach), at 70 (no direction of credit to
semiconductor industry generally).

usual investment “practice” in Korea. The focus on investors in a particular country ensures that any
such country specific preferences can and should be captured.

 In this case, the DOC imposed the standard of a hyper rationale outside investor. The DOC
investment standard was not the “usual investment practice” of a Korean investor. The DOC required
its “investor” to care only about the profitability of the new investment.

 We presented the discussion of prospect theory for two reasons. First, this theory helps
explain the actual practice of the Korean banks that were investing in Hynix, as well as the practice of
all inside investors around the world. Indeed, the genesis of prospect theory was the effort by scholars
to understand the fundamental disc onnect between the actual practice
 of inside investors compared to
what economic theory relied upon by an investigating authority such as the DOC would have
predicted.

 Second, this more modern theory of invest ment decision making helps provide context for
why the language of Article l4(a) focuses on “prac tice” rather than posin g a particular rational
investor standard. Put differently, if the usual i nvestment practice is something other than narrowly
defined profit maximization, then the government may make equity investments using the same
standard. The government is not held to any higher standard than the “usual investment practice.”

2. Alleged injury

28. What is the relevance of note 47 to Arti cle 15.5 of the SCM Agreement for the purpose
of establishing the requisite "causal relationship"?

GOK ANSWER
: Note 47 identifies at Paragraphs 15.2 and 15.4 of the SCM Agreement a non-
exhaustive list of indicia of domestic industry performance ( e.g., prices, output, sales, market share,
profits, productivity, return on investments, capacity utilization, etc.), trends in which must bear a
relationship to the presence of subsidized impor ts. Specifically, a causal relationship between
subsidized imports and “decline[s]”16 in these indicia must be established before a CVD order may be
imposed. At the most fundamental level, it is a temporal analysis; there should normally be a
coincidence of, or correlation between, import and pe rformance trends. As noted in our brief, this
inter-linkage has been explored more closely in the context of Articles 3.2, 3.4 and 3.5 of the AD
Agreement and under Article 4.2 of the Agreement on Safeguards 17, but it is no less relevant in the
context of the SCM Agreement.

 We would further add that there are two levels to this aspect of the causation analysis when
considering the effect of subsidized imports (or dumped imports for that matter), as distinguished
from the analysis required under the Agreement on Safeguards. Whereas an analysis under the
Agreement on Safeguards is focused solely on the e ffects of “increased imports,” the United States
correctly notes in its first submission that the SCM Agreement requires an assessment of the volume
of the subsidized imports.18 Thus, both import trends and subsidy trends are important. If imports are
declining, it is difficult to show any correlation or relationship between those imports and declines in
domestic industry performance. If the domestic i ndustry’s performance begins declining well in
advance of alleged conferral of s ubsidies on the imports in question, the relationship between the two
is also suspect. In this case, both factual circumstances were present.

16 Art. 15.4 of the SCM Agreement.
17 GOK First Submission, at paras. 220-225.
18 US First Submission, at paras. 424.

29. Does Korea claim that the ITC's finding of significant price depression is inconsistent
with the SCM Agreement? If so, please specify where this claim is addressed in Korea's first
written submission.

GOK ANSWER
: Yes. In it first submission, Korea addressed the US arguments about price
effects generally, and also addressed specific aspects of the underselling analysis in more detail. In
particular, our argument that price effects were not “significant” applies to both the price undercutting
and price depression arguments.19

 Article 15.2 does not talk about price depression in the abstract. Low prices alone are not
enough. Rather the textual requirement is to find wh ether the “effect of such [subsidized] imports is
otherwise to depress prices to a significant degree”. No one in this case disputed that DRAM prices
fell in 2001 and 2002. The relevant issue under bot h Article 15.2 and Article 15.5, however, is why
did the prices fall.

 In particular, three of the arguments from Korea’s First Submission about pricing related
specifically to price depression. First, the ar gument at paragraphs 142 through 144 about price
leadership relates to price depression. The ITC de finition of price leadership has nothing to do with
whether subject import prices are higher or lower th an other prices -- the question asks only for an
indication of which firm[s] is having a “significan t impact” on price. Thus, when the customers
responded to this question, and failed to identif y Hynix as the price leader, the customers were
basically indicating that the effects of Hynix im ports were not to depress prices to a significant
degree.

 Second, the argument about substitutability at pa ragraphs 164 through 170 also applies to the
analysis of price depression. The core ITC argum ent was that prices would have been higher -- an
argument about price depression or suppression, not about price undercutting. The ITC tried to rebut
certain Hynix arguments about the role of non-subject imports by comparing the relative rates of price
undercutting, but the argument itself was about why DRAM prices were so low.

 Third, the argument about other causes summa rized at paragraphs 171 through 174 also
applies to price depression. As noted above, Artic le 15.2 requires that price depression consider the
role of subject imports in bringing about the pr ice depression. Thus, arguments about alternative
causes are legally relevant under both Article 15.2 and Article 15.5.

30. Regarding para. 14 of Korea's oral stat ement, did subject Hynix imports and DRAMs
from Hynix's Oregon facility compete with ot her US produced DRAMs on the same terms /
under the same conditions of competition? Would this be relevant to the issue of whether or not
the ITC should have treated subject Hynix impo rts as merely replacing production at Hynix's
Oregon facility?

GOK ANSWER
: The answer to the first question is yes. Subject Hynix imports and DRAMs
from Hynix’s Oregon facility were the same DRAM commodity product. And as a commodity
product, there is no question that both subject Hynix imports and DRAMs from Hynix’s Oregon
facility competed with all other DRAM suppliers on the same terms and under the same conditions of
competition.

19 See GOK First Submission, at para. 131.

 The answer to the second question is also yes. Given the complete substitutability between
Hynix Korea and Hynix Eugene DRAMs, the ITC should have treated subject Hynix imports as
merely replacing production at Hynix’s Oregon facility. One of the most significant errors in the
ITC’s determination is the refusal of the ITC to examine the volume of imports in context . Korea
submits that the evidence establishes that ALL of the increase in DRAMs imported in 2001 and 2002
was to replace, not an addition to, the Hyni x-Oregon produced DRAMs. The chart below
demonstrates this fact:

Hynix’s Market Share by Country of Production
20

 2000 2001 2002
DRAMs produced by Hynix
Oregon

6.3% 1.1% 0.2%
DRAMs produced by Hynix
Korea

6.7% 9.0% 8.9%
Total Hynix US Shipments

13.0% 10.1% 9.1%

 The above chart demonstrates that, effectively, the ITC “had blinders on” when it examined
whether import volume had increased over the period examined. The ITC focused myopically on the
fact that Hynix’s subject imports had increased from 6.7% per cent of the market to 9.0% of the
market, but effectively ignored why there was increase in imports. Korea submits that an “objective
examination” required that the ITC consider whet her the reason for the increase should change the
usual assumptions that exist about the adverse ef fect of increased market share held by subject
imports; that is, that an increase in imports steals volume that otherwise would have gone to domestic
producers.

 An increase in the market share held by subject imports is possible direct evidence of subject
imports having an adverse volume effect on the domestic industry only when it can be shown that the
subject imports took away sales th at otherwise would have been cap tured by the domestic industry.
Such evidence does not exist in th is case. As the above evidence demonstrates, in the real world,
Hynix did not win business from the domestic indus try during the period 2000-2001 or during the
period 2001-2002. Hynix’s total share of the US market actually decreased during these periods.
Accordingly, the evidence demonstrates that the subject imports were simply a replacement of volume
that Hynix had already been supplying from its US production facility.

31. Korea argues that Hynix's subject import s were merely replacing sales by Hynix's
Eugene facility. Korea refers in this regard to "customer swapping". Le aving the present case
to one side, imagine a case in which the volum e of imports increases during the period of
investigation because a domestic company cease d manufacturing operations in order to "re-
tool" up at the very beginning of that peri od, and sourced its product (for resale) from
unrelated subject exporters instead. If the resu ltant absolute increase in imports during the
period of investigation was significant, would an investigating authority be entitled to rely on
that in its injury determination?

20 See GOK Exhibit 41 (Hynix’s US Importer’s Questionnaire Response to the ITC).

GOK ANSWER
: If the domestic company that ceased its manufacturing operations for re-
tooling was the only or predominate domestic pro ducer, then we submit the answer is no; the
investigating authority would not be permitted to rely on the increase in subject imports to justify an
affirmative injury determination. In such a situ ation, the imports helped, not harmed, the domestic
industry.

 A somewhat harder question arises if there were other domestic producers from which the
domestic (re-tooling) company could have sour ced product during its te mporary shut-down of
manufacturing. On the one hand, if such other domestic producers existed, it would be correct to
conclude that subject imports prevented other domestic producers from having a temporary increase
in their sales during the re-tooling by the domestic company.

 On the other hand, it far from certain that this fact alone could properly justify an affirmative
finding of “significant” volume effects. In Korea’s vi ew, if the increase is simply to allow the same
company to maintain its existing customer re lationships, such an increase cannot be deemed
significant.

 The key is context. In most trade cases a significant in crease in subject imports is evidence
that the foreign exporters have taken away busi ness from domestic producers. In the normal case,
imports occur precisely because the particular company does not have a domestic manufacturing base,
and must import. When the exporting company has a domestic manufacturing base, the analysis must
be different. That is why Article 15.2 does not impose a numerical threshold. Some increases that
might appear large at first impression, may well prove not to be “significant” when objectively
considered in context.

32. Is Korea arguing – as alleged by the US at para. 39 of its oral statement – that subject
imports must be the sole cause of injury in or der for the requisite causal link to be established
between the subsidized imports and injury? If so, please comment on the finding of the Hot-
Rolled Steel panel (DS184) that the USITC wa s not required to demonstrate that dumped
imports alone caused material injury (para. 7.260 of that report).

GOK ANSWER
: Nowhere has Korea argued that subject imports must be the sole cause of
injury for the requisite causal relationship to be established between the subsidized imports and injury.
Korea has argued, however, that causation must be established between subsidized imports and injury
to the domestic industry. Causation is not clearly established where a competent authority has failed
to undertake the appropriate analyses prescribed by the SCM Agreement. We believe the US
allegation largely reflects its inability to accept th e non-attribution requirement under Article 15.5 of
the SCM Agreement; the same requirement under Ar ticle 3.5 of the Antidumping Agreement, and
Article 4.2(b) of the Agreement on Safeguards that have been the subject of several Appellate Body
determinations.21 It misconstrues the obligation to separate and distinguish the effects of subsidized
imports as a an argument by Korea that imports be the sole cause of injury. In sum, there can be cases
where multiple causes are present and an affirmative injury finding is warra nted. In other cases,

21 See United States -- Anti-Dumping Measures on Certain Hot-Rolled Steel Products From Japan ,
Report of the Appellate Body, WT/DS184/AB/R, 24 July 2001 (“ US - Hot-Rolled Steel ”), at para. 223; United
States -- Definitive Safeguard Measures on Imports of Circular Welded Carbon Quality Line Pipe from Korea ,
Report of the Appellate Body, WT/DS202/AB/R, 15 February 2002, at para. 217; United States -- Definitive
Safeguard Measures on Imports of Wheat Gluten from the European Communities , Report of the Appellate
Body, WT/DS166/AB/R, 19 January 2001, at para. 70 ; United States -- Safeguard Measures on Imports of
Fresh, Chilled or Frozen Lamb Meat from New Zealand and Australia , Report of the Appellate Body,
WT/DS177/AB/R, WT/DS178/AB/R,1 May 2001, at para. 179.

however, where a proper causation analysis is completed, including inter alia , a proper non-
attribution analysis, it is possible to discern that imports are not a cause of material injury.

33. Please comment on para. 431 of the US first written submission. Does Korea argue that
the ITC should have "'isolate[d]' subject imports or the effects of the subject imports and other
known factors on the domestic industry"? Please explain.

GOK ANSWER: At the outset we note the Korea never u sed the term “isolate” in the context
of causation in its first submission. In addition to incorrectly stating Korea’s position, the US is
simply confusing the issue. Article 15.5 of the SCM Agreement states “authorities shall also examine
any known factors other than the subsidized imports which at the same time are injuring the domestic
industry . . . ”. More importantly, Article 15.5 states that “injuries caused by these other factors must
not be attributed to the subsidized imports”. Th is is the crux of the non-a ttribution requirement; the
same requirement found in the Agreement on Safeguar ds at Article 4.2(b) and the AD Agreement at
Article 3.5. In interpreting the identical language in Article 3.5 of the AD Agreement, the Appellate
Body stated:

In order that investigating authorities, applying Article 3.5, are able to ensure that the
injurious effects of the other known factors are not “attributed” to dumped imports,
they must appropriately assess the injurious effects of those other factors. Logically,
such an assessment must involve separating and distinguishing the injurious effects of
the other factors from the injurious effects of the dumped imports. If the injurious
effects of the dumped imports are not appropr iately separated and distinguished from
the injurious effects of the other factor s, the authorities will be unable to conclude
that the injury they ascribe to dumped imports is actually caused by those imports,
rather than by the other factors. Thus, in the absence of such separation and
distinction of the different injurious effect s, the investigating authorities would have
no rational basis to conclude that the dumped imports are indeed causing the injury
which, under the Anti-Dumping Agreement, justifies the imposition of anti-dumping
duties.
22
 In short, it is unclear what the US even implies by the word “isolate”, nor is the issue relevant.
Ultimately, an authority must ensure that injury cau sed by other factors is not attributed to imports.
This may only be accomplished by separating causes, including imports, and distinguishing them.
Offering assumptions about the effects of imports and other causes is insufficient. There must be an
objective assessment and adequate explanation. Ag ain, Korea is not advancing an argument that
imports be a sole cause of material injury; but the effects of imports must be understood. As the
Appellate Body clearly stated, “in the absence of such separation and distinction of the different
injurious effects, the investigating authorities w ould have no rational basis to conclude that the
dumped imports are indeed causing the injury . . . ”.23

34. Please comment on the US remarks regardi ng Korea's use of volume / market share
data sources set forth at paras. 292-294 of the US first written submission.

GOK ANSWER: The US criticisms of the market shar e data relied upon by Korea are both
wrong and disingenuous.

22 US – Hot-Rolled Steel, at para. 223 (emphasis added).
23 Id.

 The United States is wrong to allege that Ko rea compared a quantity-based market share
figure for domestic shipments with a value-based ma rket share figure for Hynix. A quantity measure
-- billions of bits -- was used to derive the market share figures for subject imports, non-subject
imports and domestic indus try provided in Figure 9 of Korea’s First Written Submission. In GOK
Exhibit 62 we provide a “map” detailing how the market share figures were derived.

 The USG is disingenuous when it states that Ko rea’s estimate of non-Hynix subject imports is
“troubling” because Korea did not take into account the fact that the record evidence demonstrated
that there were 12 companies that had imported subject merchandise from Korea.
24 In fact, it is this
argument by the USG that is troubling. Korea very much wanted to utilize the actual subject import
volume in its arguments, but could not do so because the ITC made virtually the entire factual record
confidential. The estimates that Korea provided were the best possible estimates given the constraints
imposed by the United States.

 The ITC’s decision to make the entire record confidential, however, was not only not
necessary to protect confidentiality but also was at tension with the ITC’s own past practice. In
virtually all other cases the ITC has followed a “three or more” rule. If three or more companies in a
particular category (i.e., importers) provided data, in all other cases the ITC has made the total of that
category (i.e., subject imports) public. The United States itself admits that there were 12 importers of
the subject merchandise
25, yet the United States refuses to make available to the Panel and to Korea
the actual quantity/market share of subject imports, arguing the need to preserve confidentiality.

 In its first submission and at the first meeti ng with the Panel, the United States argued that
under its “one company with 75% or two companies with 90% rule,” it could not provide this data
publicly.26 We have two comments. First, nothing pr events the United States from providing this
information to the Panel with a request for conf identiality. With the passage of time, the market
sensitivity of volume, market share, and other information fades.

 Second, under the US rule itself, the Panel can have a high degree of confidence that the
portion omitted -- subject imports by the 12 importers other than Hynix itself -- is not material. Hynix
is quite confident that during this period of time it was the largest importer of Hynix brand DRAMs.
Hynix is not aware of -- nor was there any argument about -- large volumes of gray market imports by
importers other than Hynix itself. If the Panel is willing to make this assumption -- or ask the
United States for confirmation -- then the Panel can know with confidence that the Hynix-only figures
are a reasonable proxy for the total figures that the United States has not yet disclosed.

 Korea submits that there is no reason for there to be any data issues or disagreements in this
case. There is no reason why the United States ca nnot provide the actual volume data so that both
sides can argue about -- and the Panel can itself de cide -- what the actual figures mean, rather than
pointless criticisms of each other’s estimates.

35. Please comment on the US argument (para. 32 of its oral statement) that there is no
obligation under the SCM Agreement for a brand- name analysis of price undercutting. If
Korea disagrees, please indicate which provisi ons of the SCM Agreement provide for this
obligation.

25 Id.
26 Id. at para. 297.

GOK ANSWER: Korea respectfully disagrees. Article 15.1 of the SCM Agreement requires a
determination of injury to be based on positive evidence and involve an objective examination.

 Article 15.2 requires a determination that pr ice undercutting be “significant”, and that the
allegedly subsidized imports must have an “effect” on domestic prices. Korea submits that when the
facts of a particular industry render a particular approach to price undercutting meaningless, that
approach is no longer permissible under Article 15.2 . Unless the particular approach allows an
meaningful examination of “effect” and “signifi cant”, that approach can and should be found
inconsistent with Article 15.2, read in light of Article 15.1 and Articles 15.4 and 15.5.

 Article 15.4 requires that the examination of the impact of subsidized imports “shall
 include
an evaluation of all relevant economic factors and indices having a bearing on the state of the industry
(emphasis added)”, and specifically refers to “factors affecting domestic prices.” Likewise,
Article 15.5 requires “the demonstration of a causal relationship between the subsidized imports and
the injury to the domestic industry shall be based on an examination of all relevant evidence before
the authorities (emphasis added),” and footnote 47 links the price effects from Article 15.2 to the
causation analysis under Article 15.5.

 In this case, the ITC specifically recognized a number of key features of the global DRAM
industry that were highly relevant to the issue of pr icing, such that it was obliged to consider a brand-
name analysis of pricing. Specifically, the ITC recognized:

• “The parties agreed that the increasingly global nature of the DRAMs market, both in
terms of producers as well as purchasers, is an important consideration.”
27

• US producers own fabrication facilities in multiple other countries; major purchasers
are “multinational computer equipmen t manufactures that source DRAMs and
DRAM modules globally.”28

• “The commodity nature of standard DRAM s and low transportation costs mean that
DRAMs and DRAM modules can, and are, easily shifted from one customer location
to another, or purchases shifted from one source to another . . . . The major DRAM
producers can and do shift DRAMs and DRAM production to and from alternative
markets.”
29

• Major PC OEMs (i.e., the largest cons umer of DRAMs), “purchase products under
contracts from multiple sources, including most if not all the major producers of
DRAM products.”
30

• “Many responding purchasers reported differences between DRAMs and DRAM
modules from different firms, but were unable to determine the country of
fabrication.”31

 The ITC’s public record further reveals that two of the four major producers were also US
importers -- Infineon and Samsung.
32 The public record further reveals that Micron (also one of the

27 ITC Final Determination, at 18, provided at GOK Exhibit 10.
28 Id.
29 Id.
30 Id. at 22.
31 Id. at II-8.
32 Id. at 24.

big four producers) operated facilities in Italy, Japan, and Singapore.
33 Moreover, the ITC recognized
that “non-subject imports increased market share by a substantially larger amount than subject
imports”34, and that the domestic industry exported a large and growing share of DRAM products
production.

 What these findings and information reveal is th at: (1) a global industry exists dominated by
four major producers, including Samsung, Micron, Infineon and Hynix; (2) DRAM products and
production shift freely from location to location and s ource to source; and (3) brand is more important
and certainly more recognizable than origin. Th ese are relevant economic factors having a bearing on
the US domestic industry and are relevant to the issue of causation and injury. Articles 15.2, 15.4,
and 15.5 of the SCM Agreement require
 that they be examined, and that the examination be objective,
consistent with Article 15.1 of the SCM Agreement.

 Korea submits that the only objective examination of these factors as they relate to pricing,
causation and injury in this particular case is to undertake a brand-name analysis of price
undercutting. Not only is this the only objective m eans to explore price undercutting, but the fact
remains that such an analysis w as before the ITC. By the ITC’s own admission, these factors and
information were known; they could not be summarily dismissed.

33 Id. at 18.
34 Id. at 21.

ANNEX E-4

ANSWERS OF THE UNITED STATES TO THE
PANEL’S QUESTIONS TO THE PARTIES FOLLOWING
THE FIRST SUBSTANTIVE MEETING OF THE PANEL

9 July 2004

TREATMENT OF BUSINESS PROPRIETARY INFORMATION

 The United States notes that, with one excepti on, the entire text of these answers and the
accompanying exhibits is public information. Th e one exception is the US answer to Question 16
from the Panel, which contains business proprieta ry information (“BPI”) derived from the BPI
exhibits attached to Korea’s first written submission. The BPI information in the answer to Question
16 is noted with double brackets and a bold font.

 Consistent with the request made by Korea in its first written submission, the Secretariat and
the Panel should treat the bracketed information in the answer to Question 16 as confidential.

Table of Reports Cited in These Answers

EC – Tube and Pipe Fittings

European Communities – Anti-Dumping Duties on Malleable Cast Iron
Tube or Pipe Fittings from Brazil, WT/DS219/R, Report of the Panel, as
modified by the Appellate Body, adopted 18 August 2003

EC – Tube and Pipe Fittings (AB)

European Communities – Anti-Dumping Duties on Malleable Cast Iron
Tube or Pipe Fittings from Brazil, WT/DS219/R, Report of the Appellate
Body adopted 18 August 2003

Thailand – H-Beams

Thailand – Anti-Dumping Duties on Angles, Shapes and Sections of Iron or
Non-Alloy Steel and H-Beams from Poland , WT/DS122/R, Report of the
Panel, as modified by the Appellate Body, adopted 5 April 2001

US – Hot-Rolled Steel

United States – Anti-Dumping Measures on Certain Hot-Rolled Steel
Products from Japan , WT/DS184/AB/R, Report of the Panel, as modified
by the Appellate Body, adopted 23 August 2001

US – Hot-Rolled Steel (AB)

United States – Anti-dumping Measures on Certain Hot-Rolled Steel
Products from Japan , WT/DS184/AB/R, Report of the Appellate Body
adopted 23 August 2001

US – Lamb

United States – Safeguard Measures on Imports of Fresh, Chilled or Frozen
Lamb Meat from New Zealand and Australia , WT/DS177/AB/R,
WT/DS178/AB/R, Report of the Appellate Body adopted 16 May 2001

US – Steel Safeguards

United States – Definitive Safeguard Measures on Imports of Certain Steel
Products, WT/DS248/R, WT/DS249/R, WT/DS251/R, WT/DS252/R,
WT/DS253/R, WT/DS254/R, WT/DS258/ R, WT/DS259/R, Report of the
Panel, as modified by the Appellate Body, 10 December 2003

US – Steel Safeguards (AB)

United States – Definitive Safeguard Measures on Imports of Certain Steel
Products, WT/DS248/AB/R, WT/DS249/AB/R, WT/DS251/AB/R,
WT/DS252/AB/R, WT/DS253 /AB/R, WT/DS254/AB/R,
WT/DS/258/AB/R, WT/DS259/AB/R, Report of the Appellate Body,
adopted 10 December 2003

US – Wheat Gluten

United States – Definitive Safeguard Measures on Imports of Wheat Gluten
from the European Communities, WT/DS166/AB/R, Report of the Appellate
Body adopted 19 January 2001

QUESTIONS TO THE UNITED STATES

Alleged Subsidization

1. At paras 235 and 236 of its first written submission, the US refers to “the Hynix bailout”
as the “the subsidy program”. What are the rel evant constituent parts of that alleged subsidy
programme?

1. The US Department of Commerce (DOC) found that the series of measures taken by the
Government of Korea (GOK) – and the financial in stitutions that the GOK entrusted or directed –
constituted a “single {subsidy} programme,” the obj ective of which was “the complete financial
restructuring of Hynix in order to maintain the company as an ongoing concern”. 1 As such, the
DOC’s reference to the “single {subsidy} program” encompassed the GOK’s policy and the resulting
series of actions taken to support Hynix and prev ent its failure from 1999 through the end of the
DOC’s period of investigation.2 Specifically, the constituent parts of the subsidy program identified
by the DOC included the 800 billion won syndicated loan, the KDB Fast Track bond program, the
May 2001 restructuring package, the October 2001 r estructuring package, and the benefits conferred
by these and other financial contributions, such as D/A loans, made as part of the Hynix bailout.3

2. For each alleged financial contribution form ing part of the “Hynix bailout” “program”,
please specify which private entities participated in that financial contribution, and what
evidence of entrustment and/or direction the [DOC] relied on in respect of each of those private
entities.

2. Figure US-4 contains a chart that lists the banks that participated in the four government-
directed financial restructuring and recapitalization measures that made up the Hynix bailout. For the
sake of completeness, it includes both public and private bodies that were government-owned and
controlled, as well as other private bodies.

3. With respect to the evidence relied on in respect of each of the “private entities”, the DOC did
not engage in the type of bank- and transaction-speci fic analysis advocated by Korea. As previously
explained, there is no basis in subparagr aph (iv) of Article 1.1(a)(1) of the Agreement on Subsidies
and Countervailing Measures (SCM Agreement) for such an analysis.
4 Approximately 10-18 banks
participated in each of the four bailout measures 5, and there were hundreds of individual financial
contributions (e.g., loans) made by each of these banks under the auspices of the four measures. An
interpretation of subparagraph (iv) that would require explicit and/or formal evidence of government
entrustment or direction to each bank with respect to each contribution would render the
circumvention of subparagraph (iv) a simple matter.

4. The US first submission sets out in great de tail the evidentiary basis for the DOC’s finding of
government entrustment and direction. The evidence showed that the GOK adopted an explicit policy
to keep Hynix from failing. The evidence also showed that the GOK took affirmative actions to
entrust and direct Hynix’s creditors to provide fi nancial contributions to Hynix during the period of

1 Issues and Decision Memorandum at 48 (Exhibit GOK-5); see also First Written Submission of the
United States of America (May 21, 2004), para. 35, note 31 [hereinafter “US First Submission”].
2 Issues and Decision Memorandum at 19-24 (Exhibit GOK-5).
3 See US First Submission, paras. 127-151.
4 See US First Submission, paras. 164-170.
5 Because of the mandatory nature of the Corpor ate Restructuring Promotion Act and the options
devised by the Creditors’ Council, all of Hynix’s cr editors were required to participate in the October
restructuring and refinancing of Hynix. This included the 18 banks listed in Figure US-4, as well as other small
creditors, many of which were owned by one of the 18 major creditors.

investigation. The GOK did so by exercising cont rol over Hynix’s creditors in its multiple roles as
lender, owner, legislator and regulator. When necessary, the GOK used coercion as a means of
effectuating its Hynix policy. In some instances, th e evidence is bank-specific; in other instances, the
evidence is event-specific. In other instances, the evidence of government entrustment and direction
is relevant on a program-wide basis or with respect to all Hynix creditors.

5. For example, some important evidence – such as a number of the quoted statements by GOK
officials – was not linked either to specific events or banks. Nevertheless, such evidence established
the GOK’s role in entrustment or direction generall y during the bailout period. Consider one such
quoted statement by Deputy Prime Minister Jin Nyum, who stated, “[i]f Hynix says it needs an
additional 1 trillion won, and if the creditor group ca nnot make a decision whether or not to provide
additional support, the financial authorities [i.e., the FSS, FSC and MOFE] should decide. We cannot
simply leave it blindly to the creditor group”.
6 This sort of key evidence was not particular to any one
bank, but was directed more generally to all Hynix creditors.

6. On another occasion, an official from the Offi ce of the President of Korea stated, “Hyundai is
different from Daewoo. Its semiconductor and cons tructions are Korea’s backbone industries. These
firms hold large market shares of their industries, and these businesses are deeply-linked with other
domestic companies. Thus, these firms should not be sold off just to follow market principles.”
7

7. The evidence before the DOC included offici al GOK documentation of high-level meetings
and directives; GOK laws; the investigative report of Korea’s Grand National Party investigation of
the GOK’s preferential policies for Hynix and other Hyundai Group chaebol; reports of direct
meetings between GOK officials and Hyni x/Hyundai creditors, confirmed by supporting
documentation; sworn submissions to US and Kor ean regulatory agencies, and reports and website
materials of Korean banks; numerous direct quot es from GOK officials in interviews and press
conferences; public statements of Hynix’s creditors; US Government reports; IMF and OECD reports;
public statements of Hynix; book excerpts; newspape r reports; and the reports of scholars, analysts
and experts on the GOK’s control of the banks, dir ection of credit practices and Hynix’s financial
condition.

8. From this body of evidence, a reasonabl e, unbiased person could have reached the same
conclusion as did the DOC; namely, that the GOK entrus ted and directed Hynix’s creditors to bail out
the company.

3. With regard to paras 139 and 146 of the US first written submission, please list which
Hynix creditors the DOC considered to be “go vernment-owned and controlled”, which were
treated as “government-owned”, which were designated as “majority-owned by the
government”, and which were treated as public bodi es. Please explain how the US defines each
of these terms for the purpose of these proceeding s, and the consequential rationale for the
designation made by the DOC with respect to each of the relevant entities.

9. Paragraphs 139 and 146 discuss the dominant role played by the government-owned and
controlled banks in both the May and October restructurings. The “government-owned and
controlled” designation refers to: (A) credito rs that the DOC found to be “public” bodies, and (B) to
“private” creditors in which the GOK had 100 per cent ownership or was the single largest

6 Deputy Prime Minister Chin, “Government will Take Actions to Turn Around Hynix,” K OREA
ECONOMIC DAILY (4 August 2001) (translated version) (Exhibit US-118). Apparently realizing his excessive
candor, Jin quickly added: “This should not be viewed as if the government is running the financial sector. It is
not.” Id.
7 The State Activism toward the Big Business in Korea, 1998-2000: Path Dependence and Institutional
Embeddedness, Jiho Jang, University of Missouri-Columbia (April 2001) (Exhibit US-17).

shareholder, and KFB (the GOK was not the larges t single shareholder in KFB, but did own 49 per
cent). Figure US-4, provided in response to Question 2, above, describes the basis for such
classification (i.e., the percentage of GOK ownership).

10. Through its administrative practice, the DOC has developed criteria to assess whether an
entity should be considered a public body for pur poses of a countervailing duty investigation. The
relevant factors considered by the DOC are: (1 ) government ownership; (2) government presence on
the entity’s board of directors; (3) government c ontrol over the entity’s activities; (4) the entity’s
pursuit of governmental policies or interests; and (5) whether the entity is created by statute.
8 In the
DRAMs investigation, the DOC evaluated these factors in light of the evidence, and determined that
the Korea Development Bank (KDB), the Industria l Bank of Korea (IBK) and other “specialized”
banks in Korea were “government authorities”; i.e., public bodies.9 Consistent with Article 1.1(a)(1)
of the SCM Agreement, the DOC treated financial contributions made by these government
authorities as direct financial contributions by the GOK.

11. The designation “majority owned by the governme nt” refers to those fi nancial institutions in
which the GOK was the majority shareholder at the tim e of the Hynix bailout, that is those banks in
which the GOK had greater than 50 per cent ownership. In other words, it is a subset of “private”
entities “owned and controlled” by the GOK ( i.e., in Figure US-4, every bank in Group B except the
KEB and the KFB). Under its general practice, th e DOC does not automatically treat an entity as a
“government authority” merely because the governme nt has an ownership stake in the entity (even a
significant ownership stake).
10 In this case, the DOC found that the GOK majority-owned financial
institutions did not meet the criteria for a “govern ment authority.” Therefore, the DOC had to
determine whether the GOK entrusted or directed these entities to make financial contributions to
Hynix.

12. Government ownership in an entity does, of course, have significance beyond the mere
technical issue of how to treat financial cont ributions by the entity in a countervailing duty
investigation. The mere fact that an entity is not treated as a public body does not mean that a
government cannot or does not exercise control or substantial influence over it through its voting
rights as a shareholder. In the DRAMs investig ation, the DOC found that the GOK’s ownership
rights and privileges were in no way limited, and th at as the single largest shareholder (or significant
shareholder in the case of KFB) it was able to entrust and direct these banks.

4. Did the DOC find that “government-owned and controlled” banks were
entrusted/directed by GOK, or did it find that they were the instruments through which GOK
entrusted/directed other entities?

5. Did the DOC find that “majority-owned by the government” banks were
entrusted/directed by GOK, or did it find that they were the instruments through which GOK
entrusted/directed other entities?

6. Did the DOC find that “government-owned” banks were entrusted/directed by GOK, or
did it find that they were the instruments through which GOK entrusted/directed other entities?

8 See US First Submission, para. 55, note 75; Issues and Decision Memorandum at 16 (Exhibit
GOK-5).
9 For purposes of domestic law, the DOC uses th e term “government author ity” instead of “public
body.”
10 Korea has not challenged the DOC’s designations of financial institutions as either public or private
bodies. We note, however, that the approach taken by the DOC was conservative. Under Article 1.1(a)(1) of
the SCM Agreement, the DOC reasonably could have considered as “public bodies” those Hynix creditors that
were wholly-owned or majority-owned by the GOK.

13. The United States is answering Questions 4-6 together.

14. As discussed in response to Question 3 above, The “government-owned and controlled”
designation refers to: (A) creditors that the DOC found to be “public” bodies, and (B) to “private”
creditors in which the GOK had 100 per cent ownershi p or was the single largest shareholder, and
KFB.

15. For purposes of Article 1.1(a)(1), a “public body” is treated in the same manner as a
“government”. Nevertheless, depending upon the fact s of a particular case, one may accurately refer
to such public bodies as being owned and controlled by the government. In its Final Determination,
the DOC found that financial contributions provi ded by public bodies – such as the KDB – were
direct.
11 In other words, the DOC did not find, nor did it need to find, government entrustment or
direction of the entities it found to be “public”. However, the DOC did find that “public” Hynix
creditors – the KDB in particular – played a signifi cant role in the GOK’s direction of the “private”
Hynix creditors.
12

16. The DOC found that all Hynix’s “private” credito rs were entrusted and directed by the GOK.
These “private” entities included both the “government-owned and controlled” private entities (Group
B in Figure US-4) and other private entities (Group C in Figure US-4).

17. The designation “government owned and controlled private entities” encompasses entities
that are 100 per cent GOK-owned, majority GOK-owned ( i.e., GOK ownership greater than 50 per
cent), those in which the GOK was the single larg est shareholder, and KFB in which the GOK
ownership was significant (i.e., 49 per cent) .

18. The DOC did not find specifically that government-owned and controlled private entities
“were instruments through which the GOK entrusted/directed other entities”. Rather, the DOC found,
for example, that the GOK exercised control over Hynix’s creditors generally through government-
owned and controlled banks, because those banks play ed a dominant role in the Creditors Councils.
The voting rights in the Councils were based on the to tal credit exposure to Hynix. In both the May
and October restructurings, the credit exposure of the government-owned and controlled banks far
exceeded that of all other banks.
13

19. The GOK has not disputed that government-o wned and controlled banks had a significant
presence in Hynix’s Creditors Councils. These banks could and did set the terms of the financial
restructurings in May and October. The May Cr editor’s Council consisted of only 17 banks. The
government-owned and controlled banks accounted for over 70 per cent of the voting rights in that
council. While their voting rights were somewhat lowe r at the October restructuring, the terms of the
restructuring were set by the same 17 banks, with the addition of Citibank, before the full Creditors’
Council met to vote on the final package.
14 Even if other private banks ( i.e., those private entities not
owned and controlled by the GOK (Group C in Figure US-4)) had desired an alternative outcome or
financing based on different terms, they would have been incapable of bringing it about.

7. Assume a government announces publicly that it is going to restructure a bankrupt
industry and that, although it would prefer to do so with the assistance of private investors, it
would do so on its own if necessary. Assume that private investors decide to participate in that
restructuring, purely on the basis of the government’s statement that it is going to keep that

11 US First Submission, para. 55; Issues and Decision Memorandum at 15-16 (Exhibit GOK-5).
12 See US First Submission, paras. 55-78.
13 Issues and Decision Memorandum at 53 and notes 18-20 (Exhibit GOK-5).
14 Hynix Verification Report at 16 (Exhibit US-43).

industry afloat. Leaving aside issues of benefi t concerning the terms of the restructuring,
should an investigating authority find that those private investors had been entrusted or
directed by the government to participate? Why, or why not?

20. As both Korea and the United States have pr eviously stated, the focus of the financial
contribution element in the definition of “subsidy” under Article 1.1 of the SCM Agreement is on the
action of the government in making the financial c ontribution. The Panel’s question posits that
private investors decide to participate in a restru cturing on the basis of the government’s statement
that it is going to keep a particular industry aflo at. In determining whether there is a financial
contribution – and more specifically under subpar agraph (iv) of Article 1.1(a), whether the
government entrusted or directed private actors to carry out a financial contribution function – the
motives of private investors are not germane.

21. Whether a particular government action amounts to entrustment or direction is an evidentiary
question. The Panel’s hypothetical posits merely that a government announces that it is going to
restructure a bankrupt industry and it would prefer to do so with the assistance of private investors.
The general government pronouncement posited by the Panel would not appear to evince government
entrustment or direction under subparagraph (iv) , which requires consideration of whether a
government “gave responsibility to”, “ordered”, or “regulated the activities of” private bodies to
“carry out” financial contribution functions, such as the transfer of funds.

22. Needless to say, the facts in this case do not involve general government pronouncements. As
set forth in detail in our first submission, the reco rd evidence shows that the GOK adopted an explicit
policy to keep Hynix from failing. The evidence al so shows that the GOK took affirmative actions to
entrust and direct Hynix’s creditors to provide fi nancial contributions to Hynix during the period of
review. The GOK did so by exercising control over Hynix’s creditors in its multiple roles as lender,
owner, legislator and regulator. The evidence al so showed that, where necessary, the GOK engaged
in coercion as a means of effectuating its Hynix policy.

23. The DOC’s record consists of thousands of pages of evidence, including official GOK
documents of the GOK’s formal decision to assist H ynix in Economic Ministerial level meetings; the
meeting minutes of the FSC; known GOK planning and meetings on the Hynix case; known reported
meetings between the GOK, Hynix and its creditors; public statements by GOK officials; sworn
statements by Hynix creditor banks admitting GOK entr ustment or direction to the US Securities and
Exchange Commission; memoranda of understa nding (MOUs) between the government and the
government-invested banks that permitted the GOK to fire bank officials; other statements or
documents by Hynix creditors corroborating GOK en trustment or direction; multiple examples of
GOK threats and coercive tactics; many observati ons by third party observers; the GOK’s pervasive
ownership and control of the banks; direct lending by the GOK through the KDB; and the
coordination of the bailout by the KEB, the GOK’s officially designated lead bank.

24. The record in this case thus paints a very different picture from the hypothetical posed by the
Panel. This was not a situation where the GOK sai d to the banks: “We, the GOK, are going to bail
out Hynix and we do hope you join us.” Instead, this was a situat ion where the GOK effectively told
the banks: “If you know what’s good for you, you are going to help us bail out Hynix”.

25. Moreover, to resolve this dispute, it is not n ecessary for the Panel to articulate, in the abstract,
the precise quantum or type of evidence necessar y to support a finding of government entrustment or
direction. Instead, the Panel’s task is much more straightforward. The Panel need only consider
whether the DOC’s conclusion – that the GOK entrusted and directed Hynix’s creditors to bail out the
financially distraught Hynix – was reasoned and ade quate in light of the totality of the evidence
before it. The United States submits that the DOC’s conclusion meets this standard.

8. Please comment on Korea’s assertion (para. 51 of its oral statement) that many creditors
“walked away” from the October 2001 restructuring. Doesn’t this suggest that those creditors
were able to act independently of any GOK desire to restructure Hynix? Please explain.

26. The statement that certain creditors “walke d away” from the October restructuring implies
that Hynix’s creditors had real choices in determining to what extent, if any, they would participate in
the financial restructuring. The United States disa grees with the GOK’s characterization of the three
options available to Hynix’s creditors.
15

27. The three options available to Hynix creditors were:

(1) extend new loans to Hynix, convert a portio n of their unsecured Hynix debt to equity, and
extend maturities on the remainder;

(2) withhold new loans, convert 100 per cent of secured loans and 28.46 per cent of unsecured
loans to equity, and forgive the remainder; or

(3) choose not to provide new loans or to convert loans into equity shares, and instead agree to
convert a portion of their loan balances into fi ve-year debentures at zero per cent interest.
The portion converted into debentures was cal culated based on 100 per cent of the secured
loans and 25.46 per cent of the unsecured lo ans, based on the liquidation value of the
company.

28. First, due to the requirements of the Cor porate Restructuring Promotion Act (CRPA) under
which the October bailout was conducted, no cred itors were permitted to “walk away” from the
October 2001 restructuring.
16 The CRPA applied to all conceivable forms of creditors and made
participation in the Creditor Council mandatory. 17 Thus, as a result of the CRPA, all of Hynix
creditors were forced to participate in the October restructuring. Hynix creditor banks had to select
one of the three options listed above, and had to ab ide by the terms of the decision dictated by the
banks that accounted for 75 per cent of Hynix’s debt. As the United States noted in its first
submission, “the CRPA gave Hynix’s largest creditors – i.e., the specialized banks and those owned
and controlled by the GOK – the power to dictate restructuring terms to all other Hynix creditors.”
18
In other words, no bank was free to make an independe nt deal with Hynix, nor was any bank able to
force Hynix into liquidation. There was no “fourth way.”

29. Second, it is misleading for the GOK to charact erize “Option 3” as a “walk-away” provision.
The GOK states that Option 3 was to “exercise appraisal rights against their outstanding debt based on
the liquidation value of the company, as determin ed by an independent auditor, and walk away”.
19
Contrary to the GOK’s assertions, however, the ba nks that elected Option 3 did not, and could not,
just “walk away”.

30. The ongoing relationship between the Opti on 3 banks and Hynix was not a matter of
liquidating and walking away. Nor did creditors obtain “what they could have obtained in

15 See US First Submission, paras. 88-93.
16 It is important to note that the CRPA was enacted just prior to the October restructuring measures,
with Hynix and other Hyundai Group companies as the most visible pending bankruptcies. US First
Submission, para. 84. The CRPA was meant to improve on the voluntary Credit Restructuring Agreement
(CRA) system, which had been roundly criticized by GOK officials because it permitted creditors to refuse to
participate in corporate restructurings. GOK Verification Report at 7-8 (Exhibit US-12).
17 Corporate Restructuring Promotion Act, Article 2.1 (Exhibit US-51).
18 US First Submission, para. 88.
19 Korea First Submission, para. 353.

liquidation”.20 Instead, the relationship between the Op tion 3 banks and Hynix consisted of five
elements that distinguished this situation from a typical liquidation process:

• First, as part of the CRPA processes described a bove, these banks had no independent rights
to seek or establish the value of their outstanding credit to Hynix. Rather, their rights were
dictated to them by the government-owned banks and the rest of the blocking majority on the
Creditor Council.
21

• Second, the banks were foreclosed from even seeking liquidation. Under the terms of the
CRPA, at the request of the lead creditor ba nk, the Financial Supervisory Service (FSS), a
government agency, could stop creditors that wanted to seek liquidation from exercising their
rights to call loans and to move companies into receivership. In the case of Hynix, the FSS
did request that banks refrain from exercising their creditor rights.
22

• Third, two of the Option 3 banks, Kyongnam and Kwangju, were 100 per cent government-
owned banks and were merged with another 100 per cent gove rnment- owned bank, Hanvit,
in April 2001, to form Woori Financial Holdings. 23 As a result, there was no need for the
GOK to funnel new money through these two banks (which had ceased to have separate legal
identities, in any event), because Woori had already committed to assist Hynix by selecting
Option 1.

• Fourth, as part of the recapitalization process, ba nks were subject to intense pressure from the
GOK. Among other things, MOUs associated with the recapitalization of banks permitted
GOK control over the hiring and firing of bank officials.

• Fifth, and most important, Korea implies that the banks were paid the liquidation value of
their loans and that was the end of their relationship with Hynix. Not true. These banks were
forced to accept an IOU in the form of an interest-free Hynix debenture that would not mature
for another five years; i.e., in 2006. In other words, the four banks selecting Option 3 (which,
in any event, represented only a sma ll fraction of total Hynix loans) are still waiting to be
paid.

In sum, the choices available to the creditors at the October 2001 restructuring were clearly designed
to ensure the continued survival of Hynix, at the expense of Hynix’s creditors.24

9. The US argued at the first substantive me eting that KFB was “brought into line” after
initially resisting GOK efforts to require it to pa rticipate in the Hynix restructuring. Korea
denies this, arguing that KFB ultimately did not participate in the October 2001 restructuring.
Please comment.

31. First, it should be clarified that KFB did participate in the October 2001 restructuring.
Indeed, under the terms of the CRPA, KFB did not have the legal right to refuse to participate in the
October restructuring. (See Answer to Panel Qu estion 8, above.) KFB c hose Option 3 which meant
that it received a zero coupon bond amounting to 100 per cent of its secured loans and 25.46 per cent
of its unsecured loans based on the estimated liquidation value of Hynix. KFB was forced to write off

20 Korea Oral Statement, para. 51.
21 US First Submission, para. 88.
22 GOK Verification Report at 19 (Exhibit US-12).
23 GOK Verification Report at 6 (Exhibit US-12).
24 US First Submission, para . 90 (“This means that the option 3 banks will not actually receive what
they were able to salvage from their loans to Hynix until 2006 and will not earn any interest on the money that is
owed to them by Hynix, hardly a real choice.”)

the remainder of its loans under the terms of the CRP A. Three other banks also selected Option 3. In
total, these banks forgave 234,000 million won, and took 81,000 million won in the form of the zero
coupon bonds. This provided a considerable benef it to Hynix. Moreover, the KFB participated in
other key parts of the subsidy program, including the Syndicated Loan, and the May restructuring.

32. Second, there was ample evidence in the DOC record demonstrating that the GOK applied
considerable pressure both publicly and privately on KFB to ensure that KFB continued to participate
in assisting Hynix.
25 Among other things, the GOK pulled $77 million in deposits out of KFB after
KFB balked at participating in the KDB Bond Progr am for Hynix; threatened to have government
agencies cease all business with KFB; and threat ened to have KFB’s clients terminate their
relationship with KFB.

10. The US asserted at the first substantive meeting that creditors were required to
participate in the October 2001 restructuring by virtue of the CRPA. Was such alleged
mandatory participation relied on by the DOC as evidence of entrustment and/or direction? If
yes, please indicate where this issue is addressed in the DOC’s determination. If not, why not?

33. The DOC did not find that mandatory partic ipation under the CRPA constituted, in and of
itself, entrustment or direction. Rather, the DO C found that the GOK used the CRPA as a vehicle to
effectuate the GOK’s Hynix policy.

34. As explained in our first submission, the CRPA gave Hynix’s largest creditors – i.e., the
specialized banks and those ba nks owned and controlled by the GOK – the power to dictate
restructuring terms to all other Hynix creditors. Hynix’s Creditors’ Council, dominated by specialized
banks and government-owned and c ontrolled banks, determined that: (1) no creditor would have the
option to call in its debt, (2) no creditor would have the option to walk away without penalty, and (3)
no creditor would have the option to remain an interest-earning creditor without extending new loans
or forgiving significant debt on terms favorable to Hynix. The DOC found that these “choices” were
extremely limited and highly favorable to Hy nix, essentially keeping Hynix from complete
bankruptcy. Furthermore, the terms of those “choi ces” were dictated by Hynix’s government-owned
and controlled creditors.
26

35. During the investigation, the GOK conceded that the CRPA was introduced by the National
Assembly “to make sure that the banks could not avoid participating in workouts”. 27 Under the
CRPA, all creditor banks were obligated to participate in the workout system. 28 The DOC found that
this “provided the dominant GOK-owned and cont rolled [banks] with the ability to establish the
financial restructuring terms over many more creditors”.29

36. Thus, the evidence before the DOC showed that enactment of the CRPA considerably
leveraged the GOK’s already considerable power ov er Hynix’s creditor banks. First, by naming
Hynix’s principal transactions bank as head of the council, the GOK positioned itself to take full
advantage of the KEB’s longtime role as agent a nd facilitator of government credit and management

25 For a description of the GOK’s coercive tactics with respect to KFB, see US First Submission,
paras. 105-113.
26 Preliminary Determination , 68 Fed. Reg. at 16776 (Exhibit GOK-4); Issues and Decision
Memorandum at 55 (Exhibit GOK-5).
27 Issues and Decision Memorandum , at 53, n.19 (Exhibit GOK-5); Government of Korea Verification
Report at 8 (Exhibit US-12).
28 Issues and Decision Memorandum at 53, n.19 (Exhibit GOK-5).
29 Issues and Decision Memorandum at 53, n.19 (Exhibit GOK-5).

decisions.30 Second, the law made all creditors of an ailing firm subject to the Council’s authority. 31
This requirement left KFB and other banks with non-GOK ownership little option but to participate in
any restructuring and recapitalization measures.

11. With regard to the May and October 2001 restructurings, the parties have referred to
option 3 as the exercise of “appraisal rights”. Please comment. Was the exercise of appraisal
rights any different from liquidation? Please explain.

37. First, we note that an exercise of “appraisal rights” only applied to the October bailout,
because the May bailout involved only new lending and the restructuring of the payment terms on
existing debt.

38. With respect to the October bailout, the four banks that selected Option 3 converted a portion
of their loan balances into five-year debentures at zero per cent interest. The portion converted into
debentures was calculated based on 100 per cent of the secured loans and 25.46 per cent of the
unsecured loans, based on the liquidation value of the company. This conversion amounted to
81 million won. These banks wrote off all of the remaining loans to Hynix amounting to
234,000 million won.

39. The GOK has characterized this option as an ex ercise of appraisal rights, presumably because
the amounts that were converted to five year zero coupon debentures (and consequently the amounts
written off) were determined by reference to some estimated liquidation value of the company.
However, Option 3 was not the same thing as a true exercise of appraisal rights as would be
contemplated in a liquidation. Under a true exercise of appraisal rights, creditors would receive
payment for some negotiated portion of their outstanding credit to the liquidated company. In this
case, the Option 3 banks had no control over the amount of the liquidation value, nor what portion of
that value they would recover. All of this was under the control of the GOK-owned and controlled
banks, which dominated the Creditors Council. Mo reover, the GOK, through the FSS, could prevent
a creditor from exercising its creditor rights to call loans and to seek liquidation value. Most
importantly, the Option 3 banks were never paid the liquidation value. Instead, they were given an
IOU in the form of zero interest debentures that will not even come due un til 2006. As explained in
the answer to Question 8, above, in no way can Option 3 be considered the same as a liquidation.

12. The US asserted at the first substantive meeting that this case is not about a comparison
of different WTO Members’ restructuring frameworks. At para. 21 of its oral statement,
however, the US seems to have argued that an investigating authority could reasonably have
found that a reasonable investor would not have invested in Hynix because it was “technically
insolvent”. Doesn’t this suggest a per se rule th at all “technically insolvent” companies should
be liquidated? Please explain.

40. In paragraph 21, the United States was discu ssing the issue of “benefit” and how Hynix’s
abysmal financial picture affected the calculation of the benefit. In its investigation, the DOC
examined whether Hynix was equityworthy as a mean s to determine whether GOK-directed financial
contributions, in the form of equity infusions, provided a benefit. This test is specifically foreseen in

30 Issues and Decision Memorandum at 56-57 (Exhibit GOK-5); Hynix Verification Report at 13-14
(Exhibit US-43).
31 See CRPA, Article 2 (Exhibit US-51); Hynix Verification Report at 16 (Exhibit US-43); and Foreign
Banks Required to Attend Creditor Meetings for Ailing Firms, Korea Times (July 22, 2001) (Exhibit US-52). A
Ministry of Finance official stated that: “[w]e’ve decided to force all creditor financial institutions to take part in
the meetings in order to prevent some of them from refusing to attend and pursuing their own interests by taking
advantage of bailout programmes.” Id. Thus, this law was not intended to modify the behaviour of domestic
banks, which already felt compelled to attend all such meetings.

paragraph (a) of Article 14 of the SCM Agreemen t. The DOC concluded that such financial
contributions provided a benefit to Hynix given th at no “reasonable private investor” would have
purchased equity from Hynix as Hynix was unequitywort hy. As mentioned in paragraph 21, Hynix’s
technical insolvency was one factor, along with its staggering losses and the worsening conditions in
the DRAMs industry, supported this conclusion. However, the DOC did not inquire into whether
“technical insolvency” warranted liquidation, as this was not a relevant issue in the DRAMs
investigation.

13. At para. 17 of its oral statement, th e US refers to alleged pressure on credit rating
agencies. Is this evidence of entrustment / directi on of private creditors? If not, what is the
relevance of this evidence to the DOC’s determination of subsidization? Please explain.

41. Credit rating agencies obviously are not Hynix cr editors. Nevertheless, the pressure put on
the credit rating agencies to refrain from lowering Hy nix’s credit ratings was illustrative of the extent
to which the GOK was willing to inte rvene in the normal workings of the market to effectuate its
policy of keeping Hynix afloat. This evidence also enhanced the credibility of the evidence indicating
that the GOK engaged in coercion with respect to Hynix’s creditor banks.

14. At para. 18 of its oral statement, the US refers to KEB’s rationale for participating in
the May and October 2001 restructurings. Is it surprising that a public body would act on the
basis of social and economic policy considerati ons? Why does the fact that a public body
creditor acted on non-commercial principles nece ssarily mean that other private body creditors
also did so?

42. No, it is not surprising that a public body would act on the basis of social and economic
policy considerations, although that, of course, does not alter the disciplines that WTO Members have
accepted in the SCM Agreement. However, the DOC did not find that the KEB – the Korea
Exchange Bank – was a public body. Instead, the DOC found that KD
B, the IBK, and other
specialized banks were public bodies.32

43. The United States understands how confusion might arise as to whether the KEB was a public
body. The KEB was the GOK’s designated lead bank and the head of Hynix’s creditor council, the
GOK was its single largest shareholder, the GOK regul arly intervened in its management, and the
GOK heavily capitalized the bank. The fact remains, however, that the KEB was a private entity, and,
as such, would normally not be expected to articul ate the government’s national economic and social
policy concerns in deciding to assist Hynix. Th at it did, and that th e GOK expressly ordered it to
carry out its Hynix policy “perfectly” and required it to coordinate the actions of Hynix’s creditors,
was simply further evidence that the GOK entrusted or directed the KEB and the other private Hynix
creditors to assist Hynix.

Alleged Injury

15. At para. 316 of its first written submission, the US states that the ITC explained that
although it opined that “the use of bits as a unit of measurement [could] present difficulties for
[its] analysis”, it nevertheless found that the absolute volume of subsidized subject imports and
the increase in that volume relative to US production and consumption was “significant”.

 (i) What were the reasons why
 the ITC nevertheless found that the absolute volume
of subsidized subject imports and the increase in that volume relative to US
production and consumption was “significant”?

32 See US First Submission, paras. 55-56 and note 77.

 (ii) Where were those reasons set forth in its Determination and Views (Exhibit
GOK-10) (or any other relevant document)?

 (iii) The last paragraph of page 21 of th e ITC’s Determination and Views states that
the ITC’s “findings about the volume of subject imports are reinforced by the
substantial degree of substitutability between subject imports and domestic
shipments”. If the finding that the absolute volume of subsidized subject
imports is significant is “reinforced” by considerations of substitutability, what
is the initial basis for that finding? In ot her words, what is the initial basis that
is then “reinforced” by considerations of substitutability?

44. The ITC based its volume analysis on data from confidential questionnaire responses that
were reported in terms of billions of bits.
33 As the question indicates, th e ITC recognized that use of
bits as a unit of measurement could present difficulties, given that total bits are a function of chip
density and product mix. 34 It is true that one would expect volume increases in the DRAMs industry
if volume is measured in terms of bits, to the extent that total bits are a function of chip density and
product mix, both of which changed over the period of investigation as demand for DRAM products
continued to increase and as producers conti nued to move to higher density products. 35 T h e I T C
explicitly recognized this reality.36

45. Nevertheless, bits were clearly the best po ssible unit of quantity in the DRAMs market. The
ITC has consistently relied on bits as a unit of meas urement in prior investigations involving DRAMs
and synchronous random access memory semiconductors (“SRAMs”). As the ITC stated, “total bits
are a uniform measure of the quantity of DRAM products.”
37 Given the constant development of new
product types in the DRAM market, measuring volume in terms of units rather than bits would yield a
meaningless comparison. For example, were the ITC to compare the number of units of 64 Mb chips
produced in 2000 with the number of 128 Mb chips produced in 2002, it would be comparing apples
with oranges. Reliance on bits, as the ITC stated , was the only means of ensuring consistency across
time periods.38 Indeed, when asked at the Commission’s hearing about the use of bits as the unit of
measurement for volume in this industry, Hynix’s witness (Mr. Tabrizi) agreed that bits was an
appropriate measure.39

(1) The ITC found that the volume of subject im ports absolutely and the increase in that volume
over the period of investigation absolutely an d relative to production and consumption in the
United States was “significant”.40 Thus, the ITC used both absolute and relative measures of import
volume. By their very nature, the relative compar isons addressed the concerns inherent in the use of
absolute data associated with ever-increasing product densities over time. Under both types of
measures, subject import volume increased between 2000 and 2002, as set forth in the ITC’s final
determination. The absolute volume of subsidi zed subject imports increased between 2000 and 2001
and between 2001 and 2002. 41 The ratio of subsidized subject imports to US production increased
between 2000 and 2001. 42 While this ratio declined between 2001 and 2002, it was still higher than

33 See, e.g., USITC Pub. 3616 at 20 (Exhibit GOK-10).
34 See, e.g., USITC Pub. 3616 at 20 (Exhibit GOK-10).
35 See, e.g., USITC Pub. 3616 at 15 & n.92, 20 (Exhibit GOK-10).
36 See, e.g., USITC Pub. 3616 at 20 (Exhibit GOK-10).
37 See, e.g., USITC Pub. 3616 at 20 (Exhibit GOK-10).
38 See, e.g., USITC Pub. 3616 at 20 (Exhibit GOK-10).
39 See, e.g., Hearing Transcript at 250 (Exhibit US-122). Ko rea also agrees that this is an appropriate
unit of measurement. See Korea First Submission, para. 91.
40 See, e.g., USITC Pub. 3616 at 20 (Exhibit GOK-10).
41 See, e.g., USITC Pub. 3616 at 20, Tables IV-4, C-1 (Exhibit GOK-10).
42 See, e.g., USITC Pub. 3616 at 21, IV-3 (Exhibit GOK-10).

the ratio in 2000.
43 The ratio of subsidized subject imports to US shipments of DRAM products
increased between 2000 and 2001, and also increased between 2001 and 2002.44

46. In terms of their share of apparent domes tic consumption, subsidized subject imports
increased their market share between 2000 and 2001 while the domestic industry was losing market
share.
45 Both subsidized subject imports and the do mestic industry lost market share between 2001
and 2002.46 Although subsidized subject imports’ market share declined between 2001 and 2002, the
ITC ascertained that subsidized subject imports’ market share in 2002 was still significantly higher
than in 2000. 47 Moreover, subsidized subject imports’ main tained their market share better than the
domestic like product between 2001 and 2002 at a time when growth in demand was slowing.48

47. The ITC also considered the weight to acco rd interim 2003 data. Based on an examination of
monthly shipment data reported by Hynix for the period January 2002 to March 2003, the ITC
determined that the change in the volume of subsid ized subject imports since the filing of the petition
in November 2002 was related to the pendency of th e investigation. Theref ore, the ITC reduced the
weight accorded to the data for the period af ter the filing of the countervailing duty petition ( i.e., the
interim 2003 data). It noted that this finding was not inconsistent with record information showing an
increase in the volume of subsidized subject imports from Korea between 2000 and 2001, after the
October 5, 2000, revocation of the previous antidumping duty order on DRAMs from Korea and the
restraining effects that it may have had on subject imports from the Hynix companies.49

(2) In its final determination, the ITC did not simply list these volume figures and trends. As the
panel recognized in Thailand – H-Beams , it is important for investigating authorities to go an
additional step. The panel in that report observed that “the authorities went beyond a mere recitation
of trends in the abstract and put the import figures into context”.50

(3) There is no abstract way to determine whether a given volume or a given increase in that
volume absolutely or relative to domestic productio n or consumption is “significant”. The answer to
this inquiry will vary depending on the characteristi cs of a particular industry and the conditions of
competition. Thus, it is logical that the SCM Agre ement does not specify any absolute volume or any
increase in volume absolutely or relative to domestic production or consumption that by definition is
“significant”.51

43 See, e.g., USITC Pub. 3616 at 21, IV-3 (Exhibit GOK-10).
44 See, e.g., USITC Pub. 3616 at 21 n.138, Table IV-5 (Exhibit GOK-10).
45 See, e.g., USITC Pub. 3616 at 20, 26, Table C-1 (Exhibit GOK-10).
46 See, e.g., USITC Pub. 3616 at 20, 26, Table C-1 (Exhibit GOK-10).
47 See, e.g., USITC Pub. 3616 at 20, Table C-1 (Exhibit GOK-10).
48 See, e.g., USITC Pub. 3616 at 20, 21, 24, 26 & n.174, Tables IV-4, IV-5, C-1 (Exhibit GOK-10).
49 See, e.g., USITC Pub. 3616 at 21 & nn.140-41, Table IV-3 (Exhibit GOK-10).
50 Thailand – H-Beams, para. 7.170.
51 Indeed, the only purely quantitative measure in the SCM Agreement that has anything to do with
volume is the reference in SCM Agreement Article 11.9 and SCM Agreement Article 15.3 to the volume of
imports that is “not negligible”. Unlike in the counterpart provision of Article 5.8 of the Agreement on
Implementation of Article VI of the Gene ral Agreement on Tariffs and Trade 1994 (“AD Agreement”),
“negligible” is not more specifically defined in either of these SCM Agreement provisions. Even in the context
of the AD Agreement, “negligible” is not defined by reference to domestic market share or production. See AD
Agreement Article 5.8.
Negligibility was never an issue raised by any of th e parties in the underlying agency proceeding. As
the ITC determined, “[n]egligibility is not an issue in this investigatio n because subject imports from Korea
constituted *** per cent of total imports of DRAMs in the most recent twelve months prior to the filing of the
petition for which data are available, and are thus not negligible.” See, e.g. , USITC Pub. 3616 at 14 n.79
(Exhibit GOK-10). Korea does not ma ke any argument that the volume at issue in this case is “negligible”
under either Article 11.9 or 15.3 of the SCM Agreement.

(4) Consistent with the approach endorsed by the panel in Thailand – H-Beams, the ITC took the
additional step and put the import figures and trends into the factual context of the DRAMs industry
and the facts of this particular investigation. Specifically, the ITC explained why the absolute volume
of subsidized subject imports and the increases in that volume both absolutely and relative to
production and consumption in the United States were “significant” in this investigation. The ITC
stated that “[o]ur findings about the volume of subject imports are reinforced by the substantial degree
of substitutability between subject imports and domestic shipments ...”.52

48. Korea does not contest the high degree of subs titutability between subsidized subject imports
and domestic shipments.
53 DRAMs of similar density, access speed, and variety (standard DRAM,
VRAM, SGRAM, etc.) were generally interchangeable regardless of country of fabrication, and
substitutability also existed between similarly confi gured DRAMs of different density, but to a more
limited degree. Interchangeability existed among different varieties of DRAMs and among those with
different addressing modes/access speeds, but often only if substitution occurred during the design of
the electronic system.54

(5) It was appropriate for the ITC to consider s ubstitutability in its volume analysis. Whether a
product is fungible and price sensitive, or whether th e market is highly differentiated can be relevant
in assessing the significance of a given import volume or of a given increase of import volume
absolutely or relative to domestic production or consumption. In the instant investigation, involving a
completely fungible commodity, a given volume or a given increase of import volume absolutely or
relative to domestic production or consumption is more harmful than in other cases involving highly
differentiated products, because it is more likely to ha ve a direct impact on the market particularly in
terms of purchasers’ willingness to switch to or increase their purchasing of subsidized subject
imports, and/or use the low price of subsidized s ubject imports as leverage to extract lower prices.
55
This is a factual determination properly made by the investigating authorities. As the ITC determined,
“[t]he commodity-like nature of domestic and subject imported DRAM products magnifies the ability
of a given volume of imports to impact the domestic market and industry”.56

49. Therefore, the ITC concluded that it was the high degree of substitutability between the
subsidized subject imports and the domestic DRAM products that made the subsidized subject import
volume and the increases in that volume both absolu tely and relative to domestic production and
consumption “significant” in this investigation, even in an industry where increases in volume
measured in billions of bits might be expected.

52 See, e.g., USITC Pub. 3616 at 21 (Exhibit GOK-10).
53 With respect to the degree of interchangeability between subsidized subject imports and domestic
DRAMs products, 19 of 21 responding producers and importers reported that subject and domestic DRAMs
products were generally used interchangeably, and 22 of 23 reported no important differences in product
characteristics or sales conditions between them. The ITC found that throughout the period of investigation,
Hynix produced many of the same product densities as domestic producers. Moreover, subject imports and
domestic DRAM products were sold largely to the same customers and through the same channels of
distribution. See, e.g., USITC Pub. 3616 at 22-23 & nn.145-147, II-1 to II-3 & n.3, II-4 to II-7, Tables II-1 to II-
3, V-3 (Exhibit GOK-10).
54 See, e.g., USITC Pub. 3616 at 22, I-8 to I-10 (Exhibit GOK-10); Hearing Transcript at 36-37, 53, 70-
75, 168-175, 181-182 (Exhibit US-94).
55 See, e.g., Hearing Transcript at 23 (So how do you co mpete? How are we supposed to compete
against subsidies at that level? At least one answer is the following: You have to lower your prices through the
floor to keep up with the subsidized prices of Hyni x.”); 50 (“Competition against subsidized imports from
Hynix has forced Micron to cut prices in order to win orders and defend our business with US customers.”); 72-
75 (“Artificially low prices that can be offered by someone who doesn’t have to pay his own bills are capable of
having a harmful impact well beyond actual sales volume or market share.”) (Exhibit US-94).
56 See, e.g., USITC Pub. 3616 at 21 (Exhibit GOK-10).

 (iv) Was the ITC’s determination of material injury and/or causation based on its
finding that the absolute volume of subsidized subject imports was
“significant”? Was this finding relevan t to its determination? Would the ITC
not have made its determination of materi al injury and/or causation but for its
finding that the absolute volume of subsidized subject imports was
“significant”?

50. In its volume analysis, the ITC found a “signifi cant” absolute volume of subsidized subject
imports as well as “significant” increases in that volume both absolutely and relative to both domestic
production and consumption, as noted above.
57 In other words, it found that the volume of subsidized
subject imports was “significant” based on each of th e possible bases identified in Article 15.2 of the
SCM Agreement. In its analysis of the price e ffects of subsidized subject imports, the ITC found
significant undercutting and significant price depression by the subsidized subject imports. 58 Under
Articles 15.1 and 15.2 of the SCM Agreement, no one or several of these factors can necessarily give
decisive guidance. Given its findings concerning th e volume and price effects of subsidized subject
imports and declines in nearly all of the domes tic industry’s performance indicators, the ITC
concluded that subject imports were having a si gnificant adverse impact on the domestic industry
producing DRAM products. 59 The ITC also examined other known factors to ensure that it did not
attribute injury from those factors to the subsidi zed subject imports, and concluded that the domestic
industry producing DRAM products was materially injured by reason of subject imports from Korea
that Commerce found to be subsidized.60

(6) In other words, the ITC’s finding that the ab solute volume of subsidized subject imports was
“significant” was only one aspect of its volume analysis , and, in turn, only one aspect of its material
injury determination. To the extent that ther e are a number of ways of examining the volume and
price effects of subsidized subject imports unde r SCM Agreement Articles 15.1 and 15.2, and no one
or several of these factors can necessarily give d ecisive guidance, then the viability of the ITC’s
material injury determination does not turn on any individual volume findings.
61 Moreover, the ITC’s
affirmative injury determination relied not only on the multiple findings on volume but also its
analysis of other factors concerning the price effects and impact of the subsidized subject imports on
the domestic industry. Consequently, the ITC’s fi nding of a significant absolute volume of imports
cannot by itself be characterized as “dispositive” of the ITC’s ultimate determination of material
injury by reason of subject imports.

(7) Furthermore, in its final determination in this investigation, the ITC did not separately analyze
“material injury” and “causation”, as the question a ppears to suggest. The ITC conducted what has
been referred to by the agency’s US reviewing courts as a “unitary” analysis. In its “unitary” analysis
in this investigation, the ITC did not ask, in the abstract, whether a domestic industry was
experiencing material injury and then, if th e answer was affirmative, proceed to a second
determination of causation. Instead, the ITC asked whether a domestic industry was being materially

57 See, e.g., USITC Pub. 3616 at 20-21 (Exhibit GOK-10); see also, e.g. , Hearing Transcript at pages
229 to 235 (Exhibit US-94) (containing dialogues between Commissioners Hillman and Koplan and Hynix’s
counsel confirming that the confidential data showed increases in the volume of subsidized subject imports).
58 See, e.g., USITC Pub. 3616 at 22-25 (Exhibit GOK-10).
59 See, e.g., USITC Pub. 3616 at 25-27 (Exhibit GOK-10).
60 See, e.g., USITC Pub. 3616 at 20-27 (Exhibit GOK-10).
61 Thus, Korea is mistaken in its in sistence that only increases in mark et share by subsidized subject
imports matter. The text of Article 15.2 does not contai n any requirement that the volume of subsidized subject
imports increase, let alone that there be a “significant” increase in terms of market share. It is certainly possible
to have significant adverse price effects without any increase in subsidized subject imports, if, for example, the
domestic industry is forced by lower priced subsidized subject imports to lower its price in order to retain its
market share.

injured “by reason of” subject imports as a unified question and then issued a single determination
that subsumed the causation question, as evidenced by the ITC’s explicit findings: “Based on the
record in this investigation, we determine that an industry in the United States is materially injured by
reason of imports of {subsidized DRAMs from Korea}.”62

(8) The SCM Agreement does not require any particular methodology or methodologies to
analyze material injury or causation. The unitary an alysis applied by the ITC in this investigation is
consistent with SCM Agreement Articles 15.1, 15. 2, 15.4, and 15.5 because the material injury
determination was based on a comprehensive analysis of all of the factors set forth in these provisions
concerning the volume, price effects, and impact of subject imports on the domestic industry. No one
or several of these factors was decisive. Rather, th e material injury determination and thus the ITC’s
causation analysis was based on an analysis of these factors collectively.

16. Please comment on Korea’s statement th at there was no displacement of US workers
resulting from Hynix’s Eugene facility “swapping customers” with Hynix’s Korean facility.

51. First, Korea is incorrect that there was a mere “swapping” of customers between Hynix’s
Korean and Eugene facilities while Hynix upgr aded the Eugene facility between July 2001 and
January 2002. As we explained in Confidential US-Figure 1, 63 there is a missing factual predicate to
Korea’s argument – that [BCI: Omitted from public version].

(9) Second, even if Korea’s factual premise were correct, to the extent that Hynix used Korean
workers and production facilities to produce DRAM produc ts for the US market, its actions displaced
US production, US productive capacity, and US workers. During the proceedings before the ITC, the
agency included Hynix Semiconductor Manufacturi ng America in the domestic industry consistent
with the position advocated by Hynix.64 Thus, even if subsidized subject imports were replacing sales
of the Eugene facility, that meant that they were replacing sales of a domestic producer and, inter alia,
displacing US production facilities and employees.65

17. At para. 40 of its oral statement, the US asserts that the ITC determined that “a
significant portion of non-subject imports were Rambus and speciality DRAM products”. On
the basis of a non-confidential presentation/summary of the underlying proprietary
information, please indicate what percentage of non-subject imports were Rambus and
speciality products?

52. In a postconference brief that Hynix and Samsung submitted jointly during the preliminary
phase of the ITC’s investigation, they emphasized that Samsung, whose US shipments of DRAM

62 USITC Pub. 3616 at 3 (Exhibit GOK-10); see also id . at 28 (“For the reasons stated above, we
determine that the domestic industry producing DRAM products is materially injured by reason of subject
imports of DRAM products from Korea that Commerce found to be subsidized.”)
63 See also, e.g. , USITC Pub. 3616 at 21 n.139 (Exhibit GOK-10) (confidential discussion of the
missing factual predicate is omitted from the public version of the last paragraph of the footnote, as indicated by
the asterisks).
64 See, e.g., USITC Pub. 3616 at 12-14 (Exhibit GOK-10).
65 The factual data on the public record of this investigation indicate declines in employment and
employment-related indicia. Over the period 2000 to 2002, the number of hours worked in DRAM fab
operations, hourly wages, and aggregate wages all fell. Af ter two years of extraordin ary losses (a 79.2 per cent
operating loss in 2001, followed by a 50.8 per cent operating loss in 2002), the domestic industry was forced to
lay off workers. US fab operations lost 2,378 production and related workers by the first quarter 2003. In sum,
employment in fab operations by the end of the period of investigation was down 21 per cent from 2002, 18 per
cent from 2001, 17 per cent from 2000, and 6 per cent from interim 2002. See, e.g., USITC Pub. 3616 at 26-27,
Table III-8 (Exhibit GOK-10). Employment-related information concerning assembly and module packaging
operations is confidential.

products were an important portion of US shipme nts of non-subject imports during the period of
investigation, offered products that “differ[ed] substantially from and were not interchangeable with
products made by US producers”.
66 Thus, by Hynix’s own admission, Samsung’s imports were less
likely to compete with US-produced products than Hynix’s imports.

53. Hynix and Samsung further asserted that “[n] o domestic producer makes Rambus chips, to
the best of our knowledge, and Micron’s witness Mr . Sadler acknowledged ... that, ‘there’s only one
significant supplier of RAM Bus {sic} DRAM; that would be Samsung from Korea.’” 67 They noted
“the incontrovertible fact is that Rambus now accounts for a significant percentage of Samsung’s US
sales, ***, as shown in SSI’s questionnaire response.” 68 Hynix and Samsung also emphasized that
“irrefutable evidence exists that a very significant proportion of Samsung’s US sales had no
competition from” Micron, Infineon, and Hynix.69

54. As another example, they noted that another “significant market segment” where Samsung
had not materially injured the domestic industry was in double data rate (“DDR”) DRAM products,
which are technically not specialized products, but leading edge SDRAM products. They pointed to
evidence that Samsung was clearly out in front of other suppliers in terms of DDR penetration.
70 For
all of these reasons, they argued, imports of Sa msung’s Rambus, specialty, and leading edge DRAM
products could not have materially injured the domestic industry.71

55. There was also extensive testimony by witnesses at the Commission’s hearing about the
extent to which non-subject imports consisted of Rambus and specialty DRAM products.
72

(10) The ITC confirmed the validity of these arguments through its data collection efforts.
73 The
responses indicated that a significant percentage of non-subject DRAM products were non-standard
DRAM products, such as Rambus or specialty DRAM products. The exact percentage is confidential.
Korea does not challenge the ITC’s treatment of this information as confidential under either
Article 12.4 or 22.5 of the SCM Agreement. Because the Panel requested a non-confidential
summary of the underlying confidential percentage, we can confirm that of all US shipments of non-
subject imports in 2001, approxima tely one-fifth were Rambus or specialty DRAM products. The
corresponding percentage in 2002 was somewhat higher than in 2001.

(11) Based on this positive evidence, it was appropr iate for both the ITC and Hynix to characterize
the portion of non-subject imports that consisted of Rambus a nd specialty DRAM products as
“significant”.

66 See, e.g., 27 November 2002 Postconference Brief of Hynix and Samsung at 52 (Exhibit US-100)
(emphasis added).
67 See, e.g., 27 November 2002 Postconference Brief of Hynix and Samsung at 50-56 (Exhibit US-100).
68 See, e.g., 27 November 2002 Postconference Brief of Hynix and Samsung at 50 n.69 (Exhibit US-
100) (emphasis added).
69 See, e.g., 27 November 2002 Postconference Brief of Hynix and Samsung at 53 (Exhibit US-100)
(emphasis added).
70 See, e.g., 27 November 2002 Postconference Brief of Hynix and Samsung at 55-56 (Exhibit US-100).
71 See, e.g., 27 November 2002 Postconference Brief of Hynix and Samsung at 50-56 (Exhibit US-100).
72 See, e.g., Hearing Transcript at 168-175, 258-260 (Exhibit US-94).
73 In the questionnaires issued in this investigation, the ITC collected information from importers on
the percentage of imported products and US shipments of DRAM products in 2001 and 2002 that were
“standard” DRAM products, Rambus DRAM products, and other “specialty” DRAM products. Importers were
asked to differentiate the reported information for Rambus DRAM products containing dice fabricated in Korea
by “Samsung” and the portion containing dice fabricated in Korea by “Others” and to differentiate the reported
information for specialty DRAM products containing dice fabricated in Korea by “Samsung” and the portion
containing dice fabricated in Korea by “Others.” See, e.g. , Importer’s Questionnaire at question II-10(a)
(Exhibit GOK-44(b)).

18. On the basis of a non-confidential presen tation/summary of the underlying proprietary
information, please set out the basis for the ITC’ s finding that the volume of subsidized subject
imports was “significant”.

56. In the global DRAMs market, there are only a handful of producers of DRAM products. As
the ITC explained in its final determination, pub licly available information about the DRAM industry
did not provide usable, probative data with respec t to the factors specified in US law (which
correspond to factors under the SCM Agreement).
74 For that reason, the ITC relied on data from
questionnaire responses consistent with its regular practice. 75 Because there are so few players in the
market, there were several inst ances where even aggregated information from three or more
companies was treated as confidential, consistent w ith the ITC’s practice, because one or two of the
companies represented such a large share of the aggr egated information that revealing the aggregated
data would reveal confidential information about individual concerns.76

(12) In the ITC’s final determination in this i nvestigation, the domestic industry’s shipments,
production, and market share data as well as the da ta concerning total appare nt US consumption of
DRAM products is not confidential.77

57. The volume of subject imports and the exact in crease in subject imports both absolutely and
relative to domestic production and consumption is not revealed, however, because this information is
confidential.
78 Because the DOC found that Korean producer Samsung received only de minimis
subsidies, for purposes of the ITC’s final determin ation, there was only one foreign producer of
subject merchandise, Hynix Semiconductor Inc. of Korea. Moreover, during the entire period of
investigation, one importer accounted for at least 75 per cent of all s ubsidized subject imports and/or
two importers combined accounted for at least 90 pe r cent of all subsidized subject imports. Thus,
consistent with ITC practice, the aggregated data we re considered to be conf idential. The trends in
the data concerning subject imports, however, are no t confidential and they were discussed in the
public version of the ITC’s final determination.79

(13) The volume of non-subject imports and their ma rket share also is not revealed in the public
version of the ITC’s final determination, because revealing this information would permit the
derivation of the confidential data concerning subject imports. The trends in the data concerning non-
subject imports and the fact that non-subject imports increased by “a substantially larger amount than
subject imports”, however, are not confidential and are discussed in the public version of the ITC’s
final determination.
80

58. Thus, notwithstanding the constraints of the lim ited number of players in this market, the ITC
endeavored to provide as much information as possible in the public version of its final determination.
As evidenced by the extensive argumentation prov ided by Korea in this proceeding and Korea’s
failure to challenge the ITC’s treatment of the information as confidential under either Article 12.4 or
22.5, we submit that the ITC provided a summar y in sufficient detail to permit a reasonable
understanding of the data.

74 See, e.g., USITC Pub. 3616 at 20 n.134 (Exhibit GOK-10).
75 See, e.g., USITC Pub. 3616 at 20 n.134 (Exhibit GOK-10).
76 See, e.g., US First Submission, paras. 297-298.
77 See, e.g., USITC Pub. 3616 at Table C-1 (Exhibit GOK-10).
78 See, e.g., USITC Pub. 3616 at ii, 20-21, Table C-1 (Exhibit GOK-10).
79 See, e.g., USITC Pub. 3616 at 20-21 (Exhibit GOK-10).
80 See, e.g., USITC Pub. 3616 at 20-21 (Exhibit GOK-10).

(14) The United States appreciates that the Pane l has not asked it to pr ovide any confidential
information in these proceedings. With respect to the Panel’s request that the ITC set out the basis for
the ITC’s finding that the volume of subsidized s ubject imports was “significant” on the basis of a
non-confidential presentation/summary of the underlying proprietary information, unfortunately, there
is not much beyond the response to question 15 above that can be provided without compromising the
obligations of the United States under Article 12 to treat the underlying information as confidential.
We refer the Panel to our response to question 15 above and also observe that throughout the period
of investigation, the level of non-s ubject imports was at least five tim es the level of subject imports.
Given the amount and type of information that wa s already discussed in the public version of the
ITC’s final determination and the US first written submission and the fact that Hynix has provided
certain of its own confidential information to the Panel, we are unable to provide any further summary
without compromising the confidential information re ported by individual importers other than Hynix
during the ITC’s investigation. These importers voluntarily provided their confidential information at
the ITC’s request, notwithstanding the fact that th e overwhelming majority of them were not even
participants in the ITC’s investigation.

19. The US argued at para. 424 of its first written submission that the causal analysis for
countervail was different than the causal analysis for safeguards. The US based its argument on
the different injury thresholds set forth in the SCM and Safeguards Agreements respectively.
How does the injury threshold determine the requisi te degree of causal nexus? In other words,
what is it about the need to find serious injury in the case of safeguards that makes the
causation standard different than in countervail, where material injury need to be established?

59. Before addressing the differences between saf eguards and countervail, it is first necessary to
describe the analysis conducted by the ITC. As explained above in response to Question 15(iv), in its
final determination in the DRAMs investigation, th e ITC did not separately analyze “material injury”
and “causation”, but instead conducted a “unitary” an alysis. The ITC did not ask, in the abstract,
whether a domestic industry was experiencing material injury and then, if the answer was affirmative,
proceed to a second determination of causation. Instead, the ITC asked whether a domestic industry
was being materially injured “by reason of” subject imports as a unified question, and then issued a
single determination that subsumed the causation ques tion. This is evidenced by the ITC’s explicit
findings: “Based on the record in this investig ation, we determine that an industry in the
United States is materially injured by reason of imports of {subsidized DRAMs from Korea}.”
81 We
further explained above why this unitary analysis is consistent with US obligations under the SCM
Agreement.

(15) In ascertaining whether there is a causal nexus between subsidized imports and material
injury to the domestic industry in countervailing dut y investigations, investigating authorities must
examine several factors. Article 15.1 of the SCM Agreement specifies that a final determination shall
be based on “positive evidence” and an “objective ex amination” of the volume of the subsidized
subject imports, their price effects, and their im pact on the domestic industry. The investigating
authority’s obligation to examine these factors is further specified in Articles 15.2 and 15.4 (which
provide further details concerning the investigati ng authority’s examination of the volume, price
effects, and impact of subsidized subject imports on the domestic industry). In addition, Article 15.5
provides that:

81 USITC Pub. 3616 at 3 (Exhibit GOK-10); see also id . at 28 (“For the reasons stated above, we
determine that the domestic industry producing DRAM products is materially injured by reason of subject
imports of DRAM products from Korea that Commerce found to be subsidized.”) In conducting this analysis,
the ITC also examined other known fact ors to ensure that it did not attribute injury from such factors to the
subsidized subject imports.

It must be demonstrated that the subs idized imports are, through the effects 47 of the
subsidies, causing injury within the meani ng of this Agreement. The demonstration
of a causal relationship between the subsidized imports and the injury to the domestic
industry shall be based on an examination of all relevant evidence before the
authorities. The authorities shall also ex amine any known factors other than the
subsidized imports which at the same time are injuring the domestic industry, and the
injuries caused by these other factors must not be attributed to the subsidized imports

Footnote 47 to the SCM Agreement indicates that the “effects” to which the first sentence of
Article 15.5 refers are those set forth in Articles 15.2 and 15.4 ( i.e., the volume, price effects, and
impact of the subsidized subject imports on the domestic industry).

(16) The unitary analysis applied by the ITC in th is investigation integrates the questions of injury
and causation in order to ascertain whether an indust ry has suffered material injury by reason of
subsidized (or dumped) subject imports (in this case the imports from Korea found to be subsidized).
This ensures that the ITC finds that those impact factors that demonstrate injury are in fact attributable
to the imports under investigation.

(17) Turning to the differences between safeguard s and countervail, there are several differences
between the causation analysis specified in th e SCM Agreement and that specified under the
Agreement on Safeguards (Safeguards Agreement).

(18) The first, as previously discussed, is that under Article 15.5 of the SCM Agreement, the
causation analysis in a countervailing duty investiga tion calls for consideration of the “effects” of the
subsidies, and this in turn is related to the anal ysis of the volume, price effects, and impact of
subsidized subject imports. There is no counterpart to this requireme nt in the Safeguards Agreement.
This is because the Safeguards Agreement, in contrast to the SCM Agreement and the AD Agreement,
does not involve unfairly traded imports and their effects.

60. Instead, a different inquiry is specified in th e Safeguards Agreement. Article 4.2(a) of the
Safeguards Agreement provides that

to determine whether increased imports have caused ... serious injury to a domestic
industry under the terms of th is Agreement, the competent authorities shall evaluate
all relevant factors of an objective and quantifiable nature having a bearing on the
situation of that industry, in particular, th e rate and amount of the increase in imports
of the product concerned in absolute and relative terms, the share of the domestic
market taken by increased imports, changes in the level of sales, production,
productivity, capacity utilization, profits and losses, and employment.
Article 4.2(b) further provides that an affirmativ e safeguards determination “shall not be made unless
this investigation demonstrates, on the basis of objective evidence, the exis tence of the causal link
between increased imports of the product concerned and serious injury or threat thereof”.

61. Thus, under the Safeguards Agreement, there is an explicit reference to volume as there is
under the SCM Agreement, but the nexus between the imports and the injury to the domestic industry
under the Safeguards Agreement is explicitly depend ent on the existence of the causal link between
increased imports and the serious injury to the domestic industry. Under Articles 15.1 and 15.2 of the
SCM Agreement, volume is a consideration, but no one or several of the factors mentioned can
necessarily give decisive guidance. Moreover, un like the “serious” injury standard set forth in
Articles 2 and 4 of the Safeguards Agreement, the “m aterial injury” standard of Article 15.5 of the
SCM Agreement contains no requirement that the volu me of subsidized subject imports be increasing

in order for relief to be provided. Under Article 15.5, the volume considerations also include
examination of the absolute and relative volume le vels, as well as increases either absolutely or
relative to either production or consumption in the importing Member. These differences in the
manner of analyzing volume between the Safe guards Agreement and the SCM Agreement are
important, because the analysis of volume is a factor relevant to causation, i.e., whether an industry
has suffered injury by reason of imports, and not simply to the question of injury in the abstract.

62. Another difference is that there is no expr ess requirement under the Safeguards Agreement to
consider the price effects of imports (although compet ent authorities are free to do so). In contrast,
Articles 15.1 and 15.2 of the SCM Ag reement provide that in a count ervailing duty investigation, an
investigating authority “shall consider” the effect of the subsidized imports on prices, although, again,
no one or several of the identified factors can necessarily give decisive guidance.
82

63. Furthermore, although there is an express refe rence in the Safeguards Agreement to some of
the same impact factors that are listed in the SC M Agreement, there are se veral additional factors
listed in the SCM Agreement that have no explic it parallel in the Safeguards Agreement (although
competent authorities are free to consider them). In addition, there is no language in the SCM
Agreement parallel to the Safeguards Agreement concerning the evaluation of factors of an “objective
and quantifiable nature”.

64. Also significant is the fact that the Safe guards Agreement involves a more rigorous injury
standard. Under the Safeguards Agreement, the co mpetent authority examines whether a “product is
being imported into its territory in such incr eased quantities, absolute or relative to domestic
production, and under such conditions as to cause or threaten to cause serious injury to the domestic
industry that produces like or directly competitive products.”
83

65. As defined by Article 4.1(a) of the Sa feguards Agreement, “serious injury” means a
significant overall impairment in the position of a domestic industry. As the Appellate Body
emphasized in US – Lamb Meat , “serious injury” is a much highe r standard than “material injury”. 84
It stated:

We are fortified in our view that the standa rd of ‘serious injury’ in the Agreement on
Safeguards is a very high one when we contr ast this standard with the standard of
‘material injury’ envisaged under the Anti-dumping Agreement, the Agreement on
Subsidies and Countervailing Measures (the ‘SCM Agreement’) and the GATT 1994.
We believe that the word ‘serious’ connotes a much higher standard of injury than the
word ‘material.’ Moreover, we submit that it accords with the object and purpose of
the Agreement on Safeguards that the inju ry standard for the application of a
safeguard measure should be higher than the injury standard for anti-dumping or
countervailing measures ... .
85

82 Korea’s insistence that this pro ceeding is about the relative in crease in the market share of
subsidized subject imports (while largely ignoring the IT C’s findings concerning other factors, especially the
adverse price effects of the subsidized subject imports) may explain the prominence of reports reviewing
safeguards determinations in its arguments to the extent that volume considerations are more prominent in the
text of the Safeguards Agreement.
83 Safeguards Agreement, Article 2.1 (emphasis added).
84 US – Lamb Meat, para. 124. Even in the context of reviewing safeguards determinations, however,
the Appellate Body has stated that Article 4.2(b) of th e Safeguards Agreement does not require that increased
imports alone, in and of themselves, are causing serious injury. See, e.g., US – Wheat Gluten , paras. 70, 79.
The same is true in the context of countervailing and antidumping duty investigations. See, e.g. , US – Hot-
Rolled Steel (Panel), para. 7.260 (reviewing an antidumping duty determination).
85 US – Lamb Meat, para. 124.

(19) Given the Safeguards Agreement’s more rigorous injury standard and the fact that it does not
provide the same level of detail as does the SC M Agreement as to how to ascertain the causal
connection between the imports that are the subjec t of the investigation and the level of injury
sustained by the domestic industry, one would e xpect that examination of causation would be
different in an investigation under the Safe guards Agreement than in a countervailing duty
investigation under the SCM Agreement.

66. Moreover, because the injury thresholds and relevant inquiries in safeguards and
countervailing duty investigations are so different , there is no basis to assume the required nexus
between the imports and the injury to the domestic industry in a safeguards investigation is the same
as the required nexus between the imports and the in jury to the domestic i ndustry in a countervailing
duty investigation.

20. The US noted at the first substantive meeting that Article 15.5 of the SCM Agreement
refers to a “causal relationship” between the subs idized imports and the material injury to the
domestic industry, whereas Article 4.2(b) ref ers to a “causal link” between increased imports
and the serious injury to the domestic industry. Does this explain the alleged difference in the
applicable causation standards? Please explain.

67. As explained in response to Question 19
86, the United States believes that the differences in
the applicable causation standards are due to diffe rences in the relevant inquiries in terms of the
factors expressly identified in the two Agreements. At the Panel’s request, we have considered the
use of the term “a causal relationship” in Article 15.5 of the SCM Agreement as opposed to the term
“the causal link” in Article 4.2(b) of the Safe guards Agreement. Although there may be some
semantic differences between the two terms87, upon further examination of the Agreements, we do not
believe that the use of the different terms captures the difference in the applicable causation standards.

21. The US asserts at para. 424 of its first written submission that “the ‘causal relationship’
of the SCM Agreement is ... different from the ‘causal link’ requirement of the safeguards
Agreement”. At para. 443 of its first writ ten submission, the US refers to the ITC
“demonstrating a causal link”. At para. 419, the US refers to the need to establish a “causal
relationship”. How credible is the US assertion that the term “causal link” differs from the
term “causal relationship” if the US fails to distinguish between those two concepts in its written
submission?

68. As explained in response to Questions 19 a nd 20, above, the causation standard of the SCM
Agreement is different from the causation standard of the Safeguards Agreement.

(20) Although the questions of what nexus between the imports and the material injury to the
domestic industry is required in a countervailing duty investigation, and whether this nexus is lower
than that required in the context of a safeguards investigation, are important conceptually, their
resolution is not pivotal to this proceeding. As is evident from the responses to these questions and
the US first written submission (which refers in para. 419 to the need to establish a “causal
relationship” and in para. 443 to the ITC as “demonstrating a causal link”), this was not a case where

86 See also, US First Submission, para. 424.
87 “Link” is defined as being “[a] connecting part; esp. a thing or person serving to establish or
maintain a connection; a means of connection or communication.” New Shorter Oxford English Dictionary (5th
ed. 2002) at 1604. In contrast, “relationship” is defined as “the state or fact of being related”. Id. at 2520.
“Related” is defined as “[h]aving relation.” Id. “Relation”, in turn, is defined as “the existence or effect of a
connection, correspondence, or contrast between things; that particular way in which one thing stands in
connection with one another; any connection or association conceivable as naturally existing between things ”.
Id. (emphasis added).

only a low-level nexus existed between the subsidized subject imports and the material injury suffered
by the domestic industry. The strength of the nexus between the subsidized subject imports and the
material injury suffered by the domestic industry is further demonstrated by the ITC’s reference to the
“link” between the subsidized s ubject imports and the material injury suffered by the domestic
industry in its final determination in this investiga tion. For example, in its discussion of the domestic
industry’s exporting activities, the ITC concluded that “while the industry’s export performance
played a role in the injury it experienced, it [did] not sever the causal link between subsidized subject
imports and material injury to the domestic industry”.
88

(21) The United States wishes to make clear that the final sentence in paragraph 424 of its first
written submission was not intended to suggest that the respective use of the terms “causal
relationship” and “causal link” in the SCM and Sa feguards Agreements indicated that a different
standard applied. (Other textual differences between the two Agreements, however, do support such a
construction, as noted above). T hose terms were instead merely used as shorthand for the identified
differences in the language of the two Agreements.

22. At para. 424 of its first written submission, the US appears to argue that the ITC
applied the “causal relationship” standard. Is this a correct understanding of the US
argument? Please explain.

69. The US argument is simply that the ITC’s cau sation analysis in the DRAMs investigation was
consistent with the requirements of the SCM Agreement.

(22) The ITC found that the domestic industry pr oducing DRAM products was materially injured
by reason of the subsidized subject imports of DR AM products from Korea. The ITC demonstrated a
causal nexus between the subsidized subject imports of DRAM products from Korea and the material
injury suffered by the domestic industry through it s examination of the volume, price effects, and
impact of the subsidized subject imports on the domestic industry.

23. Please explain how the ITC complied with the causation standard described at para. 427
of the US first written submission. In particular, how did the US “separate and distinguish” the
injurious effects of non-subject imports?

70. Article 15.5 of the SCM Agreement provides that an investigating authority must demonstrate
that subsidized imports are causing material injury based on an examination of all relevant evidence
before the authority. It also provides in relevant part that:

The authorities shall also examine any k nown factors other than the subsidized
imports which at the same time are injuring the domestic industry, and the injuries
caused by these other factors must not be attributed to the subsidized imports.
Factors which may be relevant in this respect include, inter alia
, the volumes and
prices of non-subsidized imports of the produc t in question, contraction in demand or
changes in the patterns of consumption, tr ade restrictive practices of and competition
between the foreign and domestic producers, developments in technology and the
export performance and productivity of the domestic industry. (emphasis added).

71. The Appellate Body, based upon language in the Safeguard s Agreement and in its own
reports reviewing safeguards determ inations, has stated that “in order to comply with the non-
attribution language[,] investigating authorities must make an appropriate assessment of the injury
caused to the domestic industry by the other known factors, and they must separate and distinguish the

88 See, e.g., USITC Pub. 3616 at 27 n.182 (Exhibit GOK-10) (emphasis added).

injurious effects of the [unfair] imports from the injurious effects of those other factors”. 89 Although
the Appellate Body concluded in US – Hot-Rolled Steel that an investigating authority must “identify”
the injury caused by other known factors, neither in that report nor in subsequent ones has the
Appellate Body ever required the investigating au thorities to “isolate” and “precisely quantify” the
injurious effects of the unfair imports, for example, by means of econometrics or modelling.

72. Instead, with respect to the question of wh at it means to “separate and distinguish” the
injurious effects of the unfair imports from the injuri ous effects of other known factors, the Appellate
Body has stated that “[t]his requires a satisfactory explanation of the nature and extent of the injurious
effects of the other factors, as distinguished from the injurious effects of the [unfair] imports”.
90

(23) The Appellate Body has consistently stated that the particular methods and approaches by
which WTO Members choose to carry out the process of separating and distinguishing the injurious
effects of unfair imports from the injurious effects of the other known causal factors are not
prescribed by the WTO agreements. Thus, “provi ded that the investigating authority does not
attribute the injuries of other causal factors to [ unfair] imports, it is free to choose the methodology it
will use in examining the ‘causal relationship’ between [unfair] imports and injury”.
91

(24) In this regard, there is no requirement to ev aluate each or any of the factors referenced in the
last sentence of SCM Agreement Article 15.5 in every countervailing duty investigation. As the panel
found in Thailand – H-Beams regarding the parallel provision of th e AD Agreement, “[t]he text of
Article 3.5 indicates that the list of other possible causal factors enumerated in that provision is
illustrative”. In order for the “known factors” oblig ation to be triggered, the Appellate Body has
explained that the factor at issue must: “(a) be ‘ known’ to the investigating authority; (b) be a factor
‘other than [subsidized] imports’; and (c) be inju ring the domestic industry at the same time as the
dumped imports”.
92 Regarding whether a factor is “known” to the investigating authority, the panel in
Thailand – H-Beams found that other “known factors” would include factors “clearly raised before
the investigating authorities by interested parties in the course of an AD investigation”. 93 It explained
that investigating authorities are not required to seek out such factors on their own initiative.94

73. Whether or not the Panel agrees with Korea th at they qualify as “other known factors”, it is
clear from the ITC’s final determination that th e ITC properly examined non-subject imports; other
reasons for the price declines during the period of investigation; and the domestic industry’s actions.

(25) Non-subject imports: The ITC determined that non-subject imports were in the US market
throughout the period of investigation and at abso lute volumes that were higher than subsidized
subject imports.
95 The ITC also recognized that some domes tic producers were responsible for some
of the non-subject imports.96 Non-subject imports increased market share between 2000 and 2001 and
between 2001 and 2002, an increase the ITC evaluated as a “substantially larger amount than subject
imports”.97 Although the ITC determined that non-subject imports were responsible for “the bulk of
the market share lost by domestic producers during the period of investigation”, it identified two

89 EC – Tube (AB), para. 188 quoting US – Hot-Rolled Steel (AB), para. 226.
90 US – Hot-Rolled Steel (AB), para. 226.
91 EC – Tube (AB), para. 189, relying on US – Hot-Rolled Steel (AB).
92 EC – Tube (AB), para. 175.
94 Id.
95 See, e.g., USITC Pub. 3616 at 21, 25, 27, Tables IV-4, IV-5, C-1 (Exhibit GOK-10).
96 See, e.g., USITC Pub. 3616 at 6, 10-11, 17, 18 (Exhibit GOK-10).
97 See, e.g., USITC Pub. 3616 at 21, Tables IV-4, IV-5, C-1 (Exhibit GOK-10).

reasons why it did not find the volume of non-subj ect imports as significant as otherwise would be
suggested.
98

74. First, after examining the composition of non-subject imports, the ITC determined that a
significant portion of non-subject imports were Rambus and specialty DRAM products for which
domestic producers had no significant productio n during the period of investigation,
99 as discussed in
more detail above in response to question 17. Contrary to Korea’s repeated (and erroneous)
characterization of “near complete intercha ngeability among domestic, non-subject, and subject
imports” or “high substitutability” between subject and non-subject DRAM products, 100 non-subject
imports were not as substitutable with subject or domestic DRAM products because their product mix
was different.

75. Second, even those non-subject imports consis ting of “standard” products did not have the
price effects that subsidized subject imports did durin g the period of investigation. Although there is
no requirement in the SCM Agreement for the investig ating authority to collect such data – and, to
our knowledge, most Members do not collect any pricing data on non-subject imports – the ITC
collected pricing data on non-subject imports in this investigation. Accordin g to that pricing data,
while the frequency with which non-subject impor ts undersold domestically produced DRAM
products increased between 2000 and 2002, the under selling frequency by non-subject imports was
lower than, and increased less than, the underselling frequency of subsidized subject imports between
2000 and 2002.
101 Thus, the ITC reasonably found that because non-subject imports were less
substitutable for domestic DRAM products than we re subsidized subject imports, and because non-
subject imports undersold domestic DRAM products l ess frequently than subsidized subject imports
did, non-subject imports had less of an impact than their absolute and relative volumes might
otherwise have indicated.

76. Moreover, the ITC also found that, while non-subject imports’ market share grew, the
“primary negative impact” on the domestic industry was due to lower prices.
102 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.103

77. Thus, it is clear that in its final determina tion, the ITC provided a satisfactory explanation of
the nature and extent of the injurious effects of non-subject imports (incl uding the volume and prices
of non-subject imports) as distinguished from the injurious effects of the subsidized subject imports.

78. Other possible reasons for the price declines : Based on its analysis of the pricing data, the
Commission ascertained that prices for nearly every pricing product and channel of distribution
declined substantially over the period of investiga tion. It observed that prices for domestic products
and subsidized subject imports followed the same ge neral trends and were ge nerally similar for sales

98 See, e.g., USITC Pub. 3616 at 27 (Exhibit GOK-10).
99 See, e.g., USITC Pub. 3616 at 27 (Exhibit GOK-10).
100 See, e.g., Korea First Submission, para. 166.
101 In particular, non-subject imports undersold the domestic industry in 46.6 per cent of instances in
2000, 47.7 per cent in 2001, and 60.7 per cent in 2002 whereas subsidized subject imports undersold the
domestic industry in 51.0 per cent of instances in 2000, 56.0 per cent in 2001, and 69.8 per cent in 2002.
Consistent with these figures, the ITC concluded that for these “standard” pricing products, subsidized subject
imports undersold non-subject imports in a majority of instances. See, e.g., USITC Pub. 3616 at 25 & n.164
(Exhibit GOK-10). Moreover, even based on a disaggregated analysis of the pricing data on these “standard”
products by brand name and source, subsidized subject imports were the lowest-priced source more often than
DRAM products from any other source, contrary to Korea’s assertions. See, e.g. , USITC Pub. 3616 at 24
(Exhibit GOK-10).
102 See, e.g., USITC Pub. 3616 at 27 (Exhibit GOK-10).
103 See, e.g., USITC Pub. 3616 at 27 (Exhibit GOK-10).

to PC OEMs across all products. More particularly , the product-specific data showed price declines
of 70 to 90 per cent from late 2000 through 2001, a modest rebound in early 2002, then a further
decline over the course of 2002. The ITC identified record evidence indicating that the price decline
in 2001 was the “most severe in history”.
104

79. The ITC examined other possible reasons for these price declines. Regardless of the label
attached to these factors or if a particular factor encompassed “sub-factors”, it is clear from the face of
the ITC’s determination that the ITC examined the product life cycle and the DRAMs business cycle
that is characterized by repeated “boom” and “bust” periods (when supply/capacity, which increased
during the period of investigation, outpaces demand, whose growth slowed at the end of the period of
investigation) as other possible reasons for the price declines.105

80. Based on its evaluation of the record evidence in this investigation, the ITC determined that
“[w]hile slowing demand played some role, together with the operation of the DRAMs business cycle
and product life cycles, the unprecedented severity of the price declines that occurred from 2000 to
2001 and persisted through 2002 indicated that s upplier competition was an important factor”.
106 The
ITC determined that these pricing declines were far greater than the 20 to 30 per cent that Micron or
even the 40 per cent declines that Hynix itself reported would be expected on an annual basis.107

81. The ITC concluded that the increasing freque ncy of underselling by subsidized subject
imports from 2000 to 2002 corresponded with the s ubstantial decline in US prices over those same
years and 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.
108

82. At the first Panel meeting, Korea suggested that Hynix may have misunderstood the ITC’s
question and that Hynix may not have meant that the average annual price decline was 40 per cent.
Positive evidence from the ITC’s record, however, suppor ts the ITC’s finding that the price declines
experienced between 2000 and 2001 were far greater than even Hynix asserted would be the norm. In
addition to the testimony of Hynix’s witness (Mr. Tabrizi) at the ITC’s hearing that has been
previously cited
109, in its brief filed after the ITC’s hearing, Hynix took another opportunity to
respond to the same question that was posed by th e ITC during the hearing. Hynix argued that the
average annual price decline had increased in recent years, and once again estimated that the average
annual decline was approximately 43 per cent. Hynix included historical data on average sales prices,
but even these data did not include any year in wh ich the price declines ranged as high as 90 per cent,
as was the case between 2000 and 2001 acco rding to the ITC’s pricing data.110 In other words, it was
reasonable for the ITC to have drawn the conclusi ons it did based on the ev idence before it, such
evidence including testimony and responses made by Hynix itself.

83. As this discussion shows, the ITC analyzed the nature and the extent of the injurious effects
of other known factors that were affecting prices, and examined those factors in the factual context of
the record in this investigation to ensure that it did not attribute injury from those factors to subsidized
subject imports. The ITC provided a satisfactory explan ation of the nature and extent of the injurious

104 See, e.g., USITC Pub. 3616 at 24 (Exhibit GOK-10).
105 See US First Submission, paras. 454-457, which identify in more detail where in the ITC’s final
determination the examination of these factors took place.
106 See, e.g., USITC Pub. 3616 at 24-25 (Exhibit GOK-10).
107 See, e.g., USITC Pub. 3616 at 24-25, I-11 (Exhibit GOK-10); Hearing Transcript at 157-161, 267-
68 (Exhibit US-94).
108 See, e.g., USITC Pub. 3616 at 24-25 (Exhibit GOK-10).
109 See, e.g., Hearing Transcript at 267-68 (Exhibit US-94).
110 See, e.g., Hynix’s July 2, 2003, Posthearing Brief at Exhibit 1 at 39-41 & Exhibit 19 (Exhibit US-
121).

effects of other factors affecting prices (which could not explain the unprecedented price declines that
took place in the US market) as distinguished from the injurious effects of the subsidized subject
imports (which undersold the domestic industry at high margins and in increasing frequencies). Thus,
the ITC satisfied any requirement to “separate and distinguish” those factors.

84. The domestic industry’s actions : The ITC also examined the domestic industry’s actions.
Korea argues that because Micron focused more on moving from 0.15 micron to 0.11 micron
technology than on moving from 0.15 micron to 0.13 technology, Micron was unable to supply the
market with certain DDR products (256 Mb DDR pr oducts) based on the 0.13 technology and instead
had to supply the market with those products made from 0.15 micron technology (which was more
costly). In fact, the ITC collected pricing data on 256 Mb DDR266 SDRAMs.
111 The record
indicated that volume demand for 256 Mb DDR DRAM s did not develop until the latter half of 2002,
which was after Micron and the domestic industry had sustained their most significant losses. 112
Moreover, as the ITC analyzed the data, it determined that whatever negative effect any particular
decisions may have had on Micron, they “could not explain the harm” experienced by the domestic
industry as a whole.113 This “harm was not isolated to Micron and was due mainly to lower prices”.114

85. Second, even though Hynix never even argued that exports might be another causal factor, the
ITC nonetheless evaluated the domestic industry’s exporting activities.
115 The ITC identified the
“increasingly global nature of the DRAMs market, both in terms of producers as well as
purchasers.”
116 Analyzing the data, the ITC determined that the domestic industry exported “a large
and growing share of its DRAM products production, although it [sold] a substantial portion (the
majority in each of the full years 2000 through 2002) in the US market”. 117 The ITC determined that
“[i]ncreasing export shipments offset to some de gree the slower growth of the industry’s domestic
sales and thereby allowed the industry to utilize mo re capacity than it would otherwise have done.
However, falling unit sales values on export sales ha d a negative impact on the domestic industry’s
profitability. The unit value of the industry’s expor t shipments fell substantially, although somewhat
less than the unit value of th e industry’s domestic sales.”118 Based on this evaluation of the data, the
ITC concluded that “while the industry’s export performance played a role in the injury it
experienced, it [did] not sever the causal link betwee n subsidized subject impor ts and material injury
to the domestic industry”.119

86. Thus, the ITC analyzed the nature and the extent of the injurious effects of domestic
producers’ actions, and evaluated this factor in the factual context of this investigation to ensure that it
did not attribute injury to subsidized subject imports. Because its evaluation was also based on
positive evidence and an objective examination, its anal ysis of this factor is consistent with US
obligations under Articles 15.1 and 15.5.

(26) It is clear that in its examination of other known factors, the ITC went well beyond what has
been found to be sufficient by other WTO panels. For example, in EC – Tube and Pipe Fittings , the
panel examined Brazil’s claim that the EC did not adequately examine non-subject imports from
Poland. The EC found that Brazil’s claim was no t substantiated, apparently based on data from

111 See, e.g., USITC Pub. 3616 at V-3, Table V-10 (pricing product 5) (Exhibit GOK-10).
112 See, e.g., Micron’s Posthearing Brief at Exhibit 3 at 19-21 (Exhibit US-96).
113 See, e.g., USITC Pub. 3616 at 26 n.177 (Exhibit GOK-10).
114 See, e.g., USITC Pub. 3616 at 26 n.177 (Exhibit GOK-10).
115 See, e.g., USITC Pub. 3616 at 27 n.182 (Exhibit GOK-10). The ITC noted in its determination that
Hynix had not argued that exports were another causal factor.
116 See, e.g., USITC Pub. 3616 at 18 (Exhibit GOK-10).
117 See, e.g., USITC Pub. 3616 at 27 n.182 (Exhibit GOK-10).
118 See, e.g., USITC Pub. 3616 at 27 n.182 (Exhibit GOK-10).
119 See, e.g., USITC Pub. 3616 at 27 n.182 (Exhibit GOK-10).

Eurostat that was not susceptible to verification beca use it was not available at such a level of detail.
The panel reiterated that Poland “was not under inv estigation for selling the product at dumped prices
in the EC market”. The panel found that although the investigating authority was required during the
course of the investigation to satisfy itself as to the accuracy of the information supplied by interested
parties upon which its findings were based, the EC ’s consideration of Brazil’s argument was enough,
and there was no inconsistency with Articles 3.1, 3.5 or 6.6 of the AD Agreement.
120 The fact that the
ITC’s collection and evaluation of data concerning other known factors in this investigation exceeded
the level considered adequate by the pa nel reviewing the EC’s determination in EC – Tube and Pipe
Fittings provides yet another reason for this Panel to find that the ITC’s analysis of “other known
factors” was consistent with the SCM Agreement.

24. How do the causation standards of “causa l link” (Article 4.2(b) of the Safeguards
Agreement) and “causal relationship” (Article 15.5 of the SCM Agreement) differ in practice?

87. As explained in the answers to Questions 19 and 20, above, the injury threshold and the
relevant inquiry in a safeguards investigation differ from those involved in a countervailing duty
investigation.

(27) These differences in the injury thresholds and relevant inquiries may have practical effects on
the findings in those investigations. Or, depending on the factual circumstances of the investigations,
the causation findings may not be so divergent. For example, there is no explicit requirement to
consider price effects in a safeguards investigation, but there may be safeguards investigations where
adverse price effects are relevant to the causal inquiry.

25. Korea noted at the first substantive meet ing that the Argentina-Footwear panel, in
respect of a safeguards dispute, stated (para. 8.238) that an absence of coincidence, or
correlation, “would create serious doubts as to th e existence of a causal link, and would require
a very compelling analysis of why causation still is present” (italics in original). Does the US
consider that such panel ruling is not relevant to the present proceedings because it concerns
causation in the context of safeguards, and not countervail? Please explain.

88. Korea relies heavily in its first written submission on the Argentina – Footwear panel report,
in which the panel stated in the context of revi ewing a safeguards determination that an absence of
coincidence or correlation “would create serious doubts as to the existence of a causal link, and would
require a very compelling analysis of why causation still is present”. In a coincidence analysis, an
authority examines trends in imports and overall tre nds in factors specified in the agreement, as well
as their absolute levels; it ascertains whether, for exam ple, movements or trends in factors concerning
the imports correspond temporally with overall movement s or trends in factors showing injury to the
domestic industry.

89. In the answers to Questions 19 and 20, above, we set forth our concerns with the use of the
Safeguards Agreement and reports reviewing safeguards determinations as tools for interpreting the
provisions of the SCM Agreement concerning counte rvailing duty measures. Nevertheless, whether
this Panel reviews the ITC’s material injury determ ination through the lens of a correlation analysis,
the lens of a conditions-of-competition analysis, or some other lens, it is clear that the ITC’s causation
analysis in the DRAMs investigation was consistent with US obligations under the SCM Agreement.

(28) For example, as discussed in more detail in our first written submission, there was a
correlation between the volume (and the increases both absolutely and relative to both domestic
production and consumption) of the subsidized subject imports and the adverse impact on the
domestic industry. There was a correlation betwee n the significant underselling by the subsidized

120 EC – Tube (Panel), para. 7.389.

subject imports and the significant price declines experienced during the period of investigation.
There was also a correlation between these price declines and the adverse impact on the domestic
industry.

(29) In its causation analysis, the ITC also t ook into account several conditions of competition,
including, for example: the importance of price in this industry; the high degree of substitutability
between subsidized subject imports and domestically produced DRAM products; and the existence of
a commodity-type market that reacts quickly to underselling through the rapid dissemination of
pricing information to a limited number of purchas ers including through such mechanisms as most-
favoured-customer, best-price clauses, and other informal arrangements.

(30) Thus, unlike the situation described in the Argentina – Footwear case, in the DRAMs
investigation there was a very clear nexus between the injury suffered by the domestic industry and
the volume, price effects, and impact of the subs idized subject imports. The DRAMs investigation
was not a case in which the subsidized subject imports were priced higher than the domestic
industry’s prices such that any depression in US pr ices could not be correlated to the subsidized
subject imports. Nor is this a case in which the vol ume, market share, or ratio to domestic production
of the subsidized subject imports was in decline. The contrasting volume and price trends of subject
imports and the condition of the domestic DRAM i ndustry over the period of investigation provided
compelling evidence of the material injury caused by the subsidized subject imports from Korea.

(31) We also note that Korea’s reliance on Argentina – Footwear ignores the more recent report in
US – Steel Safeguards , in which the panel upheld certain as pects of the US safeguard measures
concerning steel products, notwithstanding that for some of these measures, as the panel in that case
noted, the United States “did not perform a coincidence analysis”.
121

(32) The panel in US – Steel Safeguards recognized that previous reports reviewing safeguards
determinations had found that a coincidence findi ng was “central” to a causation analysis under the
Safeguards Agreement. 122 At the same time, that panel r ecognized that Safeguards Agreement
Article 4.2(b) does not prescribe the use of any particular methods or analytical tools for
demonstrating causation, leaving it up to the compet ent authority to decide the method it considers
most appropriate to determine causation.
123 In that report, the panel recognized that “there may be
cases, for instance, where a competent authority does not undertake a coincidence analysis or does so,
but the facts do not support a finding of causal link on the basis of such an analysis”. 124 The panel
found that in such situations, “reference could be made to the conditions of competition as between
imports and domestic products with a view to providing a compelling explanation, in the absence of
coincidence, as to why a causal link nevertheless exists”. 125 Notably the panel continued that in its
view, “consideration of the conditions of competiti on of the market in which the relevant imported
and domestic products are being sold may generally prove insightful in respect of the issue of the
causal relationship between increased imports and serious injury”. 126 As the panel further explained,
“the more complicated the factual situation, the mo re important it is for a number of factors to be
taken into consideration”.127 The panel then upheld, subject to its review of the ITC’s non-attribution

analysis, the ITC’s causation analysis concerning hot -rolled bar and rebar that the panel ascertained
was not based on a coincidence analysis but on a conditions of competition analysis.128

(33) Thus, while a correlation analysis may be one tool that an authority may employ to
demonstrate causation, it is not the only such tool. A conditions of competition analysis is another
tool that has been found to be adequate to de monstrate causation by a panel reviewing a safeguards
determination.

128 US – Steel Safeguards (Panel) , paras. 10.424 to 10.430, 10.470 to 10.477. The Appellate Body
explicitly declined to make findings on the issue of causation, and thus neither reversed nor upheld these
findings. US – Steel Safeguards (AB), para. 483.

ANNEX E-5

THE REPUBLIC OF KOREA’S ANSWERS TO THE PANEL QUESTIONS
FOLLOWING THE SECOND SUBSTANTIVE MEETING

6 August 2004

Each party may address/comment on questions addressed to the other party

A. QUESTIONS TO US

1. Please comment on the following paragra phs of Korea's Opening Statement at the
Second Substantive Meeting of the Panel:

 § 20: the hypothetical of Hynix being the lowest price twice, but 98 other suppliers
being each the lowest price once;

Comment

1. During the second meeting with the Panel, the United States expressed frustration with not
being able to respond directly to this hypothetical. Korea would like to note three points. First, any
frustration is entirely within the control of the Unite d States: it has the information that it is unwilling
to disclose.

2. Second, the main point of this hypothetical is in fact a public fact: the United States
methodology focused on the individual
 effect of each supplier, and never assessed the collective
effective of all of these other suppliers. In our view , such an explanation is inherently defective and
insufficient. It is simply not possible to asses s the reasonableness of the US explanation without
knowing the magnitude of the collective effect of these other suppliers charging lower prices than
subject imports.

3. Third, there is strong support for the propos ition that panels may draw adverse inferences
against those parties that possess but withhold ke y information. The WTO Appellate Body has
previously found that panels have “the legal authority and the discretion to draw inferences from the
facts before it,” including facts a party chooses not to release.
1

4. The ITC in the first instance, and the United States now before this Panel, has decided to
ignore or withhold the necessary information on the collective magnitude and effect of these others
sources. This Panel may presume the information has been withheld because it is not favourable.

 § 22 : the ITC's focus on relatively small chan ges in the frequency of underselling, while
ignoring dramatically different volumes of non-subject imports;

1 Canada – Aircraft (AB), para. 203; see also US – Wheat Gluten (AB), paras. 171-172.

Comment:

5. See discussion below in response to Question 14.

 § 26 : the issue of correlation, in the context of causal nexus: what changed from 2000,
when the domestic DRAMS industry had record performance, and 2001, when price fell
and industry profits plunged;

Comment

6. No comment.

 § 33 : the selection of data on record about product substitutability;

Comment

7. No comment.

 § 34 : the portion of subject imports underselling in 2001 was 5% of the market,
whereas the portion of non-subject imports underselling was 27% of the market;

Comment

8. See discussion in answer to Question 14 below.

 § 37 : the ITC does not explain why the effect of supplier competition was attributed to
the small change in subject import market share, rather than the much larger market
share of non-subject imports and the rate at which non-subject imports were gaining
market share;

Comment

9. No comment.

 § 39 : the key missing point – non-attribution required the ITC to separate and
distinguish the role of subject import s upply sources from domestic and non-subject
import supply sources;

Comment

10. No comment.

 § 49 : appearance of control where none exists, nothing suggests that the GOK would
intervene in day-to-day credit decisions of various banks;

Comment

11. No comment.

 § 76 : the argument regarding the size of Citibank's loan.

Comment

12. No comment.

2. With regard to para. 32 of the Second Wri tten Submission of the US, are the "actions
that directly evinced entrustment and direction" those set forth in section 1(a) – (c) of that
submission? Is the US arguing that there is both direct and indirect evidence of entrustment /
direction? Why is mandatory participation under the CRPA included as an "action [...] that
directly evinced entrustment and direction", when at para. 33 of its replies to the Panel's
questions, the US asserts that "[t]he DOC did not find that mandatory participation under the
CRPA constituted, in and of itself, entrustment or direction"?

Comment

13. No comment.

3. Please comment on Korea's argument (para. 128 of Korea's Second Written
Submission) that "there is simply no evidence i ndicating that Shinhan, Hana, or KorAm bank
were entrusted or directed by the GOK to extend th eir portion of the syndicated loan". What
evidence of entrustment / direction did the US rely on in respect of the participation of these
banks in the syndicated loan? Even if one does not accept Korea's argument on the need for
specific banks to be directed to perform specific tasks, is it not necessary for an investigating
authority to point to evidence showing that creditors included in the finding of
entrustment/direction were actually entrusted / directed ?

Comment

14. No comment.

4. At para. 18 of its Answers to the Panel's questions, the US asserts that "The DOC did
not find specifically that government-owned a nd controlled private entities 'were instruments
through which the GOK entrusted/directed other entities'. Rather, the DOC found, for
example, that the GOK exercised control over Hynix’s creditors generally through government-
owned and controlled banks, because those banks played a dominant role in the Creditors
Councils." Does the US response mean that co ntrol over creditors through government-owned
and controlled private entities is not relevant to the issue of entrustment / direction of those
creditors? How does the concept of the exercise of control over creditors differ from the notion
of entrustment / direction of those creditors?

Comment

15. No comment.

5. At para. 20 of the US Answers to Panel questions, the US asserts that "the motives of
private investors are not germane" to the issue of entrustment/direction. At para. 24, however,
the US argument of entrustment/direction reli es on private creditors knowing what was good
for them. If entrustment/direction is based on creditors knowing what is good for them, doesn't
that imply an analysis of their motives?

Comment

16. No comment.

6. At para. 33 of its Answers to the Panel's questions, the US asserts that "[t]he DOC did
not find that mandatory participation under the CRPA constituted, in and of itself, entrustment
or direction. Rather, the DOC found that the GOK used the CRPA as a vehicle to effectuate the
GOK’s Hynix policy." Does this mean that the alleged mandatory nature of the CRPA is not
relevant to the issue of entrustment / direction? How does the notion of entrusting / directing
someone to carry out an objective differ from using something as a vehicle to have someone
effectuate that objective? If the October 2001 restructuring had occurred in isolation, would
the CRPA in and of itself have been sufficient evidence of entrustment /direction?

Comment

17. No comment.

7. What was the evidence of entrustment / direction in respect of Pusan?

Comment:

18. In over 140 pages of the DOC’s unpub lished Decision Memorandum, Pusan Bank is
mentioned once, and only in reference to Hynix’s argument that:

it is clear that the privately-controlled banks (including Citibank, Koram Bank,
Shinhan Bank, Hana Bank, Pusan Bank, Kookmin Bank, Hous ing and Commercial
Bank (“H&CB”), Korea First Bank (“KFB”), and KEB) acted independently of GOK
influence when participating in the Hynix loans and restructurings. Hynix contends
that the record evidence relating to these banks (if any was provided at all) either 1)

does not provide substantial evidence of GOK influence or control over the banks; 2)
had nothing to do with Hynix; 3) did not refer specifically to the May or October
restructuring, or the syndicated bank loan; 4) was based only on speculation; or 5)
actually confirms the independence of certain banks. Thus, Hynix argues that loans or
other funds from these banks cannot be deem ed a financial contribution, and that
these banks’ should be used as benchmarks.
2

8. Regarding Figure US-4, the different proporti ons of council vote held by group A, B and
C creditors in respect of the October 2001 restructuring do not add up to 100%. Please explain.

Comment:

19. No comment.

9. What was the basis for the DOC's findin g that Citibank was not entrusted / directed?

Comment

20. At the second meeting with the Panel, the United States responded that since Citibank was a
foreign bank, it did not find it to be entrusted or di rected. This approach to Citibank, however, is at
odds with the treatment of other Korean banks.

21. First, several of the other Korean banks were essentially controlled by foreign investors. The
evidence before the DOC showed, for example, th at KFB had 51 per cent foreign ownership as of
1999, Kookmin had 64.5 per cent foreign owners hip as of June 2001, H&CB had 65.4 per cent
foreign ownership by June 2001, KorAm had 59.5 per cent foreign ownership by 2000 (JP Morgan
holding over 40 per cent by itself), KEB had 58. 8 per cent foreign ownership as of June 2001,
Shinhan had 52.1 per cent foreign ownership by 2000, and Hana had 52 per cent foreign ownership by
the end of 2001.
3 If the control by foreign interests distinguished Citibank, this foreign control should
have distinguished other Korean banks as well.

22. Second, the DOC disregarded Citibank as a benchmark by citing alle ged influence by the
GOK, and Citibank’s desire to build its business in Korea. This rationale is in fact quite similar to the
DOC argument for why other Korean banks were deemed entrusted or directed. The DOC rationale is
internally inconsistent.

10. In its Second Written Submission to the Pa nel, the US refers to the Kookmin Prospectus
in a section entitled "GOK Ownership and Contro l of Hynix's creditors". Does the US argue
that GOK's 15.1% shareholding resulted in GOK control over Kookmin?

2 DOC Decision Memorandum at 40 (emphasis added).
3 See Hynix’s Initial Arguments on: The Independence of Korean Banks Hynix Paper on the
Independence of Korean Banks, pp. 10-28, GOK Exhibit 25.

Comment:

23. We note that foreign investors owned 64.5 per cent of Kookmin Bank as of
June 20014, and this substantial forei gn ownership is part of the Kookmin’s independence. No
reasonable and objective authority would put such stress on the 15% GOK ownership, and so little
attention on the 64.5 per cent foreign investor ownership.

 We also note that the Kookmin prospectus refe rs to the possibility of influence, and never
refers to any GOK control over lending decisions. Indeed, the Kookmin prospectus must be
contrasted to the actual behavior of Kookmin in the October 2001 restructuring, where Kookmin
refused to make any new loans to Hynix. A r easonable authority would not have concluded that
Kookmin was “controlled” or even entrusted or directed based on these facts.

11. In reply to question 1 from the Panel, the US stated that "the constituent parts of the
subsidy programme ... included the 800 billion wo n syndicated loan, the KDB Fast Track bond
program, the May 2001 restructuring package, the October 2001 restructuring package, and the
benefits conferred by these and other financial contributions, such as D/A loans, made as part of
the Hynix bailout." Please specify an exhaustive list of the constituent parts of the alleged
subsidy programme.

Comment

24. No comment.

12. Please comment on para. 182 of Korea's Second Written Submission. In particular,
does the US accept that the Hynix-only impo rt figures are a reasonable proxy for the total
import figures ?

Comment

25. We note that that the Hynix figures are a reasonable proxy. The Panel can use either the
Korean presentation of these figures, or the US presentation of these figures, since they are both
basically the same. The problem with the US figures is that the United States did not bother to extend
the analysis to quantify the amount of non-subject imports, which is a critical part of the analysis.

26. We also note given the US choice not to provi de either the actual information or some other
non-confidential version, the Panel has both the le gal authority and discretion to draw adverse
inferences.
5 In this case, the Panel can simply draw the inference that the Hynix figures are in fact a
reasonable proxy.

13. Please comment on Korea's argument regarding the difference between the US
submission and the ITC report regarding the exte nt of the "portion" speciality products (para.
211 of Korea's Second Written Submission). Pl ease comment on Korea's argument regarding

4 Id. at 19.
5 See response to panel question 1 above.

the ITC's use of "value estimates" in respect of those speciality products (para. 212 of Korea's
Second Written Submission).

Comment

27. No comment.

14. In response to Question 23 from the Pane l, the US asserts that although the ITC
determined that non-subject imports were responsi ble for “the bulk of the market share lost by
domestic producers during the period of investigat ion,” it identified two reasons why it did not
find the volume of non-subject imports as signif icant as otherwise would be suggested. First,
the ITC referred to the composition of non-subject imports. Second, the ITC referred to the
price effects of non-subject imports. How do these two factors qualify the loss of market share ?
Wouldn't any impact resulting from the composit ion and price effects of non-subject imports
already be reflected in the market share data? For example, wouldn't the fact that non-subject
imports include speciality products mean that they would have taken less market share from
domestic producers, and that this consideration is therefore already reflected in the market
share data?

Comment

28. We do not believe the ITC r easons adequately address the significance of the volume of non-
subject imports. At the second meeting with the Panel, the United States argued that it did address the
volume and increase in non-subject imports. But acknowledging a fact is not the same thing as
analyzing that fact in an objective way. Even if we completely exclude the 20 per cent of the non-
subject imports that the US contends do not compet e (a characterization and argument with which we
disagree), the remaining 80 per cent still dwarf the si ze and trends of the subject imports. It is not
reasonable or logical to stress modest differences in the frequency of underselling while not taking
into account the relative volumes of the subject versus non-subject imports.

29. Moreover, this logical defect is even more egregious given the ITC reason for stressing the
small volume of subject imports. All of the ITC statements about commodity products and
substitutability apply with equal force to that portion of the non-subject imports than are not
RAMBUS or speciality products. If the small volume of subject import could have a more significant
effect, that logic applies with even greater force to the much larger volume of non-subject imports that
were growing faster than the subject imports.

30. Consider the following summary of the data before the ITC:

 2000
 2001 2002
Market Share6 – Subject
Market Share – Non-Subject

6.7
49.9
9.0
56.7
8.9
60.4
Frequency in Underselling7 – Subject
Frequency in Underselling – Non-Subject

51.0
46.6
56.0
47.7
69.8
60.7

6 See GOK First Submission, at para 250. The same analysis would apply if instead of the Hynix
figures, we were to use the figures from US Figure 1, as summarized in the US Second Submission.
7 See GOK Exhibit 5, ITC Determination at page 25, fn. 164.

31. The ITC stressed two points: the frequency of underselling was “lower”, and “increased
less”, and therefore the trends in non-subject imports could be ignored. For each of these two points,
the price data alone and then the price data viewed in light of the disparate volumes present interesting
contrasts. We submit that the conclusions drawn fr om this data, although technically correct, are in
fact fundamentally misleading, biased, and unsatisfactory.

32. At the outset, we note the basic point about ma rket share. The growing market share of non-
subject imports confirms the extent to which pr ice competition by non-subject imports was having a
dramatic effect in the market place. But objectively viewed, the data shows even more.

33. The ITC stressed the somewhat “lower” freque ncy of underselling: 4.4 per cent points in
2000, 8.3 percentage points in 2001, and 9.1 per cent points in 2002. But this focus on the difference
obscures the fact that both subject and non-subject imports had a high frequency of underselling.
Moreover, since this still high frequency of non-s ubject underselling applied to much greater volume
of non-subject imports, the overall impact of non-subj ect imports would be much greater. Consider
the relative volumes of imports that were underselli ng the domestic prices (in other words, the market
share multiplied by the frequency of underselling
8):

 2000 2001 2002
Market Share9 – Subject
Market Share – Non-Subject
3.4
23.3
5.0
27.0
6.2
36.7

34. Thus, although the subject im ports might have been underselling with a slightly greater
frequency, that small difference in frequency is dwarfed by the much higher volume of non-subject
imports. The volume of non-subject imports that were underselling was consistently five times larger
than subject imports. The subject imports underse lling the domestic price gained only 2.8 percentage
points of market share, while the non-subject imports underselling the domestic price gained
13.4 percentage points. Thus the absolute magnitude and the change in magnitude were much greater
for non-subject imports.

35. The ITC also stressed the so mewhat lower rate of increase in underselling: subject imports
underselling increased 18.8 per cent points, but n on-subject imports increased only 14.1 percentage
points over the 2000 to 2002 period. This difference is actually quite modest, since both subject and
non-subjects increased their frequency of underselling. Relative to the fact that both subject and non-
subject imports were underselling more than 60 per cent of the time, this change in the rate of increase
of only 4.7 percentage points is small.

36. But once again, the ITC focus on this small change is oblivious to the much larger absolute
volume (60% for non-subject in 2002, versus only 9% for subject) and increas e in market share (a
gain of 10.5 percentage points versus 2.2%) by non-subject imports.

37. The ITC’s superficial conclusions simply do not do justice to the underlying data. Rather
than analyse the data carefully, the ITC drew c onclusions designed to confirm an outcome. This
approach is not sufficient to satisfy the obligations of Article 15.

8 Note that these percentages come from the ITC data on pricing, they focus on the commodity
products, not the speciality products.
9 Market share multiplied by the frequency of underselling.

15. Did the DOC conclude that the KEB was entrusted or directed to (a) participate in the
Syndicated Loan and/or (b) seek a loan limit waiver?

Comment

38. The DOC did not make any distinction between these two different steps in its
determination.10 Indeed, it is not really clear that the DOC ever attempted to accomplish the first step.
The DOC evidence related only to the loan limit waiv er, not the decision to participate in the loan
itself.11

16. To what extent was the USD 1.35 billion GD S offering taken into account by the DOC
with respect to its finding of entrustment / direction of Hynix's creditors?

Comment

39. The DOC did not consider the $ 1.25 billion GDS offering in the context of entrustment or
direction. Rather, the DOC discussed this issue only in the context of “benefit”, in determining
whether the May 2001 GDS could serve as an equi ty benchmark for the October 2001 debt-equity
swap.12 Remarkably, the DOC did acknowledge that a successful GDS did represent a contingency
upon which other actions under the Ma y restructuring were dependent, 13 but the implication was
simply ignored.

17. Was the participation by "small" credito rs accounting for approximately 20% of the
debt in the October Restructuring countervailed?

Comment

40. Yes. DOC countervailed the entire amount of the October restructuring not represented by
Citibank, including all debt forgiveness, debt-for-equ ity swaps, and maturity extensions effected by
all participants in the process.

B. QUESTIONS TO KOREA

18. Please comment on the following paragraphs of the Opening Statement of the US at the
Second Substantive Meeting of the Panel:

 § 24 : Korea's concession that the tran sactions made under the KFB Fast Track
Programme constitute financial contributio n, but could still serve as benchmarks for
determining benefit;

10 DOC Decision Memorandum at 50.
11 Id. at 51-52.
12 Id. at 90-91.
13 Id. at 20.

Answer:

41. The United States is mischaracterizing the Ko rean argument about the KDB Programme. The
United States is blurring the distinction between th e bonds held by the KDB itself, and the bonds that
were held by the other Korean private banks. Un der this programme, banks that already held the
Hynix bonds had to buy back and refinance some portion of those bonds. Most of the bonds were
then repackaged and sold to i nvestors as “investments trusts” (like mutual funds). The KDB itself
held only a portion of the bonds.

42. Our point at page 15 of the Korean answer to Panel Question #23 was simple: even if the
KDB is deemed to be a public body and thus the bonds held by the KDB coul d constitute a financial
contribution, there are other
 banks holding identical bonds on identical terms. We do not agree with
the US premise that the other private Korean banks were entrusted or directed, an argument developed
extensively in the Korean submissions in this proceeding. Thus if any of the private Korean banks are
found not to have been entrusted or directed, tho se banks could and should ser ve as benchmarks for
that small portion of the bonds held by the KDB.

43. Moreover, for both the bonds held by the KDB and the bonds held by private Korean banks,
the comparison of interest rates to market interest rates confirms the lack of any benefit. If the market
price for three-year debt in Korea is about 7 per cent in 2001, then it is hard to see how refinancing
bonds at interest rates ranging from 10.99 to 12.56 per cent can constitute a benefit.

 § 45 : no requirement in the SCM Agreement that the period examined for the subsidies
inquiry cover the entire period examined for the injury determination.

Answer

44. Although we agree there is no such specific requirement in the SCM Agreement, this US
argument mischaracterizes the Korean argument. We never attack the DOC finding for investigating
a period shorter than the ITC period, or attack the ITC for examining a period longer than the DOC
period.

45. Our point is simply that proper causation analysis takes into account the existence or non-
existence of temporal correlation. In this case, we do not believe any temporal correlation exists, and
this absence of correlation calls into serious ques tion any ITC conclusion about the existence of a
causal link.

19. With reference to Figure US-1, does Korea contest the DOC's conclusion that each of
the Group B creditors were controlled by GOK? Please explain.

Answer

46. Yes. We disagree with several aspects of this conclusion.

47. First, we disagree with the US premise that ownership alone constitutes control for purposes
of any analysis under Article 1.l(a). As Korea has argued, the Public Fund Oversight Act and the
Memoranda of Understanding ensured that those banks in which the GOK had to take ownership
would continue to make day-to-day decisions independently.

48. Second, we further disagree with the assumpti on that the capacity to control implies the same
meaning as entrustment or direction. In the ca se of a private body (such as a bank) in which the
government has a shareholding (minority or majority) allowing it to exercise a decisive influence over
the private body's operations, the mere fact that the private body is under government control is not
sufficient to presume that a measure adopted by that body has been "directed" by the government. It
must be established that the government has actua lly exercised its control to direct the bank to
participate in the measure. The other interpretation w ould -- in plain contradiction with the text of
Article 1.1(a)(1)(iv) of SCM Agreement -- repla ce a more explicit standard of "direction" with a
looser “control” standard.

49. Third, the KEB was not controlled by th e GOK. Two different GOK entities each held a
portion smaller than the largest shareholder, Commerzbank. When Commerzbank made its
substantial investment in KEB, it asserted significant managerial control, including assigning a
Commerzbank official to chair the loan committ ee. Given the relative shareholding and the
operational control by Commerzbank officials, it makes no sense to conclude the KEB was being
controlled by the GOK.

50. Fourth, the KFB was not controlled by the GOK. Newbridge Capital, a US financial firm,
held 51% of the shares. Like Commerzbank, once Newbridge made this investment it assumed
significant managerial control over day-to-day operations. Indeed, the US argument itself
demonstrates the degree of KFB independence, even in the face of alleged pressures from others to
take certain actions.

51. Fifth, we note that the investment trusts a nd financing companies are not owned or controlled
by the GOK. This is a new aspect of the US argument, not part of the original DOC rationale.

52. Finally, the US assertion of “control” is at odds with the actual experience of many of these
banks to decide not to participate in various parts of the Hynix restructuring. With respect to the
December 2000 syndicated loan, since Hynix was tryi ng to obtain 1000 billion won, but could only
arrange 800 billion in loans, why did not Seoul Bank, Peace Bank, Kwangju Bank, or Kyongnam
Bank make up some or all of the shortfall, if th ey were being controlled by the GOK? These banks,
like the others, were making their own decisions. Si milarly, the United States characterized all banks
as participating in the October 2001 restructuring, even those that refused to provide any new funds or
even agree to debt-equity swaps (Kwangju Ba nk, Kyongnam Bank, and KFB). If these banks were
“controlled”, why did they not provide the new loans that Hynix needed?

20. With reference to Figure US-1, does Korea contest the DOC's conclusion that each of
the Group B creditors were entrusted or directed by GOK ? Please explain.

Answer

53. Yes, we disagree with this conclusion as well. The discussion in answer to Question 19
above applies here as well. We would note the following additional points.

54. First, the conclusion of entrustment or direction makes absolutely no sense for the
October 2001 restructuring. KFB and several othe rs refused any new loans, and instead exercised
Option No. 3 and then mediation to obtain the li quidation value of their outstanding debt, in
accordance with the value set by the Arthur Anders on valuation report. That such banks would be
deemed entrusted or directed is not supported by any plausible review of the facts.

55. Even for the other banks, the DOC drew conc lusions based on extremely limited evidence.
Notwithstanding its claim not to be relying upon ge neral pronouncements, that is precisely what the
United States uses as “evidence” for the October restructuring. Against this evidence, the DOC never
analyzed or acknowledged the strong self-interest these banks had in trying to make restructuring
work. Those banks with the largest stakes had the most to lose from bankruptcy and the most to gain
from debt restructuring. This self-interest is a crucial part of the overall context and evidence that any
reasonable authority would have considered. The problem in this case is that the DOC analysis put on
blinders, and deemed any considerati on of existing debt to be irrationa l and therefore irrelevant. This
approach makes no sense as an effort to understand th e decisions of Korean investors operating in a
Korean market context.

56. Second, the conclusion of entrustment or direction also does not make any sense for the
May 2001 restructuring. The May 2001 restructur ing involved primarily rolling over existing debt at
basically the same interest rates. By doing so, th e banks allowed Hynix to obtain $1.25 billion in new
equity capital, which was conditioned on the banks agreeing to roll over existing debt rather than
absorbing the new equity capital to pay off existing debt. The foreign investors wanted new money to
be used for capital spending and R& D spending, not just allowing ex isting Korean creditors to cash
out. Against this context, the US “evidence” of entrustment or direction simply does not allow a
reasonable and objective authority to draw the conclusions that the DOC drew in this case.

57. We have addressed the failings in the US evid ence of entrustment or di rection at length, and
we need not repeat those arguments here. Those arguments apply to the entities listed in Group B, as
well as the others in Group C. The US approach pa ys too little attention to the legal standard of
Article 1.1(a)(1)(iv), too little atte ntion to the compelling reasons th e banks had for participating in
the Hynix restructuring, and too much attention to sensational remarks by Korean politicians.

ANNEX E-6

ANSWERS OF THE UNITED STATES
TO THE PANEL’S QUESTIONS TO THE PARTIES FOLLOWING
THE SECOND SUBSTANTIVE MEETING OF THE PANEL

6 August 2004

Table of Reports Cited in These Answers

EC – Tube or Pipe Fittings

European Communities – Anti-Dumping Duties on Malleable Cast
Iron Tube or Pipe Fittings from Brazil, WT/DS219/R, Report of the
Panel, as modified by the Appellate Body, adopted 18 August 2003

US – Wheat Gluten

United States – Definitive Safeguard Measures on Imports of Wheat
Gluten from the European Communities , WT/DS166/AB/R, Report
of the Appellate Body adopted 19 January 2001

Brazil – Aircraft

Brazil – Export Financing Programme for Aircraft , Panel Report,
WT/DS46/R, Report of the Panel, as modified by the Appellate Body
Report on other grounds, adopted 20 August 1999

US – Softwood Lumber

United States – Final Countervailing Duty Determination with
respect to Certain Softwood Lumber from Canada ,
WT/DS257/AB/R, Report of the Appellate Body adopted
14 February, 2004

US – Oil Country Tubular
Goods Sunset Reviews

United States – Sunset Reviews of Anti-Dumping Measures on Oil
Country Tubular Goods from Argentina, WT/DS268/R, Report of the
Panel circulated 16 July 2004 (unadopted)

Argentina – Hides and
Leather

Argentina – Measures Affecting th e Export of Bovine Hides and the
Import of Finished Leather , WT/DS155/R, Report of the Panel
adopted 16 February 2001

US – DRAMS

United States – Anti-Dumping Duty on Dynamic Random Access
Memory Semiconductors (DRAMS) of One Megabit or Above from
Korea, WT/DS99/R, Report of the Panel adopted 19 March 1999

A. QUESTIONS TO THE UNITED STATES

1. Please comment on the following paragr aphs of Korea’s Opening Statement at the
Second Substantive Meeting of the Panel:

 § 20: the hypothetical of Hynix being the lowest price twice, but 98 other suppliers
being each the lowest price once;

1. Korea’s hypothetical is not informative with resp ect to the issues raised in this dispute. To
appreciate why this is so, it is first necessary to put the ITC’s price undercutting analysis in context.

2. The ITC compared the weighted-average pr ice of subsidized subject imports with the
weighted-average price of the domestic industry’s US shipments for eight specific standard DRAM
products over a monthly time series spanning th e period from January 2000 to March 2003. These
comparisons comported with the relevant e nquiry under Articles 15.1 and 15.2 of the Agreement on
Subsidies and Countervailing Measures (SCM Agreement) concerning the price effects of the
subsidized subject imports on the domestic indus try. Based on these comparisons, the ITC found
increasing undercutting at high margins (often greater than 20 per cent) in the majority of instances by
subsidized subject imports. It also found consis tent and substantial underc utting for particular high-
revenue products to particular channels of distribution at specific points during the period of
investigation.
1

3. Although there is no requirement in the SCM Agreement to do so given the facts of the
DRAMs investigation, in response to Hynix’s argumen t, the ITC also examined the pricing data on a
disaggregated basis by both brand name and by source. The ITC determined that even a
disaggregated analysis showed that subject DRAM products from Hynix’s Korean facilities were the
lowest-priced product “more often than DRAM products from any other source”.
2 In other words, the
disaggregated analysis of the pricing data confirmed the ITC’s finding of significant price
undercutting by subsidized subject imports.

4. Korea seeks to divert the Panel’s atte ntion from the significance of these findings by
introducing hypotheticals concerning the ITC’s disaggregated pricing analysis that have no bearing on
the facts of the DRAMs investigation.
3 In its initial hypothetical, Korea assumed that there were 10
sales for which different suppliers were competing, that Hynix was the lowest priced source 2 times,
and that eight other suppliers were the lo west priced source on at least one occasion. 4 Korea has now
modified the hypothetical such that Hynix was the lowest priced source twice, but 98 other suppliers
were each the lowest priced source once.5

5. These hypotheticals are meaningless for several r easons. First, Korea overlooks the fact that
subsidized imports from Korea were the lowest-pri ced source in a disaggregated analysis of the

1 See, e.g., USITC Pub. 3616 at 23-24, V-3 to V-9 & Tables V-1 to V-18 (Exhibit GOK-10).
2 See, e.g., USITC Pub. 3616 at 24 (Exhibit GOK-10).
3 Korea also calls attention to the fact that the ITC did not reveal in the public version of its opinion the
percentage of times that Hynix was the lowest-priced so urce under the disaggregated analysis of the pricing
data. As we have pointed out in our previous s ubmissions, however, Korea has not challenged the ITC’s
treatment of this information as confidential, nor has Korea challenged the ITC’s summary of this confidential
information as inadequate under Articles 12.4 or 22.5 of the SCM Agreement. This information is confidential
because it identifies the percentage of times that a single subject foreig n producer, Hynix of Korea, was the
lowest-priced supplier in the US market based on a disaggregated analysis of the pricing data.
4 First Written Submission by the Republic of Korea, 19 April 2004, para. 161 [hereinafter “Korea First
Submission”].
5 Second Substantive Meeting; Oral Statement of the Government of Korea , 21 July 2004, para. 20
[hereinafter “Korea Second Oral Statement”].

pricing data. This was so notwithstanding the fact that the DRAMs investigation involved an industry
where there were thousands of transactions (and not only one hundred transactions, as Korea posits)
over a 39-month investigation period and where the pr oducts for which the pricing data were gathered
were highly substitutable for one another.

6. Second, the ITC’s disaggregated pricing analys is was based on the data of only those few key
suppliers to the US market. By contrast, Korea’s second hypothetical is predicated on the existence of
99 suppliers, a scenario which even Korea admits is “extreme”.
6 In the view of the United States, it is
more than extreme; it is completely divorced from the factual record of the DRAMs investigation.

7. The ITC’s disaggregated analysis of the pric ing data was based on an examination of reported
pricing information concerning eight sources of DRAM products from the four major players in the
US market: (1) subsidized subject imports produced by Hynix in Korea; (2) Hynix-brand products
produced in the United States; (3) Micron-brand products produced in non-subject countries;
(4) Micron-brand products produced in the United St ates; (5) Infineon-brand products produced in
non-subject countries; (6) Infineon-brand products produced in the United States; (7) non-subject
Samsung-brand products produced in Korea; and (8) Samsung-brand products produced in the United
States.
7 Subsidized subject imports were the lowest-priced product more often than any of these other
sources, and at a magnitude that was greater than wo uld be expected if each source were the lowest-
priced product one-eighth of the time, as might be expected in an industry like this involving a
fungible product and the rapid dissem ination of pricing information. 8 The disaggregated analysis
showed that subsidized subject imports were the lowest-priced DRAM products more often than any
of the major US sources of DRAM products. Hyni x’s subsidized subject imports were the lowest
priced more often than Micron’s US DRAM products ; Hynix’s subsidized subject imports were the
lowest priced more often than Infineon’s US DRAM products; Hynix’s subsidized subject imports
were the lowest priced more often than Sa msung’s US DRAM products; and finally, Hynix’s
subsidized subject imports were the lowest pric ed more often than DRAM products from Hynix’s
own Eugene, Oregon facility.

8. Thus, based on both the weighted-average comparison of prices for subsidized subject
imports and US shipments of DRAM products by the domestic industry and the disaggregated
analysis of the pricing data, the ITC reasonabl y concluded that subsidized subject imports
significantly undercut the domestic industry’s DRAM prices.

9. To the extent that Korea is also arguing in the above-referenced paragraph 20 that the prices
of non-subject imports are somehow relevant to the ITC’s analysis of price undercutting by subsidized
subject imports, Korea fails to identify any requireme nt in Article 15.2 of the SCM Agreement for an
investigating authority to examine non-subject imports in that context. An investigating authority’s
analysis of price undercutting pursuant to the plain text of Article 15.2 is limited to a comparison of
the subsidized subject imports and the like product produced by the domestic industry.

7 See First Written Submission of the United States of America , May 21, 2004, para. 375 [hereinafter
“US First Submission”]. Hynix conced ed early in the DRAMs investigation that there were only four major
players globally and in the US market (Samsung, Micron, Hynix, and Infineon, in decreasing order of
magnitude). See, e.g., Conference Transcript at 117-118 (Exhibit US-95).
8 Indeed, the ITC’s disaggregated analysis was co nservative. There were instances where certain
products were the only source in the market ( e.g., because other firms were not yet capable of selling those
products) and yet they were considered the lowest-priced source. Had th e ITC only considered instances where
there were sales from more than one brand-name source in a particular month, the undercutting frequency for
subsidized subject imports based on a disaggregated analysis by both brand name and by source would have
been even higher.

10. Nevertheless, the ITC did examine the weighted average price of non-subject imports. It
determined that the undercutting frequency by non- subject imports was lower than, and increased less
than, the undercutting frequency of subsidized subject imports during the period of investigation. 9
The ITC found that “subject imports undersold non-subject imports in a majority of instances”. 10
Moreover, notwithstanding Korea’s focus throughout this dispute on Samsung’s non-subject imports,
the ITC’s disaggregated analysis of the pricing data revealed that subsidized subject imports produced
by Hynix in Korea were more often priced lo wer than Samsung’s non-subject imports. Similar
statements can also be made with respect to the other two major non-subject import suppliers (Micron
and Infineon). Hynix’s subsidized subject imports were the lowest priced more often than Micron’s
non-subject DRAM products, and Hynix’s subsidized subject imports were the lowest priced more
often than Infineon’s non-subject DRAM products.

 § 22: the ITC’s focus on relatively small changes in the frequency of underselling, while
ignoring dramatically different volumes of non-subject imports;

11. There are a number of flaws with Korea’s ar guments in the referen ced paragraph 22. Once
again, Korea attempts to challenge the adequacy of the ITC’s pri ce undercutting analysis by shifting
the discussion to non-subject imports. However, as noted above, the focus of Article 15.2 of the SCM
Agreement is on the significance of the price underc utting by subsidized subject imports, not non-
subject imports.

12. There is simply no way that a reasonable i nvestigating authority c ould have dismissed the
significance of the undercutting by subsidized subject imports in the DRAMs investigation, regardless
of the price undercutting by non-subject imports. Subsidized subject imports undercut the domestic
like product in the majority of comparisons examined at high margins (often over 20 per cent), and at
increasing frequencies. Undercutting occurred with respect to each of the major channels of
distribution (PC OEMs, non-PC OEMs, and non-OEMs ). Undercutting was also consistent and
substantial for particular high-revenue products to particular channels of distribution at specific points
during the period of investigation. For example, by the end of the period examined, undercutting to
PC OEMs – the most significant sales channel – reached 100 per cent of all price comparisons.
11 As
the ITC explained, such significant price dispariti es would not normally be expected in a commodity-
type market, and these high margins could be expect ed to have “particularly deleterious effects on
domestic prices”.12

13. Furthermore, this is one of many instan ces where Korea discusses th e record evidence in a
vacuum. Korea appears to argue in favour of th e adoption of some abstract notion of what is
“substantial” or “significant”, while eschewing the relationship of facts to the particular circumstances
in which they arise. For exam ple, Korea speaks of “relatively small changes in the frequency of
underselling” and “dramatically different volumes of non-subject imports”. Nowhere, however, does
the SCM Agreement identify any “change” in unde rcutting or in volume as by definition “small”,
“dramatically different”, or any other such term. This is entirely logical, because in the abstract, no
such change can automatically be regarded as “significant” or “insignificant”.

14. As we have emphasized in our submissi ons to the Panel, and as the ITC emphasized
throughout its final determination, it is only when the factual data are examined in terms of the
conditions of competition in the particular industry that an otherwise abstract figure or change has
meaning. The ITC’s determination evinced how the agency put the facts of the DRAMs investigation

9 See, e.g., USITC Pub. 3616 at 25 & n.164 (Exhibit GOK-10).
10 See, e.g., USITC Pub. 3616 at 25 n.164 (Exhibit GOK-10).
11 See, e.g., USITC Pub. 3616 at 23-24 & nn.155, 165 (Exhibit GOK-10).
12 See, e.g., USITC Pub. 3616 at 24 (Exhibit GOK-10).

in context.
13 By contrast, in its submissions to the Pane l, Korea has opted to examine the evidence in
a vacuum and to characterize trends concerning su bsidized subject imports as “small” and trends
concerning non-subject imports as “dramatic”.

15. Korea ignores the following key facts about the DRAMs industry: (1) subsidized subject
imports were highly substitutable for domestic ally produced DRAMs products; (2) demand was
inelastic so that lower prices were unlikely to generate additional purchases; and (3) information
about the prices that a handful of suppliers we re offering was transmitted extremely quickly to
purchasers, including through mechanisms such as mo st favoured customer and best price clauses and
other such mechanisms.
14 Thus, a given volume or a given volume increase of DRAM product
imports – absolutely or relative to domestic production or consumpti on – has a greater effect on the
domestic industry than it would for a highly differentiated product.

16. In the DRAMs investigation, the prici ng data showed extreme price undercutting by
subsidized subject imports. In addition, other r ecord evidence reinforced these findings, showing that
even purchasers that may have been reluctant to commit large portions of their purchases to the
financially troubled Hynix freely used Hynix’s low-priced offers as a bargaining tool to ratchet down
prices from other potential suppliers.
15 Articles 15.1 and 15.2 of the SCM Agreement, which employ
disjunctive language, plainly contemplate that ther e may be cases where there are significant adverse
price effects without any increase in subject import volume, such as where the domestic industry
lowers its prices in order to retain market share.
16

17. In the referenced paragraph, Korea also re peats its mistaken assertion that the ITC “ignored”
non-subject import volume. The ITC’s determinati on demonstrates otherwise. The ITC explicitly
recognized that non-subject imports “increased mark et share by a substantially larger amount than
subject imports”. At the same time, however, th e ITC found that “subject import volume and pricing
were themselves sufficient to have a significant negative impact on the domestic industry”.17

18. The ITC considered the possible effects of the increasing volumes of non-subject imports on
domestic prices. Whereas it is our understanding that most other Members do not even collect pricing
information on non-subject imports, the ITC collected such data in the DRAMs investigation. The
ITC examined the pricing data concerning non-subj ect imports by means of a weighted-comparison
and by means of a disaggregated analysis by brand-name and by source. It recognized that there were
instances where non-subject imports undersold the domestic industry.
18 The ITC also looked at the
timing, magnitude, and frequency of the underc utting by non-subject imports. The undercutting
frequency by non-subject imports was lower than, and increased less than, the undercutting frequency
of subject imports during the period of investiga tion. In particular, while subject imports were
increasing their undercutting frequency between 2000 a nd 2001 from 51 per cent of all observations
to 56 per cent of all observations, the frequency of undercutting by non-subject imports was fairly
steady at 46.6 per cent of instances in 2000, and 47.7 per cent in 2001. Undercutting by subsidized

13 See, e.g., Answers of the United States of America to the Panel’s Questions to the Parties Following
the First Substantive Meeting of the Panel , 9 July 2004 (Answer to Question 20) [hereinafter “US Answers to
Panel Questions”], regarding how the ITC examined the volume data in context; Second Written Submission of
the United States, 9 July 2004, paras. 73 to 91 [hereinafter “US Second Submission”], regarding how the ITC
examined the price effects of the subsidized subject imports in context.
14 See, e.g., USITC Pub. 3616 at 22-23 (Exhibit GOK-10).
15 See, e.g., Hearing Transcript at 23, 50, 72-75 (Exhibit US-94).
16 Of course, the ITC found, based upon record evid ence, that there were signi ficant increases in the
volume of subsidized subject imports during the time period covered by the DRAMs investigation.
17 See, e.g., USITC Pub. 3616 at 21 (Exhibit GOK-10).
18 See, e.g., USITC Pub. 3616 at 25 (Exhibit GOK-10).

subject imports increased to 69.8 per cent of a ll observations in 2002, about 10 percentage points
higher than the percentage for non-subject imports in that year (60.7 per cent).19

19. In other words, between 2000 and 2001, when DRAMs prices experienced historically
unprecedented severe declines
20, it was subsidized subject impor ts whose undercutting frequency was
increasing, not non-subject imports. Moreover, the frequency and magnitude of undercutting by
subject imports continued to increase into 2002, as prices continued to decline.21 The ITC determined
that “[w]hile non-subject import market share gr ew, the primary negative impact on the domestic
industry was due to lower prices, and on this point , subject imports, themselves, were large enough
and priced low enough to have a significant impact. This is so regardless of the adverse effects
caused by non-subject imports”. 22 The ITC evaluated the growing market share of non-subject
imports and concluded that while non-subject impor ts were having “adverse effects” on the domestic
industry, subsidized subject imports themselves were having a significant negative impact on the
domestic industry.23

20. There is nothing in the SCM Agreement that prevents an investigating authority from
determining that subsidized subj ect imports materially injure th e domestic industry, even if non-
subject imports are larger, or increase by a larger amount, than subject imports. Nor is there any
language in the SCM Agreement that prevents an investigating authority from making an affirmative
determination if the volume or price effects of non- subject imports are also having an adverse impact
on the domestic industry.

21. Indeed, the plain text of Article 15.5 cont emplates that a domestic industry may be being
injured by one or more other known factors at the same time that subject imports are materially
injuring the domestic industry. It specifies that “The authorities shall also examine any known factors
other than the subsidized imports which at the same time are injuring the domestic industry ... .”
(emphasis added). The key is simply that the inves tigating authority is to take care not to attribute
injury caused by the other factors to the subsidized subject imports.
24

22. Even though Korea purports to agree with the United States that the SCM Agreement does
not require that subject imports be the “sole cause” of the material injury experienced by the domestic
industry
25, the reality is otherwise. Korea’s argume nts related to the referenced paragraph 22 do
amount to an assertion that subject imports must be the sole cause in orde r for an investigating
authority to make an affirmative injury determin ation. In order to obscure the harm caused by
subsidized subject imports, Korea insists on comparing the relative size of the volume of subject
imports and non-subject imports and their relative volume increases, as well as the level of
undercutting attributable to each.

23. The discussion above demonstrates how the ITC carefully examined non-subject imports to
identify the nature and extent of any injurious e ffects that non-subject imports were having on the
domestic industry in order to ensure that it did not a ttribute injury from other factors to the subsidized
subject imports. Korea simply has failed to dem onstrate that a reasonable investigating authority
could not have come to the same conclusion based on the record evidence as did the ITC.

19 See, e.g., USITC Pub. 3616 at 25 & n.164 (Exhibit GOK-10).
20 See, e.g., USITC Pub. 3616 at 24 (Exhibit GOK-10).
21 See, e.g., USITC Pub. 3616 at 24, 25 & n.164 (Exhibit GOK-10).
22 See, e.g., USITC Pub. 3616 at 27 (Exhibit GOK-10).
23 See, e.g., USITC Pub. 3616 at 27 (Exhibit GOK-10).
24 SCM Agreement, Article 15.5.
25 See, e.g., Korea Second Oral Statement, para. 28.

 § 26: the issue of correlation, in the context of causal nexus: what changed from 2000,
when the domestic DRAMS industry had record performance, and 2001, when price fell
and industry profits plunged;

24. As we have explained in previous submi ssions, Korea’s assertions concerning the lack of
correlation between subsidized subject imports and the material injury suffered by the domestic
industry are predicated largely on Korea’s err oneous assumption that “volume” does not mean the
volume of subsidized subject imports, but instead means the volume of all Hynix-brand products
being sold in the US market, including those produced at Hynix’s Eugene, Oregon plant. Korea does
so because it is only by reference to brand-name volum e that Korea is able to make the assertion that
the volume of Hynix brand products was “declining” during the period of investigation. However,
Hynix products produced in Oregon were not subsid ized subject imports; instead, they were the
production of the US domestic industry.

25. Korea has failed to demonstrate that a br and-name analysis was required under the SCM
Agreement given the facts of the DRAMs investigation. Once the focus is shifted from Korea’s faulty
“brand” enquiry to the relevant enquiry under the SCM Agreement, the causal nexus between the
subsidized subject imports and the material injury experienced by the domestic industry is readily
apparent.

26. In the referenced paragraph 26, Korea focu ses on changes between 2000 and 2001. However,
as is evident from the final determination, the ITC examined all of the factors described in Articles
15.1, 15.2, and 15.4 of the SCM Agreement based on the thirty-nine months between January 2000
and March 2003. The ITC also discussed the intervening changes be tween 2000 and 2001 and
between 2001 and 2002, and it also examined the data for the first quarter of (“interim”) 2002 and
interim 2003.
26

27. Drawn from Figure US-5 is a summary of the data pertaining to the period between January
2000 and March 2003, as well as a summary of the data for the period between 2000 and 2001:

During the Period of Investigation
27

Subsidized subject imports

 Volume significant in absolute terms, increased significantly absolutely and relative to both
US. production and consumption (20-21, 24).
 Significant price undercutting at increasing frequencies and at increasingly higher margins,
reaching 100 per cent for key products by 2002 (22-24 & n.164).
 Significant price depression, and other factors could not explain the price depression (24-25).
 Hynix is uncreditworthy (1/1/2000 to 6/30/20 02); unequityworthy at 10/2001 debt-to-equity
swap; DOC determined Hynix total net counterva ilable subsidy for 1/1/2001 to 6/30/2002 of
approximately $2 billion, or a subsidy rate of 44.71 per cent ad valorem (19).

Domestic industry

 Increasing US shipments in terms of bits, but d eclining unit values; declining market share.
 Small and relatively stable end-of-period inventories.
 Overall decline in average production capacity and wafer starts.
 Increase in capacity utilization, but capacity utilization is expected to be high in this industry.

26 See, e.g., USITC Pub. 3616 at 20 to 28, Table C-1 (Exhibit GOK-10).
27 References in parentheses are to the corresponding pages of the report of the ITC’s final
determination, USITC Pub. 3616 (Exhibit GOK-10).

 Idling of certain production capacity and defe rral of upgrades and expansions of production
facilities and equipment.
 Four US producers ceased DRAM production in the United States.
 Increasing production quantities in terms of bits, but increases were smaller than increases in
apparent US consumption.
 General declines in employment and wa ges over the period of investigation.
 Due to a large decline in unit sales value, ope rating income declined from a $2.7 billion profit
in 2000 to a loss in excess of $2 billion in 2001, and losses continued into 2002.
 As a ratio to net sales, operating income wa s 32.2 per cent in 2000 then became a loss of
79.2 per cent in 2001 and a loss of 50.8 per cen t in 2002; declines in capital expenditures (26-
27, Tables III-1, III-5, IV-4, C-1).

Between 2000 and 2001

Subsidized subject imports

 Volume significant in absolute terms, signi ficant increases (absolutely, relative to US
production/consumption) (20-21).
 Significant undercutting, no matter how data viewed, frequency increasing from 51 to 56 %
(22-24 & n.164).
 Precipitous price declines across all products, most severe price decline in DRAMs history
(24).
 Anti-Dumping order on DRAM products fro m Hynix/predecessors revoked 10/5/2000 (19 &
n.141).
 Hynix is uncreditworthy (1/1/2000 to 6/30/2002), unequityworthy at 10/2001 debt-to-equity
swap (19).

Domestic industry

 Increased US shipments.
 Declining unit values.
 Declining market shares.
 Small and relatively stable end-of-period inventories.
 Declining average production capacity.
 Declining wafer starts.
 Slight increase in capacity utilization, but capac ity utilization is expected to be high in this
industry.
 Certain production capacity idled.
 Upgrades and expansions of producti on facilities and equipment deferred.
 Declines in production quantities measured in bits.
 General declines in employment and wages.
 Due to a large decline in unit sales value, ope rating income declined from a $2.7 billion profit
in 2000 to a loss in excess of $2 billion in 2001.
 As a ratio to net sales, operating income was 32.2 per cent in 2000 then became a loss of 79.2
per cent in 2001.
 Declines in capital expenditures (26-27, Table C-1).

28. As these summaries and the additional data summaries provided in Figure US-5 illustrate,
there was a very strong correlation between the volume (and the increases both absolutely and relative
to both domestic production and cons umption) of the subsidized s ubject imports and the adverse
impact on the domestic industry. There was a strong correlation between the significant price
undercutting by the subsidized subject imports a nd the significant price declines experienced during
the period of investigation. There was a str ong correlation between these price declines and the

adverse impact on the domestic industry. There was also a strong correlation between the timing of
the subsidies and the adverse impact on the domestic industry.

29. Indeed, to provide a further example of the changes occurring between 2000 and 2001 using
even more detailed data, we refer the Panel to the pricing data summaries in the ITC’s report. As the
ITC recognized, PC manufacturers accounted for the v ast majority of the revenues on sales of DRAM
modules.
28 In 2000, Hynix’s subsidized subject impor ts in this sales channel were priced above the
domestic industry in fully 75 per cent of all observed price comparisons. 29 In 2001, this pattern
reversed itself profoundly when Hynix undercut the domestic industry’s module prices to this
important segment in 68 per cent of all price comparisons. 30 Price undercutting for modules to PC
OEMs remained at 68 per cent of observations in 2002.31

 § 33: the selection of data on record about product substitutability;

30. Contrary to Korea’s suggestion, the ITC was not selective in its use of record data concerning
product substitutability. The ITC found that w ithin the DRAM product family, DRAM products of
similar density, access speed, and variety (regular DRAM, VRAM, SGRAM, etc.) were generally
interchangeable “regardless of the country of fabrication”.
32 Thus, standard products of a similar
density, access speed, and variety were substitutable with one another regardless of country source.
However, as explained by the ITC, a more limited degree of interchangeability existed among
different varieties of DRAMs, as well as am ong those with different addressing modes/access
speeds.33 Thus, substitutability was more limited and had to occur at the design phase for DRAM
products of different varieties or different addressing modes.

31. Whereas the record indicated, and the ITC found, that nearly all of the subject imports and
domestically produced DRAM products were standard DRAM products
34, such was not the case with
non-subject imports. The ITC collected data on the percentage of imported products and US
shipments of DRAM products in 2001 and 2002 that were “standard” DRAM products, Rambus
DRAM products, and other “specialty” DRAM produc ts. Questionnaire respondents were asked to
differentiate the reported information for Rambus DRAM products containing dice fabricated in
Korea by “Samsung” and the portion containing di ce fabricated in Korea by “others”, and to
differentiate the reported information for specia lty DRAM products containing dice fabricated in
Korea by “Samsung” and the portion containing dice fabricated in Korea by “Others”. 35 As the
United States previously explained 36, Rambus or specialty DRAM products accounted for
approximately one-fifth of all US shipments of non-subject imports in 2001. The corresponding
percentage in 2002 was somewhat higher than in 2001.

28 See, e.g., USITC Pub. 3616 at 15, 23 n.152 (Exhibit GOK-10).
29 See, e.g., USITC Pub. 3616 at Table V-18 (Exhibit GOK-10).
30 See, e.g., USITC Pub. 3616 at Table V-18 (Exhibit GOK-10).
31 See, e.g., USITC Pub. 3616 at Table V-18 (Exhibit GOK-10).
32 See, e.g., USITC Pub. 3616 at 17 (Exhibit GOK-10). As an example, the ITC’s report explained that
a 64 Mb SDRAM manufactured by the subject Korean producer should be fully interchangeable with a similarly
configured domestically produced device, as well as with a non-subject import. Id. at I-10.
33 This substitution often must occur during the design phase of the electronic system. For example,
according to numerous questionnaire responses, after an electronic system ha s been designed to operate using a
specific type of DRAM, the system would likely not function optimally using a different type. Similarly, with
regard to the different addressing modes, once a memory controller has been designed for an electronic system,
a specific addressing mode such as EDO or SDRAM has also been designed in. See, e.g., USITC Pub. 3616 at
17, I-10 (Exhibit GOK-10).
34 See, e.g., USITC Pub. 3616 at 22, 23 n.151, I-10, II-6, Table II-2 (Exhibit GOK-10).
35 See, e.g., Importers’ Questionnaire at question II-10(a) (Exhibit GOK-44(b)).
36 US Answers to Panel Questions (Answer to Question 17).

32. Thus, some of the non-subject imports sold in the US market during the period of
investigation consisted of standard DRAM products that were in terchangeable with the corresponding
standard DRAM products produced by Hynix in its subject Korean facilities and by the domestic
industry. However, a significant portion of non-su bject imports were non-standard products. The
ITC appropriately took into account these factual differences.

33. In this regard, we reiterate that the eight pr oducts for which pricing data was collected in the
DRAMs investigation were a ll “standard” DRAM products. 37 No pricing information was collected
on RAMBUS or specialty DRAM products. Thus, when the ITC determined that subsidized subject
imports were undercutting the domestic industry at greater frequencies and at larger margins than
non-subject imports, this conclusion was based on the pricing behaviour for standard DRAM
products.38

 § 34: the portion of subject imports underselling in 2001 was 5% of the market,
whereas the portion of non-subject imports underselling was 27% of the market;

34. There are several flaws with the arguments set fo rth in paragraph 34. First, Korea insists that
a comparison of the undercutting by subsidized subj ect imports with a comparison of the undercutting
by non-subject imports is somehow required. Ho wever, such a comparison has no foundation in the
text of the SCM Agreement or in reports reviewing countervailing or antidumping duty
determinations.

35. The ITC separately examined the volume and price effects of subsidized subject imports and
their impact on the domestic industry, and it separately examined the volume and price effects of non-
subject imports on the domestic industry, but there was no requirement that it compare and contrast
the two. So long as subsidized subject imports th emselves materially injured the domestic industry,
and so long as the ITC provided a satisfactory explan ation of the nature and extent of the injurious
effects non-subject imports were ha ving on the domestic industry to show that it did not attribute the
injury from other factors to the subsidized subject imports, then the ITC complied with the
requirement to separate and distinguish other factor s, as articulated by the Appellate Body. As
explained above in the response to the question concerning paragraph 22, the ITC satisfied these
requirements in the DRAMs investigation.

36. The second flaw in Korea’s arguments relates to the figures cited by Korea. As we have
explained in prior submissions, Korea’s calculation of Hynix’s market share is skewed.
39 I n
paragraph 34, Korea compounds the problem by netting its flawed market share figure for Hynix and
the market share for the domestic industry from 100 per cent and calling the remainder the market
share for non-subject imports (even though it is at best the market share for non-subject imports plus
the market share for importers of subsidized subject imports other than Hynix).

37. Korea then multiplies these su spect market share figures by the frequency with which those
imports undersold the domestic industry’s DRAM products and pronounces that in 2001 the portion
of undercutting by subject imports was about 5 per cent of the market, but the portion of undercutting
by non-subject imports was about 27 per cent of the market. Leaving aside the problems with the
underlying market share figures, Korea’s calculati on attempts to use the undercutting data for a
purpose for which it is not suited. The undercuttin g data shows the number of monthly comparisons
in which the weighted average subject import pri ce was below the weighted average price of the

37 See, e.g., USITC Pub. 3616 at 23 (Exhibit GOK-10).
38 See, e.g., USITC Pub. 3616 at 25 n.164 (Exhibit GOK-10).
39 See, e.g. , US Second Submission, paras. 114 to 118; Opening Statement of the United States of
America at the Second Substantive Meeting of the Panel , 21 July 2004, paras. 34-36 [hereinafter “US Second
Oral Statement”].

domestic like product. The undercutting comparisons are for specific products and do not even
cumulatively account for all of the sales of either subject imports or of the domestic like product
during the period of investigation. Consequently, th ere is no basis whatsoever to take the percentage
of months where there was undercutting by the subject imports and then to multiply that by the market
share of subject imports to derive a figure that purpor ts to reflect what percentage of shipments in the
US market were undersold by subject imports. For exactly the same reason, th e data collected by the
ITC cannot be used to posit a percentage of the market which was undersol d by non-subject imports,
as Korea presents to the Panel, for a specific product type. Contrary to Korea’s implication, the
frequency of undercutting, while significant in and of itself, says nothing about the quantity of imports
in the observed months that were undercutting the do mestic like product. Instead, this figure reflects
that the weighted-average price of the imports in question for each of those months was lower than the
weighted-average price of the domestic industry’s DRAM products.

38. Moreover, the proxies that Korea uses also do not take into consideration the magnitude of
undercutting involved or the effects that a compa ny engaging primarily in undercutting has on the
market. A company that consistently undercuts pr ices as Hynix did has a disproportionate effect on
prices in the market as opposed to a company that does not consistently undercut prices.

 § 37: the ITC does not explain why the effect of supplier competition was attributed to
the small change in subject import market share, rather than the much larger market
share of non-subject imports and the rate at which non-subject imports were gaining
market share;

39. We addressed the major flaws in this argumen t in our responses above to paragraphs 20, 22,
and 34 of Korea’s Second Oral Statement. We re fer the Panel to those responses, including the
discussions of the problems with Korea’s characteriza tion of data in the abstract without any factual
context and Korea’s dependence on an assumption that subsidized subject imports must be the “sole
cause” of material injury to the domestic indus try. Simply because Korea does not like the
explanation that the ITC provided does not detract from the fact that the ITC’s explanation is at least
as thorough and comprehensive as those explanations provided by other investigating authorities in
cases where their analyses have been found to be WTO-consistent by WTO reviewing bodies.
40

 § 39: the key missing point – non-attribution required the ITC to separate and
distinguish the role of subject import s upply sources from domestic and non-subject
import supply sources;

40. The cited statement from paragraph 39 was ma de in connection with Korea’s argument that
the ITC “completely ignored” increases in supply/capacity by DRAMs producers that occurred during
the period of investigation. As we pointed out in previous submissions, however, the ITC agreed with
Hynix that there were capacity increases during the period of investigation, and it expressly relied on
the same exhibits that Hynix did to support this finding.

41. Moreover, the ITC took account of these capacity increases (whether they are called capacity
increases or supply increases)
41 as part of its consideration of the DRAMs business cycle and the
manner in which the DRAMs business cycle and ot her factors (such as the product life cycle and a
slowing in demand growth) affected DRAM prices during the period of investigation.

40 See US Second Submission, paras. 109-113.
41 See, e.g., Hearing Transcript at 205 (Exhibit US-122) (in which Hynix’s counsel concurs that in this
industry where producers need to operate at high capacity utilization levels in light of the high fixed costs
associated with DRAMs production, capacity equals supply).

42. Based on its analysis of the pricing data, th e ITC ascertained that prices for nearly every
pricing product and channel of distribution declined substantially over the period of investigation. It
observed that prices for domestic products and subsid ized subject imports followed the same general
trends and were generally similar for sales to PC OEMs across all products. More particularly, the
product-specific data showed price declines of 70 to 90 per cent from late 2000 through 2001, a
modest rebound in early 2002, then a further decline over the course of 2002. The ITC identified
record evidence indicating that the price decline in 2001 was the “most severe in history”.42

43. The ITC examined other possible reasons for these price declines. Regardless of the label
attached to these factors – or whether a particular factor encompassed “sub-factors” – it is clear from
the face of the ITC’s determina tion that the ITC examined the product life cycle and the DRAMs
business cycle that is characterized by repeated “boom” and “bust” periods as other possible reasons
for the price declines.
43

44. Based on its evaluation of the record evidence in this investigation, the ITC determined that
“[w]hile slowing demand played some role, together with the operation of the DRAMs business cycle
and product life cycles, the unprecedented severity of the price declines that occurred from 2000 to
2001 and persisted through 2002 indicated that s upplier competition was an important factor”.
44 The
ITC determined that these price declines were far greater than the 20 to 30 per cent that Micron – or
even the 40 per cent that Hynix itself – reported would be expected on an annual basis.45

45. The ITC concluded that the increasing freque ncy of undercutting by subsidized subject
imports from 2000 to 2002 corresponded with the s ubstantial decline in US prices over those same
years. The ITC further concluded that in the ab sence of significant quantities of subsidized subject
imports competing in the same product types at re latively low prices, domestic prices would have
been substantially higher.46

46. In the referenced paragraph 39, Korea asserts that a “lone footnote” is not enough, and that
“to look at capacity in the aggregate simply does not allow the necessary analysis” because this
“factor is not one that can be subsumed within another and required indepe ndent analysis to be
analyzed at all.” (Citation omitted).

47. The ITC’s evaluation of supply/capacity, descr ibed above, can hardly be characterized as a
“lone footnote”, nor does Korea provide any support for its assertion that an investigating authority’s
examination must take place in the text. Nor is there any support for Korea’s assertion that analysis of
supply/capacity is “not one that can be subsumed wi thin another and required independent analysis to
be analyzed at all”. Korea’s argument conflicts with the findings of panels in disputes reviewing
antidumping determinations wherein investigating authorities’ analyses have been found to be WTO-
consistent in situations where the authorities anal yzed factors that were subsumed within other
factors.
47

48. The ITC clearly separated and distinguished the role of subject import supply sources from
domestic and non-subject import supply sources. Th e ITC’s examination and explanation is more
fully described above in response to questions concerning paragraphs 20, 22, 34, and 37. Moreover, it

42 See, e.g., USITC Pub. 3616 at 24 (Exhibit GOK-10).
43 See US First Submission, paras. 454-457, which identify in more detail where in the ITC’s final
determination the examination of these factors took place.
44 See, e.g., USITC Pub. 3616 at 24-25 (Exhibit GOK-10).
45 See, e.g., USITC Pub. 3616 at 24-25, I-11 (Exhibit GOK-10); Hearing Transcript at 157-161, 267-68
(Exhibit US-94).
46 See, e.g., USITC Pub. 3616 at 24-25 (Exhibit GOK-10).
47 See, e.g., US Second Submission, paras. 109 to 112 (citing, inter alia, EC – Tube (Panel)).

is important to bear in mind that the ITC’s analysis of subject and non-subject imports was not based
only on a macro-economic analysis of trends a nd projected causes. The ITC also contacted
purchasers of DRAM products, and those purchasers identified Hynix as a source of low-priced
DRAM products and confirmed that the domestic industry lost sales and/or revenues due to
competition from Hynix.
48 This anecdotal evidence is a furthe r indication that the ITC did “separate
and distinguish” the subsidized subject imports from non-subject imports, and that it did find
independent evidence that low prices of the subsidized subject imports were injuring the US industry.

 § 49: appearance of control where none exists, nothing suggests that the GOK would
intervene in day-to-day credit decisions of various banks;

49. In the referenced paragraph 49, Korea asserts th at there is “nothing” in the Prime Minister’s
Decree, the Public Fund Oversight Act, or any specific MOU, “to suggest that the GOK would
intervene in the day-to-day credit decisions of the various bank s”. (Emphasis added.) There are
several problems with this statement.

50. First, the DOC did not find that the c ited measures suggested that the GOK necessarily would
intervene in banks’ credit decisions. Instead, th e DOC reasonably found, based upon their plain text,
that these measures gave the GOK the ability to intervene in banks’ credit decisions should it choose
to do so.

51. For example, Prime Minister Decree No. 408, on its face, gave the GOK legal authority to
intervene in the lending decisions of a bank in the exercise of the GOK’s shareholder rights.
49 The
Decree also permitted supervisory agencies to request “cooperation” from financial institutions for the
purpose of stabilizing financial markets or a ttaining the “goals of financial policy”. 50 Another
legislative action considered by the DOC was the Public Fund Oversight Act. This law required
Korean private banks to sign contractual commitme nts with the government – MOUs – in exchange
for the massive recapitalizations received from th e GOK. The MOUs provided for GOK intervention
in a bank’s fiscal operations.51

48 See, e.g., USITC Pub. 3616 at 25 (Exhibit GOK-10).
49 The decree was issued in November 2000, precisely when the GOK began pursuing its Hynix bailout
policy.
50 Preliminary Determination , 68 Fed. Reg. at 16774 (Exhibit GOK-4); Prime Minister Decree No.
408, Articles 5 and 6 (Exhibit GOK-45). The investigati on record reflects that on mo re than one occasion, the
GOK did, in fact, request “cooperation” from various creditors to assist Hynix. For example, an FSS official
stated: “It is unsound that both Hyundai Electronics and the creditor group, the banks which agreed to resolve
the liquidity of Hyundai Electronics, are refusing to provide support even resorting to expedient measures. Now
that we have requested for cooperation using multiple channels, we are expecting support to be provided sooner
or later.” Financial Community’s Support for Hyundai Electronics—A US Subsidiary Facing Insolvency Risk ,
M
AEIL ECONOMIC DAILY, March 7, 2001 (emphasis added) (transla ted version) (Exhibit US-69). The FSS also
invited officials from Shinhan Bank and Hanmi Bank to a meeting to “ request their cooperation” when several
banks retracted their earlier promises to increase purc hase limits on Hynix’s export bills of exchange (“D/A
loans”). Creditor Group Conflicts With Govern ment Over Supporting Hyundai Group , M AEIL ECONOMIC
DAILY, 2 February 2001 (emphasis added) (translated version) (Exhibit US-68). A 7 March 2001 Maeil
Economic Daily article further commented that, “[a]s th ings are going awry, the Financial Supervisory Service
is desperately ‘making every effort’, as the highly-placed official of F SS calls the presidents of the banks
concerned, urging that the limit be extended following the convening of people from the appropriate banks to
make an earnest request for cooperation .” Financial Community’s Support for Hyundai Electronics – A US
Subsidiary Facing Insolvency Risk ,” MAEIL ECONOMIC DAILY, 7 March 2001 (emphasis added) (translated
version) (Exhibit US-69).
51 Preliminary Determination , 68 Fed. Reg. at 16774 (Exhibit GOK-4); Government of Korea
Verification Report at 4 (referencing Exhibits 1-2 through 1-6) (Exhibit US-12). During the investigation, the
DOC requested the GOK to produce an MOU, but it declined to do so. See US Second Oral Statement, para. 8.

52. An additional legislative action considered by the DOC was the Corporate Restructuring
Promotion Act (CRPA), which was enacted immediat ely prior to Hynix’s October restructuring and
refinancing. The DOC found that the CRPA permitte d a handful of Hynix’s creditors to dictate
restructuring terms to other Hynix creditors, 52 and provided the Financial Supervisory Service (FSS),
a government entity, with formal power to request creditors’ assistance, and to instruct creditors not to
press payment claims, with respect to Hynix’s restructuring. 53 As discussed in response to Questions
2 and 6, below, the DOC did not rely upon the mandatory nature of the CRPA, in and of itself, or in
the abstract, as evidence of entrustment or direc tion. Rather, the DOC found that the mandatory
nature of the CRPA, coupled with the specific factual circumstances present in this case, provided an
effective tool through which the GOK was able to effectuate its Hynix policy.

53. Another problem with the referenced paragr aph 49 is that the DRAMs investigation simply
was not about the “day-to-day” credit decisions of banks. Instead, it involved extraordinary
government action aimed at ensuring that billions of dollars were funnelled to a company that the
GOK regarded as so important that it would not be left to the mercies of the marketplace and allowed
to fail.

54. Finally, the United States has never cont ended – nor did the DOC find – that the GOK needed
to intervene on a daily basis with the banks in order to entrust or direct them to assist Hynix. The
GOK only needed to intervene as n ecessary to ensure that the banks stayed in line. The DOC
reasonably found that the aforementioned measur es gave the GOK the ability to intervene as it
considered necessary. Furthermore, the DOC found that record evidence made clear that the GOK did
intervene in banks’ credit decisions.

 § 76: the argument regarding the size of Citibank’s loan.

55. As explained in prior US submissions, the DOC rejected loans from Hynix’s private creditors
for use as a benchmark because it found those loans to be government financial contributions (with
the exception of loans from Citibank). After consider ation of record evidence, the DOC also rejected
loans from Citibank for use as a benchmark. Th e reasons why the DOC rejected Citibank as a
suitable benchmark can be summarized as follows:
54

 – Citibank’s involvement was small in abso lute and percentage terms compared to the
involvement of the government-owned and controlled banks.

 – Citibank itself acknowledged that its pa rticipation was only a symbolic gesture.
55

 – There was substantial record evidence th at Citibank’s risk assessment of Hynix was
influenced by the GOK’s policy to support Hynix and prevent its failure. For
example, a Citibank official stated that Citibank needed a clear signal from the
Korean banks that they were willing to support Hynix before they would commit
funds.

 – Record evidence showed that Citiba nk was influenced by the significant and
continuing involvement of the GOK in proppi ng up Hynix, rather than by its belief
that Hynix was a commercially worthy credit risk in its own right.
56

52 Issues and Decision Memorandum at 54-55 (Exhibit GOK-5).
53 Government of Korea Verification Report at 19 (Exhibit US-12).
54 For a more extensive discussion of the DOC’s rejection of Citibank as a benchmark, see US First
Submission, paras. 197-204.
55 See Hynix Verification Report at 19 (Exhibit US-43).
56 US First Submission, paras. 200-201.

 – Citibank and SSB were the exclusive fi nancial advisors to Hynix, and reaped
significant fees from this engagement – fees th at would justify the token participation
on the restructuring packages.

 – Evidence showed that Citib ank’s involvement with Hynix was viewed by Citibank as
a stepping stone toward a larger and more lucrative role in helping the GOK to
resolve other structural problems in the Korean financial market.

56. Other “unusual aspects” relevant to Citibank’s decision to participate in the syndicated loan
include the fact that despite its long involvement in the Korean financial market dating back to the
1960s, Citibank was not a lender to Hyundai El ectronics or Hynix prior to the December 2000
Syndicated Loan. Furthermore, Citibank did not ex tend any financing to Hynix other than in GOK
entrusted and directed restructurings (and was not a participant in the KDB Fast Track Program). In
addition, Citibank’s participation in those restructurings was on the same terms as were applicable to
government entrusted and directed participants. Citibank also did not seek internal credit approval for
its portion of the syndicated loan until after Korean banks had committed to the arrangement. Finally,
Citibank did not base its lending decisions on inde pendent credit analyses that a commercial bank
normally would consider, but rather upon the assessm ent of Hynix that SSB prepared for purposes of
advancing a plan to restructure Hynix’s debt.

57. Thus, contrary to Korea’s assertions in the re ferenced paragraph 76, the DOC did not reject
Citibank’s lending to Hynix based solely on the re lative size of that lending. Instead, the DOC
properly rejected Citibank loans as a benchmark on multiple grounds, one of which was the size of
such loans.

58. Under Article 14(b) of the SCM Agreement, a “benefit” is measured as the difference
between “the amount that the firm receiving the loan pays on the government loan and the amount the
firm would pay on a comparable commercial lo an which the firm could actually obtain on the
market”.
57 Thus, under Article 14(b), one must compar e what Hynix actually paid on the government
loans with what it would have paid had it been forced to obtain all of that financing on the market.
For example, to measure the benefits of the KRW 700 billion portion of the syndicated loan directed
to Hynix by the GOK, Article 14(b) requires an examination of what Hynix would have paid if it had
been obligated to obtain the full KRW 700 billion on the market. The relevant question under Article
14(b), therefore, is whether Citibank (or another lender) would have extended to Hynix the full KRW
800 billion credit (without any participation fro m the GOK-directed banks, and without any
governmental interference) on the same favourable terms as the KRW 100 billion loan. The answer is
an unequivocal “no”.

59. The record demonstrated that Citibank’s decision to participate in the syndicated loan, even in
its very limited capacity, was conditioned on the be haviour of the GOK-directed banks. As the DOC
found in its investigation,

For example, in regard to the syndicated lo an, Citibank officials stated that Citibank
wanted to show its commitment, but did not want to be the “lender of last resort” and
“needed a clear signal from the ROK banks” th at they were willing to support Hynix

57 The Panel in Brazil – Aircraft , para. 7.24, found that a determination of the existence of benefit
should be based upon “objective benchmarks … reflecting the terms under which the beneficiary of the financial
contribution would be operating in the absence of the government financial contribution.” In addition, in US –
Softwood Lumber , para. 103, the Appellate Body found that, for purposes of establishing the existence of
benefit, an investigating authority may reject proposed benchmarks shown to have been distorted by government
involvement in the market.

as well, and that Citibank did not seek inte rnal credit approval for its portion of the
syndicated bank loan until after the ROK banks had committed to the arrangement ...
. In a similar vein, Citibank officials indi cated that Citibank had decided to “ride”
with the ROK banks to see if Hynix coul d make it as an ongoing concern, and that
Citibank made a bet that the ROK banks would protect their exposure.58
These statements by Citibank officials indicate th at Citibank would not have extended credit on
comparable terms (or perhaps not at all) absent the participation of the government entrusted and
directed banks.

60. As noted, the loans provided by Citibank repr esented a small fraction of the full amount of the
syndicated loan. If Citibank had provided the entire amount, the financial risk (and hence the interest
rate) would have been greater. The increased risk stems from three factors:

 – Citibank’s overall exposure (based simply on the size of the loan) would have been
much higher;

 – Citibank would have had no assurance that the GOK-directed banks would have been
willing to support Hynix; and

 – While the advisory fees earned by Citibank provided meaningful protection against
potential losses on a small loan, they would have provided no me aningful protection
were Citibank to have financed the full syndicated loan.

61. Given the record evidence, the DOC reasonably concluded th at Citibank loans to Hynix,
including its portion of the syndicated loan, were unsuitable as benchmarks.

2. With regard to para. 32 of the Second Written Submission of the US, are the “actions
that directly evinced entrustment and direction” th ose set forth in section 1(a) – (c) of that
submission? Is the US arguing that there is both direct and indirect evidence of entrustment /
direction?
59

62. Yes, it is the US position that there is both direct and indirect (also referred to as
“circumstantial”) evidence of government entrus tment or direction. Reliance on both types of
evidence is entirely consistent with the SCM Agreement. 60 In fact, circumstantial evidence,
secondary sources, and reasonable inferences are often essential analytical tools, as prior panels have
acknowledged.61

63. As we have noted previously , recognition of the importance of both types of evidence and the
reasonable inferences to be drawn from the evidence as a whole is particularly important in the case of
indirect subsidies. This is because, given the very nature of such subsidies, there may often be little,

58 Issues and Decision Memorandum at 9-10 (Exhibit GOK-5), citing Hynix Verification Report at 19,
20 (Exhibit US-43).
59 In order to better address the Panel’s questions, we have broken our answer to Question 2 into two
parts.
60 See, e.g., US - OCTG Sunset , para. 7.296, in which the panel noted that “there are no rules in the
Anti-Dumping Agreement as to the type of evidence that can support an investigating authority’s findings”. The
same holds for the SCM Agreement.
61 See, e.g., Argentina – Bovine Hides , para. 11.28 (complainant clearly may establish the existence of
an export restriction on the basis of circumstantial evidence); US - Wheat Gluten, para. 174 (a panel must draw
inferences on the basis of all the f acts of record relevant to the particular determination to be made); and US -
DRAMS, para. 6.79 (panel found that investigating authority properly relied on secondary sources).

if any, direct evidence of the government’s role. Thus, reliance on these analytical tools is essential if
Article 1.1(a)(1)(iv) of the SCM Agreement is to have any meaning.

64. As noted above, there was both direct and i ndirect evidence of government entrustment and
direction in the DRAMs investigation. For example, there was direct evidence that the GOK decreed
publicly, on numerous occasions, that Hynix would not be allowed to fail and that the GOK gave
explicit instructions aimed at fulfilling that goal. There is also direct evidence in the form of the
Kookmin prospectus that the GOK directed the le nding decisions of banks in which the GOK had a
relatively small proportion of voting shares. Mo reover, there is a host of secondary sources that
document the GOK’s adoption and implementation of its Hynix bailout policy.

65. With respect to the phrase “[i]n addition to ta king actions that directly evince entrustment and
direction”, the United States was distinguishing between the government actions described in
paragraphs 32-36 that enabled Hynix’s creditors to fulfill their assigned task of resolving the Hynix
financial crisis ( i.e., credit limit waivers and coercion of credit rating agencies) and evidence that
more directly supported the conclusion that the GOK, in fact, entrusted or directed them to undertake
that task. The United States did not mean to sugge st that all of the evid ence discussed in sections
1(a)-(c) was “direct” – as opposed to “indirect” – ev idence of entrustment or direction. Moreover,
regardless of whether a particular piece of evidence is labelled “direct”, “indirect” or “circumstantial”,
it is all relevant. The real issue is whether, based upon all of that evidence, the DOC could reasonably
conclude that the GOK entrusted or directed Hyni x’s creditors to resolve the company’s financial
crisis.

Why is mandatory participation under the CRPA included as an “action [...] that directly
evinced entrustment and direction”, when at para. 33 of its replies to the Panel’s questions, the
US asserts that “[t]he DOC did not find that mandatory participation under the CRPA
constituted, in and of itself, entrustment or direction”?

66. As discussed above, the United States did not mean to suggest that all of the evidence
discussed in section 1(a)-(c) was “direct” evidence of entrustment and direction. Moreover, with
respect to the CRPA, classification is not stra ightforward, because the CRPA did not represent a
single piece of evidence, but rather a host of facts specific to Hynix.

67. With respect to the CRPA itself, as a law viewed in the abstract , the DOC did not find that
mandatory participation under the CRPA, in and of itself, constituted entrustment or direction. The
CRPA did not, however, operate in a vacuum. As detailed in the previous US submissions, the
structure of the CRPA enables a handful of the larg est creditors to dominate the restructuring process
and to dictate the results to every other creditor.

68. The CRPA mandated that all Hynix creditors participate in the Creditors Council. As
previously noted, the GOK enacted the CRPA in August 2001, precisely at the time when Hynix and
other Hyundai Group companies were on the brink of bankruptcy and required significant financial
assistance to avoid financial failure.
62 As GOK officials noted at verification, “the National Assembly
passed the Corporate Restructuring Promotion Act (‘CRPA’) to make sure that the banks could not
avoid participating in workouts ”.63 A Ministry of Finance official stated that: “[w]e’ve decided to
force all creditor financial institutions to take part in the meetings in order to prevent some of them

62 US First Submission, para. 84.
63 Issues and Decision Memorandum at 54 (Exhibit GOK-5), citing Government of Korea Verification
Report at 8 (Exhibit US-12).

from refusing to attend and pursuing their ow n interests by taking advantage of bailout
programmes”.64

69. Further, the CRPA provides the GOK with a ve ry valuable tool to prevent creditors from
seeking to liquidate a troubled company. Pursuant to Article 14, at the request of the lead creditor
bank, the FSS can prevent creditors from placing a compan y in liquidation. This is precisely what the
FSS did in the Hynix bailout.
65 While Korea has attempted to minimize the impact of this provision66,
this provision effectively forecloses any and all creditors from seeking liquidation unless and until the
GOK’s objectives are achieved through the CRPA procedures.

70. With respect to the DRAMs investigation, the Creditors’ Council was dominated by creditors
that were owned and controlled by the GOK. In turn, the GOK had a stated, public policy that it
would not allow Hynix to fail, and had taken, and continued to take, actions aimed at ensuring that
Hynix did not fail. Under these specific, factual circumstances , the DOC reasonably concluded that
the GOK was able to use the CRPA as a mechanism to ensure that all Hynix’s creditors participated in
the restructuring and recapitalization measures benefiting Hynix. For example, by naming the KEB,
the GOK’s lead bank for Hynix, as head of the Council, the GOK positioned itself to take full
advantage of the KEB’s longtime role as agent and facilitator of the GOK’s credit and management
decisions.
67 In short, the GOK knew that it could entrust or direct the banks to carry out the task of
saving Hynix.

71. The following excerpt from a news report, entitled ‘Gangster-Style’ Solution for Hynix ,
underscores the significance of the CRPA when, as in the DRAMs investigation, the Creditors’
Council is dominated by government-owned and controlled banks:

Bank executives are about to have a meeting of the “Financial Institution Council” to
pass a resolution of the support plan for Hynix Semiconductor. The executives of the
main creditor banks, Korea Exchange Bank and other banks such as Hanvit, Korea
Development Bank, and Chohung Bank, have smiles on their faces. In contrast, the
executives of Shinhan, KorAm, Hana, Korea First, and Kookmin Bank stepped
glumly into the meeting room. They were supposed to cast “aye” votes that would

64 Preliminary Determination, 68 Fed. Reg. at 16774 (Exhibit GOK-4), citing Foreign Banks Required
to Attend Creditor Meetings for Ailing Firms , KOREA TIMES, July 22, 2001; Issues and Decision Memorandum
at 60 (Exhibit GOK-5).
65 Government of Korea Verification Report at 19 (Exhibit US-12).
67 Issues and Decision Memorandum at 56-57 (Exhibit GOK-5); Hynix Verification Report at 13-14
(Exhibit US-43). At verification, KEB officials confir med that GOK had traditionally followed the main bank
principle, and that the KEB had a long history of being the main bank for the Hyundai Group. Hynix
Verification Report at 12 (Exhibit US-43). Also, record evidence reflected the following: “Main banks were
designated by the government on the basis of the bank’s exposure to chaebols; for each chaebol, the government
designated a bank, who has the largest exposure to that chaebol, as the main bank of the chaebol. Once
designated, however, the main bank was not changed even if the main bank lost its status as the principal source
of credit to the chaebol.” Corporate Governance in Korea , Il Chong Nam et al. , K OREA DEVELOPMENT
INSTITUTE (from Organisation for Economic Co-operation and Development conference on Corporate
Governance in Asia: A Comparative Perspective) (Seoul, March 3-5, 1999) (“In short, main banks acted as de
facto government agents in terms of regulation and monitoring.”) at 2 (copy attached as Exhibit US-131). In
effect, “[T]he principal transaction banks have been larg ely the agent of the GOK in their supervisory role. As
such, PTBs were more concerned about whether corp orate clients’ behaviors were conforming to the
government rules and regulations rather than trying to help them with their investment and financing plans.”
Korea’s Economic Crisis and Corporate Governance , Sang-Woo Nam, S CHOOL OF PUBLIC POLICY AND
MANAGEMENT, KOREA DEVELOPMENT INSTITUTE (undated) at 47 (copy attached as Exhibit US-132).
The United States notes here that all of the new exhi bits attached to these answers were part of the
administrative record before the DOC.

bring themselves losses on the order of several tens of billions of won, up to 100
billion won. It is no wonder they could not be light-hearted.
On that day, the “ayes” carried the day on the Hynix support proposal. However,
practically no one thought that the proposal passed due to merit, or that the proposal
was convincing and reasonable.
On 30 October, Korea Exchange Bank sent a unilateral notice to commercial banks,
“As for the banks which do not agree to the support proposal, their debts will be paid
off based on liquidation value.” In other words, those banks will have to give up some
85% of their receivables. This picture has another angle that is difficult to
understand. They say they intend to keep Hynix alive. But then, why would they use
the value of a liquidated concern as opposed to the value of a continuing concern?
Korea Exchange Bank went on to attach another condition: As for the remaining
receivables of 15% or so after the payoff, th ey will not be paid in cash. Instead, they
will be paid in 5-year term Hynix debentures.
The message was loud and clear: “Do not even think of opposing this plan.”
Banks initially went ballistic: “It doesn’t make any sense, its just plain ridiculous.”
However, they ended up giving their consent, “swallowing the mustard while crying
in tears,” as the old Korean saying goes. There simply wasn’t any room for any other
choice. The result in support was all set in advance.... Another aspect was that the
state-affiliated banks were coercing commercial banks in the private sector. The
government and the creditor group may breathe a sigh of relief after keeping Hynix
alive in this way.
68
72. Thus, given the facts of the DRAMs investig ation, it is easy to see why and how the GOK
could entrust and direct Hynix’s creditors to save the company. The GOK was able to use the CRPA
to determine the outcome of Council deliberations so as to assist Hynix.

3. Please comment on Korea’s argument (para. 128 of Korea’s Second Written
Submission) that “there is simply no evidence indicating that Shinhan, Hana, or KorAm bank
were entrusted or directed by the GOK to extend their portion of the syndicated loan”. What
evidence of entrustment / direction did the US rely on in respect of the participation of these
banks in the syndicated loan? Even if one do es not accept Korea’s argument on the need for
specific banks to be directed to perform specific tasks, is it not necessary for an investigating
authority to point to evidence showing that creditors included in the finding of
entrustment/direction were actually entrusted / directed ?

73. With respect to the second part of the questi on, the United States agrees that there must be
evidentiary support warranting the inclusion of cred itors in a finding of entrustment/direction. If,
however, by use of the words “evid ence showing that creditors ... were actually entrusted/directed”
(emphasis added), the Panel is suggesting th at it is necessary for authorities to have direct evidence
for every bank and every event, the United States would not agree.

74. As the United States has noted previously, gove rnments typically have a wide range of tools
at their disposal to deliver a financial contribution indirectly, and these tools may vary greatly in terms
of their transparency. Where governments have politi cal reasons for wanting to obscure their role in

68 ‘Gangster-Style’ Solution for Hynix, DONG-A DAILY (1 November 2001) (copy attached as Exhibit
US-133).

providing assistance to a particular company or indus try, they may choose to employ less transparent
methods of delivering assistance. Thus, cases involving indirect subsidies can present particular
challenges for an investigating authority attempti ng to gather facts and figure out what really
happened. As the European Communities noted, in practice, evidence of entrustment/direction is
more likely to be circumstantial than direct.
69

75. In light of these considerations, if Article 1. 1(a)(1)(iv) of the SCM Agreement is to have any
meaning, it is essential to recognize the importance of examining, on a case-by-case basis, all of the
evidence, including direct and circumstantial evid ence, surrounding possible government entrustment
or direction. In other words, an investigating aut hority must be able to assess the evidence in light of
the totality of circumstances. These circumstanc es would include not only the specific actions taken
by a government, but also the greater context for those actions, including any governmental interest
in, and control over, the private parties it is alleged to be entrusting or directing; any inducements of
the private bodies allegedly taking action at th e government’s behest; any governmental policies
concerning the company or industry that allegedly benefits from government entrustment or direction;
and the views of objective third party observers and scholars who are knowledgeable about a
government’s policies and practices regarding intervention in the decision-making of firms.

76. Turning to the first part of the Panel’s qu estion concerning the three banks – Shinhan, KorAm
and Hana – the DOC properly found that the Hynix bailout constituted one cohesive programme with
several interrelated phases, one of which was the syndicated loan. The programme took place over a
relatively short period of time, was undertaken by the same GOK officials at each stage, was
coordinated by the same lead bank at each stage, and reflected the same types of tactics at each stage
(the enactment of laws, waivers from those laws, th reats and coercion). Figure US-3 illustrates how,
at each stage, the bailout continuously rolled over debt from one stage to the next. Moreover, while
they avoid use of the term “bailout”, the GOK and Hynix have conceded that there was a single
programme.
70

77. Second, there was evidence that these three particular banks – Shi nhan, KorAm and Hana –
were among the banks the GOK had successfully threaten ed into participation at other stages of this
single program. For example, the FSC called Shinhan and KorAm to a meeting at FSC offices on
2 February 2001 to request their “cooperation” when they expressed reluctance to maintain the D/A
financing.
71 In addition, the GOK threatened KorAm into participating in the May restructuring when
the bank refused to take over its share of the May 2001 1.0 trillion won convertible bond package
(34.7 billion won worth) due to Hynix’s failure to de liver a written pledge to use its best effort to
reduce its debt.
72 The FSS severely rebuked KorAm, with one FSS official stating: “If KorAm does
not honor the agreement, we will not forgive the bank.” 73 The same FSS official further threatened

69 Third Party Submission by the European Communities, 26 May 2004, para. 8.
70 For example, Hynix stated that, in September 20 00, “Citibank and SSB, Hynix’ financial advisors
retained to devise a financial restructuring plan, presented a fully integrated proposal to completely realign the
financial structure of Hynix ... . The important point, for purposes of this submission, is that many of the
financial transactions that are separately identified in the [Department’s] questionn aire (each with their own
sub-heading) were, in fact, all part of Citibank and SS B’s original integrated plan for a complete financial
restructuring of Hynix.” Hynix Questionnaire Response (27 January 2003) at 14 and 15 (Exhibit US-119). In a
later submission, the GOK stated that the December 2000 syndicated loan “was the first step in a several stage
financial plan developed and implemented by SSB over the 2000-2001 period.” GOK Questionnaire Response
(February 4, 2003) at A-1 (copy attached as Exhibit US-134).
71 Creditor Group Conflicts With Government Over Supporting Hyundai Group , M AEIL ECONOMIC
DAILY, 2 February 2001 (Exhibit US-68).
72 Issues and Decision Memorandum at 60 (Exhibit GOK-5); Preliminary Determination, 68 Fed. Reg.
at 16774 (Exhibit GOK-4).
73 KorAm Reluctantly Continues Financial Support for Hynix , KOREA TIMES, 21 June 2001 (Exhibit
US-64).

stern measures against the bank, such as disapprovi ng new financial instruments and subjecting the
bank to a tighter audit.
74 In addition, in April 2001, the FSS thr eatened to fine Hana Bank if it failed
to provide emergency liquidity to Hyundai Petroc hemical, which was a part of the Hyundai Group
that was going through the corporate workout process.75

78. Third, there was the other evidence of entr ustment/direction that was not specific to these
three banks. This evidence is discussed elsewhere in these answers and in prior US submissions, and
the United States will not repeat those discussions here.

79. Finally, all of this evidence had to be cons idered in the context of Hynix’s dismal financial
condition. This, too, has been discussed elsewhe re, and the United States will not repeat the
discussion here other than to note that none of th e three banks in question produced any sort of
legitimate credit analysis in connection with the sy ndicated loan, or, for that matter, any other phase
of the bailout.

80. In sum, there was evidence that the GOK ha d a policy to bailout Hynix; there was evidence
that this policy consisted of a single programme; there was evidence that at various points the GOK
applied pressure on the three banks; and for every ph ase of the bailout programme there was evidence
of GOK entrustment/direction, albeit not always speci fic to these three banks. In light of this
evidence, it was reasonable for the DOC to infer th at the GOK entrusted/directed Shinhan, KorAm
and Hana to participate in the syndicated loan. Ind eed, in light of the evidence, the inference that the
GOK did not entrust/direct these banks to participate in the syndicated loan seems implausible.

4. At para. 18 of its Answers to the Panel’s questions, the US asserts that “The DOC did
not find specifically that government-owned and controlled private entities ‘were instruments
through which the GOK entrusted/directed ot her entities’. Rather, the DOC found, for
example, that the GOK exercised control over Hynix’s creditors generally through government-
owned and controlled banks, because those banks played a dominant role in the Creditors
Councils.” Does the US response mean that control over creditors th rough government-owned
and controlled private entities is not relevant to the issue of entrustment / direction of those
creditors? How does the concept of the exercise of control over creditors differ from the notion
of entrustment / direction of those creditors?

81. The Panel is correct that the DOC did not fi nd that the government-owned and controlled
banks were “instrumentalities” through which the GOK en trusted or directed other creditors. To the
contrary, the DOC found that it was the GOK that entr usted or directed Hynix’s creditors. However,
the DOC also found that the GOK’s task was facilitate d by its ownership and control over banks that
dominated the Hynix Creditors’ Council.

82. The US response at paragraph 18 does not mean that control over creditors is irrelevant to the
issue of entrustment/direction of those creditors. While government control over a private party may
not be essential to a finding of entrustment/direction, the presence of control may provide direct or
circumstantial evidence of entrustment/direction.

83. With respect to the Panel’s question con cerning the difference between the concept of
“control” over creditors and the notion of “entrustment/direction” of those creditors, in the abstract, a
government could have control over a private entity, but never entrust or direct the private entity to do

74 KorAm Reluctantly Continues Financial Support for Hynix , KOREA TIMES, 21 June 2001 (Exhibit
US-64).
75 Corporate Restructuring and Reform: Lessons from Korea, W. Mako, K OREAN CRISIS AND
RECOVERY, David T. Coe & Se-jik Kim, eds., 2002, at 213-14 (Exhibit US-20).

anything. Conversely, a government could entrust or direct a private entity which it did not control, at
least in the sense of ownership control.

84. In assessing the variety of ways a government wi elds power such that it may entrust or direct
a private body, the political, cultural and socio-ec onomic context for its actions is particularly
germane. This is particularly true in the case of Korea, where the government’s clout over the banks
is widely acknowledged, and rooted in decades of close collaboration between the government and the
financial sector and Korea’s strategic industries.

85. In this regard, the example of Kookmin Bank – a Group C bank in Figure US-4 – is
instructive. The GOK had a relatively low ownershi p interest in Kookmin as compared to the Group
B banks – a mere 15.1%.
76 However, in a sworn statement to the US Securities and Exchange
Commission, Kookmin admitted that the GOK could direct its credit practices. 77 In addition, the
GOK hand-picked Kookmin’s CEO, Kim Sang-Hoo, former Vice Chairman of the FSC, “to speak for
the government in the second-stage restructuring plan with Kookmin and other banks.”
78 As with the
other creditors, the GOK also blocked Kookmin from finding Hynix in default.79

86. Thus, there was more than ample evidence on the DOC record that, even though the Group C
banks were not controlled by the GOK purely on the basis of GOK ownership, the GOK nonetheless
had the ability to direct their behaviour.

5. At para. 20 of the US Answers to Panel questions, the US asserts that “the motives of
private investors are not germane” to the issue of entrustment / direction. At para. 24, however,
the US argument of entrustment / direction relies on private creditors knowing what was good
for them. If entrustment / direction is based on creditors knowing what is good for them,
doesn’t that imply an analysis of their motives?

87. By the statement at paragraph 24 of our writte n answers that “this was a situation where the
GOK said to the banks: ‘If you know what’s good for you, you are going to help us bail out Hynix,’”
the United States was not intending to suggest that the issue of entrustment or direction requires an
analysis of the bank’s motives. The United States did, however, wish to convey the GOK’s ability to
obtain the banks’ cooperation through punitive measures and threats thereof.

6. At para. 33 of its Answers to the Panel’s questions, the US asserts that “[t]he DOC did
not find that mandatory participation under the CRPA constituted, in and of itself, entrustment
or direction. Rather, the DOC found that the GOK used the CRPA as a vehicle to effectuate the
GOK’s Hynix policy”. Does this mean that th e alleged mandatory nature of the CRPA is not
relevant to the issue of entrustment / direction?
80

76 Bank for International Settlements, “The Banking Industry in the Emerging Market Economies:
Competition, Consolidation and Systemic Stability,” BIS Papers No. 4 at 95 (August 2001) (Exhibit US-13).
The 15.1% figure included preferred stock.
77 Issues and Decision Memorandum at 58-59 (Exhibit GOK-5); Kookmin Bank Prospectus (18 June
2002) at 22 (Exhibit US-46); Kookmin Bank Prospectus (September 10, 2001) (Exhibit US-45); see also
Government Control of Banks Diehard, K OREA TIMES (13 March 2000) (Exhibit US-127); Kookmin Urges
Seoul to Sell off its Stake, FINANCIAL TIMES (10 November 2001) (copy attached as Exhibit US-137).
78 Government Control of Banks Diehard , K OREA TIMES (13 March 2000) (Exhibit US-127);
Highhanded Companies Sued for Unilateral Shareholders Meeting , K OREA TIMES (April 5, 2000) (copy
attached as Ex hibit US-138); Seoul Pushes for a New ‘Big Bang’ in Banking , ASIA TIMES (18 March 2000)
(copy attached as Exhibit US-139); Soundness of Financial Sector Still Remains Remote , K OREA TIMES (2
September 2002) (copy attached as Exhibit US-140).
79 GOK Verification Report at 19 (Exhibit US-12).
80 In order to better address the Panel’s questions, we have broken up our answer to Question 6 into
three parts.

88. As stated above in response to Question 2, the DOC’s finding that the GOK used the CRPA
as a “vehicle” to effectuate the GOK’s Hynix policy does not mean that the mandatory nature of the
CRPA was not relevant to the issue of entrustment or direction. Rather, it was the mandatory nature
of CRPA, coupled with the specific factual circumstances present in the DRAMs investigation and the
application of the CRPA to the Hynix bailout, that constituted evidence of GOK entrustment/direction.

How does the notion of entrusting / directing so meone to carry out an objective differ from
using something as a vehicle to have someone effectuate that objective?

89. If the United States understands the questi on correctly, the differe nce is perhaps best
described as the difference between ends and means. In abstract, the “ends” is entrustment/direction
and the “means” is the method used to entrust/direct. In the context of the DRAMs investigation, the
ends was the entrustment/direction of Hynix’s creditors to provide assistance to Hynix, and the CRPA
was a means by which the GOK entrusted/directed tho se creditors to provide such assistance. As an
evidentiary matter, the means used can be informative in ascertaining the ends.

If the October 2001 restructuring had occurred in isolation, would the CRPA in and of itself
have been sufficient evidence of entrustment /direction?

90. The United States is not in a position to state definitively what the relevant DOC
decisionmaker would find if faced with the situa tion hypothesized by the Panel. However, it seems
quite unlikely that entrustment/direction would be found if the CRPA was the only piece of evidence.

91. Of course, in the DRAMs investigation, th e CRPA was not the only evidence of entrustment
or direction pertaining to the October bailout. There was other evidence, and the extent of the
additional evidence of entrustment or direction in October must be put in its proper perspective.

92. With the enactment of the CRPA, Hynix’s Cr editors’ Council was formalized. As previously
discussed, Hynix’s Creditors’ Council was dominate d by government-owned and controlled banks.
Furthermore, even before the October restructur ing, the KEB had been hand-picked by the GOK as
the lead bank, and was in charge of the Credito r Group and acted as a liaison between the banks and
the GOK. The implications of this structure in te rms of the evidence necessary to support a finding of
entrustment or direction should not be underestimated. That is, the advantage of the Council structure
and having the KEB as lead bank was that the GO K could utilize one bank as point person and avoid
having to dictate terms to each Council member individually.

93. In addition, by the time of the October ba ilout, the GOK was aware that its Hynix bailout
policy was coming under increased international scrutin y. In particular, the United States had begun
to raise its concerns regarding the subsidization of Hynix directly with Korea.
81 Press reports
reflected that due to rising trade tensions, th e GOK could no longer afford to openly discuss
supporting Hynix. As one commentator stated, “Whenever the creditor group attempts to shy away
from providing support, the government has talked to them, or even twisted their arms, to bring
support for Hynix. The government has to avoid trade disputes while trying to keep Hynix alive.
Hence the government is not in a position to openly talk about support.”
82 Another commentator

81 See, e.g., GDS Offering Memorandum at 90 (copy attached as Exhibit US-151) (acknowledging that
the “United States Trade Represen tative has challenged the KDB Fast Track Debenture Programme ... as
constituting a preferential governmental subsidy in cont ravention of subsidy regulations of the World Trade
Organization. A draft resolution disputing the programme was submitted to the United States Congress in
February 2001 and remains under review.”).
82 Hynix, Will it Really Survive? , NEWSMAKER, NO. 439 (August 30, 2001) (copy attached as Exhibit
US-141).

observed that with the increasing pressure from abro ad, the GOK could soon be grappling with a full-
fledged WTO dispute, stating: “Of course the governme nt is very aware of this, and is likely to tread
very carefully.”83 Yet another commentator stated in August: “Our government is squirming and
cringing over these viewpoints from overseas. If the government goes all out to keep Hynix alive, it
will surely be on a collision course with trade friction overseas.”84

94. Under these circumstances, one would expect the GOK to be more circumspect in its
implementation of its Hynix bailout policy. Nonetheless, there was evidence of the GOK’s
entrustment/direction, albeit evidence of a more circumstantial nature.

95. In July 2001, DRAMs prices fell drastically a nd Hynix still faced a liquidity crisis. The GOK
reiterated its commitment to keeping Hynix aflo at, and, during the planning of the October
restructuring, continued its practice of public commentary aimed at ensuring the banks’ cooperation.

96. For instance, on 3 August 2001, the GOK gave a clear indication to Hynix’s creditors that
they had no choice but to capitulate to GOK de mands when Deputy Prime Minister Jin Nyum
reaffirmed the GOK’s strong and unwavering commitmen t to Hynix: “In the event that the creditor
group is unable to resolve the Hynix Semiconducto r issue, the government will come forward and
make a quick decision ... . If Hynix says it needs an additional 1 trillion won, and if the creditor group
cannot make a decision whether or not to provide additional support, the financial authorities should
decide. We cannot simply leave it blindly to the creditor group.”
85 Apparently realizing his excessive
candor, Jin quickly added: “This should not be viewed as if the government is running the financial
sector. It is not.”86

97. There is no doubt that Minister Jin’s remarks impacted the actions of the banks. The article
states: “Accordingly, Korea Exchange Bank, th e main creditor bank, and Salomon Smith Barney
(SSB), the financial manager, are talking about possible additional support from the creditor group,
including debt restructuring.”
87 A separate report stated: “Jin also urged the creditor financial
institutions of Hynix Semiconductors to speedily resolve the troubled firm’s liquidity crisis by forcing
more drastic restructuring of the memory chip maker in return for financial support.”88

98. In connection with these statements, in Augus t 2001, one report noted that “[w]henever the
creditor group attempts to shy away from providing support, the government has talked to them, or
even twisted their arms, to bring support for Hynix”.
89 It also observed: “For years Hynix has been

83 An Expensive Decision, ASIAMONEY (September 2001) (copy attached as Exhibit US-142).
84 Hynix Practically in Default, What’s the Problem ?, C HOSUN DAILY (29 August 2001) (translated
version) (Exhibit US-25).
85 Deputy Prime Minister Chin, ‘Government will Take Actions to Turn Around Hynix’ , K OREA
ECONOMIC DAILY (4 August 2001) (translated version) (copy attached as Exhibit US-143).
86 Deputy Prime Minister Chin, ‘Government will Take Actions to Turn Around Hynix’ , K OREA
ECONOMIC DAILY (4 August 2001) (translated version) (Exhibit US-143); see also Jin Vows to Eliminate
Uncertainties Thru Furthering Restructuring Efforts, KOREA TIMES (4 August 2001) (copy attached as Exhibit
US-144). The New York Times, reporting on former Deputy Prime Minister and Minster of Finance Jin
Nyum’s views in this regard, stated: “His preference for a hands-off stance by the government did not
necessarily extend to some of the giant corporate invalid s that the country is trying to deal with, like Daewoo
Motor and Hynix Semiconductor.” Korean Official Defends Seoul’s Efforts on Economy , T HE NEW YORK
TIMES, (23 February 2002) (copy attached as Exhibit US-145).
87 Deputy Prime Minister Chin, ‘Government will Take Actions to Turn Around Hynix’ , K OREA
ECONOMIC DAILY (4 August 2001) (translated version) (Exhibit US-143).
88 Jin Vows to Eliminate Uncertainties Thru Furthering Restructuring Efforts , K OREA TIMES
(4 August 2001) (Exhibit US-144).
89 Hynix, Will it Really Survive? , NEWSMAKER, NO. 439 (30 August 2001) (copy attached as Exhibit
US-141).

considered a “second Daewoo” by various market voices. The government and the creditor group are
scrambling to turn it around and keep it alive, but th e market is not convinced of the possibility of its
success ... . The government and the creditor group have absolutely decided to keep it alive.”
90

99. Another August report stated that “[A]s for the government, it is difficult for them to give up
on Hynix because the ruin of Hynix would symbo lize the demise of the DJ [Kim Dae Jung]
Administration’s “Big Deal” policy (the artificial merger of Hyundai Electronics and LG
Semiconductor.)”
91 A short time later, Deputy Prime Minister Jin publicly criticized delays by Hynix
creditor banks in putting together the upcoming ba ilout as further jeopardizing Hynix’s financial
situation.92

100. In September 2001, Keun-Yung Lee, Chairman of the Financial Supervisory Commission
stated in a news conference: “Of three problematic companies, the government will determine how to
handle Daewoo Motor and Hynix Semiconducto r Inc. by the end of September.” 93 Several days
before a meeting of Hynix’s creditors in mid-September 2001, he said that when they met, they would
strike a compromise on the bailout plan for Hynix, and disclosed knowingly that: “All the related
parties are committed to resolving the Hynix matter as soon as possible.”94

101. In addition, in connection with the Oc tober bailout, the GOK rewarded certain Hynix
creditors by allowing them to utilize preferential tax provisions available only to lenders of companies
involved in formal court reorgani zation. Under Korean law, banks could qualify for tax deductions
for bad debt when the debtor was in a court-supe rvised reorganization, composition, or mandatory
composition under Article 44 of the Special Law on Tax Reduction and Exemption. Although Hynix
was not in bankruptcy status under Article 44, the Korean Office of Tax Administration issued a
special exception authorizing loans of 1.5 to 1.6 tr illion won held by five Hynix creditor banks to be
considered as tax deductible expenses.
95 Absent this favour from the Office of Tax Administration,
those creditors would not have qualified for this preferential and significant tax treatment.96

102. The DOC properly considered this evidence in the context of Hynix’s utterly dismal financial
condition at the time of the October bailout. Over the course of the summer of 2001, Hynix’s
financial situation had deteriorated to near inso lvency. Standard and Poor’s had lowered Hynix’s
credit rating to selective default
97, and Hynix had overdue payments of US$202.1 million owed to its
US subsidiary.98 As Standard and Poor’s noted in an 16 August 2001 revision to Hynix’s rating, “the
outlook revision reflects the worsening prospects for Hynix’s profitability and cash flow protection
measures amid a severe market downturn in the company’s mainstay dynamic random access memory
(DRAM) business”. The notification went on to note that “in the second quarter of 2001, the

90 Hynix, Will it Really Survive?, NEWSMAKER, NO. 439 (30 August 2001) (Exhibit US-141).
91 Hynix Practically in Default, What’s the Problem ?, C HOSUN DAILY (29 August 2001) (translated
version) (Exhibit US-25).
92 See Banks Open Talks on Hynix Lifeline , BBC NEWS (September 3, 2001) (copy attached as Exhibit
US-147).
93 FSC Chairman Promises Sale of Daewoo Motor This Month , KOREA HERALD (10 September 2001)
(copy attached as Exhibit US-148).
94 FSC Chairman Promises Sale of Daewoo Motor This Month , KOREA HERALD (10 September 2001)
(Exhibit US-148).
95 The Office of National Tax Administration’s Decree to Recognize the Creditors’ Write-Off of the
Hynix Loan as a Tax Deductible Expense … May Give Rise to an Issue of Preferential Treatment , K OREA
ECONOMIC DAILY (6 November 2001) (translated version) (copy attached as Exhibit US-149).
96 The Office of National Tax Administration’s Decree to Recognize the Creditors’ Write-Off of the
Hynix Loan as a Tax Deductible Expense … May Give Rise to an Issue of Preferential Treatment , K OREA
ECONOMIC DAILY (6 November 2001) (translated version) (Exhibit US-149).
97 See Standard and Poor’s Press Release (5 October 2001) (copy attached as Exhibit US-150).
98 See GDS Offering Memorandum at 57 (Exhibit US-151).

company posted an operating loss of Korean won (W) 266 billion, compared with an operating profit
of W69 billion in the first quarter of the year. EBITDA net interest coverage for the second quarter of
the year is estimated at 1.0-1.5 times, an extremel y low level”. The notification also reflected the
commonly held belief that Hynix would require another bailout, noting “current harsh market
conditions are once again tightening Hynix’s liquidity position, making it difficult for the company to
undertake enough capital spending to improve, or even maintain, its technological and cost
competitiveness. The company is likely to require additional financial support from its creditors to
maintain its competitive position in the global DRAM market while meeting its debt obligations in
2001 and 2002”.99

103. Clearly, the May bailout had simply not been enough to put Hynix back on its feet, and the
GOK and the banks it owned and controlled would once again have to step in to provide another, even
larger, bailout in October. Yet, notwithstanding this, none of Hynix’s creditors produced a legitimate
commercial risk analysis. Hynix’s dismal financial condition and the absence of such analyses served
to reinforce the DOC’s conclusion that Hyni x was being kept alive by virtue of GOK
entrustment/direction of Hynix’s creditors.

104. Finally, the United States believes that it is not possible to view the October bailout in
isolation. In this regard, Korea has attempted to characterize the October bailout as disconnected
from the events of November 2000, when the Economic Ministers first met to launch the Hynix
bailout. This is simply untrue. A brief chronology of events should suffice to demonstrate the link
between the GOK’s actions in November 2000 and the October 2001 bailout:

 November 2000 – The GOK’s top Ministry officials meet and order the KEB and the
KEIC to execute their plan for Hynix “perfectly,” and the FSC meets
to grant the credit limit waiver.

 December 2000 – The GOK Ministers plan the KDB Programme and decide to
designate the lions share of it for Hynix and other Hyundai
companies; Ministers meet with Citibank officials to plan the 800
billion won syndicated loan; and the KEIC guarantees the loans made
in connection with the syndicated loan.

 January 2001 – Economic Ministers meet again to hammer out the D/A financing
plan for Hynix, forcing cooperation from the KEB and KEIC.

 February 2001 – Economic Ministers meet again to follow up on the D/A financing,
and the FSC calls Shinhan and KorAm to a mandatory meeting to
request their “cooperation”.

 March 2001 – The FSC orders all Hynix creditors to a meeting at FSC offices to
secure their commitments on the D/A financing “in the form of a
covenant” and requires the formation of the Hynix Creditor Council.

 April 2001 – The Economic Ministers meet yet again to follow up on the D/A
financing, and the GOK meets again with Citibank.

 May 2001 – The May restructuring o ccurs and a KEB official echoes the GOK’s
continuing support for Hynix on the basis of the economic and
strategic consequences of its surviv al, stating “[i]f Hynix is placed
under receivership, [the ROK’s] exports will be severely battered

99 See Standard and Poor’s Press Release (5 October 2001) (Exhibit US-150).

[because] Hynix accounts for 4 per cent of exports. As far as I know,
the government is now working out a series of powerful measures to
ensure the survival of [Hynix].”
100

 June 2001 – The GOK threatens to sanction KorAm Bank – a bank without
substantial GOK ownership – and Ko rAm then reverses its decision
not to participate in the Hynix June 2001 convertible bond offering
(part of the May restructuring programme).

 August 2001 – Deputy Prime Minister Jin Nyum announces in a breakfast meeting
with businessmen at the Korea Press Ce nter that, “[i]n the event that
the [Hynix] creditor group is unable to resolve the Hynix
Semiconductor issue, the government will come forward to make a
quick decision.” He then stat ed, “[i]f Hynix says it needs an
additional 1 trillion won, and if the creditor group cannot make a
decision whether or not to provide additional support, the financial
authorities [i.e. the FSS, FSC and MOFE] should decide. We cannot
simply leave it blindly to the creditor group.” He added: “This
should not be viewed as if the government is running the financial
sector. It is not.”
101

 September 2001 – The Chairman of the FSC states in a news conference: “Of three
problematic companies, the government will determine how to handle
Daewoo Motor and Hynix Semiconductor Inc. by the end of
September.”
102 In that same month, in a prospectus filed with the US
Securities and Exchange Commission, Kookmin admits that the GOK
can direct its lending decisions.

 October 2001 – The GOK leads the Oc tober 2001 bailout, engineering the
restructuring under the CRPA.

105. As this brief chronology shows, from the pe riod November 2000 to October 2001, the record
before the DOC contained evidence of GOK activity in virtually every month. Thus, the notion that
the October bailout was somehow disconnected from the other major events that made up the overall
Hynix bailout simply cannot be supported on the basis of the evidence before the DOC. To the
contrary, the GOK never wavered in its Hynix policy. The October bailout was merely the last in a
series of interrelated, overlapping actions undertak en by the GOK to assist Hynix during the DOC’s
period of investigation.

7. What was the evidence of entrustment / direction in respect of Pusan?

106. Regarding evidence pertaining specifically to Pusan, Pusan, along with other Hynix creditors,
reportedly met on multiple occasions directly with GOK officials to discuss assisting Hynix.
103 Pusan

100 Creditors Deny Hynix Receivership Rumors, KOREA TIMES (4 May 2001) (Exhibit US-26).
101 Deputy Prime Minister Chin, “Government will Take Actions to Turn Around Hynix,” K OREA
ECONOMIC DAILY (4 August 2001) (translated version) (Exhibit US-118).
102 FSC Chairman Promises Sale of Daewoo Motor This Month , KOREA HERALD (10 September 2001)
(Exhibit US-148).
103 Meetings on 12/20/00: Self-Rescue Before Asking for Help , T HE KOREA ECONOMIC DAILY
(11 January 2001) (translated version) (Exhibit US-81); 1/9/01: Government and Creditor Group ‘Bewildered’
by Hyundai Electronics ‘Dogged Clamoring’, KOOKMIN DAILY (January 11, 2001) (translated version) (Exhibit
US-82); Self-Rescue Before Asking for Help , T HE KOREA ECONOMIC DAILY (11 January 2001) (translated

was subject to the KEB’s authority as Hynix’s lead bank, and regularly attended KEB-convened
Hynix creditor meetings. 104 In addition, the GOK waived the st atutory credit limits so that Pusan
could participate in the KDB bond programme105, and the GOK compelled its participation in Hynix’s
bailout through the CRPA.106 Furthermore, like the other creditors, the GOK forced it to participate in
the 10 March 2001 meeting between Hynix’s creditors and the FSC. 107 Like the other creditors, the
GOK also blocked it from finding Hynix in default.108

107. Other relevant evidence is the fact that th e GOK’s Hynix bailout policy consisted of a single
programme, and the evidence of entrustment/directi on that does not pertain specifically to Pusan.
Finally, there is the context in which the DOC had to consider this evidence, which included the facts
relating to Hynix’s dismal financial situation and th e fact that Pusan offered no legitimate credit risk
analysis for assisting Hynix. These factors are discu ssed in more detail in the response to Question 3,
above.

8. Regarding Figure US-4, the different proporti ons of council vote held by group A, B and
C creditors in respect of the October 2001 restructuring do not add up to 100%. Please explain.

108. The percentages set forth in Figure US-4 ar e approximate, because the precise percentages are
business proprietary. Thus, the exact percentages ha ve been ranged, and the discrepancy noted by the
Panel reflects this ranging.

109. According to Figure US-4, Group A creditors accounted for over 15% of the Council vote,
Group B creditors accounted for over 50% of the Council vote, and Group C creditors accounted for
over 18% of the Council vote for the October 2001 restructuring. The remaining portion of the
Council vote for the October 2001 restructuring – approximately 17% – was held by over 90 separate
entities, such as investment trus t companies, leasing, financing companies, and other financial
institutions. Many of these other financial entities were wholly owned subsidiaries of, or majority
owned by, one of Hynix’s Group A or Group B creditors.

version) (Exhibit US-81); 3/10/01: The Grace Period Decision for Three Affiliates of Hyundai Group – Stories
of Inside and Outside, KOREAN SEOUL ECONOMIC DAILY (11 March 2001) (translated version) (Exhibit US-79);
Grace Period Discussion on Hyundai Electronics , M AEIL ECONOMIC DAILY (March 10, 2001) (translated
version) (copy attached as Exhibit US-136); The Creditor Group Finalizes Financing Package for 3 Hyundai
Affiliates, NAEOE ECONOMIC DAILY (10 March 2001) (translated version) (Exhibit US-78); GOK Verification
Report at 18-19 (Exhibit US-12).
104 Hynix Verification Report at 13, 14, 16 (Exhibit US-43).
105 Issues and Decision Memorandum at 51-52 (Exhibit GOK-5); GOK Verification Report at 16-17
(KDB Fast Track Programme blanket waiver) (Exhibit US-12).
106 CRPA, Art. 2 (Exhibit US-51).
107 3/10/01 Meeting with FSC: Bank Should be Allowed to Make Decision on the Matter of Support for
Specific Companies , M AEIL ECONOMIC DAILY (March 11, 2001) (copy attached as Exhibit US-146); Grace
Period Discussion on Hyundai Electronics , M AEIL ECONOMIC DAILY (10 March 2001) (translated version)
(Exhibit US-136); Hynix, Will it Really Survive? , NEWSMAKER, No. 439 (August 30, 2001) (Exhibit US-141);
Never-ending Aid for Hyundai , KOREA TIMES (12 March 2001) (Exhibit US-80); Seoul’s Continuing Support
Spawns Fresh Debate Over HEI’s Viability , KOREA HERALD (14 March 2001) (copy attached as Exhibit US-
157); The Creditor Group Finalizes Financing Package for 3 Hyundai Affiliates , NAEOE ECONOMIC DAILY (10
March 2001) (translated version) (Exhibit US-78); The Grace Period Decision for Three Affiliates of Hyundai
Group – Stories of Inside and Outside , KOREAN SEOUL ECONOMIC DAILY (11 March 2001) (translated version)
(Exhibit US-79); GOK Verification Report at 18-19 (Exhibit US-12).
108 GOK Verification Report at 19 (Exhibit US-12).

9. What was the basis for the DOC’s findin g that Citibank was not entrusted/directed?

110. During the investigation, Micron argued in its petition that DOC should treat lending from
Citibank as having been “entrust ed and directed” by the GOK.
109 Micron argued that, in light of the
long-standing relationship between Citibank and th e Government of Korea reaching back to the
1960s, the evidence suggested that “Citibank was aske d, if not directed, by the GOK to provide the
loan to Hynix on concessionary terms. Such GOK encouragement is tantamount to government
directed credit of a debt-restructuring package that was achieved on non-commercial terms.”110

111. The DOC, however, determined that there w as no government direction or entrustment of
Citibank. The DOC’s determination was based prin cipally on its findings that Korean branches of
foreign banks were not subject to GOK direction, a nd that loans by Citibank in particular were not
directed by GOK. As stated in the DOC’s Final Determination:

[W]e note that, in past cases, we have found that loans from ROK branches of foreign
banks are not subject to the direction of th e GOK.... As part of this finding, we found
in past cases that loans from Citibank we re not directed by the GOK.... Based on
these past findings, we have determined that the lending and credit practices of
Citibank are not directed by the GOK. However, as discussed in Comments 1 and 5,
below, while we find that Citibank’s loan s from prior periods are acceptable for use
as a benchmark, we find that Citibank’s loan s relating to the Hynix restructuring are
not appropriate for use as benchmarks.
111
112. One of the past cases cite d by the DOC, in which it addressed whether foreign banks were
subject to government direction is Stainless Steel Plate in Coils From the Republic of Korea . In that
case, the DOC explained the basis for its finding of no government control or direction over foreign
banks (and Korean branches of foreign banks) as follows:

Petitioners’ contention that record evidence establishes that the Korean branches of
foreign banks were subject to the same GO K controls and direction that applied to
domestic commercial banks is not supported by the record. The record evidence cited
by petitioners does not amount to GOK control and direction of these institutions’
operations and lending practices.
First, the 1996 and 1998 OECD reports do not support petitioners’ arguments. While
the 1996 OECD report discusses funding levels by foreign banks in Korea, nowhere
does that report state that these banks were subject to the GOK’s control or direction.
Moreover, the 1998 OECD Report, in discussing the weakness of the Korean banking
system, and in attributing responsibility for that weakness partly to the government’s
direct and indirect intervention in the oper ations of commercial banks, mentions only
domestic commercial banks, not foreign banks....
Petitioner’s reliance on the reports issued by the Presidential Commission for
Financial Reform, quoted by the Depart ment in the Credit Memo, is equally

109 Countervailing Duty Petition (1 November 2002) at 57 (copy attached as Exhibit US-135)
110 Micron’s 14 March 2003 Comments to the US Department of Commerce at 77 (copy attached as
Exhibit US-152); see also Micron Case Brief (22 May 2003), at 73 n.213 (“Citibank’s close and long-standing
relationship with the GOK suggests th at Hynix’s Citibank loans were eith er directed by the GOK or made by
Citibank to curry favour with the GOK) (copy attached as Exhibit US-153); and Financial Experts Report at 8
(“As for the participation of foreign banks, such as Citibank, the expert stated that these banks understand the
political system in Korea and work it in their favour.”) (Exhibit GOK-30).
111 Issues and Decision Memorandum at 17 (Exhibit GOK-5).

misplaced. The section of the Presidential Report titled “Deregulation of Access to
Foreign Capital Markets,” cited by petitione rs refers to regulations governing access
to foreign capital markets, not regulations governing foreign currency-denominated
loans from domestic branches of foreign bank s in Korea.[] Regulations governing
access to foreign capital markets are quite separate from those governing domestic
branches of foreign banks in Korea.... This has nothing to do with any GOK controls
over the operations of domestic branches of foreign banks....
... Their [foreign banks’] source of funds was from their head offices and, as
respondents correctly illustrate, the appointment of their senior officials was not
subject to influence by the GOK. Petitione rs proffer no evidence that foreign banks
in Korea were “inescapably influenced by the controls on every other sector of the
banking industry.” Rather, they specu late that these banks would be no less
influenced than their Korean counterparts by the lead of the Korean Development
Bank and the Bank of Korea to extend credit to certain government-favoured projects.
This is not a conclusion reached by any of the commercial bankers at verification, and
petitioners do not point to any evidence that would support this contention.
112
113. The DOC’s conclusions regarding the lack of entrustment and direction of Korean branches
of foreign banks applied only to that category of banks, and not to Korean banks that may have had
some level of foreign ownership. Such banks we re Korean commercial banks, subject to all Korean
banking laws, regulations and oversight. Moreover, most of these Korean commercial banks,
including Shinhan, KorAm, Kookmin, Hana, and H& CB, had some level of government ownership,
even when there was also some foreign ownershi p. Moreover, for each of these banks, the GOK was
the single largest shareholder based on both common and preferred shares. These banks were thus a
distinct category from wholly foreign banks that operated branches within Korea.

10. In its Second Written Submission to the Pa nel, the US refers to the Kookmin Prospectus
in a section entitled “GOK Ownership and Contro l of Hynix’s creditors”. Does the US argue
that GOK’s 15.1% shareholding resulted in GOK control over Kookmin?

114. Although government ownership is a relevant factor to be considered in an analysis of
entrustment or direction, the United States is not arguing that the GOK’s ownership interest in
Kookmin per se allowed it to control the bank. In the section of our submission referred to in the
Panel’s question, the United States was refuting Korea’s claim that the GOK was legally precluded
from intervening in the banking sector.
113 In doing so, we did not limit our analysis to government
control by virtue of ownership. Rather, we discussed the issue of the GOK’s legal rights as a
shareholder, plus the evidence related to Kookmin. We sp ecifically cited Kookmin’s SEC prospectus
as evidence of government control or influence over banking decisions, even in a situation where the
GOK had only a 10 per cent voting interest. The key point made by the Kookmin prospectus is that it
represents a formal acknowledgment by the bank that, at the behest of the GOK, it made loans to
troubled high-technology borrowers that it would not otherwise make. Moreover, Kookmin’s annual
report expressly listed Hynix, a high-technology compan y, as its top troubled borrower. In addition,
Kookmin’s rationale for assisting Hynix echoed the government’s objectives referenced in Kookmin’s

112 Stainless Steel Plate in Coils From the Republic of Korea, Final Negative Countervailing Duty
Determination, 64 Fed. Reg. 15530, 15542 (31 March 1999) (copy attached as Exhibit US-154). The DOC’s
analysis of direction of credit in the Stainless Steel Plate in Coils From the Republic of Korea investigation
forms part of the record in the instant investigation. See Direction of Credit Memorandum , Attachment 4 at 17
(Exhibit US-8).
113 The United States recognizes that this may not have been clear from the heading of the section.

SEC prospectus.
114 The DOC reasonably found this to be compelling evidence of government
entrustment or direction of Hynix’s creditors, whic h, when considered in light of all the other
evidence, provided a sound basis for its determin ation that the Hynix bailout was a government
financial contribution.

11. In reply to question 1 from the Panel, the US stated that “the constituent parts of the
subsidy programme ... included the 800 billion wo n syndicated loan, the KDB Fast Track bond
programme, the May 2001 restructuring package , the October 2001 restructuring package, and
the benefits conferred by these and other financia l contributions, such as D/A loans, made as
part of the Hynix bailout.” Please specify an exhaustive list of the constituent parts of the
alleged subsidy programme.

115. The constituent parts of the subsidy programme were the 800 billion won syndicated loan, the
KDB Fast Track bond programme, the May 2001 restructuring package, and the October 2001
restructuring package. Benefits conferred under the subsidy programme during the period of
investigation were attributable to all types of ne w and restructured loans (including bonds), as well as
debt forgiveness, debt-to-equity swap, and retroactiv e interest rate reduction prior to the swap. The
following is a list of the specific types of fina ncial instruments that the DOC countervailed:
syndicated loan; KDB bonds; convertible bonds; ne w loan (in lieu of convertible bonds) from the
Industrial Bank of Korea, a government entity; fore ign currency loans (new and/or restructured);
KDB Industry Facility loans (new and/or restructured); short-term loans (new and/or restructured);
usance loans (new and/or restructured); overdraft lo ans (new and/or restructured); general loans (new
and/or restructured); D/A loans (new and/or re structured); five-year, zero-interest debentures;
retroactive interest rate reduction prior to debt-t o-equity swap; debt held by investment trust
companies; operating and capital leases; various other loans (new and/or restructured).
115

12. Please comment on para. 182 of Korea’s Second Written Submission. In particular,
does the US accept that the Hynix-only impo rt figures are a reasonable proxy for the total
import figures?

116. No, the United States does not accept that the Hynix-only import figures are a reasonable
proxy for the total import figures. The United St ates has discussed in detail subject import volume
and the increasing trends in subject import vol ume both absolutely and relative to domestic
production and consumption during the period of investigation.
116 Notwithstanding the constraints
imposed on the United States by virtue of the conf identiality of the underlying data, the United States
provided as much information as possible within th e confines of its obligations to protect the
confidentiality of the underlying information. We refer the Panel to prior US submissions for an
explanation of why the Hynix-only import figures ar e an unacceptable proxy, an explanation of why
Korea’s compilation of Hynix’s data is flawed co mpared to the US compilation in Confidential US
Figure 1, and some observations based on the Hynix-only data.117

117. Indeed, given Korea’s failure to challenge the ITC’s treatment of this data as confidential and
its failure to challenge as inadequate the ITC’s su mmary of the confidential information in the public
version of its report, Korea’s continuing attempt to assign values to the confidential data is
unwarranted. Under the terms of Article 12 of the SCM Agreement, the United States is obligated to
protect the confidentiality of data submitted during the ITC’s investigations. However, all

114 See US Second Submission, para. 18 , and the materials cited therein; see also Issues and Decision
Memorandum at 59 (Exhibit GOK-5).
115 See Hynix 2001 Audited Financial Statements at 38-41 (Exhibit US-125), and October
Restructuring Package (Exhibit GOK-23(e)).
116 See US Answers to Panel Questions (Answers to Questions 15 and 18).
117 US Second Submission, paras. 114 to 118; and US Second Oral Statement, paras. 34-36.

confidential information collected by, submitted to, and relied upon by the ITC was made available to
counsel for interested parties, including Hynix’ s counsel, under the terms of an administrative
protective order.

13. Please comment on Korea’s argument regarding the difference between the US
submission and the ITC report regarding the extent of the “portion” speciality products (para.
211 of Korea’s Second Written Submission). Pl ease comment on Korea’s argument regarding
the ITC’s use of “value estimates” in respect of th ose speciality products (para. 212 of Korea’s
Second Written Submission).

118. In its written submissions, the United States has characterized the amount of non-subject
imports consisting of Rambus a nd specialty DRAM products as “significant”. This was the same
term that Hynix used during the ITC’s investigation.

119. In a postconference brief that Hynix and Samsung submitted jointly during the preliminary
phase of the ITC’s investigation, they emphasized that Samsung, whose US shipments of DRAM
products were an important portion of US shipme nts of non-subject imports during the period of
investigation, offered products that “differ[ed] substantially from and were not interchangeable with
products made by US producers.”
118 Thus, by Hynix’s own admission, Samsung’s imports were less
likely to compete with US-produced products than Hynix’s imports.

120. Hynix and Samsung further asserted that “[n] o domestic producer makes Rambus chips, to
the best of our knowledge, and Micron’s witness Mr . Sadler acknowledged ... that, ‘there’s only one
significant supplier of RAM Bus {sic} DRAM; that would be Samsung from Korea.’” 119 They noted
“the incontrovertible fact is that Rambus now accounts for a significant percentage of Samsung’s US
sales, ***, as shown in SSI’s questionnaire response”. 120 Hynix and Samsung also emphasized that
“irrefutable evidence exists that a very significant proportion of Samsung’s US sales had no
competition from” Micron, Infineon, and Hynix.121

121. As another example, they noted that another “significant market segment” where Samsung
had not materially injured the domestic industry was in double data rate (“DDR”) DRAM products,
which are technically not specialized products, but leading edge SDRAM products. They pointed to
evidence that Samsung was clearly out in front of other suppliers in terms of DDR penetration.
122 For
all of these reasons, they argued, imports of Sa msung’s Rambus, specialty, and leading edge DRAM
products could not have materially injured the domestic industry.123

122. There was also extensive testimony by witnesses at the Commission’s hearing about the
extent to which non-subject imports consisted of Rambus and specialty DRAM products.
124

118 See, e.g., 27 November 2002 Postconference Brief of Hynix and Samsung at 52 (Exhibit US-100)
(emphasis added).
119 See, e.g., 27 November 2002 Postconference Brief of Hynix and Samsung at 50-56 (Exhibit US-
100).
120 See, e.g., 27 November 2002 Postconference Brief of Hynix and Samsung at 50 n.69 (Exhibit US-
100) (emphasis added).
121 See, e.g., 27 November 2002 Postconference Brief of Hynix and Samsung at 53 (Exhibit US-100)
(emphasis added).
122 See, e.g., 27 November 2002 Postconference Brief of Hynix and Samsung at 55-56 (Exhibit US-
100).
123 See, e.g., 27 November 2002 Postconference Brief of Hynix and Samsung at 50-56 (Exhibit US-
100).
124 See, e.g., Hearing Transcript at 168-175, 258-260 (Exhibit US-94).

123. The ITC confirmed the validity of these argume nts through its data collection efforts. The
ITC collected information from importers on the pe rcentage of imported products and US shipments
of DRAM products in 2001 and 2002 that were “standard” DRAM products, Rambus DRAM
products, and other “specialty” DRAM products. Impor ters were asked to differentiate the reported
information for Rambus DRAM products containing dice fabricated in Korea by “Samsung” and the
portion containing dice fabricated in Korea by “Other s” and to differentiate the reported information
for specialty DRAM products containing dice fabr icated in Korea by “Samsung” and the portion
containing dice fabricated in Korea by “Others”.
125 The responses indicated that a significant
percentage of non-subject DRAM products were no n-standard DRAM products, such as Rambus or
specialty DRAM products. 126 Korea does not challenge the ITC’s treatment of this information as
confidential under either Article 12.4 or Article 22.5 of the SCM Agreement. Because the Panel
requested a non-confidential summary of the underl ying confidential percentage, we confirmed in
response to question 17 of the Panel’s Questions Following the First Substantive Panel Meeting that
of all US shipments of non-subject imports in 2001, approximately one-fifth were Rambus or
specialty DRAM products. The corresponding percen tage in 2002 was somewhat higher than in
2001.

124. The information collected by the ITC concerni ng the share of imports that were “standard”,
“specialty”, “Rambus”, and “other” DRAM pr oducts was based on the value share of the
questionnaire respondents’ total US shipments. Th e ITC provided draft questionnaires to the parties
during the final phase of its investigation in which it proposed collecting this data on a value-basis. In
Hynix’s comments on the questionnaire responses, Hynix never asked the ITC to collect the data on a
quantity basis as well.

125. In its answer to question 16 of the Panel’s Questions Following the First Substantive Panel
meeting, Korea asserts based on “public evidence” that Rambus DRAM products accounted for less
than 10 per cent of total DRAM sales by Samsung, which Korea characterizes as the major supplier of
Rambus DRAMs. There are a number of problems with this assertion. First, Korea’s estimate is
based solely on Rambus DRAMs and does not even purport to consider specialty DRAM products.
Second, the information cited by Korea is b ased on data for the global market gathered by
Gartner/Dataquest, not the US market, whereas the da ta collected by the ITC was tailored to the US
market. Finally, the percentage submitted by Korea conflicts with the percentage that Korea offered
to the Panel during the First Substantive Panel Meeting. It is the recollection of the United States that
in response to a question from the Panel, Korea’ s counsel estimated that Rambus and specialty
DRAM products accounted for approximately 20 per cent of all non-subject import shipments to the
US market. When the United States enquired as to the source of this estimate in the ITC record,
Korea’s counsel responded that he had asked Hyni x the previous night and that 20 per cent was
Hynix’s estimate based on its knowledge of the market.

14. In response to Question 23 from the Pane l, the US asserts that although the ITC
determined that non-subject imports were responsi ble for “the bulk of the market share lost by
domestic producers during the period of investigat ion,” it identified two reasons why it did not
find the volume of non-subject imports as signif icant as otherwise would be suggested. First,
the ITC referred to the composition of non-subject imports. Second, the ITC referred to the
price effects of non-subject imports. How do th ese two factors qualify the loss of market share?
Wouldn’t any impact resulting from the composit ion and price effects of non-subject imports
already be reflected in the market share data? For example, wouldn’t the fact that non-subject
imports include speciality products mean that they would have taken less market share from
domestic producers, and that this consideration is therefore already reflected in the market
share data?

125 See, e.g., Importer’s Questionnaire at question II-10(a) (Exhibit GOK-44(b)).
126 The exact percentage is confidential.

126. The scope of the DRAMs investigation included standard DRAM products as well as
specialty and Rambus DRAM products.
127 As we confirmed during the Second Substantive Panel
meeting, no party ever argued that Rambus or sp ecialty DRAM products should have been excluded
from the scope of the investigation, and no part y ever argued that Rambus or specialty DRAM
products were a separate domestic like product(s). Hynix affirmatively argued that there was a single
domestic like product consisting of DRAM produc ts that corresponded to the scope of the
investigation.128

(1) As a result, the figures for apparent domestic consumption and the market share data
discussed in the ITC’s final determ ination and, for example, in Table C-1 of the accompanying data
tabulations includes Rambus and specialty DRAM products as well as standard DRAM products.

(2) Because domestic producers’ and Hynix’s su bject DRAM production facilities in Korea did
not produce Rambus or specialty DRAM products, their market shares reflected exclusively
shipments of their standard products. The mark et share for non-subject imports, however, includes
US shipments of standard, Rambus, and specialty DRAM products from non-subject sources.

(3) Thus, the relative losses in market share of th e domestic industry vis à vis subsidized subject
imports from Korea (as manifested for example in an increasing ratio of subsidized subject imports to
domestic industry production) cannot be due to specialty products.

(4) Korea has provided data to this Panel i ndicating that demand for Rambus DRAMs in
particular peaked during the period of investigation.
129 This period also corresponded with an
increase in the volume and market share of non-subject imports.

(5) In addition, we wish to reiterate that the pric ing data collected by the ITC pertained solely to
“standard” DRAM products. No pricing data was collected on Rambus or specialty DRAM products.
With respect to the standard DRAM products, non-subject import s were underselling the domestic
industry at lower margins and at lower frequenc ies than subsidized subject imports. Even a
disaggregated analysis of the pricing data by br and name and by source revealed that subsidized
subject imports produced by Hynix in Korea were th e lowest priced source more often than any other
source, including more often than any of the suppliers of non-subject imports to the US market.

(6) With respect to price effects, the ITC did not state that the market share gains of non-subject
imports were qualified by the prices of non-subject imports, but that the “impact” of non-subject
imports on the domestic industry was qualified by thei r lesser price effects. As the ITC explained,
non-subject imports undercut the dom estic industry at a lower freque ncy than subject imports did,
providing some support for finding that non-subject im ports had “less impact” than their absolute and
relative volumes might otherwise indicate.
130 The ITC further emphasized that the “primary negative
impact” on the domestic industry was due to lower prices and, on this point, subject imports were
large enough and priced low enough to have a sign ificant impact “regardless of the adverse effects
caused by non-subject imports”.
131 Thus, the ITC qualified the “impact” of non-subject imports
which, despite their larger volume, had less of a price effect on the industry and caused less of the
injury suffered by the industry (lost profits in particular) due to import undercutting and price
depression.

127 See, e.g., USITC Pub. 3616 at 4 (Exhibit GOK-10).
128 See, e.g., USITC Pub. 3616 at 5 (Exhibit GOK-10).
129 See, e.g., Korea’s Second Written Submission para. 21 3; Korea’s First Written Submission paras.
253 to 254; Exhibit GOK 19(c).
130 See, e.g., USITC Pub. 3616 at 27 (Exhibit GOK-10).
131 See, e.g., USITC Pub. 3616 at 27 (Exhibit GOK-10).

(7) Finally, we would like to reiterate that pr ice undercutting does not necessarily lead to market
share changes. It can cause a loss of profits or revenues to the domestic industry when it drives prices
down, even when purchasers are not willing to commit a large, or any, portion of their purchases to
subsidized imports.

15. Did the DOC conclude that the KEB was entrusted or directed to (a) participate in the
Syndicated Loan and/or (b) seek a loan limit waiver?

127. The DOC found that the GOK entrusted and dir ected all Hynix creditors (except Citibank) to
participate in all phases of the Hynix bailout during the period of investigatio n. This finding, based
on the evidence as described in the previous US s ubmissions, included the KEB’s participation in the
syndicated loan.

128. With respect to the loan limit waiver, the GOK’s entrustment/direction of KEB to participate
in the syndicated loan required th e KEB to take whatever actions we re necessary to render it eligible
to participate. As previously noted, the Nove mber 2000 letter from the Economic Ministers to the
Presidents of the KEIC and the KEB, included an instruction to seek a waiver of the ceiling on
loans.
132

129. With respect to loan limit waivers, the DOC did find that the GOK’s actions enabled Hynix’s
creditors, including the KEB, to participate in the restructuring and recapitalization of Hynix in
situations where they would have been prohibite d by law because they were already above legal
lending limits.
133 Specifically, in a November 2000 meeti ng, the Economic Ministers concurred on a
“resolution of special approval” by the FSC to increase certain banks’ ceiling limits for single
borrowers, as requested by the KEB on behalf of Hynix’s creditors. 134 The FSC subsequently
approved credit limit increases for Hynix’ creditors “in order to allow them to participate in the Hynix
restructuring process”.135 Without the GOK’s special intervention, there would not have been enough
participants to raise the 800 billio n won December 2000 syndicated loan. 136 The DOC found that the
GOK waivers “ensured the successful kickoff of Hynix’ restructuring”.137

16. To what extent was the USD 1.35 billion GD S offering taken into account by the DOC
with respect to its finding of entrustment / direction of Hynix’s creditors?

130. Contrary to Korea’s assertions,
138 the DOC did, in fact, consid er Korea’s contention that the
creditor banks’ participation in the May restructur ing was contingent upon the success of the June
2001 GDS offering.139 However, the DOC did not find Korea’s contention persuasive.

132 See US First Submission, para. 48, and materials cited therein.
133 Government of Korea Questionnaire Response (3 February 2003), Exhibit 8 (Banking Act, Article
35) (Exhibit US-53).
134 Results of Discussions at the Economic Ministers’ Meeting , letter from Ministry of Finance and
Economy (28 November 2000) (translated version) (Exhibit US-28).
135 Issues and Decision Memorandum at 50-51 (Exhibit GOK-5); Government of Korea Verification
Report at 16 (Exhibit US-12).
136 See, e.g., Hyundai Electronics May Seek Loans Beyond Borrowing Limit , AFX NEWS LIMITED,
AFX-ASIA (1 December 2000) (Exhibit US-54); Panel to Approve Excess Credit Provision to Hyundai
Electronics, KOREA HERALD (2 December 2000) (translated version) (Exhibit US-55); see also Government of
Korea Verification Report at 16 (Exhibit US-12).
137 Issues and Decision Memorandum at 52 (Exhibit GOK-5).
138 Korea Second Submission, paras. 68-69
139 Issues and Decision Memorandum at 39 (Exhibit GOK-5).

131. As a practical matter, the massive May 2001 restructuring package came before the June GDS
offering. Hynix creditors met and voted to provide such a package on 7 May 2001. The new loans
and debt restructuring included in the May package were a focal point of the GDS Offering
Memorandum, which was provided to potential share purchasers.
140 In the Offering Memorandum,
the May restructuring was labelled “Concurrent Fi nancing Transactions”, and was characterized as a
central portion of the overall recapitalization plan for Hynix. Along with the KDB Fast Track
Program, it was presented as the cornerstone for restoring Hynix’s liquidity. 141 The Offering
Memorandum also noted that the May restructuring would close “substantially concurrently”, with the
closing of the GDS 142, thus highlighting the automaticity of th e assistance agreed to in May. Finally,
the “Risk Factors” section of the Offering Memorandum did not even mention the “contingency”
related to the May bailout – something that sure ly would have, and should have, been featured
prominently, if in fact, such a risk existed. 143 Overall, the characterization of the May restructuring in
the Offering Memorandum clearly gave the impressi on that the funds and restructuring would be
forthcoming, and immediate.

132. In addition, Korea’s assertion also was contradicted by the Offering Memorandum’s
discussion of the GOK’s direct support of Hynix through the KDB fast track program. The KDB fast
track programme was in operation before the May restructuring package and was never conditioned
upon the result of the GDS offering. In fact, the Offering Memorandum expressly specified in
numerous places how the GOK stood behind Hynix. In order to demonstrate GOK’s continuing
support to Hynix, the Offering Memorandum specifically stated that, “as a supplement to the May
restructuring package, approximately 2.0 trillion won in additional financing was expected to continue
to be available to Hynix from 31 May 2001 thro ugh the remainder of 2001 under the debenture
rollover programme sponsored by KDB”.
144 Thus, Hynix was clearly relying on the support of the
GOK in selling its GDS shares and the alleged contingency – assuming arguendo that it actually
existed – was largely inconsequential.

133. It also was noteworthy that the GOK pushed Korea’s investment trust companies to purchase
Hynix corporate debentures in May as a way to support the GDS offering. 145 According to press
reports, the FSS called on the investment trust comp anies to buy Hynix convertible bonds as part of
the May restructuring, saying that attracting fo reign capital for Hynix could not be done without
cooperation of the investment trust companies.146

134. Finally, even after the May announcement was made, but before the GDS offering closed,
Hynix creditor banks entered into an agreement on 12 June 2001, setting the terms of the underwriting
agreement for the issuance of the KRW 1,000 billion of convertible bonds. 147 If it was truly the case
that the banks were waiting until the successful conc lusion of the GDS to decide whether to proceed
with the May bailout, why would they meet again befo re the GDS even closed to work out the details
and then sign an agreement with respect to the terms of the underwriting?

140 Hynix GDS Offering Memorandum at 4-5 (Exhibit US-151).
141 Hynix GDS Offering Memorandum at 4 (Exhibit US-151).
142 Hynix GDS Offering Memorandum at 4 (Exhibit US-151).
143 Hynix GDS Offering Memorandum at 18-32 (Exhibit US-151).
144 Hynix GDS Offering Memorandum at 4 (Exhibit US-151).
145 Hynix GDS Offering Memorandum at 6 (Exhibit US-151). The Offering Memorandum described
under the title of “Proposed Investment Trust Refinancin g Transaction,” that certain Korean investment trust
companies were contemplating a potential investment of approximately 680 billion won in aggregate principal
amount of Hynix debentures.
146 Creditor Group ... Asks Investment Trust Compan ies to Take Over 750 Billion Won of Hynix
Corporate Debentures, T HE KOREA ECONOMIC DAILY (May 30, 2001) (translated version) (copy attached as
Exhibit US-155); see also Finance/Conflict Between Banks and Investment Trust {Companies} Over Support for
Hynix, DONG-A DAILY (May 4, 2001) (translated version) (copy attached as Exhibit US-156).
147 Hynix GDS Offering Memorandum at 5 (Exhibit US-151).

135. Thus, the DOC reasonably declined to accept the argument that the May restructuring
package was conditioned upon the GDS offering. If anything, the “condition” to the May
restructuring was nothing more than a “symbolic gesture” designed to disguise the true nature of the
May restructuring.

17. Was the participation by “small” credito rs accounting for approximately 20% of the
debt in the October Restructuring countervailed?

136. We understand the Panel’s use of the term “s mall creditors” as referring to those members of
the Hynix Creditor’s Council other than those listed by name in Figure US-4 ( i.e., those grouped
under “investment trust companies and other fina ncing companies”). These creditors accounted for
approximately 17 per cent of the council vote at the time of the October 2001 restructuring. The DOC
countervailed all of the debt held by the “small creditors” that was affected by the October
restructuring.

137. As discussed in response to Question 8, above, many of these financial entities were
subsidiaries of, or majority owned by, one of Hy nix’s Group A or Group B creditors. Further, we
note that Hynix itself attributed 100% of the debt affected by the October restructuring to the 18
creditors included in Figure US-4, plus HSBC.
148

148 See Exhibit GOK-23(e). HSBC was a bank that was not included in Figure US-4 because it was not
part of the Creditors’ Council and, thus, did not vote on the October restructuring package.

TABLE OF EXHIBITS

Exhibit US-

 Title of Exhibit

131

Corporate Governance in Korea , Il Chong Nam et al. , K OREA DEVELOPMENT
INSTITUTE (from Organization for Economic Co-operation and Development
conference on Corporate Governance in Asia: A Comparative Perspective) (Seoul, 3-
5 March 1999)

132

Korea’s Economic Crisis and Corporate Governance , Sang-Woo Nam, S
CHOOL OF
PUBLIC POLICY AND MANAGEMENT, KOREA DEVELOPMENT INSTITUTE (undated)

133

‘Gangster-Style’ Solution for Hynix, DONG-A DAILY (1 November 2001)

134

GOK Questionnaire Response (4 February 2003)

135

Countervailing Duty Petition (1 November 2002)

136

Grace Period Discussion on Hyundai Electronics , M AEIL ECONOMIC DAILY
(10 March 2001) (translated version)

137

Kookmin Urges Seoul to Sell off its Stake, FINANCIAL TIMES (10 November 2001)

138

Highhanded Companies Sued for Unilateral Shareholders Meeting, KOREA TIMES (5
April 2000)

139

Seoul Pushes for a New ‘Big Bang’ in Banking, A
SIA TIMES (18 March 2000)

140

Soundness of Financial Sect or Still Remains Remote , K OREA TIMES
(2 September 2002)

141

Hynix, Will it Really Survive?, NEWSMAKER, NO. 439 (30 August 2001)

142

An Expensive Decision, ASIAMONEY (September 2001)

143

Deputy Prime Minister Chin, ‘Government will Take Actions to Turn Around Hynix’,
KOREA ECONOMIC DAILY (4 August 2001) (translated version)

144

Jin Vows to Eliminate Uncertainties Thru Furthering Restructuring Efforts , KOREA
TIMES (4 August 2001)

145

Korean Official Defends Seoul’s Efforts on Economy , T HE NEW YORK TIMES,
(23 February 2002)

146

Bank Should be Allowed to Make Decision on the Matter of Support for Specific
Companies, M
AEIL ECONOMIC DAILY (11 March 2001)

147

Banks Open Talks on Hynix Lifeline, BBC NEWS (3 September 2001)

148

FSC Chairman Promises Sale of Daewoo Motor This Month , K
OREA HERALD
(10 September 2001)

149

The Office of National Tax Administration’ s Decree to Recognize the Creditors’
Write-Off of the Hynix Loan as a Tax Deductible Expense
… May Give Rise to an
Issue of Preferential Treatment , K OREA ECONOMIC DAILY (5 November 2001)
(translated version)

150

Standard and Poor’s Press Release (5 October 2001)

151

Hynix GDS Offering Memorandum

152

Micron’s 14 March 2003 Comments to the US Department of Commerce

153

Micron Case Brief (22 May 2003)

154

Stainless Steel Plate in Coils From the Republic of Korea, Final Negative
Countervailing Duty Determination, 64 Fed. Reg. 15530 (31 March 1999)

155

Creditor Group ... Asks Investment Trust Companies to Take Over 750 Billion Won
of Hynix Corporate Debentures , T HE KOREA ECONOMIC DAILY (3 May 2001)
(translated version)

156

Finance/Conflict Between Banks and Invest ment Trust {Companies} Over Support
for Hynix, D
ONG-A DAILY (4 May 2001) (translated version)

157

Seoul’s Continuing Suppo rt Spawns Fresh Debate Over HEI’s Viability , K OREA
HERALD (14 March 2001)

ANNEX E-7

COMMENTS OF THE REPUBLIC OF KOREA ON
ANSWERS OF THE UNITED STATES TO THE
PANEL’S QUESTIONS FOLLOWING
THE SECOND SUBSTANTIVE MEETING

13 August 2004

1. The Government of Korea (“GOK”) appreciat es this opportunity to comment upon several
items of new evidence introduced by the United Stat es in its response to the questions posed by the
Panel after the second substantive meeting. Below, we cite the relevant paragraph and/or note to
which the comments refer, and then follow with the specific comments.

Para. 70, fn. 67

2. At para 70, the United States introduces tw o studies undertaken by the Korea Development
Institute (Exhibits US-131 an d US-132), not cited in the DOC Decision Memorandum and not
previously provided to the panel, to support the argument that the KEB acted as a vehicle of the
GOK’s financial policy decisions. The problem with these studies is that they primarily pertain to the
pre-1997 period. As the GOK extensively noted in its first submission, Korea’s financial crisis in
1997 spawned several reform initiatives. These reform s render the KDI studies dated. Moreover, as
the GOK has discussed elsewhere, it was foreign-b ased Commerzbank, not the GOK, that controlled
the day-to-day management of KEB.

Para. 76, fn. 70

3. The United States has introduced new evidence to bolster an old point: it has now cited
excerpts from a GOK questionnaire response to the DOC as further evidence that the Korean side
somehow conceded that all Hynix restructuring was part of a single, overarching “programme” to
bailout Hynix.1

4. The Korean side never made any such c oncession. Although the early stages of the Hynix
restructuring may have been interrelated as parts of a Citibank and SSB led restructuring effort, Korea
has consistently argued that the October 2001 rest ructuring was fundamentally different. Although
Korea has already addressed this point with respect to the statements of Hynix, the United States now
cites a statement made by the Government of Kor ea in its 13 February 2003 questionnaire response in
an effort to buttress its argument. We request th at the panel review the cited page from the GOK’s
response. That review will definitively resolv e the issue – the GOK made no such assertion and none
can be reasonably implied from the statements it did make.

5. The United States argues for a “single programme” because it realizes that its case otherwise
has major factual gaps that cannot be filled with the evidence. Paragraph 76 argues for a single
program, because the remainder of this answer provides no evidence directly responding to the
specific question: what evidence did the United States rely upon to conclude that the GOK entrusted

1 See Exhibit US-134.

or directed Shinhan, Koram, or Hana to participat e in the syndicated loan? The United States cites to
no evidence on this point, and can only cite to eviden ce related to other transac tions and other banks.
The GOK believes such efforts to extrapolate from ot her evidence does not meet the legal standard of
Article 1.1(a)(1)(iv).

Para. 79

6. The United States asserts that neither Shin han, Koram, nor Hana produced any “sort of
legitimate credit analysis” to support their decision to extend the syndicated loan. 2 This new factual
assertion has several problems.

7. First, the United States cites to no eviden ce for this factual assertion. As the DOC
verification reports indicate, the DOC spent most of its time at verification meeting with KEB,
Kookmin, and Citibank. The DOC had a very brief me eting with Shinhan, and no meeting at all with
Koram and Hana.3

8. Second, this assertion is at odds with the ev idence on the record. Citibank made a loan of
100 billion won as part of the syndicated loan. Rega rdless of when the loan approval was obtained,
Citibank did obtain approval to make this large loan . It is simply not credible for the DOC to assert
that Citibank made a loan of about US$ 80 million w ithout going through appropriate credit approval.
Since Citibank was leading the syndicated loan effort, and was committing to provide 100 billion won
itself, it is quite reasonable for other banks to commit to much less than the 100 billion. Shinhan
committed to only 50 billion won; Koram committed to 20 billion won; and Hana committed to
30 billion won. Regardless of what other internal loan approval that each bank undertook, this fact
alone provides very strong eviden ce that these Korean banks had a reasonable basis to make this
particular loan.

9. The United States tries to impugn the Citibank loan assessment process.4 But this argument is
also inconsistent with the evidence. Specifically, this undocumented factual assertion is at odds with
two Affidavits submitted by Tom Fallows, the senio r Citibank official that had day-to-day
responsibility for Citibank’s participation in the H ynix restructuring. In a March 2003 Affidavit, 5
Mr. Fallows affirmed the following facts:

• “After extensive analysis of Hynix’s fi nancial situation, and Hynix’s competitive
position in the DRAM market, SSB a nd Citibank designed a comprehensive
restructuring and recapitalization plan for Hynix.”6

• “Our decision to become a new Hynix lender [in December 2000] was made on the
basis of Citibank’s standard credit policies and procedures. Given the size of the
transaction and the non-investment grade standing of Hynix, the credit process
required much more senior approval than would be the normal case for ordinary
Korean deals. The Citibank credit proc ess functions separately and apart from SSB,
which provided the financial advisor services to Hynix described above.7

3 See Exhibit GOK-31, pp. 11-24.
4 See US Answers to Questions, para. 56.
5 Exhibit GOK-26.
6 Id., para. 6.
7 Id. at para. 12.

10. Thus, a senior Citibank official specifically to ld the DOC that it had used a heightened credit
evaluation process, and that process was separa te from any SSB evaluations. In a May 2003
Affidavit, Mr. Fallows affirmed the following facts:

• “We also explained to the Commerc e Department [during the Commerce
Department’s visit] that Citibank’s decision to participate in the Hynix restructuring
was based on thorough and deta iled assessment of Hynix’s long-term viability at that
time from one of the best analysts in the industry, Jonathan Joseph. At the time,
Mr. Joseph was the premier analyst covering Micron and the industry. We explained
to the Commerce Department that Mr. Joseph’ s report in reply to our request was
that (1) Hynix had very good technology, (2) was a lower cost producer compared to
competitors, and (3) because of its sheer si ze (following the merger of LG) would be
able to handle the costs associated with ever changing technology. Mr. Joseph’s
basic conclusion was that Hynix should be seen as a “long-term survivor”.
8

11. We, again, respectfully urge the Panel to re view the two Citibank affidavits for the most
accurate description of how and why Citibank participated in the Hynix restructuring.

12. In this connection, we note that the new Exhibit US-154, quoted by the United States in
paragraph 112, reinforces this point. In th is prior case, the DOC specifically relied upon the
testimony of commercial bankers th at foreign banks would make their own decisions. Yet in this
case, the DOC decided that Citibank was someho w being influenced by the very same vague
“pressures” that the DOC had specifically reject ed in prior cases as being insufficient. This
conclusion to reject Citibank is not supported by the evidence in this case.

13. The syndicated loan in fact made perfect co mmercial sense, as the first step in an effort to
restructure the outstanding Hynix debt, and made it possible for the company to refinance and service
that debt. The ultimate success at raising $1.25 billion of new equity capital from foreign investors
confirmed the validity of this initial restructuri ng effort. That the DRAM market continued to
deteriorate in the summer of 2001 does not undermine the reasonableness of the restructuring efforts
earlier in the year.

Para. 85

14. The United States seeks to buttress its argument that the GOK could direct the actions of
Kookmin Bank. Yet, in so doing, the United States provides more articles as exhibits that were never
addressed in the DOC Decision Memorandum. Exhibit US-137 is offered to illustrate GOK influence
over Kookmin, when all the article identifies is K ookmin’s concern over “reputation” related to the
minority GOK stake in the bank. The same article goes on to note that Kookmin refused to issue
fresh loans to Hynix, while others extended new fi nancing, and that the Deputy Prime Minister Jin
Nyum denied putting pressure on domestic banks.

15. Other new articles offered but never cited in the DOC Decision Memorandum are used by the
United States to support the assertion that the GOK “handpicked” Kookmin’s CEO. This includes
Exhibits US-138 through US-140. While the United States offers this statement as fact, its own
Exhibits do no such thing. Exhibit US-138 plainly identifies the statement as an allegation. Exhibit
US-139 addresses the accusations of bank unionists, not any affirmation that the GOK directed the
placement of Kookmin’s CEO. Finally, it is unclear how Exhibit US-140 in any way supports the US
assertion.

8 Exhibit GOK-29, para. 17.

16. As a general matter, what these and other artic les illustrate is that you have to read the US
factual assertions very carefully, line-by-line with the articles used to support them. The disconnects
are frequent.

Para. 96

17. The US offers a new article at Exhibit US-144, not previously provided the panel, to support
its assertion that the Deputy Prime Minister forced banks to finance Hynix. Yet, all the article states
is that the Deputy Prime Minister “urged the cred itor financial institutions of Hynix Semiconductors
to speedily resolve the troubled firm’s liquidity cris is by forcing more drastic restructuring of the
memory chip maker in return for financial support”.

Para. 100, fn. 93

18. The United States has found and cited anot her general pronouncement by a government
official.9 The United States uses this alleged comment to bolster its argument that the GOK was
somehow behind the October 2001 restructuring.

19. There are several points worth noting about this particular piece of “evidence”. First, this
article is nowhere cited in the DOC Decision Memo randum. This article was one of the hundreds of
articles mentioning Hynix that Micron placed on the record before the DOC.

20. Second, this article relate s primarily to Daewoo, not to Hynix. The FSC Chairman was
quoted as saying “Of three problematic companies, the government will determine how to handle
Daewoo Motor and Hynix Semiconductor Inc. by the end of September.” The only other statement
related to Hynix included the Chairman’s explanation that:

[O]nce creditors of Hynix Semiconductor meet this week, they would strike a
compromise on the bailout plan for the troubl ed memory chipmaker. “All the related
parties are committed to resolving the Hynix matter as soon as possible”, he said.
In addition, the top financial supervisor sai d that despite some confusion, the sell-off
of the three Hyundai financial units to American International Group (AIG) is making
progress and that tangible results are expected before the end of October.
21. The general comment about “how to handle” th e Hynix restructuring must be read in the
context of this more detailed statement later in the story. The FSC official was acknowledging the
divergent views among the creditors, and the need to work out some compromi se in accordance with
the CRPA framework. This is hardly compelling or even persuasive evidence of GOK interference in
the October restructuring. Indeed, that is probably why the DOC did not even bother to cite the article
in the first instance.

22. But at this stage, the United States appears to be searching for any additional evidence to
somehow bolster its claim that the GOK was entrus ting or directing the October 2001 restructuring.
This new piece of “evidence” adds very little to what the United States has already argued.

Para. 101, fn. 95-96

23. The United States presents two new articles, not previously provided to the panel, to argue
that Hynix creditors received preferential tax treatment related to the October restructuring package.
Yet the articles cited in support of the US claim are factually incorrect. First, the tax deduction for

9 See Exhibit US-148.

bad debt in connection with th e October restructuring was not made pursuant to Article 44, as
suggested by the United States, but rather pursuant to the Enforcement Decree of the Corporate Tax
Act. Article 62 1.2 of that Act provides for tax deduc tions for bad debt if they meet the standards of
bad debt specified in the Bank Cont rol Regulations of the FSS. The Hynix debt met the standard set
forth in the FSS regulations. Since these regulations apply to all corporate debt, Hynix’s creditor
banks did not obtain any preferential treatment. They met the same standard that applies to bad debt
for any other creditor.

Para. 113

24. At para 113, the United States seems to be drawing a dichotomy between Korean branches of
foreign banks and Korean banks with foreign ownership in that only the latter are subject to Korean
banking laws and regulations. This is an assertion never advanced in the DOC’s determination.
Moreover, this new US implication is wrong. Purs uant to Article 59 of the Banking Act, all Korean
branches of foreign banks, including Citibank, ar e subject to all applicable Korean laws and
regulations.

Paras. 137-142

25. The United States has now offered excerpts from the GDS Offering Memorandum to support
its argument that the May 2001 restructuring was not conditioned on the success of the GDS
offering.10 But these excerpts prove just the opposite.

26. The United States simply misstates the conditions that applied to the GDS in an attempt at
post hoc rationalization. Although the US focuses on the term “concurrent financing” within the GDS
Offering Memorandum, a simple review of that Of fering Memorandum reveals that the “concurrent
financing” obligations made by the banks were subject to a “principal condition”, and namely
“completion of sales of equity and/or debt secur ities generating aggregate gross proceeds of W1,300
billion”.11 The “concurrent financing” obligations linked to that “principal condition” were listed just
after this statement and included all th e elements of the May 2001 package. 12 Indeed, this “principal
condition” was spelled out in the very same pages cited by the United States in its answer.

27. The United States also asserts that the “Risk Factors” section of the Offering Memorandum
did not even mention the contingency related to the May package.
13 Once again, the United States is
incorrect. Under the sub-heading “If we are unabl e to carry out our recapitalization plans, our
financial condition may be adversely affected” in the “Risk Factors” section, the Offering
Memorandum plainly states that:

The success of our recapitalization in itiatives, as summarized in “Offering
Memorandum Summary – Recapitalization Initia tives and Business Restructuring” is
critical for our business.
14

10 Exhibit US-151.
11 Exhibit US-151 at 4.
12 Id. at 4-5.
14 Exhibit US-151 at 19 (emphasis added).

28. The summary to which the statement refers is the same summary that sets forth the “principal
condition” attached to the financing. This is the same summary that the United States has cited as not
discussing the condition, but which plainly states the condition.

ANNEX E-8

COMMENTS OF THE UNITED STATES ON NEW
FACTUAL INFORMATION PROVIDED IN THE
REPUBLIC OF KOREA’S ANSWERS TO THE PANEL QUESTIONS
FOLLOWING THE SECOND SUBSTANTIVE MEETING

13 August 2004

Question 14

1. In its August 6 answers, Korea provides for th e first time its estimates of the relative volumes
of subject imports and non-subject imports th at were undercutting domestic prices in 2000 and 2002.
1
These figures were computed in the same manner as the estimates of the relative volumes of subject
imports and non-subject imports that were underc utting prices in 2001 that Korea previously
submitted to the Panel2, and suffer from the same defects. 3 Additionally, the new data are based upon
selective portions of confidential import data that the United States has previously shown are not an
appropriate proxy for the actual subject import data.4

2. The United States wishes to reiterate that th ere is no basis for substituting Korea’s own, less
accurate data – including the new data provided in the Korea Second Answers – for that used by the
ITC. Korea has not challenged the ITC’s treatment of the data in question as confidential. Indeed, at
the second meeting with the Panel, Korea highli ghted the sensitivity surrounding the treatment of
confidential information when it justified its own fa ilure to provide certain information to the DOC –
even on a confidential basis under the terms of a pr otective order – by invoking Korean bank secrecy
laws. Moreover, Korea has not challenged as inad equate the ITC’s summary of the confidential
information in the public version of its report. U nder the terms of Article 12 of the SCM Agreement,
the United States is obligated to protect the c onfidentiality of data submitted during the ITC’s
investigation. The United States has provided as mu ch information as possible within the confines of
its obligations. Moreover, all confidential inform ation collected by, submitted to, and relied upon by
the ITC was made available to counsel for interest ed parties, including Hynix’s counsel, under the
terms of an administrative protective order.

Question 16

3. In paragraph 39 of the Korea Second Answers, Korea makes the factual assertion that the
DOC did not consider the GDS offering in the cont ext of entrustment/direction. As indicated in
paragraph 137 of the US Second Answers, however , the DOC did consider Hynix’s GDS arguments
in the context of entrustment/direction. 5 What Korea fails to explain is that Hynix’s sole reference to

1 The Republic of Korea’s Answers to the Panel Questions Following the Second Substantive Meeting ,
6 August 2004, para. 33 [hereinafter “Korea Second Answers”].
2 Second Substantive Meeting – Oral Statement of the Government of Korea, 21 July 2004, para. 34.
3 Answers of the United States of America to the Panel’s Questions to the Parties Following the Second
Substantive Meeting of the Panel, August 6, 2004, paras. 34-38 [hereinafter “US Second Answers”].
4 US Second Answers, para. 116.
5 In its response to Question 16, the United States mi stakenly ascribed the argu ment to Korea, rather
than Hynix.

the GDS in the context of entrustment/direction w as to cite it as evidence in support of its argument
that the banks were acting based on the company’s financial condition.
6 The DOC did not consider
this GDS argument to be relevant to the issue of entrustment/direction. As the DOC stated,
“[w]hether the terms are sufficiently affected by government action so as to make the provision
actionable is a factual element that is relevant to the measurement of ‘benefit,’ not ‘financial
contribution.’”7 Accordingly, the DOC properly addressed the facts surrounding the GDS in the
context of “benefit”, as Korea acknowledges.8 Neither Hynix, nor any other party, ever argued in the
underlying investigation that the very existence of any contingency related to the May restructuring
evinced a lack of government entrustment/direction.

4. Korea’s new argument that the very existence of any contingency in connection with the May
restructuring evinces a lack of entrustment/direction is fundamentally flawed and, as discussed in our
response to Question 16, is not su pported by the record evidence.
9 As the United States discussed
with the Panel, it is entirely consistent with the concept of entrustment/direction – i.e., giving
someone responsibility for a task – to leave the details to the discretion of the entity
entrusted/directed. The concern of the government is that the task be performed, not necessarily how
it is performed. Those entrusted/directed to perfo rm the task may have various options for fulfilling
that objective, some of which may be contingent on ot her events or factors. The fact that the precise
method the private entities ultimately used to perform the task may have been contingent on certain
events does not in any way suggest that the govern ment did not entrust/direct the entity to carry out
the task in the first instance. Thus, the GDS c ontingency does not obviate the evidence that the GOK
entrusted/directed Hynix’s creditors to solve the company’s financial crisis – one way or another. In
this particular case, the irrelevance of the allege d “contingency” is underscored by the timing of, and
the facts surrounding, the GDS offering relative to the May restructuring, as evidenced by the
Offering Memorandum itself, as discussed in our response to the Panel’s question.

Question 17

5. In paragraph 49 of the Korea Second Answers, Korea makes the factual assertion – without
citation to record evidence – that Commerzbank wa s “the largest shareholder” and had “operational
control” of the KEB. In fact, the GOK was the larg est single shareholder of the KEB. The fact that
the GOK’s 43.17% interest was held by two GOK entities is immaterial – KEB’s own ownership
structure chart lists total GOK ownership (43.17%) as compared to Commerzbank (32.55%) and
public shares (24.28%).
10 KEB was properly included in Group B (private entities owned/controlled
by the GOK) of Figure US-4.

6. In paragraph 51 of the Korea Second Answer s, Korea makes the factual assertion – again
without citation to record evidence – that the invest ment trusts and financing companies referenced in
Figure US-4 “are not owned or controlled by the GOK” . In fact, record evidence substantiated that
many of these financial entities were wholly owned subsidiaries of, or majority owned by, public
entities and private entities owned/controlled by the GOK.
11

6 Issues and Decision Memorandum at 39 (Comment 1) (Exhibit GOK-5) (summary of Hynix’s
arguments).
7 Issues and Decision Memorandum at 47 (Exhibit GOK-5).
8 See, e.g., Preliminary Determination , 68 Fed. Reg. at 16777 (Exhibit GOK-4); Issues and Decision
Memorandum at 87 and 90-91 (Comment 7) (Exhibit GOK-5).
9 US Second Answers, paras. 137-142.
10 See KEB Ownership Structure Chart (2001) (copy attached as Exhibit US-158). The KEB
ownership figures represent voting shares as of Ma rch 2001, as all preferred shares were accorded voting rights
at that time. See Figure US-4 (“**” notation and source document GOK Supplemental Questionnaire Response
(March 11, 2003)) at 29 (Exhibit US-36).
11 See Chart of Hynix Creditors (June 16, 2003) (Exhibit US-37).