Document: WT/DS296/R Page C-1 ANNEX C REBUTTAL SUBMISSIONS OF PARTIES Contents Page Annex C-1 Executive Summary of Korea's Rebuttal Submission C-2 Annex C-2 Executive Summary of the United States Rebuttal Submission  C-12
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 C

REBUTTAL SUBMISSIONS OF PARTIES

Contents Page
Annex C-1 Executive Summary of Korea's Rebuttal Submission C-2
Annex C-2 Executive Summary of the United States Rebuttal Submission C-12

ANNEX C-1

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

I. SUBSIDY ISSUES

 A. The Scope Of “Entrusts Or Directs”

 1. The meaning of “entrusts or directs” imposes legal limits

1. The United States acknowledges but then ignores the legal limitations imposed by
Article 1.1(a)(i)(iv). In particular, the United States has ignored the core meaning of both of these key
terms.

 (a) Text

2. Both the word “entrusts” a nd the word “directs” convey the basic meaning of carrying out
some specific action. The United States claims that guidance or suggestions alone would be sufficient
to establish “entrusts or directs”. Yet “directs” has a much stronger meaning, and conveys the idea of
ordering the private party to do something. Also, in light of the French and Spanish texts, the most
appropriate interpretation of the English word “directs” must be the meaning of ordering
 a private
body to take some action.

3. The term “entrusts” also conveys the idea of the person who is entrusting already having
something to be entrusted. Thus the government must already have something that is going to be
“entrusted” to the private body. Accordingly, in the context of the Hynix restructuring, the only
relevant term is the concept of “directs” since the restructuring was both privately organized and
carried out.

 (b) Context

4. Both the words “entrusts” and “directs” are verbs, and Article 1.1(a)(1)(iv) has important
textual guidance about the object of these two verbs, and what that object must be. First, the
entrustment or direction must apply to “a private body”. Second, that private body must be entrusted
or directed “to carry out” something. Since the private body is not being entrusted or directed to
“carry out” some action, any discretion being left to the private body is thus fundamentally at odds
with this notion of “carry out”. Third, the action being entrusted or directed is not some generalized
policy or wish, but rather one of the concrete actions specified in Article 1.1(a)(1).

 (c) Object and purpose

5. Unlike the US assertion, Korea never argued that entrustment or direction had to be expressed
in writing. By “explicit”, our argument means some concrete action directed to some specific person
to do some specific action. This narrow approach is quite proper in that the entire WTO framework
regulates governmental action, not private action.

 2. US-Export Restraints

6. The United States tries to downplay the relevance of US-Export Restraints, by arguing that
panel decision considered a different factua l context. But this effort to distinguish Export Restraints
fails on two levels. First, the panel in that case was clearly offering its own reading of the specific
text at issue here. Second, that panel also wisely explained the problems with an overbroad reading of
“entrusts or directs”. In particular, the pa nel distinguished carefully between government
interventions and actions that by their nature rise to the level of “entrusts or directs”.

 3. The US approach of considering general evidence is flawed

7. The United States repeatedly invokes the argume nt that it was considering the evidence in its
totality. Korea notes that this approach is deeply flawed on a number of le vels. Among others, under
the US approach, an authority could countervail as an impermissible subsidy a loan from a bank
without a single shred of evidence about that particul ar bank or that particular loan. Also, the US
theory has no temporal limits.

 4. The actions of private bodies

8. The United States also mischaracterizes the Korean argument about private bodies. Indeed,
the actions of private parties are very much part of the evidence that must be assessed to see whether
the authorities have in fact met the necessary legal standard.

 B. The DOC “Evidence” With Respect To Specific Transactions

 1. October 2001 Restructuring

9. The US evidence with regard to the Octobe r restructuring utterly fails for the following
reasons. First, the United States makes serious factual misstatements about the CRPA. Moreover, the
United States paints the CRPA as a trap with no escape, notwithstanding the numerous procedural
safeguards built into the text of the law itself. Finally, the United States makes broad allegations
about FSS monitoring that lack relevance. Moreover, under the US theory of “entrusts or directs”, all
the Korean banks were being told what to do. Yet as well borne out by the October 2001
restructuring, different banks made different choices based on their own commercial considerations.

 2. May 2001 Restructuring & December 2000 Syndicated Loan

10. The US evidence with respect to the Ma y restructuring has the following flaws. First, the
United States repeats its flawed assertions a bout “blocking majority” and about alleged GOK
influence over all of Hynix’s creditors th rough shareholding in certain of them. Second, the
United States mischaracterizes the Prime Minister ’s Decree No. 408 while citing to the MOUs as
somehow providing a mechanism of control. Fourth, the mistaken press reports and the KorAm
denials were provided to the DOC, but the United States continue to brush them aside. Most
egregious of all, the United States says not one word about the GDR equity offering that was the
necessary precondition for the May 2001 restructuring. With respect to the December 2000 syndicated
loan, the United States stresses the results of the Economic Ministers meetings, but draws conclusions
far beyond what an objective authority would conclude based on these facts.

 C. The DOC’s Other General “Evidence”

 1. General problems with the US approach

11. In general, the United States cites evidence rega rdless of the time period and regardless of the
connection to the Hynix restructuring. The United States also makes numerous factual misstatements.

12. In addition, there are several problems w ith the evidence of an alleged policy to save
Hynix. The core US argument in this regard focuses on the Economic Ministers meetings in late
2000. But this discussion illustrates the shortcomings in the US approach. The United States also
argues that Hynix was somehow exempt from its review of financially insolvent companies, citing a
single newspaper article as evidence. Yet the FSS/ FSC never exercised any pressure to exempt any
companies from the list of companies to be liquidated.

 2. Alleged control over creditors

 (a) Signalling & Ownership

13. The United States repeatedly invokes the idea of “signalling”. The problem for the US theory
is that such evidence is legally irrelevant to the i ssue of entrusts or directs. The United States also
invokes GOK ownership in the banks, but in so di ng, ignores the various procedural safeguards
imposed by the GOK.

 (b) Kookmin Prospectus

14. The United States makes much of the Kookmin prospectus, but this approach to the Kookmin
prospectus overlooks several important pieces of evidence. Among others, the possibility of GOK
influence is belied by the actual actions of Kookmin in the October restructuring.
Prime Minister’s Decree & Public Funds Oversight Act/MOUs

 (c) Prime Minister's Decree & Public Funds Oversight Act/MOUs

15. The United States mischaracterizes the Prime Mi nister’s Decree No. 408. As Korea already
explained, the United States completely ignores Artic le 1 of the Decree. Instead the United States
mischaracterizes other parts of the Decree. The Un ited States ALSO cites to the MOUs as somehow
providing a mechanism of control. Unlike the US assertion, however, the purpose of the MOUs is to
ensure that the bank can recover quickly follow ing its Normalization Plan so that the GOK can
recover the public funds injected into the bank as fast as possible.

 (d) CRPA

16. The United States describes the basic CRP A process, but then makes several serious
mischaracterizations. The United States argues th e Creditors Council gave only limited options, but
this claim ignores the context of the restructuring. The United States also erroneously argues that the
CRPA does not provide any real choices.

 (e) Role of FSS

17. One of the more disingenuous US arguments is the effort to take normal bank regulation and
turn it into another mechanism of control. Un like the US claim, when a government regulatory
agency decides whether to grant an exception to a regulatory limit, that government agency may
consider a wider range of factors.

 (f) Alleged Coercion

18. The United States cites numerous press articl es about alleged pressure on KFB. But in the
end, the actual behaviour of KFB is hardly cons istent with the US theory of coercion. The
United States goes on to raise two other irrelevant points that have nothing to do with Hynix.

 D. The DOC’s Determination of “Benefit”

 1. Requirements of Articles 1.1 and 14

19. With respect to the existence of a benefit, Article 14 applies very c oncrete terms focused on
the “usual” or “prevailing” conduct in the market under investigation, or “comparable” conduct. In
US – Lumber, the Appellate Body found that the “the po ssibility under Article 14(d) for investigating
authorities to consider a benchmark other than private prices in the country of provision is very
limited”. The US claims that the Appellate Body’s holding in US – Lumber must be restricted to
Article 14(d) on that basis. But such a readi ng completely ignores the clear preference found in
Article 14 for primary benchmarks.

 (a) Scope of Article 14(b) & (a)

20. Under Article 14(b), comparable must first be defined by what a firm can “actually obtain on
the market”. In this case the market in question is first and foremost Korea. Thus, to the extent Hynix
obtained loans in Korea from lenders the DOC di d not prove were “directed” by the GOK to extend
credit to Hynix, those loans are “comparable”. Un der Article 14(a), the issue turns on what is the
“usual investment practice of private investors in the territory” of the member. Even if the DOC can
prove that some creditors were entrusted or direct ed by the government to purchase equity, it is not
the basis to discard all investors as benchmarks.

 2. DOC improperly rejected all Korean private banks

21. The DOC’s benefit findings in this case are simply overbroad. The syndicated loan is a
perfect example. With respect to Korean privat e banks, there is simply no evidence indicating that
Shinhan, Hana, or KorAm bank we re entrusted or directed by the GOK. These banks cannot be
discarded as benchmarks simply because the DOC had suspicions or evidence concerning GOK
entrustment or direction of other creditors.

 3. DOC improperly rejected all equity benchmarks

22. Under Article 14(a), the applicable standard is whether the equity investment is consistent
with the “usual investment practice” in Korea. Moreover, the text of Article 14(a) makes quite
explicit that the benchmark standard for behavior is that of investors in Korea. Given the liquidation
value as estimated by Arthur Andersen, banks w ith large amounts of outstanding debt could quite
reasonably decide to further invest in Hynix. The United States tries to brush aside the
Arthur Andersen determination of liquidation value based on some dispute about the date of the
report. Yet this argument fails on several levels. The United States also tries to brush aside “Prospect
Theory”. This US argument is both sloppy a nd wrong because, among others, this is hardly a
“marginal economic theory”.

 4. DOC improperly rejected Citibank as a suitable benchmark

 (a) Rejecting Citibank is inconsistent with Article 14(b)

23. The DOC’s rationale for rejecting Citib ank as a suitable benchmark was based on a
“circumspect finding” of “unusual aspects” in connection with Citibank’s loans to Hynix. Yet in light
of what the Appellate Body has found in US - Lumber, this rationale does not meet the standard set
forth in Article 14(b).

 (b) The DOC’s rationale for rejec ting Citibank is not supported by
positive evidence

24. The United States continues to insist on view ing Citibank’s loans in the context of total
financing. Such approach, however, underscores the danger of allowing an investigating authority to
utilize whatever methodology of its choice. Also, wh en one considers Citibank’s participation in the
transactions as they occurred, it is very much comparable to the commitments of other Hynix
creditors in those transactions.

 5. Korean default rates

25. Even assuming DOC was somehow correct in its approach to creditor benchmarks, there was
no basis to ignore Korean default rates in calculating its “uncreditworthy” interest rate benchmark. At
the very least, the DOC was obliged to explain wh y the US data related or referred to prevailing
market conditions in Korea. Yet if failed to do so.

 E. The DOC Determined “Specificity” Inconsistently with Article 2

26. The United States argues that specificity is th e “natural consequence of the nature of the
subsidy at issue”. Yet by failing to analyze the c onstituent elements of the Hynix restructuring, the
United States failed to comply with the requirements of Article 2.

27. The United States also tries to ignore the “exte nt of diversification” requirement by arguing
that Korea is not a small developing country. But as the United States itself admits, this language
“requires a consideration of the broader economic context” within which the alleged subsidy operates.
The Korean economy is well known for having a small number of large industry groups. Thus in a
Korean context, debt restructuring of a chaebol will automatically mean that a large value of debt will
be involved. Yet the United States has adopted an approach whereby any time a Korean chaebol has
to restructure, that restructuring is deemed specific.

II. INJURY ISSUES

 A. The Requirements Of Article 15.1

28. As pointed out in Korea’s First Submission, the standard of review in this case sharpens the
meaning of the terms positive evidence and objectiv e examination found in Article 15.1. The
Appellate Body has clearly stated that Article 11 of the DSU does not allow for a rubber stamp of a
competent authority’s determination, including its sel ection of facts and how it applies those facts in
given case.

29. Also, as Appellate Body in US – Lamb Meat made clear, verifiable facts are not necessarily
positive evidence of injury, and an examination of in complete or inadequate facts does not make an
examination objective.

 B. US Interpretation of the Causation Standard

30. The US reading of Article 15.5 of th e SCM Agreement would render the causation
requirement of that provision largely meaningless. In its First Submission, the United States resists
what is now well-established principle that Artic le 15.5 requires authorities to disentangle causes,
including subject imports, so as not to attribute injury to subject imports caused by other factors.

 1. Interpretation of “causal relationship”

31. Article 15.5 requires a demonstration that th ere normally be a coincidence of, or correlation
between, subject imports and declining domestic industry performance trends. In its First
Submission, Korea provided the Panel with just such a temporal analysis. The United States offered
no comparable analysis, either within the ITC report or in its First Submission.

32. In its First Submission, the United States argues that the concepts of causation are unique to
the Agreement on Safeguards given the higher injury standard contained in that Agreement. The
GOK disagrees. First, concepts of causation and in jury comprise distinct legal elements under both
agreements. Also, although the terms “link” and “r elationship” appear different, in fact, a careful
review of the plain meaning of both terms shows th at they are interchangeable. Moreover, the French
and Spanish texts confirm that the terms “relationship” and “link” have essentially the same meaning.

 2. The non-attribution requirement in Article 15.5

33. Unlike the US assertion, Korea never used the term “isolate” in the context of causation, and
specifically with respect to non-attribution. Rath er, Korea has argued that an authority must separate
and distinguish the injury caused by subject imports, consistent with the Appellate Body’s
determination in US - Hot-Rolled Steel.

34. Under Article 15.5, as the Appellate Body in US - Lamb Meat made perfectly clear, an
authority cannot leave non-attribution to a simple re citation of other causal factors or some superficial
discussion of the relative importance of different causes.

35. Korea takes further exception to US claims that Korea advocates a “sole cause” standard.
Korea makes no such argument. In fact, it appears th at the US favours what is in essence a “tangential
cause” standard. Such a position cannot be supported by the Agreement text. Indeed, the purpose of
the non-attribution analysis required by Article 15. 5 is not merely to discern whether subsidized
imports are a cause of injury in any form, but whether they are a cause of material injury.

36. Also as the Appellate Body in US - Hot-Rolled Steel made clear, imports must be causing the
injury which justifies the imposition of duties. If it is something less, duties are unwarranted.

 C. The US Failure To Id entify Positive Evidence

 1. The ITC Finding of Significant Volume

 (a) Korean market share data

37. The US criticisms of the market shar e data relied upon by Korea are both wrong and
disingenuous. The United States is wrong to allege that Korea compared a quantity based market
share figure for domestic shipments with a value-based market share figure for Hynix. Quite to the
contrary, Korea notes that a quantity measure was used to derive the market share figures provided in
Figure 9 of Korea’s First Submission.

38. The United States is disingenuous when it stat es that Korea’s estimate of non-Hynix subject
imports is “troubling”. Contrary to the US asserti on, the estimates that Korea provided were the best
possible estimates given the constraints imposed by the United States.

39. Also, the ITC’s decision to make the en tire record confidential is not only not
 necessary to
protect confidentiality but also is at tension with the ITC’s own past practice (i.e. “three or more”
rule). The United States argues that under its “one company with 75 per cent or two companies with
90 per cent rule”, it could not provide this data publicly. Yet nothing prevents the United States from
providing this information to the Panel with a requ est for confidentiality. Second, under the US rule
itself, the Panel can have a high degree of confidence that the portion omitted is not material.

40. In sum, Korea vigorously disputes the ITC’s f actual conclusion that the data demonstrate that
any increase in the volume of subsidized imports w as “significant”. The only way to resolve this
critical issue is to examine the actual quantity and value figures relied upon by the ITC in making its
determination.

 (b) Finding of “significant” increase

41. Under Article 15.1, there must be positive evidence supporting the specific conclusion that
the volume of subject imports can be deemed “significant”. In this case, the volume of subject
imports was not significant.

42. First, this case did not involve a typical measure of units, such as tons of steel. Having
chosen a measure of volume of imports that by definition
 would show huge increases, the
United States cannot now claim the SCM Agreement has been satisfied based on such a measure of
volume. Also, the ITC never explained how it took this unique factor into account.

43. Second, the importance of substitutability mu st apply on a consistent basis throughout the
period. The focus here should be on what has changed over time, not what has always been true about
the DRAM market. Third, the United States insists that the increase in market share was significant.
But once again the United States substitutes assertion for analysis. Moreover, in light of the fact that
the Hynix Oregon facility shut down during this period, the significance is even smaller.

 (c) Hynix’s US manufacturing facility

44. The United States tries to justify ignoring the shutdown of the Oregon facility, but this effort
fails. Korea submits that Article 15.1 does not require the investigating authority to ignore context
when assessing whether the volume of subject impo rts is significant. Subject Hynix imports and
DRAMs from Hynix’s Oregon facility were the same DRAM commodity product.

45. 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. Korea submits that the evidence establishe s that ALL of the increase in DRAMs imported in
2001 and 2002 was to replace the Hynix-Oregon produced DRAMs.

 2. The ITC Finding of Price Effects

 (a) Failure to justify specific decisions with positive evidence

46. The United States argues that the ITC’s usual practice is not to disaggregate pricing by
company, and that it would have been “arbitrary” to do so here. But this statement ignores Hynix’s
detailed arguments about the particular circumstances of this case , and the fact that the ITC Staff, in
fact, did undertake the very analysis suggested by Hynix.

47 The ITC defence of its averaging methodology actually admits the defects in the rationale.
Specifically, the United States noted that transaction-specific data “would be more suitable”,
admitting the reality that more detail is better than less detail in trying to understand pricing dynamics.
But because transaction specific data sometimes is onerous to collect, the United States then swings to
the opposite extreme, and largely ignores the disaggregated data that it actually did collect in this
case.

 (b) Price effects of subject imports

48. The United States asserts that Hynix undersold more often than any other source, a conclusion
that it reaches only by distorting the presentation. It disaggregates the other suppliers into domestic
and import sources, thus making them appear smaller. The United States also ignores the fact that
during the investigation period, Hynix’s US ma nufacturing facility shut down. Finally, the
United States does not put the combin ed volume of the other suppliers into proper context. Even if
Hynix was sometimes the lowest price source, the effects of that pricing must have been small
because of the low and falling market share of Hynix DRAM shipments.

49. The US arguments about price depression are also without merit. Most importantly, the
United States points to no positive evidence supporting its conclusion to blame imports for the price
decline.

 (c) The pricing analysis compiled by the ITC

50. Once again, Korea respectfully requests that the Panel instruct the United States to provide
the actual confidential “lowest pr ice” pricing data provided in Appendix E of the ITC Staff Report .
We submit that such data is critically important for a proper analysis by the Panel of the claims being
made in this dispute.

 D. The Legal Requirement to Consider Other Factors

 1. The importance of non-subject imports

51. There can be no dispute that non-subject im ports dwarfed Hynix subject imports. In an
attempt to obscure the importance and sheer magn itude of non-subject imports, the United States
seeks to bolster the theory that competition be tween non-subject imports and domestic product was
somehow attenuated because some non-subject impor ts consisted of RAMBUS and other specialty
DRAM products.

52. In its First Submission, the United Stat es notes that it “collected information on the
percentage of imported products and US shipments” that were Rambus DRAM products and other
“specialty” products. In fact, what th e ITC collected were value estimates
 of those companies’ share
of 2002 shipments attributed to RAMBUS and other specialty DRAMs.

53. The record ignored by the ITC and the United St ates shows that the most significant player in
the “speciality” market was Samsung. The record also s hows that Samsung’s Rambus DRAM
production comprised only a small portion of its overall production.

 2. The injurious effects of the unprecedented drop in the demand growth
rate

54. Notwithstanding the record evidence s howing that 2001 marked an unprecedented
 drop in
demand in the two largest DRAM consuming sectors (PC and telecom), the United States would have
this Panel believe that the information on the r ecord was completely speculative or represented a
minor event. Yet the ITC’s own data demonstrate that by the end of the investigation period the

demand growth rate had dropped by nearly two- thirds. Also, Micron and Infineon explicitly
acknowledged a direct correlation be tween the decline in the demand growth rate and harm to the
domestic industry.

 3. Increased capacity of other suppliers

55. What the evidence before the ITC demonstr ated was that DRAM manufacturers other than
Hynix were dramatically increasing their capacity. The ITC completely ignored this evidence. To
date, neither the ITC nor the United States have adequa tely explained, or really even considered, the
role of capacity expansion by producers other than Hynix on the performance of the domestic
industry. Moreover, the data on relative capacity changes in this case strongly corroborated Hynix’s
argument that other suppliers were offering the low est prices and had a much more substantial effect
on price levels.

 4. Injurious effects of Micron’s technological difficulties

56. In its First Submission, Korea includes 16 paragraphs that provide evidence and
argumentation concerning the significance of Mi cron’s admitted technological difficulties on its
financial performance. In response, th e ITC merely provides a single footnote
 of just three sentences.
As importantly, the US never recognizes that if Micron experiences difficulties, it has a substantial
impact on the performance data for the industry as a whole.

 E. The Condition of the Domestic Industry

57. In its discussion of the condition of the US DR AM industry, the United States largely repeats
the recitation of facts that appeared in the ITC dete rmination in the first instance. The United States
takes apparent pride in its “wealth of data”. Bu t collecting data does not mean the data has been
analyzed, or analyzed properly.

58. Yet with so much information about industr y performance over time, with so much testimony
by industry executives about how well they were doing relative to the business cycle, it simply defies
belief that the ITC would continue with its “business as usual” measure ment of trends in a vacuum.
Such an approach is simply not an objective examination of positive evidence.

III. OTHER ISSUES

 A. The Secret Meetings Were Inconsistent with Article 12.6

59. Contrary to the US argument, Korea was not objecting to the substance of the verification.
Korea has a procedural objection that had no effect on the substance of what the DOC would do or
would find out. The Korean request in this situa tion was quite modest as Korea requested only that
counsel be allowed to observe the meetings. Th e decision by the DOC to proceed anyway, over the
objections of Korea, was inconsistent with Article 12.6.

 B. The United States Has Levied Duties In consistently with Article 19.4 of the SCM
Agreement and Article VI.3 of GATT 1994

60. Under the US system, the final duty announced in the countervailing duty order has important
consequences. First, this duty rate serves as the b asis for a cash deposit that importers must pay, with
serious trade consequences. Second, and more im portantly, this cash deposit becomes the final duty
to be collected, if no party requests an administ rative review. Because of the pending court challenges
under US law, the legal assessment may not yet be “final,” but is still “definitive”.

 C. The Countervailing Duty Orde r is Properly Before This Panel

61. The United States argues that Korea did not provide any “indication” of the legal basis for its
challenge to the countervailing duty order. Yet the two consultation requests of the GOK provide a
fairly detailed explanation of the legal defects w ith the DOC and ITC determinations. Since the US
countervailing duty order rests on the legal and factual foundations of these two agency findings,
Korea was in fact providing a more than sufficient “indication” of the legal basis for its claim.

 D. The Panel May Consider Any Evidence It Deems Appropriate

62. At the first meeting with the Panel the Unite d States raised the argument that the Panel may
only consider information submitted to the administer ing authorities. Korea believes this argument is
wrong as a matter of law. The only relevant textual obligation on panels under the SCM Agreement is
found in Article 11 of the DSU. Moreover, this more flexible approach makes sense. If the
authorities have not asked the right questions, or did not clarify certain information, then those
failures might well be part of the “objective assessment” that the panel must provide.

ANNEX C-2

EXECUTIVE SUMMARY OF THE SECOND
WRITTEN SUBMISSION OF THE UNITED STATES

19 July 2004

I. DOC’S SUBSIDY DETERMINATION WAS CONSISTENT WITH US WTO
OBLIGATIONS

1. This dispute is not about the validity of a particular "approach" or a specific restructuring
"mechanism".1 Rather, this dispute is about the DOC’s determination that the GOK-directed bailout
of Hynix gave rise to countervailable subsidies, and whether that determination was inconsistent with
the terms of the SCM Agreement.

2. Entrustment or Direction
: Record evidence showed that the GOK adopted an explicit
policy to keep Hynix from failing, and that the G OK took affirmative actions to entrust and direct
Hynix’s creditors to provide financial contributions to Hynix. The GOK did so by exercising control
over Hynix’s creditors in its multiple roles as lende r, owner, legislator and regulator, and, where
necessary, using coercion.

3. Early in the countervailing duty investigati on, both the GOK and Hynix conceded – in fact
argued – that the various bailout phases were part of a single overall restructuring programme for
Hynix. The manner in which the various phases of the bailout programme overlapped and were
interrelated is illustrated graphically in Figure US-3, entitled "The Constituent Parts of the Hynix
Debt Restructuring".

4. The DOC gave a reasoned explanation of how the various aspects of the bailout were part of
an overall programme. They were all driven by the same GOK policy to support Hynix; they
occurred over a relatively short period of time; they were overlapping and interrelated; and the GOK’s
role was evident at each stage. Moreover, no Hynix creditors was allowed to say "no" to
participating in the GOK’s Hynix bailout programme.

5. Korea asserts that, legally, the government was precluded from intervening in the banking and
financial sectors of Korea. A plain reading of th e legal instruments cited by Korea belies Korea’ s
assertion. Regardless of the "primary purpose" of the Decree No. 408, on its face, the Decree gave the
GOK the legal authority to intervene in the lending decisions of a bank in the exercise of the GOK’s
shareholder rights. Similarly, with respect to the Public Fund Oversight Act, the law on its face
provides for government intervention in the financia l sector. For example, the Act required Korean
private banks to sign contractual commitments with the GOK ("Memoranda of Understanding" or
"MOUs") in exchange for the massive recapitalizat ions they received from the government. These
MOUs provided the GOK with a contractual right to intervene in the day-to -day business and credit
decisions of Korean banks.

6. Bank-specific evidence also belies Kor ea’s assertions that the GOK was precluded from
intervening in the banking and financial sectors of Korea. Statements in Kookmin Bank’s June 2002
prospectus were a clear and unequivocal acknowle dgment by a private bank that the GOK could and

1 Indeed, the fact that the International Monetary Fund (IMF) may have recommended changes to
Korea’s corporate workout mechanisms, and that Korea adopted some form of the "London Approach" to
restructurings, is irrelevant.

did influence its lending decisions. Moreover, Kookm in’s financial statements suggested that the
statements in its prospectus related to Hynix. Kookmin’s 2001 Annual Report listed Hynix as its
single largest financially troubled borrower.

7. With respect to the CRPA, the GOK enacted the CRPA 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. Citibank officials characterized the CRPA as a way for the larger
creditors to force their decisions on smaller creditor s. Independent analysts, such as Standard and
Poor’s, noted that the CRPA provided the GOK wi th "a powerful voice in lending decisions", and
concluded that the GOK could utilize its powers to "force some financial institutions to make new
loans against their will" and "strip[] the financia l services companies of their independence in lending
decisions". Thus, while the CRPA may have b een modelled in some respects on the so-called
"London Approach", the GOK’s version was government -driven, with the GOK playing a direct role
in working out debts with financial institutions owned and controlled by the GOK.

8. The structure of the CRPA enabled a handf ul of banks – the "Creditors’ Council" – to
dominate the restructuring process, to establish the te rms and details of the agreement, and to dictate
the results to every other creditor, and this is what happened in the Hynix October restructuring.
Citibank confirmed the effectiveness of this voting structure, stating that "creditor banks holding
75 per cent of Hynix’ debt can impose their decisi ons on everyone else ... [and that, while] foreign
creditors wanted more freedom to manoeuvre ... they didn’t see that they had much choice ... ".
Public entities, such as the KDB, and private entiti es owned and controlled by the GOK, were by far
Hynix’s largest creditors. Under the CRA/CRPA vo ting structure, even when these banks did not
account for 75 per cent of the votes, they had sufficient voting power to block any actions that the
minority creditors might propose. The DOC found that in both the May and October restructurings,
GOK-owned and controlled banks held a majority of the voting rights; i.e., a blocking majority.

9. It was impossible for any creditor to "walk away" from the Hynix bailout, and none did. The
investigation record established that Hynix cred itor banks did not have any choices beyond the three
options offered under the proposed restructuring pl an developed by Hynix’s 18 largest creditors –
which were public and private entities owned an d controlled by the GOK – and presented to all
creditors for a vote on 31 October 2001. There was no fourth option outside the plan approved by the
Creditors’ Council.

10. Option 3 is what Korea characterizes as "walking away" from Hynix and receiving "basically
what they would have obtained in liquidation". U nder the terms of Option 3, the banks were required
to accept a five-year interest-free debenture from Hynix, thus condemning them to maintain a
financial relationship with Hynix at least until 2006. In addition, what the Option 3 banks "obtained"
was not comparable to what they might have received in liquidation.

11. In addition to taking actions that directly evinced entrustment and direction, the GOK also
took actions to ensure that Hynix’s creditors were in a position to effectuate the GOK’s policy to
rescue Hynix. In a November 2000 meeting, the Economic Ministers concurred on a "resolution of
special approval" by the FSC to increase certai n banks’ ceiling limits for single borrowers, as
requested by the KEB on behalf of Hynix’s creditors. The FSC approved three credit limit increases
for Hynix’ creditors "in order to allow them to pa rticipate in the Hynix restructuring process". Korea
claims that the waivers were simply a "modest" st ep. To the contrary, at the time of the DOC’s
investigation, the FSC had approved only five cases since January 2000 where an applicant bank
applied to exceed its credit ceiling, four of which related to Hynix and other Hyundai Group
companies. The record evidence showed that, far from applying "market principles", the FSC waived
the credit ceiling for three of Hynix’s creditors participating in the December 2000 syndicated loan for
economic, social and political reasons. The salient fact is that the GOK waiv ed the ceiling for every
Hynix creditor that needed a waiver in order to participate in various restructuring events.

12. Another of the GOK’s actions aimed at effectua ting its policy to ensure the survival of Hynix
was the GOK’s pressure on credit rating agencies. Agencies cancelled plans to downgrade or were
forced to upgrade credit ratings. Lower credit ratings would have made it more difficult for the GOK
to continue its Hynix bailout programme, which was already the subject of intense criticism.

13. Governments may have political reasons fo r wanting to obscure their role in providing
assistance to a particular company or industry. Thus, cases involving indirect subsidies can present
particular challenges for an investigating authority attempting to gather facts and figure out what
really happened. If Article 1.1(a)(1)(iv) 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 primary, secondary,
and circumstantial evidence, surrounding possible government entrustment or direction.

14. In the case of the Hynix bailout, the reas onableness of the DOC’s conclusion that the GOK
entrusted or directed Hynix’s creditors is not even a close call. The DOC considered a wide range of
evidence. With respect to secondary sources, pr ior panel reports provide support for the DOC’s
reliance on secondary sources and the drawing of reas onable inferences based on the record evidence.
In the DRAMs investigation at issue in this dis pute, the secondary sources in the record have been
shown to be credible and are often corroborated by other reports or doc uments. Moreover, the
Appellate Body has recognized the permissibility of relying on reasona ble inferences. Thus, it is not
the type of evidence that matters. Rather, the issue is whether the domestic authority examined all the
pertinent facts and provided an adequate explanatio n as to how the facts support its determination.
The DOC did so in the DRAMs investigation.

15. Benefit
: In determining the existence of a benef it, the issue is the position of the recipient
"but for" or "absent" the government’s financial contribution. Only by comparison to a market
undistorted by the government’s financial contri bution is it possible to determine whether the
recipient is better off than it otherwise would have been absent the financial contribution.

16. Article 14 does not redefine the concept of benefit in Article 1.1(b). Article 14 merely
provides guidelines that must be followed in est ablishing "methods" for applying that concept to
particular types of financial contributions. Th erefore, each guideline in Article 14, including the
guideline contained in Article 14(b), must be interp reted in a manner that is consistent with the
meaning of the term "benefit" as used in Article 1.1(b) of the SCM Agreement.

17. With respect to Citibank, consistent w ith Article 14 of the SCM Agreement, the DOC
examined the pertinent facts surrounding the lo ans and equity investments from Citibank and
provided an explanation as to why they did not qua lify as appropriate benchmarks. The reasons why
the DOC rejected Citibank as a suitable benchmark are discussed extensively in the paragraphs
197-204 of the US first written submission.

18. With respect to the DOC’s use of histori cal cumulative default rates published by Moody’s
Investor Service to calculate the uncreditworthy benchmark rate used to measure the benefit to Hynix,
nothing in Article 14 of the SCM requires that th e DOC use Korean default rates to measure loans
benefits. In fact, the DOC examined but rejected th e Korean default rates provided by Hynix. First,
there was no information provided with the rates o ffered by Hynix that would have allowed the DOC
to ascertain how they were calculated. Second, th ere was nothing indicating that the historical rates
were cumulative average rates, as required under th e DOC’s regulations. Only cumulative rates
provide the probability of default over the full term of the loan, as opposed to a single year. Third, the
default information submitted by Hynix was unreliable on its face, because the data suggested that the
default rate for the lowest rated debt was lower than the default rate for the highest rated debt. This
inverse relationship made no sense. Accordingly, th e DOC reasonable declined to rely on the rates
offered by Hynix, because they lacked sufficient information and appeared unreliable on their face.

19. Specificity: As detailed in the US first written submission, the DOC demonstrated, based on
positive evidence, that the GOK-directed bailout was specific in fact to Hynix, and thus actionable
under the SCM Agreement. Although Korea disputes whether the bailout was government-directed, it
has not disputed that Hynix was the beneficiary of a planned financial restructuring programme. The
DOC also examined corporate usage of the CRA/CRPA to substantiate its spec ificity determination.
The DOC found that, based on data provided by the GOK, the Hyundai Group companies received an
extraordinarily large percentage of financial r estructuring and recapitalization aid and that Hynix
alone received a very high percentage of such aid. It is axiomatic that an analysis of disproportionate
use is comparative. Korea has simply argued for use of a different comparative benchmark; argument
should not be confused with WTO obligation.

20. Meetings with Experts
: There is no requirement in Article 12.6 that investigating authorities
must permit counsel for the government of the Member in question to be present for its meetings with
financial experts. The Panel should reject Korea’s new version of the facts and its Article 12.6 claim.

II. THE ITC’S INJURY DETERMINATION WAS CONSISTENT WITH US WTO
OBLIGATIONS

21. Volume Analysis
: The ITC examined the volume of s ubsidized subject imports in three
ways: (1) in terms of billions of bits; (2) as a ratio to domestic production; and (3) as a share of
apparent US consumption. All th ree measurements increased over the period of investigation. In
light of the undisputed high degree of substitutab ility between subsidized subject imports and the
domestic like product, the ITC found that the volume of subject imports on an absolute basis, as well
as the increase in the volume of subject imports both absolutely and relative to both production and
consumption in the United States, was "significant".

22. The United States has previously explained why Korea’s brand-name argument has no legal
basis under the SCM Agreement given the facts of th is investigation. Korea has not rebutted this
argument. Nor has it shown that the ITC’s rejecti on of Hynix’s factual explanation for the increased
volume of subsidized subject imports was unreasonable.

23. Korea continues to place a great deal of emphasis on relative market share increases.
However, there is no legal support for Korea’s asser tion that increases in market share are the only
indicia that matter for an affirmative material injury analysis.

24. Korea’s volume arguments continue to ignor e the importance of the conditions of competition
in this industry to the ITC’s volume analysis. As the ITC emphasized, its findings about the volume
of subject imports were reinforced by the subs tantial degree of substitutability between subject
imports and domestically-produced DRAM products. The commodity-like nature of domestic and
subject imported DRAM products magnified the ability of a given volume of imports to impact the
domestic market and industry.

25. Korea disregards the fact that the degree of product fungibility, price sensitivity, and market
differentiation 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 an
investigation involving a highly fungible product, a specific volume or a specific increase of import
volume absolutely or relative to domestic productio n or consumption can be more harmful than a
similar increase for a highly differentiated product, because it is more likely to have a direct impact on
the market. Given how quickly information is disseminated in the DRAMs industry, it is not
surprising that purchasers were reluctant to commit large portions of their purchases to the financially
troubled Hynix, although they were free to use Hynix’s low-priced offers to ratchet down prices from
other potential suppliers.

26. Price Effects
: The ITC engaged in one of the most data-intensive, complex pricing analyses
it has ever undertaken. The pricing data the ITC collected were clearly representative, accounting, by
value, for approximately 45.9 per cent of domestic producers’ and 36.9 per cent of subject imports’
US shipments in 2002. Based on a weighted-average comparison of the price of domestic shipments
with the weighted average price of subsidized subj ect imports for each month of that time period, the
ITC found significant price undercutting by subsidized subject imports.

27. The level of detail of pricing data obt ained by the ITC provided unassailably accurate
head-to-head price comparisons. The level of accu racy and objectivity of examination permitted by
the monthly series of weighted-average price compar isons by product and by channel of distribution
was remarkable. These data permitted the ITC to de termine in those monthly periods for which price
comparisons were available whether the subsidized subject imports were underselling or overselling
the domestic like product and by what margins. Based on this extensive data, the ITC ascertained that
for the majority of possible comparisons, subsid ized subject imports undercut the domestic like
product at high margins (often over 20 per cent) , and at increasing frequencies (from 51 per cent of
possible comparisons in 2000 to 56 per cent in 2001 and 70 per cent in 2002). The ITC identified
significant price undercutting to each of the three main channels of distribution (PC OEMs ( i.e.,
original computer equipment manufacturers), othe r OEMs, and non-OEMs). The ITC also found that
undercutting was consistent and substantial for particular high-revenue products to particular channels
of distribution at specific points during the period of investigation. The ITC went well beyond the
approach found to be WTO-consistent by the panel in EC – Tube.

28. The ITC also went well beyond the requirements of the SCM Agreement by collecting and
evaluating pricing data on non-subj ect imports. Korea’s argument in its opening statement that the
ITC "ignored the prices of non-subject imports" in its pricing analysis is simply wrong.

29. The pricing data show that the underselling frequency by non-subject imports was lower than,
and increased less than, the underselling frequency of subsidized subject imports between 2000 and
2002. In particular, while subject imports were increasing their underselling frequency between 2000
and 2001 from 51 per cent of all observations to 56 per cent of all observations, the frequency of
underselling by non-subject imports was fairly st eady at 46.6 per cent of instances in 2000, and
47.7 per cent in 2001. Underselling by subsidized subject imports increased to 69.8 per cent of all
observations in 2002, or about 10 percentage poi nts higher than the percentage for non-subject
imports in that year (60.7 per cent). Consistent with the data, the ITC concluded that for these
"standard" pricing products, subsidized subject imports undersold non-subject imports in a majority of
instances.

30. Equally without merit is Korea’s argument that the ITC should have examined the pricing
data on a brand-name basis. There is no requirement in the SCM Agreement to analyze price effects
on a brand-name basis, nor does Korea identify one. In the DRAMs investigation, use of the
brand-name analysis urged by Hynix would not re flect the source country of the DRAM products and
would be utterly inconsistent with the requireme nt under the SCM Agreement to examine the effect
"of the subsidized imports" on the "like product," the product produced by the domestic industry. On
the other hand, by comparing the weighted-average price of subsidized subject imports with the
weighted-average price of domestic shipments fo r each time period, the ITC’s methodology in this
investigation addressed the inquiry posed by Article 15.2 – the assessment of the price effects of the
subsidized imports on the domestic industry.

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

32. Contrary to Korea’s repeat ed arguments, the ITC did not "largely ignore" the "particular and
unique competitive dynamics of the DRAM market". The ITC identified several reasons why the

factual data on undercutting w as probative. These included th e high degree of substitutability
between subject imports and the domestic DRAM products, the overlapping customers and channels
of distribution to which subject imports and the domestic DRAM products were sold, the inelasticity
of demand, and the importance of price in this particular industry.

33. A finding of undercutting, let alone significan t undercutting, is not a prerequisite to an
affirmative injury determination. Article 15.2 of the SCM Agreement specifically provides that "[n]o
one or several of these factors can necessarily give decisive guidance". Nevertheless, it is clear that,
under the analysis the ITC conducted in this investigation, there was significant undercutting by
subsidized subject imports.

34. The ITC also found that subsidized subject imports depressed prices to a significant degree.
Korea does not challenge the ITC’s finding that th ere was significant price depression by subsidized
subject imports. Instead, to the extent Korea mentio ns price depression at all, it is in connection with
its argument that the ITC did not adequately consider factors other than subsidized subject imports in
its price effects analysis. In its discussion of the ITC’s causation analysis, the United States has
addressed and rebutted Korea’s argument.

35. Impact of Subsidized Imports
 : The ITC found that many indicators of domestic industry
performance declined over the period of investig ation. These included capacity, production, market
share, employment, and hourly wages. The domestic industry’s operating performance also declined.
The ITC also found that domestic producers reduced capital expenses during the period of
investigation. The ITC explicitly acknowledged that for some of the impact factors, there were
positive trends in the data at specific points during the period of investigation. But, it further analyzed
the data and explained why, even for factors s howing increases, the value of such "improvements"
was limited.

36. Korea does not contest the positive evidence supporting these findings. Instead, Korea
continued to reference snippets of information that it believes woul d support a different conclusion
than the ITC reached. This appro ach ignores the fact that the ITC examined the domestic industry, as
well as the evidentiary record, as a whole , as required by Article 15.4 and Article 16.1 of the SCM
Agreement. Other panels have recognized the importance of this language, including the panels in
Mexico – HFCS and EC – Tube.

37. Moreover, Korea’s arguments about indivi dual domestic producers are also flawed and/or
based on a selective reading of the evidence. The public statements that Korea continues to assert
show that the US DRAM industry was doing well of ten pertain to the individual company’s global
operations on all products, not just DRAMs. Indeed, the two randomly selected quotations from
Micron that Korea asserts show how the domestic industry purportedly assessed its own condition
reinforce rather than detract from the ITC’s imp act findings. Neither statement establishes nor was
intended to suggest that the identified factors show that Micron or the domestic industry did not suffer
injury. Rather, they show that, because of good ma nagement practices, Micron expected to survive,
despite the significant injury that it had suffered.

38. Article 15.5 Analysis
: The ITC’s analysis was also consistent with the requirements of
Article 15.5 of the SCM Agreement. The ITC found that the domestic industry producing DRAM
products was materially injured by reason of the subsidized subject imports of DRAM 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 its
examination of the volume, price effects, and impact of the subsidized subject imports on the
domestic industry. No one or several of these factors was decisive. Rather, the material injury
determination – and, thus, the ITC’s causation anal ysis – was based on an analysis of these factors
collectively. Thus, in the DRAMs investigation, the ITC integrated the causation discussion and its
discussion of how it ensured that it did not attribute material injury from other factors to the subject

imports into its analysis of the volume, price effects and impact of subject imports. While this
approach is not required by the SCM Agreement, it is certainly consistent with the Agreement. Korea
fails to show otherwise.

39. Korea’s arguments reveal that it believes that in investigations like the DRAMs investigation,
where there are several factors that may be injuring the domestic industry, an investigating authority
is precluded from making an affirmative material injury determination. Korea’s argument has no
basis in the provisions of the SCM Agreement. Appellate Body reports also lend the argument no
support.

40. The ITC also examined other known factors to ensure that it did not attribute injury from
those factors to the subsidized subject imports. In so doing, the ITC properly separated and
distinguished other known factors from the subsidized subject imports by providing a satisfactory
explanation of the nature and extent of the in jurious effects of the other known factors, as
distinguished from the injurious effects of the subsidi zed subject imports. This is all that is required,
even in the context of the Safeguards Agreement.

41. For example, with respect to the business cy cle, the ITC found that because growth in demand
for DRAM products has been continuous, but su pply increases are sporadic, supply and demand in
this industry tend to be chronically out of equilib rium, giving the market its characteristic "boom" and
"bust" business cycle. The ITC also determined that largely because of the perpetual improvements in
production efficiencies experienced by this industry, prices are usually declining. At the same time,
the ITC determined that the business cycle (and other factors affecting prices) simply did not explain
the unprecedented severity of the price declines th at occurred from 2000 to 2001 and that persisted
through 2002. Nor could it explain the increasing fr equency of underselling by subsidized subject
imports during the period of investigation.

42. The ITC’s examination of other known factors is identical to the methodology upheld by the
panels in EC – Tube and Egypt – Rebar . The panel in Egypt – Rebar did not require the
"non-attribution" findings of the investigating aut hority to be based on an econometric model or some
sophisticated quantification exercise. All that the panel in Egypt – Rebar required was that the
"non-attribution" findings be based on a meani ngful explanation as to why the effects of the
subsidized imports did not "overlap" with (that is , were notionally distinct from) those of another
factor causing injury at the same time. In the DRAMs investigation, the ITC found that the subsidized
imports had price effects that significan tly exceeded those of non-subject imports , and that other
factors – such as the operation of the business cycle (including by virtue of capacity/supply increases);
slowing in the growth of demand; and the produc t life cycle – could not explain the unprecedented
price declines experienced during the period of inves tigation. Therefore, it is clear that subsidized
imports had their own, independent, injurious effects.

43. As in EC – Tube , the ITC found that effects of one factor (capacity expansions) were
subsumed within the effects of another factor (t he operation of the business cycle), and determined
that the effects of the latter factor could not expl ain the totality of the injury observed (cumulative
price declines that ranged as high as 90 per cent, well in excess of the "usual" ranges). These findings
supported the ITC’s conclusion about the causal nexus between the subsidized subject imports and the
injury to the domestic industry.

 E. Korea does not Dispute the ITC's Treatm ent of Certain Data as Confidential
and Offers no Basis for the Panel to Request Confidential Data

44. Finally, in its opening statem ent and its oral responses to the Panel’s questions during the first
Panel meeting, Korea requested that the Panel ask the United States to provide the entire confidential
final determination of the ITC, as well as the entire confidential data tabulations that formed the ITC’s
report in this investigation. Korea also suggested that if the ITC did not provide such information that
the Panel look to Confidential US Figure 1 . As we have previously explained, Korea has failed to
demonstrate why any or all such confidential info rmation would be necessary or appropriate in this
dispute.

45. Reports reviewing other investigating aut horities’ antidumping determinations – such as
Thailand – H-Beams – have recognized that it is objective for investigating authorities to base their
determinations on the entire agency record (includi ng confidential data). Thus, it was objective for
the ITC to base its injury determination on a review of the entire record, and not just data that could
be released in the public version of an opinion.

46. With respect to Korea’s suggestion that the Panel look to Confidential US Figure 1 , for the
reasons set forth in paragraph 300 of the US first submission, we continue to urge the Panel not to rely
on the selective confidential information that Korea has provided in this dispute. Nevertheless, should
the Panel be inclined to examine the data summarized in Confidential US Figure 1, the United States
makes the following observations based solely on a comparison of the limited confidential data before
the Panel concerning Hynix Semiconductor Ameri ca’s imports and Hynix Semiconductor America’s
US shipments of imported subsidized subject DRAM products with non-confidential information
contained in the ITC’s final report.

 * The ratio of subject imports to domes tic production increased enormously from 2000
to 2002.

 * Even based only on Hynix Semiconductor Am erica’s reported data, it is clear that
subsidized subject imports gained ma rket share between 2000 and 2001 while
domestic producers were losing market sh are. Likewise, although both the domestic
industry and subsidized subject imports lo st market share between 2001 and 2002,
reliance solely on Hynix Semiconductor America’s reported data shows that
subsidized subject imports maintained th eir market share better than the domestic
industry between 2001 and 2002 at a time of slowing demand.

 * Confidential Figure US-1 also reveals information about the magnitude of the
absolute increases in subject import volume.