JAPAN – COUNTERV AILING DUTIES ON DYNAMIC RANDOM ACCESS MEMORIES FROM KOREA
Document: Report of the Panel
Date: 13 July 2007
Document codes: WT/DS336/R
Complainant: South Korea
Respondent: Japan
Third parties: China, EU, Taiwan, U.S.
Dispute stage: Appellate Body
Agreements cited: Art. 1, 2, 14, 10, 15, 19, 21, 11, 12, 32.1, 15.5, 1.1, 19.1, 19.4  Subsidies and Countervailing Measures (SCM)Art. VI:3, X:3  GATT 1994

JAPAN – COUNTERV AILING DUTIES ON
DYNAMIC RANDOM ACCESS
MEMORIES FROM KOREA

Report of the Panel

I. INTRODUCTION
1.1 On 14 March 2006, the Government of Korea ("Korea") requested consultations with the
Government of Japan ("Japan") pursuant to Article 4 of the Understanding on Rules and Procedures
Governing the Settlement of Disputes (the " DSU"), Article 30 of the Agreement on Subsidies and
Countervailing Measures (the " SCM Agreement"), and Article XXII of the General Agreement on
Tariffs and Trade 1994 (the "GATT 1994") regarding the imposition of countervailing duties by Japan
on imports of certain Dynamic Random Access Memories ("DRAMS") from Korea, and certain
aspects of the investigation and determination that led to the imposition of such duties.1
1.2 On 27 March 2006, the United States requested to be joined in these consultations pursuant to
Article 4.11 of the DSU.2 The European Communities made a similar request on 29 March 2006. 3
Japan accepted these requests. 4 Consultations were held on 25 April 2006, but failed to settle the
dispute.
1.3 On 18 May 2006, Korea requested the Dispute Settlement Body (the "DSB") to establish a
panel pursuant to Article 6 of the DSU, Article XXIII of the GATT 1994 , and Article 30 of the
SCM Agreement.5
1.4 At its meeting on 19 June 2006, the DSB establis hed a Panel pursuant to the request by Korea
in document , in accordance with Article 6 of the DSU. At that meeting, the parties to
the dispute also agreed that the Panel should have standard terms of reference. The terms of reference
are, therefore, the following:
"To examine, in the light of the relevant provisions of the covered agreements cited
by Korea in document , the matter referred to the DSB by Korea in that
document, and to make such finding s as will assist the DSB in making the
recommendations or in giving the rulings provided for in those agreements."
1.5 On 24 August 2006, the parties agreed to compose the Panel as follows:
Chairman: Mr. Daniel Moulis

Members: Dr. Faizullah Khilji
 Mr. José Luis Santiago Pérez Gabilondo

1.6 China, the European Communities and the United States reserved their third party rights.
1.7 The Panel met with the parties on 5-6 Decemb er 2006 and on 23-24 January 2007. It met
with the third parties on 6 December 2006.
1.8 The Panel issued its Interim Report to the parties on 16 April 2007.
II. FACTUAL ASPECTS
2.1 This dispute arises from Japan's imposition of definitive countervailing duties on imports of
DRAMS from Korea manufactured by Hynix Semiconductor, Inc. ("Hynix"). Japan's investigating
authorities (the "JIA") initiated a countervailing inv estigation on 4 August 2004, after an application
for the imposition of countervailing duties on DRAMS from Korea was submitted by Elpida Memory,

1 Document WT/DS336/1.
2 Document WT/DS336/2.
3 Document WT/DS336/3.
4 Document WT/DS336/4.
5 Document WT/DS336/5, attached at Annex A-1.

Inc. and Micron Japan, Ltd. The JIA sent questionnaires to a number of parties, including Hynix, the
Government of Korea, and a number of Korean fina ncial institutions. The pe riod of investigation for
the subsidy determination covere d 1 January to 31 December 2003, while the injury period of
investigation covered 1 April 2001 to 31 March 2004.
2.2 On 21 October 2005, the JIA informed the Government of Korea and the parties involved in
the proceeding of the essential facts under consid eration, pursuant to Article 12.8 of the
SCM Agreement. In the essential facts, the JIA found that certain debt restructuring programmes
entered into by Hynix and its creditors in Oc tober 2001 and December 2002 were countervailable
subsidies, and calculated a countervailing duty ra te of 27.2 per cent on imports of DRAMS from
Korea manufactured by Hynix. The JIA provided the Government of Korea and parties involved in
the proceeding with the opportunity to submit comme nts and rebuttals on the essential facts as well as
surrebuttals to the rebuttal comments.
2.3 In its final determinati on dated 20 January 2006
6 the JIA upheld the findings set out in the
essential facts. Annexed to the JIA's final determ ination were the essential facts ("Annex 1 (Essential
Facts)")7, and the JIA's summary of and response to th e comments and rebuttals and surrebuttals that
had been submitted ("Annex 3 (R ebuttals and Surrebuttals)") 8. These Annexes constitute an integral
part of the final determination.
2.4 Japan gave public notice of the final dete rmination and announced the imposition of
countervailing duties in Cabinet Order No. 13 9 and Ministry of Finance Notice No. 35, 10 published
respectively in Issue No. 4264 and Special Issu e No. 17 of the Official Gazette, both dated
27 January 2006.
III. PARTIES' REQUESTS FOR FINDINGS AND RECOMMENDATIONS
A. KOREA
3.1 Korea requests11 the Panel to find that:
 (a) Japan improperly calculated the benefit to the alleged recipient of the alleged
financial contributions from the Octobe r 2001 and December 2002 restructurings
using methods that were not specified in Japan's national legislation or implementing
regulations. Its findings of subsidy bene fits during the 2003 investigation period
from those restructurings were, therefore, inconsistent with its obligations under
Article 14 of the SCM Agreement.

 (b) Japan improperly based its findings concerning "financial contributions" and
"benefits" from the October 2001 and December 2002 restructurings on the absence
of evidence, and failed to identify positiv e evidence supporting its conclusions. Its
findings of subsidies from the October 2001 and December 2002 restructurings were,
therefore, inconsistent with its obligations under Articles 1 and 2 of the
SCM Agreement. More generally, its failure to conduct an impartial, fair and
reasonable investigation of these issues w as inconsistent with its obligations under
Articles 10, 11, 12, and 22 of the SCM Agreement and Article X:3 of the GATT 1994.

 6 Exhibit JPN-01.
7 Exhibit JPN-02; Exhibit KOR-03.
8 Exhibit JPN-04; Exhibit KOR-04.
9 Exhibit KOR-01; Exhibit JPN-07.
10 Exhibit KOR-02; Exhibit JPN-07.
11 See Korea's First Written Submission, para. 283.

 (c) Japan improperly treated entities that had no interest in the investigation as
"interested parties," improperly applied "fact s available" instead of considering the
information on the record, and improperly made adverse inferences against the
interests of Hynix due to allegedly inadequa te cooperation by other interested parties
or by other entities that were not under Hyni x's control and that were not obligated to
participate in the investigation. Its fi ndings of subsidies from the October 2001 and
December 2002 restructurings were therefor e inconsistent with its obligations under
Article 12 of the SCM Agreement. More generally, its failure to conduct an impartial,
fair and reasonable investigation as a result of its mistaken identification of
"interested parties" was inconsistent with its obligations under Articles 10, 11, 12,
and 22 of the SCM Agreement and Article X:3 of the GATT 1994.

 (d) Japan improperly found that the Oc tober 2001 and December 2002 restructuring
transactions constituted "direct transfers of funds"; it did not make the comparison of
outcomes required to determine that "reve nue otherwise due" had been "foregone or
not collected" in those transactions; and it improperly found government
"entrustment or direction" in those transactions based on incorrect assumptions about
the behaviour of rational creditors, and w ithout evidence that the government caused
the creditors to act in an unreasonable manner. Its findings that Hynix received
"financial contributions" from the October 2001 and December 2002 restructurings
were, therefore, inconsistent with its obligations under Article 1.1(a) of the
SCM Agreement.

 (e) Japan improperly failed to determine whet her the alleged government direction of the
October 2001 and December 2002 restruct urings made Hynix "better off"; it
improperly analyzed exchanges of claims in those restructurings that had equal
economic value without considering both si des of the exchange; and it improperly
ignored market benchmarks demonstrating th at the alleged "financial contributions"
in those restructurings did not make H ynix "better off" than the market-based
alternatives. Its findings that the a lleged "financial contributions" in the
October 2001 and December 2002 restructurings provided a "benefit" to Hynix were,
therefore, inconsistent with its obligations under Article 1.1(b) and Article 14 of the
SCM Agreement. Japan's imposition of countervailing duties based on this flawed
analysis was inconsistent with the requirements of 19.4 of the SCM Agreement and
Article VI:3 of the GATT 1994.

 (f) Japan improperly failed to consider whether the October 2001 and December 2002
restructurings were made using the same procedures and on the same terms that were
generally available to other companies in a similar condition. Its findings that the
alleged subsidies were specific to Hynix were, therefore, inconsistent with the
requirements of Article 2 of the SCM Agreement.

 (g) Japan imposed and maintained counter vailing duties without determining whether a
benefit continued to exist following changes in the ownership of Hynix as a result of
the October 2001 and December 2002 restructurings. Its imposition of countervailing
duties was, therefore, inconsistent with the requirements of Articles 10, 14, 19,
and 21 of the SCM Agreement.

 (h) Japan improperly levied a countervailin g duty on imports entering Japan in 2006 to
offset subsidies allegedly received in Oc tober 2001, even though, by Japan's own
calculations, the alleged subsidies from the October 2001 restructuring had ceased to
provide any benefit after 2005. Its imposition of countervailing duties was, therefore,
inconsistent with the requirements of Articles 19 and 21 of the SCM Agreement.

 (i) Japan's determination improperly failed to demonstrate that the allegedly subsidized
imports were, through the effect of the alle ged subsidies, causing injury within the
meaning of the SCM Agreement. Its determination of injury and its imposition of
countervailing duties were, therefore, in consistent with the requirements of
Articles 15.5 and 19.1 of the SCM Agreement.

 (j) As a consequence of these errors, Ja pan's imposition of countervailing duties on
imports of DRAMS from Korea was not consistent with the requirements of
Article 32.1 of the SCM Agreement, which provides that "[n]o specific action against
a subsidy of another Member can be taken except in accordance with the provisions
of GATT 1994, as interpreted by this Agreement."

3.2 Korea also requests that the Panel suggest that the countervailing duty measures imposed by
Japan on imports of DRAMS from Korea be immedi ately rescinded, and that any countervailing
duties collected by Japan on such imports be refunded forthwith.
B. J
APAN
3.3 Japan requests the Panel to reject Korea's claims in their entirety.
IV. ARGUMENTS OF THE PARTIES
4.1 The arguments of the parties are set out in their written submissions and oral statements to the
Panel, and in their answers to questions. The parties' arguments as presented in their written
submissions and oral statements are summarized in this section.
A. FIRST WRITTEN SUBMISSION OF KOREA
4.2 The following summarizes Korea's arguments in its first written submission.
1. Japan's Imposition of Countervailing Duties Was Based on a Fundamentally Flawed
Assumption
4.3 The imposition of countervailing duties by the Japanese Investigating Authority ("JIA") on
DRAMs from Korea produced by Hynix was based on its conclusion that restructuring transactions
entered into by Hynix's creditors in October 2001 and December 2002 constituted subsidies within the
meaning of the " SCM Agreement". That determination, in turn, hinged almost entirely on the JIA's
assumption that no rational creditor would have ente red into the restructuring transactions with a
company in Hynix's financial condition.
4.4 The JIA's assumption, however, reflects a fl awed understanding of how creditors of a firm
that is facing "financial distress" actually operate. 12 For creditors of an insolvent firm, the
fundamental issue is whether the firm's "going-concer n" value is greater than its "liquidation value."
If the going-concern value is higher, rational creditors will take the steps needed to capture that higher
value. When the realization of the higher going-concern value requires new investments, the existing

12 Korea notes that its use of the term "financial dist ress" in its submissions is meant to imply only that
Hynix did not have the funds on hand to meet its current payment obligations. It does not mean that Hynix had
engaged in any unsound financial practices, or that Hynix was not a good long-term investment.
It should be noted that Japan's determination in its investigation was based on its assumption that
Hynix was "bankrupt" during much, if not all, of the relevant period. Korea's submission seeks to identify the
logical errors occasioned by Japan's failure to consider the implicati ons of that assumption. None of the
arguments presented in Korea's submissions should be construed as an admission that Hynix actually was
"bankrupt," or that Korea agrees with Japan's assessment of Hynix's financial condition.

creditors of an insolvent firm will be able to maximize their returns by providing new funds to the
insolvent company – despite its apparently bad financial condition.
4.5 By contrast, the arithmetic of the cost-benefit analysis will discourage new investors from
making new loans or investments to an insolven t firm, because any returns generated by the new
investments will have to be shared with the existi ng creditors to satisfy thei r unsatisfied pre-existing
claims, even if those existing creditors do not partic ipate in the new investment. The advantage that
existing claimants have when analyzing new inve stments is not, however, immutable – because the
arithmetic of the cost-benefit analysis for new inv estments can be altered by changing the status of
pre-existing claims (for example, by "subordinating" the pre-existing claims). In practice, this
subordination of existing claims is often accomplishe d by converting pre-existing debt into equity.
Pre-existing creditors may benefit from the conversi on of pre-existing debt into shares, if that
conversion allows the company to attract investment s and generate returns th at would not otherwise
be available.
4.6 Despite these economic realities, creditors may, in practice, find it difficult to reach an
agreement on debt-restructuring due to cooperation problems. Bankr uptcy procedures have evolved
both to enforce the legal rights of creditors, a nd to provide a mechanism for working out the
conflicting interests of the creditors, managers and shar eholders of the firm. In practice, a variety of
approaches have been adopted. In the end, how ever, the outcome under the different approaches is
essentially the same. As one World bank expert explained: "[T]he differences among bankruptcy
laws matter mainly for negotiating tactics, not outcomes."13
4.7 The October 2001 and December 2002 restructur ings of Hynix's debts were undertaken
pursuant to a generally available Korean la w modeled on the "London Approach" to debt
restructuring. The restructurings were consistent with economic principles and with normal financial
practices in Korea and other markets. And, they were extraordinarily successf ul for the creditors:
The creditors that converted debt into equity in October 2001 earned a return of over 150 per cent,
while the creditors that converted debt into equi ty in December 2002 earned a return of over 290 per
cent.
4.8 In these circumstances, the JIA's assumption that no rational creditor would have entered into
the October 2001 and December 2002 restructurings is fundamentally flawed. As discussed more
fully below, the findings that th e JIA made based on that assumption are not consistent with the
requirements of the SCM Agreement.
2. Japan's Investigation Was Procedurally Flawed and Legally Invalid
(a) Failure to Promulgate Benefit Calculation Methods
4.9 Article 14 of the SCM Agreement requires that "any method" used to calculate the benefit of a
subsidy must be provided for in the relevant le gislation or implementin g regulations. Japan's
legislation and implementing regulations fail to m eet this requirement. Japan's countervailing duty
statute does not even mention the word "benefit. " Its "Guidelines" – which implement Japan's
countervailing duty statute – provide little guidance be yond what is already contained in Article 14 of
the SCM Agreement . None of the detailed calculation formulas and methodologies described in
Japan's determination in this case appear anywhere in the Japanese "Guidelines." In fact, although
Japan's determination in this case sets forth specific rules for calculating the "benefit" of extensions of
loan maturities and debt-equity swaps, the Guidelines do not even mention such transactions.

13 See Ramachandran, Bankruptcy's Role in Enterprise Restructuring: A Hammer to Turn a Screw? ,
PUBLIC POLICY FOR THE PRIVATE SECTOR, The World Bank FPD Note No. 38 (March 1995).

4.10 If "any method" used to calculate the benefit of subsidies must be set forth in a Member's
legislation or implementing regulations, then met hods that are not set forth in legislation or
implementing regulations cannot be used. Consequently, the JIA's determination that the alleged
subsidies conferred a benefit on Hynix during the in vestigation period cannot be sustained. Indeed,
unless and until Japan complies with the minimal pro cedural requirements of Article 14, it is not
permitted to impose countervailing duties on imports from any WTO Members.
(b) Improper Burden of Proof
4.11 From the earliest days of the GATT, it has b een recognized that an investigating authority
may not assume that the dumping or subsidies exist, and th en require the foreign respondents to refute
that assumption. Instead, the investigating aut horities must obtain positive evidence demonstrating
the existence of each element required for the imposition of antidumping or countervailing duties.
14
4.12 The JIA's analysis in this case failed to follow those principles. Its determination was based
on the assumption that no rational creditor motivated by commercial considerations would have
entered into the restructuring transactions. The JI A claimed (incorrectly in Korea's view) that the
contrary evidence presented by the Korean governme nt, Hynix and its creditors (including direct
testimony) should be disregarded. But, the rejection of the evidence contradicting its assumptions is
not proof that the assumptions were corr ect. Because the JIA failed to adduce positive evidence
demonstrating the existence of a s ubsidy, its determination was not c onsistent with the provisions of
Articles 2.4 and 15.1 of the SCM Agreement that require positive eviden ce of the existence of
subsidies and injury, or with the more general re quirement (under Articles 10, 11, 12, and 22 of the
SCM Agreement and Article X:3 of the GATT 1994) that an investigating authority conduct an
impartial, reasonable and fair investigation.
(c) Improper Identification of "Interested Parties"
4.13 The JIA issued questionnaires in Japanese to 16 fi nancial institutions that had been creditors
of Hynix during the relevant period. When some of those institutions failed to provide information,
the JIA resorted to "facts available." According to th e JIA, this use of "facts available" in this manner
was authorized by Article 12.7 of the SCM Agreement.
4.14 By its terms, Article 12.7 applies only wh en necessary information is not provided by
"interested parties." And, in order for an entity to be an "interested party," it must have an "interest"
in the outcome of the proceeding. 15 If an entity does not have an inte rest in the outcome, Article 12.7
does not permit the use of "facts available" for information the entity is unable or unwilling to
provide.

14 See, e.g., Swedish Anti-Dumping Duties, L/328, 23 February 1955, 3S/81, para. 15.
15 For example, all of the entities that are specifica lly identified as "interested parties" by the SCM
Agreement – i.e., exporters, importers, foreign producers, domestic producers, and their associations – are
directly affected by the outcome of investigations, and therefore have a clear "inter est" in the conduct of the
proceedings. Furthermore, Article 12.4 of the SCM Agreement presupposes that "interested parties" must have
a "case" to present to the investigating authorities. Ar ticle 12.8 requires that investigating authorities provide
"interested parties" with an adequate opportunity to "d efend their interests." These provisions would make no
sense if the term "interested parties" were defined to include entities that had no "i nterests" in the proceeding,
and thus no "case" to present.
The SCM Agreement's provisions concerning the collection of information and the use of "facts
available" mandate a similar interpretation. Articles 12 .1 and 12.7 of the SCM Agreement permit investigating
authorities to request information from interested parties, and provide consequences if the "interested parties" do
not respond. Such provisions would be patently unfair – and would violate any notion of procedural due process
– if the parties who do have an interest in the outcome of the case could have their interests prejudiced by the
non-responsiveness of entities that have no interest in the outcome.

4.15 The JIA asserted that it was "obvious" and "normal" to consider the financial institutions to be
"interested parties." However, the JIA neve r explained why it believed those entities were
"interested" in the proceeding. Thus, it failed to establish a factual foundation for concluding that any
of the financial institutions to which it sent questionnaires was, in fact, an "interested party."
4.16 As the Appellate Body has recognized, it is impr oper to punish exporters that cooperate fully
in an investigation for the non-responsiveness of others that are beyond their control. 16 But that is
exactly what the JIA did in this case: It impo sed countervailing duties on Hynix's exports because
other entities that were not under Hynix's control di d not provide requested information, even though
Hynix itself cooperated fully with all of the JIA's re quests. That result is not consistent with the
definition of "interested party" in Article 12 of the SCM Agreement, or with Japan's overall obligation
to conduct an impartial, fair a nd reasonable investigation under Ar ticles 10, 11, 12, and 22 of the
SCM Agreement and Article X:3 of the GATT 1994.
3. Japan's Findings of Subsidies to Hynix Were Inconsistent with the Requirements of the
SCM Agreement
(a) Improper Finding that Hynix Received Financial Contributions
(i) Improper Classification of Transactions that Did Not Involve Any Transfer of Funds as
"Direct Transfers of Funds"
4.17 As a matter of elementary logic, a "direct transfer of funds" under sub-paragraph (i) of
Article 1.1(a)(1) requires, at a minimum, that there be a transfer of funds. In this regard, the ordinary
meaning of the term "transfer" requires a "conveyance from one person to another of property."17 The
term "funds" refers to "money." 18 Thus, in order for there to be a "transfer" of "funds," money must
change hands – from the government (or government-directed private body) to the subsidy recipient.
4.18 In its determination, the JIA held that the term "direct transfers of f unds" in sub-paragraph (i)
encompassed all of the elements of the restructurings, including inter alia : (1) "extensions of the
maturities" of existing loans, (2) "reductions of the interest rates on existing loans," (3) "conversion of
interest-bearing debts to long-term loans," and (4) "d ebt-equity swaps." This conclusion is, however,
plainly incorrect. There is no conveyance of mone y when a lender agrees to extend the maturities of
existing loans, or to reduce the interest rates on exis ting loans, or to convert existing interest payment
obligations into loan principal, or to write-off loans entirely, or to convert debts into equity. In those
transactions, a creditor holding existing claims agains t the borrower agrees to modify the nature of
those claims – or to exchange one set of claims for another – without providing any money to the
borrower. Consequently, there is no transfer of funds, and sub-paragraph (i) of Article 1.1(a)(1) does
not apply. As a result, the JIA's finding that th e restructurings provided "financial contributions"
because all of their elements were "direct transfers of funds" cannot be sustained.
(ii) Lack of Factual Findings for a Determination that Revenue Otherwise Due Had Been
Foregone
4.19 Although modifications to loan terms and debt -equity swaps are not "direct transfers of
funds" within the meaning of sub-paragraph (i) of Article 1.1(a)(1), they might, in appropriate
circumstances, be considered "foregone gove rnment revenue" within the meaning of sub-
paragraph (ii) of that provision. In this regard, the Appellate Body has explained that the analysis
under sub-paragraph (ii) necessarily requires a " comparison between the revenues due under the

16 See United States – Anti-Dumping Measures On Certain Hot-Rolled Steel Products From Japan ,
WT/DS184/AB/R, 24 July 2001, paras. 102-104.
17 See, e.g., SHORTER OXFORD ENGLISH DICTIONARY (5th ed. 2002) at 3325.
18 Id. at 1049.

contested measure and revenues that woul d be due in some other situation."
19 But, the JIA never
purported to make such a comparison in this case – and it never made the factual findings that would
be needed for such a comparison. Thus, the JIA's finding of financial contributions from the various
elements of the restructuring – such as the extensi on of the maturities of the loans, modifications to
interest rates, write-off of debts, and swaps of debt for equity – cannot be sustained.
4.20 Even if Japan were permitted to offer post hoc rationalizations to explain how the various
transactions constituted "foregone government re venue," the outcome would be the same. For
example, extensions of loan maturities (or roll-ups of interest into principal) do not represent foregone
revenue when interest is charged on the amounts to be paid for the extended loan period.
Furthermore, exchanges of debt for equity do not represent foregone revenue, when the debt would
otherwise have been discharged in bankruptcy proceedings, and did not have a greater value than the
equity for which it was exchanged. In these circum stances, the various modifications to the terms of
Hynix's outstanding debts did not represent any "foregoing" of reve nues by Hynix's creditors, and
thus were not financial contributions within the mean ing of sub-paragraph (ii) of Article 1.1(a) of the
SCM Agreement.
(iii) Improper Finding of "Entrustment or Direction" of Hynix's Private Creditors
4.21 The Appellate Body has observed that sub-paragra ph (iv) of Article 1.1(a) is a kind of "anti-
circumvention" provision, which prevents gove rnments from evading the disciplines of the
SCM Agreement by taking action through private bodies that would constitute subsidies if performed
directly by the government. 20 A finding of "entrustment or direction" is permitted, therefore, only
where a government uses a private body as a "proxy." The Appellate Body has also clarified that the
evidence relied upon by an investigating authority in making that determination must demonstrate that
entrustment or direction has occurred with resp ect to each private body in a given financial
contribution.21
4.22 The JIA's finding of "entrustment or directi on" was based, in the end, on the following
findings:
(1) The Korean government had expressed an intention to "keep Hynix alive."
(2) The actions by Hynix's creditors were irrational, because
(a) No rational creditor would have entere d into the restructuring transactions, in
view of Hynix's poor, and deteriorating financial condition; and
(b) The evidence submitted by the indivi dual creditors (or the "facts available"
adopted by the JIA where the creditors were non-responsive) did not establish
that the creditors had conducted a suffici ent analysis of the transactions before
entering into them.
In reality, however, each of these "findings" was demonstrably wrong. Taken individually or as a
whole, they fail to establish government entrustment or direction.
4.23 First, none of the stories cited by the JIA reported a government desire to save Hynix at the
expense of its creditors. Instead, the stories relati ng to the restructurings consistently reported only
that the government viewed the restructurings as ma tters to be left to the creditors. There is no

19 See United States – Tax Treatment for "Foreign Sales Corporations ," WT/DS108/AB/R,
24 February 2000, para. 90 (emphasis added).
20 See United States – Countervailing Duty Inve stigation on Dynamic Random Access Memory
Semiconductors from Korea, WT/DS296/AB/R, 27 June 2005, para. 113.
21 See United States – Countervailing Duty Investigation on DRAMs from Korea , WT/DS296/AB/R,
27 June 2005, para. 140.

indication whatsoever that the government attempted to intervene to force the creditors to enter into
transactions that were not in their own interests.
4.24 There were a number of reports indicating that the Korean government was keeping an eye on
the developments in Hynix's situation throughout all of the restructurings – and that the government at
times expressed its desire to see the situation resolv ed expeditiously. However, this monitoring and
expressed desire for expeditious resolution by the creditors is entirely consistent with the
government's prudential role in preventing serious ha rm to the overall financial sector. By the same
token, an intent to see the credito rs resolve matters quickly is not the same as an intent to use the
creditors as a "proxy" to save Hynix by pressuring th em into entering into transactions that were not
in their own interests.
4.25 Second, as discussed above, rational profit-maximizi ng creditors can have sound reasons to
provide new loans, extend the maturities of existing loans, swap debt for eq uity, or forgive loans
entirely, even when the borrower is insolvent. Furthermore, th ere is ample evidence that such
transactions occur all the time – whether in the c ontext of formal bankrupt cy proceedings or in
informal workouts. The evidence in this case demonstrated that Hynix's going-concern value far
exceeded its liquidation value at all relevant times. Consequently, the restructuring transactions were
economically rational for Hynix's creditors.
4.26 Third, the JIA itself admitted that finding of subjective irrationality in the banks decision-
making processes was based on its conclu sion that the banks' decisions were objectively irrational.
Fortified by an assumption that the creditors' actions simply had to be irrational, the JIA looked for
justifications to reject the evidence showing that the creditors had, in fact, undertaken a rational
analysis and come to a rational decision. In following that approach, the JIA clearly did not conduct
an unbiased examination of the evidence. But even with its biased rejection of the information
presented by the creditors, the JIA still failed to estab lish its case. While the JIA might have rejected
the creditors' descriptions of th e analyses they performed, it di d not present any positive evidence
demonstrating that the creditors had actually failed to perform a rational analysis.
4.27 Finally, the JIA's determination that the restructuring transactions were commercially
irrational is inconsistent with the fact there were a number of "private creditors" who were not found
by the JIA to be "entrusted or directed" and who entered into the restructuring transactions at the same
time and on the same terms as the allegedly gove rnment-directed banks. Consequently, the JIA's
assumption that the creditors entered into the restructurings only because of "entrustment or direction"
by the Korean government cannot be sustained.
(b) Improper Finding that Hynix Received a Benefit from the Alleged Financial Contributions
4.28 The Appellate Body has held that the determ ination of the existence of a benefit under
Article 1.1(b) of the SCM Agreement requires a comparison: A benefit exists only where the
"financial contribution" makes the recipient "better off" than it would otherwise have been.
22
4.29 Under Article 1.1(a)(1) of the SCM Agreement, the "financial contribution" from "entrustment
or direction" is the government's action, and not the funds transfers or foregone revenue provided by
the private creditors in response. Because the SCM Agreement refers to "benefits" flowing from the
"financial contribution," it follows that the be nefit analysis must focus on the effects of that
government action. Consequently, the issue in this case is not whether Hynix was made "better off"
by the various restructuring transactions. Inst ead, the issue is whether the alleged government
involvement resulted in better restructuring transacti ons for Hynix than it would have been able to
negotiate in the absence of government involvement.

22 See, e.g., Canada – Measures Affecti ng the Export of Civilian Aircraft , WT/DS70/AB/R,
2 August 1999, para. 157.

4.30 The JIA made no findings on that issue. It made no findings as to what a non-government-
directed restructuring might have looked like. As a result, it never made the comparison required by
the Appellate Body – to determine whether the government action constituting the "financial
contribution" made Hynix "better off."
4.31 Furthermore, even if the benefit analysis were focused on the transactions themselves, and not
on the alleged government action, the result would be the same.
23 Article 14 of the SCM Agreement
makes clear that transactions that are consistent w ith normal market behaviour do not confer a benefit
on the recipient. As discussed above, there is am ple evidence that real-wor ld creditors enter into
restructuring transactions with insolvent companies all the time. The restructuring of Hynix's debt
was fully consistent with normal commercial pr actices – especially in light of the evidence
demonstrating that Hynix's going-concern value far exceeded its liquidation value.
4.32 And, the evidence was not just limited to economic theory and textbook examples. Instead,
the evidence demonstrated that cr editors that the JIA conceded we re not government-directed entered
into the same transactions on the same terms as the allegedly government-directed creditors. That fact
alone should have resulted in a finding that the restructurings were consistent with the relevant market
benchmarks.
4.33 The JIA claimed that the actions of the non-gove rnment-directed creditors could not establish
a market benchmark, due to distortions caused by s ubsidies allegedly provided to Hynix in the past.
In other words, the JIA ignored the actual market tr ansactions because it considered them inconsistent
with the hypothetical transactions in a hypothetical market in which past transactions had not
occurred. That analysis cannot be reconciled with the SCM Agreement 's instructions to use actual
market transactions as the benchmark for finding be nefits. Also, it effectively double-counts alleged
subsidy benefits, by finding a be nefit from alleged past subsidies both when the alleged subsidy was
first received and again when it allegedly permitte d the recipient to obtain subsequent market-
equivalent financing that would not otherwise have been available.
4.34 In these circumstances, the JIA's failure to rely on actual market behaviour and the available
market benchmarks to measure the benefit to Hyni x cannot be sustained. Because the restructurings
were consistent with normal commercial practic es, and because non-government-directed private
bodies entered into the same transactions at the same time and on the same terms, there was no benefit
from the alleged government entrustment or direction.
(c) Improper Finding that the Alleged Subsidies Were Specific to Hynix
4.35 The JIA found that the restructuring transactions were all specific to Hynix, because they
were all "rescue measures specific to a specific corpor ation." But, that conclusion has no basis in the
evidence. Even if the JIA were correct in d escribing the restructurings as government-directed
"rescue measures", there is no evidence that such measures were unique to Hynix.
4.36 The legal framework that governed Hynix's restructurings was the same as the rules that
governed the restructuring of other Korean companies. The type of reports by financial experts that
were relied upon in the Hynix restructurings were also relied upon in the restructurings of other
Korean companies. There is no ev idence that the terms of the Hynix restructuring transactions were
any more favourable to Hynix than the terms of other restructurings involving similarly situated

23 In this regard, it should be noted that the restructuring transactions in this case involved exchanges
by the creditors of one set of claims for another – which the JIA valued inconsistently. In particular, in
determining whether there was a benefit from the restructuring, the JIA assumed that Hynix did not have the
ability to repay its outstanding debts and was facing "ban kruptcy" – which necessarily meant that the creditors
could not expect to be paid in full. But, in calculating the amount of the benefit from the restructuring, the JIA
assumed that Hynix's debts would have been repaid in full in the absence of the restructuring. This inconsistent
analysis cannot be sustained.

companies in Korea. In fact, the evidence pre sented to the JIA (including statements by Hynix's
creditors) confirmed that Hynix was not treated any more favourably than any other Korean
companies going through restructurings.
4.37 By focusing microscopically on Hynix, the JIA mi ssed the broader picture. In the absence of
evidence that the role of the government a nd the government-directed banks in the Hynix
restructuring was any different from their role in the thousands of similar situations occurring in
Korea at the same time, the JIA's determination th at the alleged subsidies were specific to Hynix
cannot be upheld.
4. Japan Improperly Imposed Countervailing Duties on Imports that Were Not Subsidized
(a) Failure to Consider the Impact of Changes in the Ownership of Hynix
4.38 The debt-equity swaps undertaken in the restruct urings worked a fundamental change in the
ownership of Hynix. Before those transactions, none of the creditor banks or financial institutions
owned any shares in Hynix. Afterward, the cred itor banks and financial institutions collectively
owned an overwhelming majority of Hynix's shares. The restructurings also resulted in a fundamental
change in Hynix's management – with a vice president of KEB (the lead creditor bank) taking over as
Hynix's Chief Executive Officer in July 2002.
4.39 The Appellate Body has held that, when there is a change in the ownership of a company at
fair market value, the investigating authorities must consider whether the subsidies received before the
change in ownership continue to pr ovide a benefit after the ownership change. It has also held that
such a change in ownership creates a rebuttable pr esumption that the benefits of the subsidy have
been extinguished. And, it has found that the failure of investigating authorities to comply with that
obligation is inconsistent with Articles 10, 14, 19, and 21 of the SCM Agreement.24
4.40 In this case, the JIA failed to consider whethe r the subsidies allegedly provided to Hynix
continued to provide benefits following the change in ownership wrought by the debt-equity swaps.
Thus, in accordance with the Appellate Body pa st decisions, the JIA's determination was not
consistent with Articles 10, 14, 19, and 21 of the SCM Agreement.
(b) Improper Imposition of Duties on Imports after the Benefit of the Alleged Subsidies Had
Expired
4.41 According to the JIA's analysis, Hynix's facilities had an estimated useful life of five years.
As a result, the alleged subsidies were allocated ove r a five-year period, including the year in which
they were received. Thus, the subsidies allegedly received by Hynix in 2001 were all allocated to the
five-year period from 2001 to 2005.
4.42 The JIA's final determination was published in Ja nuary 2006. At the time the determination
was published, the JIA knew that, under its calc ulations, the benefits from the October 2001
restructuring had already been assigned fully to pr evious years, and could not have any additional
impact on 2006 or future years. Nevertheless, th e JIA imposed a countervailing duty of 18.1 per cent
in 2006 to offset the subsidies allegedly received in the October 2001 restructuring.
4.43 Article 19.4 of the SCM Agreement provides that the countervailing duty imposed may not
exceed the amount of the subsidy found "to exist." In other words, it does not permit duties to be
imposed based on past subsidies that no longer "exist." Article 21.1 of the SCM Agreement makes

24 See, e.g., United States – Countervailing Measures Concerning Certain Products from the European
Communities, WT/DS212/AB/R, 9 December 2002, paras. 126-27, 144 and 161.

this requirement explicit, providing that: "A countervailing duty shall remain in force only as long as
and to the extent necessary to counteract subsidization which is causing injury."
4.44 In this case, the JIA's calculations fully a llocated the benefits of the October 2001
restructuring to the five years from 2001 to 2005. There were no benefits left from the October 2001
restructuring to be allocated to 2006. Conseque ntly, the JIA's imposition of countervailing duties in
2006 based on the alleged benefit of the October 2001 restructuring was inconsistent with the
requirements of Articles 19 and 21 and cannot be sustained.
5. Japan's Finding that the Subsidized Imports Were Causing Injury Was Inconsistent
with the Requirements of the SCM Agreement
4.45 The "causation" requirement set forth in Ar ticle 15.5 requires a demonstration "that the
subsidized imports are, through the effects of subsidies , causing injury…." This requirement is
echoed in Article 19.1, which permits the imposition of countervailing duties only i f " a M e m b e r
makes a final determination ... that, through the effects of the subsidy , the subsidized imports are
causing injury...." Under these provisions, it is not enough that the imports which happen to be
subsidized are causing injury. Instead, it must also be demonstrated that the injury is occurring
"through the effects of the subsidy."
4.46 In its determination, the JIA concluded th at any harm caused by Hynix's exports was
necessarily a result of the subsidy, because Hynix w ould not have been in operation, and thus would
not have been able to export, in the absence of s ubsidies. The JIA's argument is, however, based on a
fundamental legal error. Contrary to what the JI A appears to believe, "bankruptcy" is not a synonym
for piecemeal liquidation. Instead, "bankruptcy" is a legal process, which affords a debtor protection
from its creditors while the debtor's future is being determined.
4.47 The Korean bankruptcy laws do provide for li quidation of insolvent debtors in certain
circumstances. But, as a general matter, "K orean bankruptcy law fa vours reorganization over
liquidation."
25 Consequently, there is no reason to believe that, if Hynix had filed for "bankruptcy," it
would have ceased operations. In all likelihood, the "bankruptcy" of Hynix would simply have
resulted in corporate reorganization before the Korean courts. Thus, the JIA's finding that the injury
had occurred "through the effects of the subsidy" – which was based exclusively on its assumption
that Hynix would have ceased operations without the a lleged subsidies – has no basis. And, since the
JIA has failed to "demonstrate that the subsidized imports are, through the effects of subsidies,
causing injury," its countervailing duty measures cannot be sustained.
6. Request for Ruling and Recommendation
4.48 In Korea's view, once the JIA's determination is brought into conformity with Japan's
obligations under the GATT 1994 and the SCM Agreement, there can be no basis for the imposition of
countervailing duties on imports of DRAMs from Kor ea. Korea therefore requests that the Panel
suggest that the countervailing duty measures imposed by Japan on imports of DRAMs from Korea be
immediately rescinded, and that any countervailing duties collected by Japan on such imports be
refunded forthwith.
B. F
IRST WRITTEN SUBMISSION OF JAPAN
4.49 The following summarizes Japan's arguments in its first written submission.

25 See, e.g., Yun, A Primer on Korean Bankruptcy Law , 18-5 A M. BANKRUPTCY INST. J. 18
(June 1999).

1. The Panel's Terms Of Reference
4.50 Korea's First Written Submission (FWS) raises a num ber of claims that either are outside of
the Panel's terms of reference under Article 6.2 of the DSU or fail to present a prima facie case. Of
the ten potential claims ultimately raised by Korea 26, six lack sufficient specificity to form a valid
claim. Specifically: Claim 2 (cites Articles not c ited in Korea's Panel Request and fails to specify
specific obligations within the cited Articles), Cl aim 3 (cites Articles not cited in Korea's Panel
Request and fails to specify specific obligations wi thin the cited Articles), Claim 5 (fails to specify
specific obligations within the cited Article), Claim 6 (fails to specify specifi c obligations within the
cited Article), Claim 7 (fails to specify specific ob ligations within the cited Articles), and Claim 10
(fails to provide any argument in support of the alle gation), which correspond to Items 3, 4, 5, 6, 7, 9,
12, 13, and 15 of Korea's Panel Request, are not presented with sufficient clarity and should be
dismissed.
4.51 Furthermore, as pointed out in Japan's Request for a Preliminary Ruling, Items 9, 10, and 15
of Korea's Panel Request were not presented with sufficient clarity under Article 6.2 of the DSU to
begin with. Japan respectfully re quests that the Panel make a preliminary ruling to dismiss such
defective claims.
2. Evidentiary and Procedural Issues
(a) Korea Failed to Meet Its Burden of Proof in This Dispute
4.52 Korea fails to meet its burden of proof as the complaining party to present a prima facie case,
and simply alleges violations without adequate analysis or explanation. 27 However, as the Appellate
Body has confirmed, Korea cannot rely on the Panel to make a case for the complaining party.28
(b) The Standard of Review of the Panel
4.53 Article 11 of the DSU establishes the standard of review for panels which is to conduct an
"objective assessment of the facts of the case and the applicability of and conformity with the relevant
covered agreements." The Appellate Body has rep eatedly clarified that in a dispute involving a
determination made by investigating authorities, a panel may not conduct a de novo review of the
evidence assessed in the investigation or substitute its judgement for that of the competent authorities,
and that the panel's "objective assessment" is to i nquire whether the evidence and explanation relied
on by the investigating authority r easonably supports its conclusions. 29 For example, where an
investigating authority makes a finding relying on the totality of the evidence which includes
circumstantial evidence, the panel must review th e investigating authority's conclusion on the same
basis.
4.54 However, Korea has asked the Panel to review the JIA's determination in a manner that is
different from how the JIA conducted its analysis a nd to examine information and arguments that was
not before the JIA in the inves tigation. Korea's request for a de novo review is inconsistent with
Article 11 of the DSU, and should be rejected.

26 Claims numbered in accordance with the order presented in paragraph 283 of Korea's FWS.
27 See Appellate Body Report, EC – Hormones , para. 104, Appellate Body Report, US – Shirts and
Blouses, p. 14.
28 Appellate Body Report, US – Gambling , paras. 140-41. See also Appellate Body Report, EC-
Hormones, para. 104.
29 See Appellate Body Report, US – Countervailing Duty Investigation on DRAMS, paras. 182-88.

3. The JIA's Factual Findings on The Subsidization of Hynix
4.55 In addition to its findings on subsidization through public bodies, the JIA determined
subsidization through private bodies under entrustmen t or direction by the Government of Korea
based on the totality of the evidence on record. The record of the investigation demonstrates that the
Government of Korea maintained a political intent to promote its semiconductor industry and also
made the normalization of Hynix, which had been experiencing serious financial difficulties, one of
its economic priorities. The Government of Korea repeatedly stated that Korea would take measures
to normalize certain companies, such as Hynix. As such, Korea had strong concerns about the
financial situation of Hynix. The Prime Minister 's Decree No. 408 in 2000 allowed the Government
of Korea to request cooperation or support of fina ncial institutions and to exercise its rights as a
shareholder in financial institutions. Certain banks recognized this situation and that the government's
policies may influence their investment decisions in prospectuses submitted to the US SEC. The
Government of Korea executed Memoranda of Understanding with various banks, gaining a degree of
control over these banks. Furthermore, the Govern ment of Korea held a significant share of the
ownership of certain banks and was in a position to exert substantial or direct influence on such
banks. The JIA found that from late 2000 through late 2002, the Government of Korea intervened in
the banks' financial decision-making repeatedly.
4.56 The JIA found that from late 2000 through May 2001, the Government of Korea extended
subsidies to Hynix in a number of programs pr ovided by public bodies and through private bodies
under the entrustment or direction of the Government of Korea. Despite these subsidies, the financial
situation of Hynix, which had been unable to obtain financing from the market, continued to
deteriorate, necessitating further financial assistance. The Government of Korea's actions with respect
to the private financial institutions ranged from, inter alia , pressing the private bodies to agree to
provide financial support at mee tings of Council for Creditor Fina ncial Institutions, to sending
instructions to KEIC to maintain prior subsidi zed financing, and to pressuring investment trust
companies to make financial contributions against their will. The JIA found that the Government of
Korea extended subsidies in the May 2001 Pr ogram through public bodies and private bodies
entrusted or directed by the Government of Kore a. The Government of Korea later officially
acknowledged that the May 2001 Program was an exam ple of success of the Government of Korea's
efforts. The JIA examined each of the banks' dete rminations to participate in the Program on a bank-
specific basis and found that the decisions of four banks to participate in the May 2001 Program were
based on a factor other than commercial factors. Consequently, the JIA found entrustment or
direction by the Government of Korea over these four banks.
4.57 Hynix's financial condition continued to dete riorate after the May 2001 Program, and in
October 2001, Hynix fell into a situation of "Selectiv e Default" for its loan obligations. Hynix was
unable to obtain financing from the commercial mark et. The Government of Korea's interest and
involvement in Hynix's restructuring continued af ter May 2001. Through an examination of, inter
alia, their internal credit examination records and reports on Hynix by external organizations, the JIA
found that certain private banks' decisions to par ticipate in the October 2001 Program were not based
on commercial considerations. Furt hermore, although the banks claime d to have relied on the Arthur
Anderson Report when making their decisions, the Report was not issued until after the decisions
were made. Thus, the JIA found that the decisions by four banks to participate in the October 2001
Program were based on a factor other than comm ercial factors. Consequently, the JIA found
entrustment or direction by the Government of Korea over these four banks.
4.58 The October 2001 Program did not solve Hyni x's financial problems, which continued
through 2002, necessitating yet another bail out in December 2002. The JIA found, inter alia, that the
Government of Korea kept contacting creditors, requesting their cooperation, monitoring them, and
had intervened into the preparation of the report commissioned by the banks and Hynix summarizing
the December 2002 Program, i.e., the Deutsche Bank Report, which contained obvious discrepancies
in its calculations. Hynix itself admitted that the Deutsche Bank Report containe d errors effecting its

calculation of the going-concern value of Hynix. The JIA found that the decisions of four banks to
participate in the December 2002 Program were based on a factor other than commercial factors.
Consequently, the JIA found entrustment or direc tion by the Government of Korea over these four
banks.
4. Korea's Claims of Errors
(a) The JIA Correctly Based the Final Determination on an Objective Assessment of the
Evidence on the Record and Provided Reas oned and Adequate Explanations Based on
Probative and Compelling Evidence
4.59 The JIA conducted a reasonable and objective ex amination of the extensive evidence on
record and made its determination on the basis of the evidence in its totality. Evidence on the record
that infers entrustment or direction includes th e Government of Korea's official documents, the
questionnaire responses of the interested parties, swor n statements by the financial institutions to the
US SEC recognizing the Government of Korea's infl uence on their decisions, the investigative reports
of Korea's National Assembly, a nd detailed public comments by top officials of the Government of
Korea and bank representatives attesting their collabora tion for Hynix, and various news reports. The
JIA also reviewed credit ratings by third parties a nd financial institutions that participated in Hynix
bailout programs; reports for Hynix bailout progr ams prepared by several external organizations
including SSB, Arthur Andersen, and Deutsche Bank; and internal credit examination documents of
individual banks to decide whether to participate in Hynix bailout programs, and provided a reasoned
explanation of how such evidence demonstrated entr ustment or direction to certain private banks as
well as its overall determination. The JIA also ex amined arguments raised by interested parties
concerning the JIA's determination, and gave expl anations of the reasons why it chose to discount
alternatives to reach its conclusions. Thus, the JI A's Final Determination was consistent with the
requirements of the SCM Agreement.
4.60 Korea has failed to demonstrate any example of an alleged "reversal of the burden of proof"
or a "finding not based on affirmative evidence" by the JIA. Korea's claims on these issues are based
on an erroneous position that "smoking gun" evidence is required for finding entrustment or direction,
a position already rejected in prior disputes, and should be rejected.
(b) Korea Misinterprets the Evidentiary Standard for an Investigation
4.61 As clarified by the Appellate Body, the SCM Agreement does not specify a particular
"standard for the evidence requi red to substantiate a finding of entrustment or direction under
Article 1.1(a)(1)(iv)", and only requires that "t he total evidence relied on by an agency must
'demonstrate' entrustment or direction" for the rele vant financial institutions. This evidence need not
be "irrefutable," nor "be of such quality or quantity so as to 'force' the [investigating authority] to
arrive at a finding of entrustment or direction."
30 U n d e r t h e SCM Agreement, individual pieces of
circumstantial evidence may be assessed "in conjunction with other pieces of evidence" to establish a
proposition. Consequently, inves tigating authorities may conduct a comprehensive analysis on "the
totality of the evidence" and, when taking into account circumstantial evidence, consider "how the
interaction of certain pieces of evidence may justif y certain inferences that could not have been
justified by a review of the individual pieces of evidence in isolation." 31
4.62 The evidentiary standard Kor ea proposes has no basis in the SCM Agreement. If accepted,
such argument would amount to an imposition of a qu alitative standard higher than that contemplated
by the SCM Agreement, and thus should be rejected.

30 Appellate Body Report, US – Countervailing Duty Investigation on DRAMS, paras. 138-39.
31 Ibid., para. 157.

(c) The JIA Properly Found Financial Contributions to Hynix
(i) The JIA's Finding of a Transfer of Funds Was C onsistent with Article 1.1(a)(1)(i) of the
SCM Agreement
4.63 The JIA correctly found that the extension of lo an maturities, reductions of interest rates,
transfers of the interest payments of loans into long-term loans, and debt-to-equity swaps were
transfers of funds under Article 1.1(a)(1)(i) of the SCM Agreement. Korea appears to argue that only
the types of transfers of funds explicitly listed in Article 1.1(a)(1)(i) qualify as transfers of funds for
the purpose of the SCM Agreement. Korea, however, ignores the text of the provision, which
indicates the listed transfers of funds are merely illustrative. This Article has been interpreted broadly
in light of the use of an illustrative list. The panel in Korea - Commercial Vessels found that "interest
rate reductions and deferrals," "interest/debt forg iveness," and "debt-for-equity swaps", which are the
types of transfer of funds at issue in this case, are financial contributions under Article 1.1(a)(1)(i).
32
Korea also ignores the admonition of the Appella te Body that a narrow interpretation of the
SCM Agreement's financial contribution provisions "woul d permit the circumvention of subsidy
disciplines" of the SCM Agreement.33 Thus, Korea's claim on "transfer of funds" is based on an
incorrect interpretation of Article 1.1(a)(1)(i) of the SCM Agreement.
(ii) The JIA Properly Found the Government of Kore a's Entrustment or Direction to Private
Creditors
4.64 The JIA examined the totality of the evidence on record and found that the Government of
Korea entrusted or directed certain private bodies to provide financial contributions to Hynix within
the meaning of Article 1.1(a)(1)(iv) of the SCM Agreement. The JIA's findings were consistent with
the requirements of Article 1.1(a)(1)(iv) as clarifie d by the Appellate Body, which has explained that
"entrust" and "direct" are broader than "delegation" and "command."34
4.65 The JIA based its finding of entrustment or di rection on ample evidence, including evidence
of the non-commercial nature of the investment d ecisions taken by the participating creditor banks 35,
evidence demonstrating the Government of Korea's power to control the creditor banks that ultimately
participated in the October 2001 Program and the December 2002 Program 36, and evidence that the
Government of Korea had the clear intent to save Hynix and evidence that the Government of Korea
exercised its authority over the banks, giving the banks the responsibility to restructure and rescue
Hynix.
37 After assessing such evidence in its totality , The JIA reasonably concluded that the

32 Panel Report, Korea-Commercial Vessels, para. 7.413.
33 Appellate Body Report, US – Softwood Lumber IV, para. 64.
34 See Appellate Body Report, US – Countervailing Duty Investigation on DRAMS, paras. 110-11.
35 Evidence of the non-commercial nature of the banks' investment decisions included the generally
acknowledged disastrous financial state of Hynix at the time of the October 2001 and the December 2002
Programs, the non-existence of new investors or bank s which were willing to extend credit to Hynix, the
negative assessments made by a number of the existi ng creditor banks concerning further investments into
Hynix, the lack of consultation of impartial and timely outside assessment and the lack of their own analysis on
the going concern versus the liquidation value of Hynix, the inconsistent decisions of banks shown from their
internal documents and the ac tual decisions made at the Creditors' Council, the inconsistent statements by the
banks and other related evidence, the statements in the US SEC filings and in the bank s' annual reports, and the
evidence that a number of creditors cited reasons other th an commercial reasons as r easons for participating in
the Programs.
36 Evidence of the Government of Korea's power to control the creditor banks included the Government
of Korea's shareholding of creditor banks, Prime Minister's Decree, and the Memoranda of Understanding
between the Government of Korea and the banks.
37 Evidence of the Government of Korea's exercise of control over the banks included the statements
by the Government of Korea, press reports, and acknowledgements of the banks themselves.

Government of Korea had entrusted or directed th e financial institutions to provide the financial
assistance to Hynix.
4.66 Such evidence demonstrated that the Government of Korea took actions that were much more
than mere expressions of an intention to save Hyni x, as the Government of Korea had exercised its
authority over the banks to provide the financial measures to Hynix. The JIA examined each financial
institution on a bank-specific and bailout program-specific basis, focusing on the banks' own
assessments of Hynix and of the bailout programs. After reviewing such evidence, the JIA concluded
that the banks based their decisions to participat e in the programs on a factor other than commercial
factors. The JIA did not, as Korea now argues, apply a particular economic theory in its analysis of
the banks' decision-making process or operate under the broad supposition that "no rational creditor
would have entered" the Hynix bailout programs. Indeed, the JIA did not require the banks to
establish that they made a sufficient analysis accord ing to some particular economic model. The JIA
examined the banks' actual decision-making process to participate in the Hynix bailouts, following the
process that these banks stated that they had fo llowed. The JIA concluded that the evidence
demonstrated that private creditors made non-commerc ial decisions. The JIA further determined that
certain private banks participated in Hynix bailout programs because of entrustment or direction by
the Government of Korea.
4.67 Korea mistakenly argues that entrustment or direction can only be found when the entrusted
or directed party pursues a measure that is against its own interest. However, Korea's argument has
no basis in the text of the SCM Agreement. It also ignores the Appellate Body's explanation that
entrustment may be established when the government simply "giv[es] responsibility to someone for a
task or an object."
38 Thus, an examination of entrustment or direction requires an objective
determination of whether such responsibility was given, not whether the responsibility was against the
interest of the entrusted or directed private body.
4.68 Korea's insistence that specific pieces of evidence should be examined in isolation from other
evidence and must directly indicate a partic ular conclusion is inconsistent with the SCM Agreement,
which does not limit the types of evidence on which an investigating authority may rely. As the
Appellate Body explained, circumstantial evidence may be assessed in their totality; the interaction of
certain pieces of evidence ma y justify certain inferences. 39 Thus, Korea's insistence that each of
individual pieces of evidence must establish the fact of existence of the entrustment or direction is
baseless, and it is an attempt to distort the analytical approach adopted by the JIA in the investigation.
Korea is requesting a de novo review by the Panel. Its arguments, therefore, should be rejected.
4.69 Relying in part on an incorrect English transl ation of the JIA's determination, as well as
information the Government of Korea, nor any othe r party, chose not to submit to the JIA during the
investigation, Korea only presents general argu ments on the JIA's bank-specific findings of
entrustment or direction and ignores the JIA's actual analysis and explanations. A review of the JIA's
actual bank-by-bank analysis would confirm that th e JIA reasonably reached findings of entrustment
or direction.
(d) The JIA Properly Found Benefit
4.70 Under Articles 1.1(b) and 14 of the SCM Agreement and as clarified by the Appellate Body 40,
a benefit analysis is made from the perspective of the recipient, not the provider, and whether the
recipient was better off than it would have been absent the financial contribution. Contrary to Korea's
argument41, there is no requirement in the SCM Agreement that an investigation authority must

38 Appellate Body Report, US – Countervailing Duty Investigation on DRAMS, para. 110.
39 See Appellate Body Report, US – Countervailing Duty Investigation on DRAMS, paras. 144-57.
40 Appellate Body Report, Canada – Aircraft, paras. 154-55.
41 FWS of Korea, paras. 229-30.

consider what a "non-government restructuring might have looked like " in determining the amount of
benefit without referring to the evidence on the r ecord. Korea bases its arguments on two erroneous
premises: (i) that investigating authorities must compare financial contributions actually provided to
the recipient with financing, which might have been available to the recipient, ignoring the fact that
Hynix and bailout programs could not have existed without prior government subsidies and therefore
no evidence on the record provides any basis to consider such situation, and (ii) that benefit can be
measured by the difference of returns that the creditors could have received had there been no
government entrustment or direction.
4.71 Korea ignores the Appellate Body's clarification
42 that a situation distorted by the very same
subsidies in question may not serve as a benchmark for the calculation of benefit because the use of
such a distorted situation would frustrate the object and purpose of the SCM Agreement. Accordingly,
the JIA did not use subsidy-distorted transactions as a benchmark, because Hynix's financial
conditions were realized only as a result of the Go vernment of Korea 's prior and contemporaneous
subsidies, for which the JIA determined benefit. Korea also ignores the fact that the financial
institutions which were not found to have been entrusted or directed by the Government of Korea
also entered into the bailout programs based on consideration of non-commercial factors and
overlooks the facts including Hynix's disastrous and ever deteriorating financial state, its bad history
of serving debt, the collapse of the stock price af ter the GDR issuance of June 2001, and the reality
that no new investors were willing to put funds into Hynix.
4.72 Korea's remaining arguments on benefit either lack support in the evidence on the record of
the investigation or are not based on the provisions of the SCM Agreement.
(e) The JIA Properly Found Specificity
4.73 The JIA correctly found specificity under Article 2 of the SCM Agreement because the
bailouts in question were tailored subsidies for one particular company, Hynix. The panel in EC-
Countervailing Measures on DRAM Chips affirmed a similar finding that the bailouts were specific to
Hynix, explaining that these subsidies were "for Hynix," "to Hynix," and "of Hynix."
43 Korea has not
attempted to distinguish the JIA's analysis on specifi city in this case from that previously considered
by the panel in EC-Countervailing Measures on DRAM Chips , nor has Korea identified the specific
obligation within Article 2 of the SCM Agreement that the JIA allegedly violated. Japan is not
required to search for the basis of Korea's claim among the numerous obligations under Article 2.
The absence of any explanation specific obligations regarding specificity in Korea's FWS confirms
that Korea has failed to present a prima facie case.
4.74 Korea argues that the legal framework in which the Hynix bailouts were conducted was
available to other Korean enterprises prevents a fi nding of specificity. However, Korea ignores the
fact that the JIA did not find that the general le gal framework itself was a government subsidy and the
JIA's analysis on specificity, which was similar to that affirmed by the panel report's explanation in
EC-Countervailing Measures on DRAM Chips.44
4.75 Korea's argument is also based on non-reco rd evidence concerning companies that were
subject to the CRPA restructuring during the inves tigation. Therefore, Korea's claim concerning
specificity should be dismissed.

42 Appellate Body Report, US – Softwood Lumber IV, paras. 90-95.
43 Panel Report, EC-Countervailing Measures on DRAM Chips para. 7.231.
44 See Panel Report, EC – Countervailing Measures on DRAM Chips, para. 7.231.

(f) Korea's Change-in-Ownership Argument Is Irrelevant to the JIA's Subsidies Determination
4.76 Korea's change-in-ownership argument is presente d without any analysis or explanation on
how Articles 10, 14, 19, and 21 support its conclusion. Furthermore, Korea argues that the debt-to-
equity swaps under the October 2001 and Decembe r 2002 Programs themselves extinguished the
benefits received by Hynix, but does not present any argument or evidence regarding change in
ownership subsequent to the findings of benefit under each Program. However, the issue of a change
in ownership is whether a subsidy continues to provide a benefit after a transfer of all or substantially
all the property of the recipient of the subsidy (i.e., through privatization) through an arm's length
transaction at fair market value.
45 The debt-to-equity swaps under the October 2001 and
December 2002 Programs do not meet any of these c onditions. Korea is repeating an argument,
which has already been rejected by the panel in Korea – Commercial Vessels , that a new subsidy,
which is not a "fair market transaction", does not extinguish the benefit of a prior subsidy. 46 T h e
provisions of Articles 1.1(a)(1)(i) and 14(a) of the SCM Agreement also clearly contradict an
interpretation that an equity infusion that amounts to a subsidy simultaneously extinguishes the
benefit therein. Thus, Korea has failed to meet its burden of proof to present a prima facie case, and
its argument should be rejected.
(g) The JIA Properly Imposed a Countervailing Duty on Imports Found to Have Been Subsidized
during the Period of Investigation
4.77 Korea's argument on the imposition period of countervailing duties does not follow from the
SCM Agreement and should be rejected. The JIA found and calculated the amount of subsidies that
existed at the time of the period of investigati on, as required under Articles 19.1 and 19.4 of the
SCM Agreement. There is no provision in the SCM Agreement that requires a determination of the
imposition period in advance, or provides that an "allocation period" of a subsidy defines such
imposition period. The provision of Artic le 19.2 - "all requirements for imposition have been
fulfilled" - clarifies that the imposition of counterva iling duties under Article 19 is a separate and
distinct phase that occurs after the determination of subsidization. An investigating authority may
impose a countervailing duty only after it determ ines that the countervailable subsidy "was
bestowed"
47 during the period of investigation, from the in formation gathered with respect to a period
of investigation. There is no additional obligation, as Korea insists, to determine that the subsidy "is
being bestowed" at the time of the imposition of the duties.
4.78 Article VI:3 of GATT 1994, which author izes the imposition of duties on a "subsidy
determined to have been granted ," further clarifies that an imposition of countervailing duties shall
be based on a determination which necessarily pr ecedes the imposition of the duty. Articles 10
and 11.1 of the SCM Agreement recognize that investigating authorities must conduct an investigation
following multiple steps to determine the subsidizati on and injury; as a corollary of the time that is
necessary to comply with these requirements, the imposition of countervailing duties concern the
amount of subsidy found to exist in the period of investigation. The Appellate Body in Mexico-Anti-
Dumping Measures on Rice also confirmed that the investigating authority's determination of the
conditions for the imposition of a trade re medy may be based on a past period, i.e., the period of
investigation.
48 Korea's argument also ignores the guidance of the EC-Tube or Pipe Fittings panel
report, which states, "[W]e are of the view that a fi nding that dumping exists during a recent past IP is
a finding of 'present' dumping for the purposes of the Agreement."49

45 See Appellate Body Report, US - Countervailing Measures on Certain EC Products, paras. 117, 127.
46 See Panel Report, Korea – Commercial Vessels, para. 7.419.
47 Panel Report, US – Lead and Bismuth II, para. 6.57.
48 See Appellate Body Report, Mexico – Anti-Dumping Measures on Rice, paras. 165-66.
49 Panel Report, EC – Tube or Pipe Fittings, para. 7.102.

4.79 Korea has not made any specific argument that a subsidy had been "removed" or "taken
away" to qualify as a withdrawal in the meaning of Article 19.1 or any relevant argument concerning
Article 21, which addresses a review that would be conducted after the imposition of countervailing
duties.
4.80 Based on the above, Korea's claim concerning the imposition period of the countervailing
duty should be rejected.
(h) Japan's Guidelines Sufficiently Set Forth the Benefit Calculation Methods
4.81 Contrary to Korea's argument, Japan complied with the requirements of Article 14 of the
SCM Agreement to provide the calculation methods for s ubsidies in its Guidelines for Procedures
Relating to Countervailing and Anti-dumping Duties , and notified WTO Members of the Guidelines
prior to the investigation. The JIA explained th e methods as applied in the present investigation and
its application of the methods was consistent with the provisions of Articles 14.
4.82 Korea's argument overlooks "the considerable leeway" that WTO Members have "in adopting
a reasonable methodology"
50 and the recognition of the Appellate Body that "more than one method
consistent with Article 14 is available to in vestigating authorities for purposes of calculating the
benefit to the recipient." 51 Korea's argument reflects a funda mental misunderstanding between the
methods set forth in Japan's Guide lines in accordance with the chap eau of Article 14 of the
SCM Agreement with the application of the methodologies in this particular case. Korea has not
demonstrated that the Guidelines or the application of methodologies fall outside of the parameters of
Articles 14(a) through (d) of the SCM Agreement. Thus, Korea has not presented a prima facie case
that the JIA violated Article 14 of the SCM Agreement.
(i) The JIA's Designation of Certain Financial Institu tions as "Interested Parties" Is Consistent
with the SCM Agreement
4.83 Korea's argument on "interested parties" overlooks the last sentence of Article 12.9 of the
SCM Agreement which allows WTO Members to include as interested parties domestic or foreign
parties that are not included in the list of exam ples of interested parties. Contrary to Korea's
argument, an interested party does not need to have an interest in the out come of the proceedings,
which is confirmed by Article 23, which recognizes th e existence of "interested parties" that are not
directly or individually affected by the administra tive actions in the countervailing duty investigation.
Thus, Korea's interpretation of "interested parties" would render inutile the provisions of Article 12.9
and Article 23 and is in consistent with the SCM Agreement. Korea's argument also ignores the object
of Article 1.1(a)(1)(iv), which is an "anti-circ umvention" provision under which subsidies are
provided through private bodies, as confirmed by the Appellate Body 52. Korea's interpretation would
remove the very parties that are at the centre of the investigation under Article 1.1(a)(1)(iv) from
direct examination, ignoring the fundamental purpose of this provision.
4.84 Contrary to Korea's allegation, the JIA did not "punish" Hynix or apply "adverse facts
available" by including certain financial institutions as interested parties. First, Korea has not offered
any specifics of its allegations or indicated the specific provisions of the SCM Agreement that the JIA
allegedly failed to follow. Korea has not provid ed any explanation of the relevancy of Appellate
Body Report in US – Hot-Rolled Steel , the only case cited by Korea, to this dispute. As a factual
matter, the JIA did not find any subsidy with respect to a financial institution which did not submit
timely responses to the questionnaire or which refuse d to accept the on-the-spot investigation and did
not include the financial contribution from these institutions in the countervailing duties imposed.

50 Panel Report, EC – Countervailing Measures on DRAM Chips, para. 7.213.
51 Appellate Body Report, US – Softwood Lumber IV, para. 91.
52 Appellate Body Report, US - Countervailing Measures on Certain EC Products, para. 113.

The JIA did not apply "adverse facts available" as Kor ea alleges. The JIA based its determinations on
the information on the record that it was able to obtain, including th e situations of the other parties
that did provide information where interested par ties did not provide information requested by the
JIA. Korea has failed to present a prima facie case for its claim concerning the scope of interested
parties, and Korea's arguments should be rejected.
(j) The JIA Correctly Considered the Effects of Subsidies to Injury
4.85 Korea has failed to present any specific arguments to support its assertion that the causation
analysis of the JIA in this case, as explained in the Final Determination, failed to comply with
Articles 15.5 and 19.1 of the SCM Agreement. Rather than present a prima facie case, Korea is
seeking from the Panel an advisory opinion on a particular provision of the SCM Agreement. In the
absence of specific claims and arguments, Korea's claim on this issue should be rejected.
4.86 Article 15.5 and footnote 47 of the SCM Agreement clearly equate the analysis of the effects
of the subsidy to the analysis undertaken under Articles 15.2 and 15.4 relating to the effect and impact
of the subsidized imports. Contrary to Korea's unsupported claim, the text of Article 15.5 of the
SCM Agreement requires the establishment of a causal link between the subsidized imports and the
injury to the domestic industry and does not impose an additional and separate inquiry into the role of
the subsidies. Korea has presented no argument of any defect in the JIA's analysis under
Articles 15.2 and 15.4. Its claim, therefore, fails.
4.87 In the investigation, the JIA found that the subsidies themselves allo wed the importation of
the subsidized imports, thereby causing injury to the domestic industry. Thus, the JIA correctly found
that the injury was caused through the effects of subsidies. Korea's claims should be rejected.
(k) Korea's Claim under Article 32.1 of the SCM Agreement is without Merit
4.88 Any violation of Article 32.1 of the SCM Agreement is necessarily dependent on a violation
of other provisions of the SCM Agreement. As Korea has not demonstrat ed any other inconsistencies
under the SCM Agreement, there is no violation of Article 32.1
(l) Korea's Suggestion to the Panel to Specify a Particular Way to Implement a Recommendation
(If Any) is Unnecessary
4.89 Japan is confident that the Panel will not need to issue any recommendation in this dispute.
However, assuming arguendo that the Panel was to find an inconsistency with the covered
agreements, there is no "exceptional" circumstance in the present case to necessitate a departure from
the "general rule" to allow all possible modalities of implementation.
5. The Non-Record Evidence And Argument Pr esented By Korea Are Not Appropriately
Before The Panel
(a) Korea's Submission of Non-Record Evidence Should Be Rejected
4.90 In its FWS, Korea submitted a new body of ev idence (and analysis based on such evidence),
which the JIA never saw and thus could not consider in the investigation. It would be inconsistent
with the provisions of Article 11 of the DSU for th e Panel to consider such evidence in dispute as it
was not part of the record of the investigation under Article 12.2 of the SCM Agreement.

(b) Korea's Claims Based on Evidence and Argumen ts, Which the Government of Korea and
Other Interested Parties Chose Not to Submit in the Investigation, Should Be Rejected
4.91 Under Article 12.2 of the SCM Agreement, the decision of "the investigating authorities can
only be based on such informati on and argument as were on the written record of this authority and
which were available to interested Members and inter ested parties participating in the investigation."
When an interested Member or party chooses not to submit a specific argument or information to the
investigating authority at the time of the investig ation and as a result the investigating authority is
precluded from considering such argument or info rmation, the investigating authority cannot be
faulted for not examining such argument or information.
4.92 Korea has submitted arguments and information regarding, inter alia, a "rational creditor" or
a "rational profit-maximizing" person or action, wh o will not take into account previous investments
or other sunk costs. During the investigation, however, The Government of Korea argued that the
existing creditors would act differently from new i nvestors. Korea also ar gues that the JIA should
have considered evidence of other companies facing insolvency, which The Government of Korea and
the other interested parties chose not to submit. In both cases, the JIA cannot be faulted for not
considering such evidence or arguments which was not submitted in the investigation. Korea's
arguments made based on such " non-record" arguments or evidence concerning the burden of proof,
financial contributions, benefit, and specificity should also be rejected.
C. F
IRST ORAL STATEMENTS OF KOREA
4.93 The following summarizes Korea's arguments in its first oral statements.
1. Opening Statement of Korea at the First Meeting of the Panel
• Introduction

4.94 It is beyond dispute that the government of Korea moved aggressively to address the fall-out
from the Asian financial crisis. The focus of thos e efforts, however, was to relieve the financial
crisis – to restore the banks to health. This pr ocess necessarily involved corporate restructuring –
through debt write downs and operational restructur ing – in order to eliminate an overhang of non-
performing loans that otherwise might choke economic recovery.
4.95 In its investigation, the JIA focused on the small part of this process that concerned Hynix. It
gathered dozens of newspaper articles, press releases and other statements describing the
restructuring – all of which described a governme nt playing its appropriate role in promoting
corporate restructuring in order to ameliorate a banking crisis. Unfortunate ly, without understanding
the overall context, the JIA wrongly concluded that the Government of Korea was taking
extraordinary measures to force Hynix's creditors to save the company.
• Errors In The JIA's Determination

(a) Procedural Flaws In The JIA's Determination
(i) Use of Improper Benefit Calculation Methods
4.96 In paragraphs 90 to 106 of its Notice of Important Facts, the JIA listed the formulas and
methodologies it intended to use to calculate the s ubsidy benefits in this case. These formulas and
methodologies were not provided for in Japan's legislation and impl ementing regulations.
Accordingly, the JIA's determination is not consis tent with the first sentence of Article 14 of the SCM
Agreement, which provides that "[A]ny method used by the investigating authority to calculate the

benefit to the recipient conferred pursuant to para graph 1 of Article 1 shall be provided for in the
national legislation or implementing regulations of the Member concerned."
4.97 Japan has claimed that Korea' s arguments under this provision constitute an improper "as
such" claim. But that is not correct. Korea is challenging the JIA's use in this investigation of
methods that are not provided for in Japan's legislat ion and regulations. It is not arguing that the JIA
could not, in other cases, calculate subsidy benefits using the rudimentary methods that are provided
for in Japan's legislation and regulations.
4.98 Japan also claims that its legislation and re gulations could not describe the detailed methods
actually used in this case, because it needed to maintain flexibility. But the formulas and
methodologies in question were actually copied from the published regulations of the US Department
of Commerce. It is a little hard to take seriously Japan's claims that it could not have stated its
methodologies in its regulations, when it copied t hose methodologies directly from the regulations of
another country.
(ii) Improper Burden of Proof
4.99 The Appellate Body has held th at the evidence cited by the investigating authority must
"demonstrate" that the relevant criteria have been met. In addition, it has also specifically cautioned
against acceptance of unsupported assumptions by an investigating authority.
4.100 In this case, the JIA did not establish the exis tence of the critical facts that would permit a
finding of subsidies. Instead, it assumed that those facts existed, and then set about to explain why the
Korean respondents' counter-arguments were insuffici ent. The result was to shift the burden of proof
entirely onto the Korean respondents – treating them as "guilty" of subsidies unless they could prove
their innocence.
4.101 Such an approach does not meet the requirement of "impartial" administration set forth in
Article X:3 of the GATT. It makes a mockery of the provisions of Article 12, which provide that
interested parties must have a fair opportunity to make their case, as well as the provisions of
Article 22 requiring publication of the "reasons" for the determination. And, perhaps most
importantly, it is inconsistent with the requirements of Articles 1 and 2 of the SCM Agreement, which
allow a subsidy to be found only when certain defined criteria exist – and not whenever a respondent
is unable to prove that those criteria do not exist.
(b) Determination of Financial Contribution
(i) Direct Transfer of Funds and Forgone Revenue
4.102 The JIA considered the extensions of loan ma turities and debt-equity swaps encompassed in
the restructuring transactions by the private entities to constitute transactions which, if performed by
the government, would have fallen under the category of "direct transfer of funds." This classification
is not consistent with the provisions of the SCM Agreement. The expression "transfer of funds" refers
to situations in which financial resources, typically money, are transferred from one person to another.
It does not refer to situations in which one person gives up a claim on another.
4.103 This does not mean that debt forgiveness, or maturity extensions, or debt-equity swaps can
never be found to be "financial contributions" within the meaning of Article 1.1(a) of the SCM
Agreement. Those transactions potentially fit within the concept of "government action foregoing or
not collecting revenue" in s ub-paragraph (ii) of Article 1.1(a) – at least if it is established that the
government has actually foregone or not collected revenue by entering into those transactions.
Consequently, if the JIA wanted to classify such tran sactions as "financial contributions," it needed to
analyze them in terms of the requirements of sub-paragraph (ii). Because the JIA failed to undertake

such an analysis, its imposition of countervailing dut ies is not consistent with the requirements of the
SCM Agreement.
(ii) Entrustment or Direction
4.104 Japan claims that Korea's argument regardi ng entrustment or direction is based on a
mistranslation of paragraph 81 of the JIA's respon se to comments. However, the differences between
the translation proposed by Japan and the translation prepared by Korea are slight, and do not affect
the basic point.
4.105 On the issue of the Korean Government's allege d intent, Japan asserts that Korea has failed to
look at the evidence in its totality. However, Japan has not identified any reports that Korea ignored,
and it has not identified any evidence suggesting that the Government of Korea wanted the banks to
adopt measures that were inconsistent with the ba nks' own best interests. An objective and unbiased
review of the evidence in its totality would find that the Korean government's role was no more than
the normal prudential supervision one would expect gi ven the difficult situation of Korea's financial
sector and the size of Hynix's debts.
4.106 Japan also contends that the JIA never actually found that no rational investor would have
entered into the restructuring transactions on th e same terms that Hynix's creditors accepted.
However, that statement is belied by the JIA's dete rmination. The JIA explicitly stated that, at the
time of each of the restructuring transactions,
Hynix could not obtain financing from commercial market, and that from the normal
commercial point of view, there was no investor who was willing to invest in or
provide loans to Hynix in the normal commercial market.
And, that conclusion was not the result of evidence at all. It was, instead, an inference, based solely
on the JIA's finding that Hynix was in financial distress at the time of the restructurings.
4.107 As a logical matter, the mere fact that there was evidence that Hynix was in financial distress
does not automatically justify the conclusion that no investor acting "from the normal commercial
point of view" would have invested in or made lo ans to Hynix. Instead, two further assumptions are
needed. First, one needs to make some assumption about the motivations of investors "in the normal
commercial market" making decisions "from the normal commercial point of view." And, second,
one needs to make some assumption about whether the particular investments in Hynix would or
would not have been consistent with the accomplishment of the investor's objectives.
4.108 In Korea's first submission, it challenged th e JIA's assumption that the restructuring
transactions were not consistent with the objectiv es of investors "in the normal commercial market"
making decisions "from the normal commercial point of view." In particular, Korea provided a
lengthy explanation of the economic, legal and em pirical analysis supporting the conclusion that a
rational investor in the position of Hynix's creditors who was seeking to maximize expected profits
would have entered into the restructuring transactions at issue in order to unlock the "going concern"
value of the company, and avoid a liquidation that w ould have generated lower returns. The point is
indisputable. Consequently, the JIA's conclusion that "from the normal commercial point of view,
there was no investor who was willing to invest in or provide loans to Hynix in the normal
commercial market" was based on a false assumption and is, therefore, fundamentally illogical.
4.109 In Korea's first submission, it also gave an ex ample of Woori Bank's own internal analysis of
the October 2001 and December 2002 restructurings which showed its participation in those
transactions would allow Woori to avoid losses of hundr eds of billion of Won. This example reveals
that the JIA's assessment that the bank's internal analyses of the restructuring transactions were
inadequate and did not follow normal commercial procedures was, biased.

4.110 None of the JIA's assumptions were based on evidence, and none was correct. Consequently,
the JIA's finding of entrustment or direction w as not consistent with the requirements of the SCM
Agreement.
(c) Benefit
4.111 The guidelines set forth in Article 14 of the SCM Agreement do not directly address debt
restructurings, but they do reflect the basic principle that benefits must be measured by comparing the
alleged subsidy transaction with the normal practices of participants in transactions of the same type
in the same market. Thus, if creditors of Hyni x would have entered into the same restructuring
transactions in the absence of government entrustmen t or direction, there is no benefit – whether the
financial contribution is considered to be the a lleged government entrustment or direction, or the
participation in the restructurings by the allegedly entrusted or directed creditors.
4.112 In its determination, the JIA made no effort to determine what te rms would have been
available to Hynix if there had been no alleged go vernment entrustment or direction. It failed to
identify the normal practices of participants in transactions of the same type in the same market. As a
result, the JIA failed to undertake the benefit analysis required by Articles 1 and 14 of the SCM
Agreement. Its determination cannot, therefore, be upheld.
4.113 The JIA's benefit analysis is also incons istent with the fact that more than a hundred separate
institutions that were not found to be entrusted or directed also participated in the restructuring
transactions. The fact that these private entities part icipated in the transactions on the same terms as
the government bodies and the allegedly government-directed banks indicates that the transactions did
not confer a benefit on Hynix.
4.114 The JIA has contended that the existence of past subsidies irrevocably tainted any subsequent
market transactions by the non-entr usted or -directed creditors. But, that interpretation is flatly
inconsistent with the requirements of the SCM Agreement . Among other things, the JIA's
interpretation simply cannot be reconciled with the provisions of Article 14 requiring investigating
authorities to look to actual market transactions and normal mark et practices as the benchmark for
determining whether a benefit has been conferred. More generally , the interpretation of Article 14
proposed by the JIA would lead to absurd and inco nsistent results. It would find a benefit based
solely on the identity of the body making the loan, an d not based on any finding that the terms of the
government loan made the recipient "better off" than the available market alternatives.
(d) Allocation Period and Imposition Period
4.115 The JIA decided in this case that the alleged s ubsidies received by Hynix should be allocated
over a five-year period, including the year in which th ey were received. This meant that the subsidies
allegedly received by Hynix in 2001 were all allocated to the five-year period from 2001 to 2005.
There was no remaining benefit from those subsidies in 2006, when the JIA issued its determination.
Consequently, the JIA's decision to continue to impose countervailing duties based on the
October 2001 restructuring for a period extending be yond the five-year benefit "amortization" period
is inconsistent with Articles 19.4 and 21.1 of the SCM Agreement.
4.116 In its first written submission, Japan asserted that the JIA's imposition of duties was
consistent with past decisions concerning similar provisions of the Antidumping Agreement. But the
Antidumping Agreement does not permit investigati ng authorities to calculate dumping margins for
years into the future based on an amortization of a non-recurring price differential at some time in the
past. In these circumstances, any effort to analogize the estimation of dumping margins on sales
during future periods with the calculation of the amortized amount of the subsidy benefits from a
particular transaction in a particular future year is inherently illogical.

(e) Injury Causation
4.117 Articles 15.5 and 19.1 of the SCM Agreement require that the investigating authority must
demonstrate "that the subsidized imports are, through the effects of subsidies , causing injury." The
ordinary meaning of this requirement is clear. It is not enough that the imports which happen to be
subsidized are causing injury. Instead, it must also be demonstrated that the injury is occurring
"through the effects of the subsidy."
4.118 Japan, contends that this Panel should follow the interpretation adopted by a GATT Panel in
Norwegian Salmon, which held that similar language in the Tokyo Round Antidumping and Subsidy
Codes required only a finding that the dumped or subsidized imports caused injury, and not a finding
that the injury occurred through the effect of the dumping or subsidies. Japan's position is, however,
directly inconsistent with its strident criticism of the Norwegian Salmon decision at the time that
decision was first announced. And, in any event, the Norwegian Salmon decision is not consistent
with the ordinary meaning and context of the relevant provision.
4.119 In its determination, the JIA took the position that it had considered whether the injury had
occurred through "the effect of the subsidy." In pa rticular, the JIA claimed that it was appropriate to
find that the injury had occurred through the "effect of the subsidies" because, in the absence of the
subsidy, Hynix would have been forced into bankruptcy and ceased production and exports.
4.120 The problem in this case is that there is no evidence that Hynix would have ceased production
and exports in the absence of the subsidies. Th e JIA did not identify provisions in the Korean
bankruptcy laws that would have forced Hynix to cease production and exports in the event that it was
forced to file for court protection under those la ws. In fact, as demonstrated in Korea's first
submission, the Korean bankruptcy laws would actua lly have allowed Hynix to continue operations
under court protection while its creditors worked out a debt restructuring program. There is no reason
to believe Hynix would have ceased production or export.
• Conclusion

4.121 This case is, in large part, about the difficulties the JIA had in handling its very first
countervailing duty case, making things up as it went along in the absence of a sufficient description
of procedures and substantive methodologies in Japan's statute and regulations. It may well be that
the JIA tried its best. But effort does not excu se non-compliance with the procedural safeguards
required by the SCM Agreement.
4.122 Perhaps even more fundamentally, this case is about assumptions. Despite all of the details in
its Notice of Important Facts, the JIA's decision tu rned on certain critical assumptions about market
behaviour, about Korean law, and even a bout the meaning of certain terms in the SCM Agreement.
Those assumptions were not supported by any eviden ce, and they turned out, in the end, to be
unreasonable and incorrect. In Korea's view, th e inconsistency with the provisions of the
SCM Agreement of a determination based on such flawed assumptions is manifest.
2. Closing Statement of Korea at the First Meeting of the Panel
4.123 In Korea's view, the Japanese investigating au thority started its investigation with an
assumption that the restructuring transactions must ha ve been directed or entrusted by the Korean
government, and then set about to compile evidence that it thought would be sufficient to justify a
determination to that effect. But the underlyi ng assumption with which the JIA began the case
inevitably infected its judgment. It failed to see that the evidence it gathered did not, on its own,
support the conclusions that the JIA wished to r each. Instead, as expressed in Korea's first written
submission and in Korea's opening statement at the first meeting of the Panel, certain assumptions had
to be made to link the evidence the JIA gathered to the conclusions it reached. It is telling that Japan

continues to deny that such assumptions were made , even as it repeated many of them in its oral
statement at the first meeting of the Panel.
4.124 During the course of the JIA's investigation, Hynix and its creditors and the Korean
government all explained to the JIA that the credito rs had agreed voluntarily to the transactions at
issue because those transactions made economic sense for the creditors. The JI A rejected that claim
based on its assumption that "from the normal commerc ial point of view, there was no investor who
was willing to invest in or provide loans to Hyni x in the normal commercial market." In a single
stroke of its pen, the JIA eliminated the vast army of lawyers, bankers and economists who, right now,
are toiling on debt restructurings for financially insolvent companies, both inside and outside of
formal bankruptcy proceedings, in virtually every single country in the world.
4.125 It is beyond dispute that firms all over the world at times find themselves in a position of
"financial distress" in which they do not have the funds needed to make the payments that are due to
their creditors — just as Hynix did. It is equally cer tain that the creditors of such firms routinely enter
into debt restructurings to maximize their own expect ed profits. This is not economic theory. It is a
reality that could be seen every day. And, once that reality is recognized, the JIA's determination falls
apart.
4.126 One does not need assumptions of governme nt interference to make sense of the
restructurings. One needs only economic self-interest . And, even if Korea assumes for the sake of
the argument that Japan were correct in asserting that the government of Korea twisted the arms of the
creditors, there still would be no subsidy, because entr ustment or direction of private entities to enter
into transactions that are in the private entities' own interests cannot confer a benefit within the
meaning of the SCM Agreement.
4.127 The SCM Agreement requires investigating authorities to base determinations on facts, not
presumptions. In its finding of entrustment or directi on, in its finding of a benefit, and in its finding
that injury occurred through the effect of the allege d subsidies, the JIA failed to meet that standard.
Consequently, its determination cannot be sustained, and the countervailing duties it imposed should
be rescinded.
D. F
IRST ORAL STATEMENTS OF JAPAN
4.128 The following summarizes Japan's arguments in its first oral statements.
1. Opening Statement of Japan at the First meeting of the Panel
(a) Standard of Review and Evidentiary Standard
(i) The Requirements under the WTO Agreements
4.129 Japan has pointed out errors in Korea's claims in its First Written Submission and emphasizes
here the issues concerning the standard of review and evidence of a subsidy investigation under the
WTO Agreements. First, it is essential that Korea' s claims be reviewed in light of the applicable
standard of review that "a panel . . . should, on the basis of the record ev idence before the panel,
inquire whether the evidence and explanation relie d on by the investigating authority reasonably
supports its conclusions".53
4.130 Secondly, the Appellate Body has rejected any particular standard of evidence beyond that set
forth in the SCM Agreement (i.e., the existence of subsidy "can only be based on" record evidence)

53 Appellate Body Report, US – Countervailing Duty Investigation on DRAMS, para. 188.

and has recognized that an investigating authority has full discretion in conducting an investigation
within such bounds, or "on its own terms".
54
4.131 Thirdly, Article 1.1(a)(1)(iv) of the SCM Agreement "is, in essence, an anti-circumvention
provision."55 WTO Members may not escape the SCM Agreement's disciplines where a government
"entrusts or directs" private bodies to provide a financial contribution.
(ii) The Actual Investigation and Determination by the JIA
- Hynix's Financial Situation: On the Verge of Collapse
4.132 Korea has not based its arguments on the act ual investigation that the Investigating
Authorities of Japan ("IA") conducted; thus, its arguments are inconsistent with the applicable
standard of review. Korea argues that the Hynix restructuring was rational in light of a certain
economic model. However, the JIA determined wh ether the Government of Korea had entrusted or
directed financial institutions to save Hynix, not whether the outcome might appear to align with a
general voluntary work-out. The premise of Korea's voluntary work-out theory is that of a company
facing a temporary funds shortage. However, the r eality of Hynix was quite different. Japan will
highlight here that: (1) Hynix had been facing a di re financial distress; and (2) The Government of
Korea's consistent policy and actions to save Hynix.
4.133 The Hynix liquidity problem was not temporar y. The Government of Korea's financial
contributions had saved Hynix from collapse. Afte r 1997, Hynix's situation was disastrous. Hynix's
maturing debts of approximately KRW 9 trillion in 2001 dwarfed its 2000 year-end deposit balance of
KRW 10.1 billion.
56 "Hynix did not have the cash on hand to repay those debts" 57 and would have
gone "bankrupt without obta ining outside financing"58. Hynix's financial indicia continued to decline
sharply in early 2001 when it was saved temporarily by the May 2001 Program.
4.134 In August 2001, Hynix defaulted on payment obligations 59and by October 2001, Standard &
Poor's downgraded Hynix's rating to "Selective Default," 60 but the October 2001 Program could not
solve Hynix's troubles, which worsened throughout 2002.61 Its external advisor stated "Hynix is not an
investment-grade company", and "Hynix is techni cally bankrupt, kept alive only through debt
restructuring programs." 62 No financial institution would provide new credit to Hynix until the
December 2002 Program.63
- The Policy and Actions of The Government of Korea to Save Hynix Since the "Big Deal"
4.135 In July 1998, the Government of Korea and its business community agreed to the "Big Deal"
scheme to reorganize companies among five ma jor conglomerates, which established Hynix.
64 The
Government of Korea maintained its objective to promote the semiconductor industry and prioritized

54 Ibid., paras. 140, 151.
55 Ibid., para. 113.
56 See Annex 1 of the Final Determination ("Annex 1"), paras.28, 110 (JPN-02), and JPN-02-12
and 02-104.
57 First Written Submission ("FWS") of Korea, para. 74.
58 See Annex 1, para.110 (JPN-02), and JPN-02-104.
59 Annex 1, para.261 (JPN-02), and JPN-02-307 and 308.
60 Annex 1, para.265 (JPN-02), and JPN-02-313 and 314.
61 Annex 1, para.323 (JPN-02), and JPN-02-377 and 378.
63 Annex 1, para. 325 (JPN-02).
64 Ibid., para. 38.

Hynix's normalization 65, its policy from the company's inception. The Government of Korea gave
effect to its policy through the various Hynix bail-out programs from December 2000.
4.136 The Government of Korea did not merely exerci se its general regulatory powers to do so. It
drove the process at the 28 November 2000 Economic Ministers' Meeting, which formed the basis for
the first three restructurings, discussing "Measures to alleviate the cash crunch of [Hynix]", and
subsequently sent a notice to the Korea Export Insurance Corporation and the Korea Export Bank
("KEB") to instruct them to "carr[y the results of the discussion] out perfectly".
66 In accordance with
this notice, KEB and two other banks requested the regulating government body for, and were
promptly granted, a waiver of the credit ceilings of these banks, which allowed them to participate in
the Syndicated Loan.67
4.137 The Government of Korea also possessed the legal means to involve itself in specific
operations of banks. 68 The Government of Korea did exert such authority, as Woori Bank and
Kookmin Bank admitted.69
4.138 In January 2001, the Financial Supervisory Se rvice notified banks that liabilities would be
exempted or reduced when loan s became uncollectible for, inter alia , "a purchase of a financially
deteriorating company that is necessary under the government's national industrial policy, and
provision of assistance for operating funds, etc. after such purchase."70
4.139 At the Council for Creditor Financial Instituti ons' meeting in March 2001 which formed the
basis of the May 2001 Program, high-ranking governme nt officials pressured financial institutions to
provide Hynix financial support. 71 The Government of Korea boasted that this Program was an
example of success of its own efforts .72 Deputy Prime Minister's announcement that "in the case that
[the problem] does not settle, the government will directly step in...[t]here will be criticism no
matter . . ., but we will accept the responsibility for resolving these problems" 73 exemplifies the
Government of Korea's intent to support Hyni x between the May 2001 and October 2001 Program.
Hynix's financial situation further deteriorated in 2002, and The Government of Korea worked
together with creditors to realize the December 2002 Program, intervening in the preparation of the
structural adjustment plan.74
4.140 These facts and other facts, such as the content and process of internal examinations of KEB
and Woori Bank, Chohung Bank and the National Agricultural Cooperative Federation ("NACF"),
indicate the implementation of bailouts based on the G overnment of Korea's entrustment or direction.
NACF, a quasi-public body, and these three privat e bodies were under the Government of Korea's
substantial influence. Even other banks that also participated in the bailouts based their decisions on
non-commercial factors. One of the reasons the JI A found entrustment or direction only to these four
banks was because the Government of Korea's subs tantial power to control these banks further tilted
the balance to infer entrustment or direction.

65 Annex 1, paras.35-41 (JPN-02), JPN-02-17 to 28 and 254, and Annex 3, para. 68 (JPN-04).
66 Annex 1, para.117 (JPN-02), and JPN-02-110 and 111.
67 Annex 1, para. 120(JPN-02), JPN-02-114, 115.
68 See for example, Articles 5 and 6 of the Prime Minister Decree No. 408 (JPN-02-80).
69 Annex 1, paras. 83 - 87 (JPN-02), and JPN-02-86 to 89.
70 Annex 1, para. 82 (JPN-02), JPN-02-85.
71 Annex 1, paras. 193-196 (JPN-02), JPN-02-218 to 238.
72 Annex 1, para. 202 (JPN-02), JPN-02-253. See also Annex 1, para. 200 (JPN-02) and JPN-02-246
to 250.
73 Annex 1, para. 272 (JPN-02), JPN-02-329. See also Annex 1, paras. 273-275 (JPN-02), JPN-02-330
to 334.
74 Annex 1, paras. 329-336 (JPN-02), JPN-02-386 to 426.

(iii) The Facts Found in the Investigation and th e Evidentiary Standard for Entrustment or
Direction
4.141 Korea has clarified that it only disputes the JIA's factual findings regarding the October 2001
and December 2002 Programs and ha s not challenged the prior programs. Among the facts Korea
does not dispute are the fact that:
• The Government of Korea has a long history of actively normalizing its
semiconductor industry, in particular Hynix, and maintained a policy to save Hynix;
• The Government of Korea had the power to control the entrusted or directed banks;
• the banks' internal documents show thei r unusual decision making process to commit
to the May 2001 Program before their internal decisions were made, that certain
banks ignored their internal conditions, and that certain banks participated in the
Program after internally decided not to participate;
• the Government of Korea granted subsidies to Hynix through the D/A financing,
KDB Program, and May 2001 Program that helped keep alive, but not cure, Hynix;
• banks which participated in the Oct ober 2001 and December 2002 Programs
recognized the deteriorating financial conditions of Hynix;
• the statements of high-ranking government officials on Hynix's financial crisis,
various news articles reporting that the Government of Korea would or did intervene;
• NACF's admission that the Government of Korea intervened into the December 2002
Program; and
• the banks' consideration of non-commercial factors in reaching their decision to
participate in the October 2001 and December 2002 Programs.

4.142 Korea's arguments on the factual findings are lim ited to five narrow aspects. First, Korea
argues that the banks considered the Arthur A ndersen Report ("AA Report") for the October 2001
Program. However, the AA Report was completed well after the Program's conclusion
 , and the banks
were not able to consider it before deciding to participate. 75
4.143 Second, Korea argues that Woori Bank and Chohung Bank's internal examination in the
October 2001 Program negates the JIA's finding. Th ese banks' internal examination indicated that
they based their decisions on noncommercial factor s; Korea also has not disputed the JIA's
examination of internal decisions by KEB or NACF.
4.144 Third, the only assessment by the JIA concerning banks in the December 2002 Program
Korea disputes is Woori Bank's examination. Kor ea argues that Woori Bank critically reviewed the
Deutsche Bank Report and made its own assessment. However, the "internal document" Korea
presents states only that Woori Bank considered the Report to be [[BCI]] because it [[BCI]] 76, which
does not indicate a critical review of the Report. Rather, Woori Bank wholly accepted the Report, and
based its calculation of potential losses assuming [[BCI]].77
4.145 Fourth, Korea presents arguments based on the valuation in the Deutsche Bank Report;
which contains critical errors, even admitted by Hynix, and thus is not reliable.

75 See the cover page of the Arthur Andersen Report (KOR-17). See also pages 70 and 86 (KOR-17).
76 See FWS of Korea, footnote 198, and Woori Bank's internal report, Section VI.3. (KOR-29).
77 Business Confidential Information.

4.146 Finally, Korea argues that the participation of the banks for which the JIA made no finding of
entrustment or direction in the October 2001 an d December 2002 Programs indicates the commercial
rationality of all of the banks. Korea, however , has not disputed the finding that such banks
participated upon their consideration of non-commercial factors.
4.147 Korea argues that there is "no ev idence that the [the Government of Korea] told any of the
creditors what to do", without addressing any specific analysis by the JIA. However, such evidentiary
standard does not exist; Article 1.1(a)(1)(iv) anti- circumvention cases will often involve an analysis
of totality of facts based on circumstantial evidence 78, as done by the JIA. A claim that only smoking
gun evidence can show entrustment or direction amounts to a request for a de novo review.
(iv) Non-Record Evidence and Arguments
4.148 Korea's non-record exhibits such as KOR-26 and arguments based on such exhibits are
irrelevant under the standard of review of the Pane l. Similarly, the JIA cannot be faulted for not
examining an argument that was not presented in th e investigation, and c ould not reasonably have
considered, such as Korea's economic theory argumen ts. Korea's argument that the JIA should have
considered the financing of others facing insolven cy is belied by the refusal of the Government of
Korea and other parties to submit evidence necessary for such an analysis.
(v) Conclusion
4.149 Korea's argument is inapposite to the JIA's determ ination. The reality was that there was no
financing available from the general commercial market for Hynix. The Government of Korea had to
step in to entrust or direct the creditors.
(b) Other Errors In Korea' s Claims
(i) Benefit
4.150 The first of the two other examples of errors in Korea's claims is its arguments on benefit.
Benefit in the meaning of Articles 1.1(b) and 14 refer to a benefit to the recipient.79 However, Korea
argues whether the private creditors acted in their own interest by pursuing restructuring rather than
liquidation.80
4.151 Korea also argues that banks, for which the JIA did not make any finding of entrustment or
direction, should be the benchmark. However, Hynix was only in operation at the time because of
subsidies, and the terms and implementation of the October 2001 and December 2002 Programs stood
on such financial condition of Hynix. A benchmark ot her than the existing market may be used if the
market was so distorted because of the government's involvement. 81 In this case, the Government of
Korea subsidies heavily distorted the premise and the terms and conditions of these Programs.
4.152 In addition, the evidence indicates that the Gove rnment of Korea intervened in the content of
the December 2002 Program when Hynix's creditors c ould not agree to the terms. Moreover, these
"other" banks' decisions to participate were ba sed on non-commercial considerations. Thus, their
financing do not show usual invest ment practice or that their loans were commercially obtainable.
The JIA reasonably found that these Programs were not from the normal commercial market and that
financing by "other" banks could not serve as benchmark.

78 Appellate Body Report, US – Countervailing Duty Investigation on DRAMS , para. 150 and
footnote 277.
79 See, e.g., Appellate Body Report, Canada – Aircraft, para. 154.
80 FWS of Korea, paras. 234-243.
81 Appellate Body Report, US – Softwood Lumber IV, paras. 90 – 95.

4.153 Korea's argument that the AA Report and Deutsche Bank Report show that Hynix's going-
concern value exceeded liquidation value is null. These valuations were based on Hynix's heavily
distorted financial conditions, and cannot serve as a benchmark. Also, the alleged Hynix 2001 4Q
going-concern value in the AA Report is an ex post calculation, incorporating the October 2001
Program's success.
82 The going-concern valuation could not have been reached absent the
contributions from public bodies and the entrusted or directed private bodies, which contributed over
[[BCI]] and [[BCI]] per cent respectively of the debt-to-equity swaps and new loans. 83 Thus, this
going-concern value does not show what was obtaina ble without such financial contribution. The
going-concern valuation in the Deutsche Bank Report 84 also assumed the success of the December
2002 Program; the values were not realizable absent the public bodies' and entrusted or directed
banks' participation. 85 Furthermore, if the critical errors in that report were corrected, the going-
concern values would [[BCI]]
(ii) Determination of the Amount of Subsidy
4.154 The second example is Korea's claim that the October 2001 Program ceased to provide
benefit as of the end of 2005. The SCM Agreement simply requires a determination of subsidy at the
time of the period of the investigation, based on data available therein, not a re-determination as of the
time of duty imposition. The allocation period of non-r ecurring subsidy is just a part of the duty rate
calculation as of the period of investigation, not a determination of benefit expiry. The JIA based this
allocation period on the useful life of Hynix' s assets, which may subsequently change. 86 The matters
concerning the existence or amount of subsidy that can be discerned post-investigation period is to be
reviewed under Articles 21.2 and 21.3 of the SCM Agreement; Japan does have a review mechanism
that fully reflects the principles of Articles 19.4 and 21.
2. Closing Statement of Japan at the First Meeting of the Panel
4.155 First, in both its First Written Submission and its Oral Statement at the first meeting of the
Panel, Korea referred to what it called the "syll ogism." Korea summarized its position at the first
meeting of the Panel by arguing that the determination of entrustment or direction by Japan was based
on the findings that:
• The Korean Government had expressed an intention to 'keep Hynix alive';
• No rational creditor would have entered into the restructuring transactions, in view of
Hynix's poor, and deteriorating financial condition; and
• The evidence submitted by the individual creditors (or the findings made by the JIA
where the creditors were non-responsive) did not establish that the creditors had
conducted a sufficient analysis of the various transactions before entering into them."87
4.156 The Panel should take careful note that in r esponse to a question from Japan at the first
meeting with the Panel, Korea confirmed that its claim was limited to these three elements. This
answer by Korea is highly significant.

82 See Arthur Anderson Report, pages 81 and 9 (KOR-17). See also pages 70 and 86.
83 See Arthur Anderson Report, pages 9, 70 and 86 (KOR-17), and Annex 1, paras. 256, 311 (JPN-02),
JPN-02-365.
84 FWS of Korea, para. 241.
85 Annex 1, para.318 (JPN-02).
86 As recognized in the International Accounting Standard 16 , para. 49 (shown in para. 51 of the
7 June 2004 text) (JPN-15).
87 Korea's Opening Statement for the First Panel Meeting, para. 41.

4.157 As Japan explained in its First Written Submis sion, Korea is wrong when it asserts that the
full overview of the Investigating Authority's dete rmination can somehow be captured in these three
points.
4.158 Korea's translation of this section of the Fina l Determination also was incorrect. Yet leaving
aside translation issues, Korea has misinterpreted th e findings of the Investigating Authority. With
respect to the first element of the supposed syllo gism, the record evidence, discussed at length in
Japan's submission, showed that the Government of Korea not only had the clear intent to save Hynix,
but exercised its authority over the banks to bail out Hynix through the October 2001 Program and the
December 2002 Program. As for the second and th ird elements of the alleged syllogism, the
Investigating Authority did not re ly on "assumptions", but rather reviewed various factors on a bank-
specific and program-specific basis. Based on this record evidence, the Investigating Authority found
that non-commercial factors underlay the decision of the banks to participate in the October 2001 and
December 2002 Program rescue programs.
4.159 The important point to stress here is that Korea's claim against entrustment and direction is
limited to the three claims set out in its "syllogism." If Japan demonstrates that the "syllogism"
does not accurately state the basis on which the investigating authority made its determination,
then Korea's "entrustment or direction" claim must, of necessity, be dismissed. Japan mentioned
that it will return to this issue in its Second Written Submission.
4.160 The other issue to discuss relates to the Panel's terms of reference. Japan has sustained – and
continues to sustain – significant prejudice as a result of Korea's failure to comply with its binding
obligations under DSU Article 6.2.
4.161 It is important to recall that Korea's failure to state its claims clearly is not some minor,
procedural breach, but rather infringes the fundamental due process rights of Japan, as a responding
party, to know the nature of the claims being made against it. The Appellate Body has articulated this
obligation in unambiguous terms:
The requirements of due process and orderly procedure dictate that claims must be
made explicitly in WTO dispute settlement. Only in this way will the panel, other
parties, and third parties understand that a specific claim has been made, be aware of
its dimensions, and have an adequate opportunity to a ddress and respond to it. WTO
Members must not be left to wonder what specific claims have been made against
them in dispute settlement.
88
4.162 Unfortunately, in the present case, Japan has been left "wondering what specific claims have
been made against it" by Korea. The situati on in the present case is similar to that in Thailand – H-
Beams, where the Panel found that the "prejudice to Thailand's ability to defend itself was a function
of the fact that the precise nature and scope of the claims…remained unclear and confusing to
Thailand -- and to us – even following Poland's first written submission."
89 As in that dispute, Japan's
ability to defend itself is a function of the fact that the "precise nature and scope" of Korea's claims
remain unclear and confusing to Japan – and doubtless to the Panel – even following Korea's First
Written Submission. For example, for Korea to make broad sweeping clai ms, without bothering to
provide any specificity as to the nature of its co mplaint, renders the due process requirements of DSU
Article 6.2 essentially meaningless. Two examples will illustrate the problem.
4.163 First, as Japan has previously argued, Korea's Claim 15 is a "catch-all" claim of violation of
"Articles 10, 11, 12, 14, 15, 22, and 32.1 of the SCM Agreement and Articles VI:3 and X:3 of the
GATT 1994." This vague and expansiv e claim falls far short of the Appellate Body's admonition that

88 Appellate Body Report, Chile – Price Band System, para. 164.
89 Panel Report, Thailand – H-Beams, para. 7.29.

responding parties and third parties must be made aware of the "specific" claims being made, as well
as their "dimensions." Stating claims in this ma nner deprives Japan of its due process rights to have
an "adequate opportunity to address and respond" to the claims against it.
4.164 Second, in its Opening Statement, Korea used formulations such as the following:
• A determination based on assumption and not evidence is not consistent with each and
every provision of the SCM Agreement requiring findings based on evidence, and a fair
and impartial determination.90
• A determination based on "facts available," and not on evidence, is not consistent with
each and every provision of the SCM Agreement requiring findings based on evidence,
and a fair and impartial determination.91
Claims that Japan has violated "each and every provision" of the SCM Agreement render a nullity the
due process provisions of the DSU, particularly in li ght of the Appellate Body's clear ruling that the
"mere listing of treaty Articles" may not satisfy the standards of DSU Article 6.2. Since the Appellate
Body has found that the listing of Articles – rather than their various sub-pr ovisions – may fall short
of the requirements of DSU Article 6.2, claims of violation of "each and every provision of the SCM
Agreement" can only be an egregious violation of Japan's due process rights.
4.165 Accordingly, Korea's breach of DSU Article 6.2 has fundamentally prejudiced Japan's rights
as a responding party in WTO dispute settlement. Japan respectfully requests this Panel to remedy
this violation by placing the illegal claims identified by Japan outside its Terms of Reference.
E. SECOND WRITTEN SUBMISSION OF KOREA
4.166 The following summarizes Korea's arguments in its second written submission.
1. Japan's Imposition of Countervailing Duties was based on a Fundamentally Flawed
Assumption
4.167 In its oral statement during the first panel mee ting, Japan claimed that the finding of subsidies
by the Japanese Investigating Authority ("JIA") wa s supported by the fact that Hynix was "facing
dire, structural financial distress" that left it unabl e to pay its debts. Japan asserted that this severe
financial distress meant that "Hynix would have gone bankrupt" and "could not have survived"
without government help. 92 According to Japan, the "Government of Korea had to step in to entrust
or direct the creditors" in order "to save Hynix."93
4.168 This assumption – that a company "facing dire, structural financial distress" could only have
been saved by government intervention – underlay th e JIA's entire analysis. But that assumption is
demonstrably false. The debts of insolvent debtors – of companies "facing dire, structural financial
distress" – are restructured by their creditors all the time, as long as the going-concern value of the
company exceeds its liquidation value.
4.169 Japan and some of the third parties have a ttempted to confuse the issue by referring to
different economic theories about the manner in whic h investors make their investment decisions.
But the rationale for restructuring the debts of an insolvent debtor is simple arithmetic: Where the
insolvent company's going-concern value exceeds its liquidation valu e, the creditors holding the

90 Korea's Initial Comments on Japan's Expanded Preliminary Ruling Request , 1 December 2006,
para. 24. (Emphasis added.)
91 Ibid, para. 28. Emphasis added.
92 See Japan's Opening Statement, para. 13.
93 See Japan's Opening Statement, para. 46 (emphasis added).

company's debts can earn a higher return if they agree to restructure the debts through, inter alia, the
provision of new loans, the modification of the terms of existing loans, or the exchange of debts into
equity. The arithmetic is indisputable. And, it is borne out by actual real-world experience, in which
the debts of insolvent companies are restructur ed, both in formal bankruptcy proceedings and
informal workouts, in every market (including Japan).
4.170 The Appellate Body has cautioned that "[a]n i nvestigating authority that uses a methodology
premised on unsubstantiated assumptions does no t conduct an examination based on positive
evidence." And, it clarified that "[a]n assumption is not properly substantiated when the investigating
authority does not explain why it would be appropriate to use it in the analysis." 94 It is difficult to
imagine a more apt description of the basic flaw in the JIA's determination. Unless the Panel believes
that insolvent companies must always be liquidated in the absence of government subsidies, the JIA's
determination cannot be upheld.
2. Japan's Investigation Was Procedurally Flawed and Legally Invalid
(a) Failure to Promulgate Benefit Calculation Methods
4.171 In Korea's first submission, it demonstrated that the JIA's determination used benefit
calculations that were not provided for in Japan's national legislation or im plementing regulations, in
contravention of the explicit requirement of the first sentence of Article 14 of the SCM Agreement. In
response, Japan has asserted that the formulas and methodologies used in its determination were not
"methods" within the ordinary meaning of that term . According to Japan, a "method" refers to "a
mode of procedure; a (defined or systematic) way of doing a thing."95
4.172 But the formulas and methodologies used by Japan clearly meet that definition: The legal
fictions adopted by the JIA to justify treating loan maturity extensions as loans and debt-equity swaps
as equity infusions, the policy of allocating the bene fits from equity infusions and debt forgiveness
over a period of years, the formula used to allocate subsidy benefits, the adoption of the "useful life"
from Korea's tax laws as the allocation period in th at formula, the formula used to calculate the
discount interest rate for non-creditworthy borrowers – all of these constitute "mode[s] of procedure;
a (defined or systematic) way of doing a thing."
4.173 Japan has also contended that the argument presented in Korea's first submission was an
improper "as such" claim that lacked the proper found ation. That claim is, however, incorrect. Korea
is objecting to the methods used by the JIA in this particular case. Because those methods were not
provided for in Japan's legislation or implementing regulations, the JIA's finding of a benefit is invalid
and its imposition of countervailing duties must be rescinded.
(b) Improper Reliance on Assumptions and Reversal of Burden of Proof
4.174 In Korea's first submission, it noted that th e JIA's determination was based on a number of
assumptions. In response, Japan's first submission denied that any assumptions had been made. 96
According to Japan, all of the JIA's findings were di rect inferences from evidence. A careful review
of the JIA's determination confirms that the follo wing assumptions, among others, were critical to its
analysis:
• The JIA's finding of a "direct transfer of funds" was based on a legal fiction that
"deemed" that Hynix had first repaid its outst anding debts, and that the creditors used the

94 Mexico – Definitive Anti-Dumpin g Measures on Beef and Rice , WT/DS295/AB/R,
29 November 2005, para. 205.
95 See Japan's First Written Submission, para. 528.
96 See, e.g., Japan's First Written Submission, para. 238.

repaid funds to make new loans and equity in fusions. This "fiction" was, of course,
contrary to the JIA's own finding that Hynix was unable to repay its outstanding debts.
• The JIA's finding that the creditors were motivated by "externa l," "non-commercial"
factors was explicitly based on an assumption that, in light of "the deterioration of
Hynix's financial situation, ... there was no invest or that would invest in or make loans to
Hynix in the general commercial market from a normal commercial perspective." But, as
discussed above, that assumption is inconsistent with the basic arithmetic and with the
undisputed fact that private creditors acting solely from a "normal commercial
perspective" do engage in restructuring transactions all the time.
• The JIA's finding of a subsidy benefit from the alleged financial contribution was based
on the same incorrect assumption that "there were no investors who would additionally
invest in or make loans to Hynix from a nor mal commercial perspective." Again, that
assumption is inconsistent with the basic ar ithmetic and with the undisputed fact that
private creditors acting solely from a "nor mal commercial perspective" do engage in
restructuring transactions all the time.
• The JIA's finding that the subsidized imports had caused injury "through the effects of
the subsidy" was based on the assumption that "Hynix had been saved from bankruptcy
because of subsidies" and "[t]hus, the subs idies enabled Hynix to continue production
and continue exporting." But bankruptcy is a process, not a defined outcome. And, the
"Korean bankruptcy law favours re organization over liquidation."97 Consequently, there
is no reason to believe that, if Hynix had filed for "bankruptcy," it would have ceased
operations.
In these circumstances, it is cl ear that the JIA's determination was based, fundamentally, on
assumptions, and that the JIA's assumptions do not stand scrutiny. Japan has suggested, however, that
the JIA's determination should nevertheless be upheld, because it listed facts and provided
explanations and responded to comments and claimed to make decisions based on the "totality of the
evidence." In Japan's view, the Panel's role should be limited to ensuring that the JIA provided the
form of a fair procedure, without looking at wh ether the JIA's determination was actually supported
by the evidence.98
4.175 That view is, however, plainly incorrect. The Appellate Body has clarified that, in applying
the standard of review set forth in Article 11 of the DSU, panels must undertake a "critical and
searching, "in-depth" examination to "test whethe r the reasoning of the authority is coherent and
internally consistent," and to ensure that "the re was positive evidence before [the investigating
authority] to support the inferences made and conclusions reached by it."99 Furthermore, "a panel can
assess whether an authority's explanation for its determination is reasoned and adequate only if the
panel critically examines that explanation in the light of the facts and the alternative explanations that
were before that authority." 100 And, perhaps most importantly, the Appellate Body has clarified that
"[a]n investigating authority that uses a met hodology premised on unsubstantiated assumptions does
not conduct an examination based on positive evidence."101

97 See Korea's First Written Submission, para. 280, citing Yun, A Primer on Korean Bankruptcy Law ,
18-5 Am. Bankruptcy Inst. J. 18 (June 1999).
98 See, e.g., Japan's First Written Submission, paras. 39 to 41.
99 See United States – Investigation of the International Trade Commission in Softwood Lumber from
Canada; Recourse to Article 21.5 of the DSU by Canada, WT/DS277/AB/RW, 13 April 2006, para. 93
100 Id., para. 99.
101 Mexico – Definitive Anti-Dumpin g Measures on Beef and Rice , WT/DS295/AB/R,
29 November 2005, para. 205.

4.176 Japan has asked the Panel to declare "inadmi ssible" the various academic publications that
were cited in Korea's first written submission. 102 However, Japan has not asked the panel to disregard
the logical arguments set forth in Korea's first s ubmission. Those arguments are, by themselves,
sufficient to show that the JIA's assumptions were "unsupported." Under the standard of review
described by the Appellate Body, the JIA's decision cannot be sustained.
(c) Improper Identification of "Interested Parties"
4.177 As explained in Korea's first submission, the text and context of the SCM Agreement indicate
that an investigating authority may only designate as "interested parties" those entities that have an
interest in the outcome of the proceeding. Japan and the United States have argued that the provisions
in Article 23 – which addresses the right to appeal administrative determinations – can be read to
indicate that the term "interested parties" ma y encompass entities that "are not directly and
individually affected by the administrative action." But the recognition that some entities may only be
indirectly affected by the administrative action – such as labour unions representing domestic workers
or trade associations made up of domestic producers – does not mean that entities that have no interest
in the outcome of the proceeding can be classified as "interested parties."
4.178 Under the SCM Agreement , an investigating authority is permitted to base its decision on
"facts available" only when an "interested party" fails to provide necessary information. An
investigating authority is not permitted to rely on "facts available" when an entity that is not an
"interested party" does not respond. Instead, the investigating authority must in such cases base its
determination on evidence that relates directly to the specific factual issue.
4.179 In this case, the JIA failed to comply with that obligation. It based its decision on
assumptions – using "facts available" to find that cr editors for which it had no information acted in a
non-commercial manner based solely on evidence rela ting to other banks. Such an approach is
permitted under the SCM Agreement only if the creditors for which the JIA had no information were
properly designated as "interested parties," and only if those creditors failed to provide necessary
information that had been requested from them . Because the JIA did not establish a factual
foundation for concluding that any of those creditors was an "interested party," its use of "facts
available" for them cannot be sustained.
3. Improper Finding that Hynix Received Financial Contributions
(a) Improper Classification of Transactions that Did Not Involve Any Transfer of Funds as
"Direct Transfers of Funds"
4.180 As explained in Korea's first submission, the JIA's determination improperly classified
transactions that did not involve any transfer of funds as "direct transfers of funds" under sub-
paragraph (i) of Article 1.1(a)(1) of the SCM Agreement. In response, Japan contends that the term
"funds" is broader than mere "cash." But Korea ne ver claimed that "funds" wa s limited" to coins and
"legal tender" paper notes. Instead, Korea argued th at a "transfer of funds" requires a conveyance of
monetary assets to the alleged subsidy recipient. While the original loan from a creditor to a borrower
would involve a conveyance of monetary assets to the recipient, the subsequent modification of the

102 In this regard, it should be noted that Japan's request to declare the publications "inadmissible" has
no basis in the DSU. As Japan has, itself, contended in other proceedings, the DSU does not impose any
limitations on the materials that may be presented to a panel. See United States – Anti-Dumping Measures on
Certain Hot-Rolled Steel Products from Japan, WT/DS184/R, 28 February 2001, Annex A-3, para. 6, n. 3.
As Japan has conceded, it is for the Panel to decide how much weight should be given to those
publications. In Korea's view, because those publications were submitted to contest the JIA's assumptions, and
not to challenge the evidence relied upon by the JIA, the publications should be given great weight. But, in the
end, whether the Panel relies on those publications or not, the outcome must be the same. Because the JIA's
decision was based on unsubstantiated assumptions, its decision cannot be sustained.

terms of the loan (either through extensions of the loan maturities or the swapping of the debts into
equity) does not.
4.181 Japan also claims that an expansive interpretation of the term "transfer of funds" is needed to
prevent circumvention of the SCM Agreement's disciplines on subsidies. But there is no need to do
violence to the language of the SCM Agreement. In reality, extensions of loan maturities and debt-
equity swaps that provide a "financial contribution" to the recipient can be classified as "foregone
revenue" within the meaning of sub-paragraph (ii) of Article 1.1(a)(1).
4.182 The problem in this case is that the JIA faile d to undertake the factual analysis necessary to
show that the creditors actually did forego revenue as a result of the restructuring transactions. It
failed to make the required " comparison between the revenues due under the contested measure and
revenues that would be due in some other situ ation" that the Appellate Body has required.
103 As a
result, the JIA's finding of a financial contributi on is not consistent with the requirements of
Article 1.1(a)(1) of the SCM Agreement.
(b) Improper Finding of "Entrustment or Direction" of Hynix's Private Creditors
4.183 The JIA's analysis of entrustment or directi on was also based on flawed assumptions and
biased analysis. In order to reach its conclusion, the JIA had to assume that creditors of insolvent
companies would never agree to restructure the comp any's debts – despite the obvious point that such
restructurings occur all the time in every market in the world. The JIA had to assume that the
creditors did not conduct reasonable analyses of the restructurings, despite the evidence showing that
the restructurings were in the cred itors' interests, and that the credito rs were aware of that fact. The
JIA had to assume that creditors that it had neve r examined or even contacted were not acting in
accordance with normal commercial considerations . And, it had to assume that the Korean
government had an intent to save Hynix, even th ough the evidence as a whole showed nothing more
than normal prudential concerns about the effect of uncertainty on the Korean financial system, and a
desire to see Hynix's creditors reso lve the situation one way or anot her as quickly and efficiently as
possible.
4.184 An unbiased and objective analysis would, of course, have seen that each of the JIA's
assumptions was flawed. In apparent recognition of the flaws in the JIA's analysis, Japan has now
contended that a decision that made no sense in its details can nevertheless be upheld based on the
totality of the evidence. But the totality of the evidence standard does not absolve an investigating
authority of the requirement to draw reasoned and adequate conclusions from evidence without
relying on unsubstantiated assumptions. The JI A's finding of entrustment or direction cannot,
therefore, be sustained.
4. Improper Finding that Hynix Received a Benefit from the Alleged Financial
Contributions
4.185 The JIA's finding of a benefit from the restructuring transactions was also contrary to the
requirements of the SCM Agreement . Because Hynix's going-concern value was higher than its
liquidation value at all relevant times, any rational actor in the position of Hynix's creditors who was
following usual market practices would have agreed to the restructurings in order to unlock the higher
going-concern value. In fact, the evidence indicates that a number of banks and financial institutions
that were not found to be entrusted or directed by the Korean government engaged in the same
transactions on the same terms as the allegedly entrusted or directed banks. The obvious conclusion is
that the alleged government involvement in the rest ructurings did not confer any benefit on Hynix,
because Hynix could have obtained the same terms in the absence of any alleged government action.

103 See United States – Tax Treatment for "Foreign Sales Corporations ," WT/DS108/AB/R,
24 February 2000, para. 90 (emphasis added).

4.186 In order to avoid this obvious conclusion, th e JIA engaged in a results-oriented analysis
designed to find a benefit where none existed. T hus, the JIA did not compar e the alleged financial
contributions – i.e., the restructuring transactions agreed to by Hynix's creditors – with a market
benchmark based on the usual practices for similar transactions. Instead, it compared the alleged
financial contributions with a market benchmark fo r completely different transactions (involving an
initial full repayment of debts by Hynix followed by a subsequent transfer of new funds from the
creditors to Hynix) that never occurred and that, under the JIA's findings, never could have occurred.
4.187 Furthermore, the JIA disparaged the analyses of Hynix's going-concern and liquidation values
by respected financial services firms on completely frivolous grounds. The JIA's complaints about
the analyses undertaken for the October 2001 restructuring show a complete misunderstanding of
basic financial analysis. Its complaints about th e analysis undertaken for the December 2002 raise
nitpicking to an art form. A fair assessment confirms what an unbiased observer would have surmised
– that it was the JIA officials, and not the experienced financial professionals who prepared the
reports, who were mistaken.
4.188 The JIA's benefit analysis was, therefore, inhe rently and fundamentally flawed. It was not
consistent with the requirements of Article 1.1(b) or the guidelines set forth in Article 14 of the
SCM Agreement. And, it was not consistent with the fair and unbiased analysis that is always
required in countervailing duty cases. In these circumst ances, the JIA's determination that the alleged
financial contributions conferred a benefit on Hynix cannot be sustained.
5. Improper Finding that the Alleged Subsidies Were Specific to Hynix
4.189 In order to make a proper finding of specificity under Article 2 of the SCM Agreement, the
JIA was required to "clearly substantiate," b ased on "positive evidence," that the restructuring
transactions were specific either in law or in fact. The conclusory statements made by the JIA – that
the restructurings were specific because they were "specific to a specific corporation" – do not meet
that requirement.
4.190 Japan has argued that the JIA's determinati on can be defended because it considered the
restructurings, and not the CRPA, to be the relevant program for purposes of the specificity analysis.
But neither Japan nor the JIA presented "positive evidence" demonstrating why the restructurings, and
not the CRPA, constituted the relevant program. If the restructuring programs reflected only the
normal operation of the CRPA, then the JIA should have considered the CRPA, and not the
restructurings, as the relevant program. By focusing on the specific restructurings to find specificity,
the JIA assumed what it was supposed to "substantiate" with "positive evidence.
6. Improperly Failure to Consider the Impact of Changes in the Ownership of Hynix
4.191 The Appellate Body has held that, when there is a change in the ownership of a company at
fair market value, the investigating authorities must consider whether the subsidies received before the
change in ownership continue to pr ovide a benefit after the ownership change. It has also held that
such a change in ownership creates, at a minimum, a rebuttable presumption that the benefits of the
subsidy have been extinguished.
104 And, it has found that the fail ure of investigating authorities to
comply with that obligation is inconsistent with Articles 10, 14, 19, and 21 of the SCM Agreement.

104 In cases involving transactions between private pa rties, the Appellate Body has suggested that the
presumption may be irrebuttable. See United States – Countervailing Measures Concerning Certain Products
from the European Communities, WT/DS212/AB/R, 9 December 2002, para. 124 ("The Panel's absolute rule of
"no benefit" may be defensible in the context of tr ansactions between two private parties taking place in
reasonably competitive markets….").

4.192 Japan claims that Korea has failed to "present any evidence or argument that there has been a
'change in ownership' as defi ned by the Appellate Body."
105 It appears that Japan reads the Appellate
Body's past decisions to require the sale of 100 per cent of the outstanding shares of the company.
But the relevant Appellate Body decision disti nguishes only between situations in which the seller
retains a controlling interest in the company and those in which it does not. Indeed, the Appellate
Body specifically stated that its analysis applied as long as the seller transferred "substantially all" of
its interest.106
4.193 Finally, Japan also contended that the analysis set forth in the Appellate Body's past decision
is inapplicable because Hynix's creditors did not pay fair market value for its shares. But Japan
cannot seem to decide what it is arguing. It claims that Hynix's creditors paid both more and less than
the fair market value for those shares.107
4.194 To the extent that Japan is asserting that Hynix' s creditors paid too much for Hynix's shares,
its arguments concerning the applicability of the pa st Appellate Body decision are plainly without
merit. As the Appellate Body noted, the reason that a change in ownership "extinguishes" past
subsidies is that the price that the new owners pa id already includes the value of any past subsidies.108
If the new owners paid too much for the shares, then the price they paid still includes the value of any
past subsidies – but it also includes an additional amount. In either case, the result should be the same
– because in both cases the price paid fully reflects the value of the past subsidies.
7. Improper Imposition of Duties on Imports a fter the Benefit of the Alleged Subsidies had
Expired
4.195 The period of investigation chosen by the JIA wa s calendar year 2003. Significantly, none of
the restructuring transactions and none of the ot her alleged subsidy progra ms occurred during that
period. Instead, the restructuring transactions and other alleged programs analyzed by the JIA all
occurred in 2000, 2001 and 2002. The JIA found subsidies during the 2003 investigation period only
because it chose to "allocate" the benefit of subsidies allegedly received in earlier years to that period.
4.196 The JIA's own amortization – which was necessary to the JIA's finding of subsidies in 2003 –
clearly indicated that the benefit from the October 2001 restructuring ended in 2005. Thus, the JIA's
determination that a subsidy existed in 2003 necessar ily implied that there was no continuing subsidy
from the October 2001 restructuring transaction when the JIA issued its final determination in 2006.
4.197 Article 19.4 of the SCM Agreement provides that the countervailing duty imposed may not
exceed the amount of the subsidy found "to exist" – and thus does not permit duties to be imposed
based on past subsidies that no longer "exist." Artic le 21.1 makes this requirement explicit, providing
that: "[a] countervailing duty shall remain in force only as long as and to the extent necessary to
counteract subsidization which is causing injury." The JIA's continued imposition of duties in 2006
when it knew that the benefit of the October 20 01 restructuring had already expired cannot be
reconciled with these provisions.

105 See Japan's First Written Submission, para. 458.
106 See Japan's First Written Submission, paras. 458 and 459, citing United States – Countervailing
Measures Concerning Certain Products from the European Communities, WT/DS212/AB/R, 9 December 2002,
para. 117.
107 See Japan's First Written Submission, para. 463 (arguing that the debt-equity swap by Hynix's
creditors was "[a} transaction done for ' above fair market value,'" and also that "Hynix's equity transaction was
made far below the fair market value.") (emphasis added).
108 See United States--Imposition of Countervailing Duties on Certain Hot-Rolled Lead and Bismuth
Carbon Steel Products Originating in the United Kingdom, WT/DS138/AB/R, 10 May 2000, para. 68 (Since the
new owners "paid fair market value for all the productive assets, goodwill, etc., they acquired and subsequently
used in the production", the Appellate Body found no error in the Panel's conclusion that "the 'financial
contributions' bestowed' on the previous owner "could not be deemed to confer a 'benefit' on [BCI].").

4.198 Japan has contended that the provisions of Article 21 do nothing more than establish the
requirements for reviews of outstanding countervailing duty orders. 109 But, the very heading of
Article 21 – which refers to the " Duration and Review of Countervailing Duties and Undertakings" –
indicates that its content is not limited to reviews. Furthermore Article 21.1 (which sets forth the
limitation on the duration of duties) does not mention the word review at all.
4.199 Japan also contends that the imposition of co untervailing duties even after the benefit had
expired is consistent with langua ge in the Appellate Body's decisions in two antidumping cases (the
EC – Bed Linens case and the Mexico – Rice case). But the issues addressed in those cases were
entirely different – concerning the relationship be tween the finding of dumping for particular
exporters in a particular period and the determin ation that dumped imports from all exporters had
caused injury in what might be a different period.
110
4.200 Furthermore, Japan's arguments ignore the f undamental differences between antidumping and
countervailing duty proceedings. There are important textual differences between Article 9.3 of the
Antidumping Agreement (which limits antidumping duties to a specific calculation undertaken
pursuant to Article 2) and Article 19.4 of the SCM Agreement (which limits countervailing duties to
"subsidies found to exist"). Furthermore, there is nothing in the Antidumping Agreement
corresponding to Article 19.1 of the SCM Agreement (which prohibits the imposition of
countervailing duties, even after the investigatio n has been completed, when the subsidies are
"withdrawn"). And, finally, there is nothing in the Antidumping Agreement that permits the
amortization of dumping from a period before th e investigation period to find dumping in the
investigation period and in future periods.
4.201 Finally, the imposition of duties after the benefit has expired would be contrary to the purpose
of the SCM Agreement – which is simply to "offset" subsidies. 111 At the time it made its
determination in this case, the JIA knew with certainty that the benefits from the October 2001
restructuring extended only until 2005, and did not exist in 2006. In such circumstances, the
imposition of duties in 2006 could not "offset" the subsidies from the October 2001 restructuring,
because those subsidies no longer existed.
8. Japan's Finding that the Subsidized Imports Were Causing Injury Was Inconsistent
with the Requirements of the SCM Agreement
4.202 The text of Articles 15.5 and 19.1 require a de termination that the injury caused by the
subsidized imports occur "through the effects of the subsidy." Under these provisions, it is not
enough that the imports which happen to be subsidized are caus ing injury. Instead, it must also be
demonstrated that the injury is occurring "through the effects of the subsidy".
4.203 Japan and the United States assert that a footnot e to Article 15.5 (footnote 47) defines the
phrase "effect of the subsidy" to mean the price a nd volume effects, and the consequent impact on the
domestic industry, described in Articles 15.2 and 15.4. But the footnote in question is placed
immediately after the word "effects" and thus serves only to define that word. It does not define the
entire phrase "through the effects of the subsidy." Indeed, a contrary interpretation would render the
reference to the effects "of the subsidy" inutile.

109 See, e.g., Japan's First Written Submission, para. 511.
110 See European Communities – Anti-Dumping Duties on Imports of Cotton-Type Bed Linen from
India; Recourse to Article 21.5 of the DSU by India , WT/DS141/AB/RW, 8 April 2003, para. 123; Mexico –
Definitive Anti-Dumping Measures on Beef and Rice, WT/DS295/AB/R, 29 November 2005, paras. 165-166.
111 See, e.g., United States – Imposition of Countervailing Duties on Certain Hot-Rolled Lead and
Bismuth Carbon Steel Products Originating in the United Kingdom , WT/DS138/R, 23 December 1999,
para. 6.56.

4.204 Japan and the United States also contend that the Panel should follow the decision by a GATT
Panel in the Norwegian Salmon cases.
112 But Japan itself severely criticized the Norwegian Salmon
decision "subverted the rule" in the Tokyo Round Subs idies Code and "denied the true meaning" of
the phrase "through effects of the subsidy." 113 The GATT Panel report was adopted only in light of
the statement by the Chairman of the Committee on Subsidies and Countervailing Measures that the
"Panel Report did not create oblig ations on parties that were not parties to the specific dispute
addressed by the Panel Report, nor did it represent binding legal precedent applicable to other
disputes."114 Because the Norwegian Salmon decision is not consistent with the ordinary meaning and
context of the relevant provision, its holding should not in any way bind the Panel in this case.
4.205 Finally, it should be noted that the JIA, in th is case, apparently agreed that it was necessary to
demonstrate that the injury occurred "through the effect s of the subsidy." But, the JIA concluded that
any harm caused by Hynix's exports was necessarily a result of the subsidy, because Hynix would not
have been in operation, and thus would not have been able to export, in the absence of subsidies.
115
As noted in Korea's first submission, that conc lusion is based on a fundamental legal error.
"Bankruptcy" is a legal process, which affords a debt or protection from its creditors while the debtor's
future is being determined. Under the Korean bankruptcy laws, the "bankruptcy" of Hynix would
have led to debt restructuring, not liquidation. Thus, the JIA's equation of bankruptcy with liquidation
has no basis.
9. Failure to Comply with the Substantive and Procedural Requirements of the
SCM Agreement
4.206 As discussed above, the JIA's imposition of count ervailing duties in this investigation failed
to comply with the procedural and substantive requirements of the SCM Agreement and the
GATT 1994. Consequently, the imposition of those du ties was inconsistent with the requirements of
Articles 10 and 32.1 of the SCM Agreement.
F. SECOND WRITTEN SUBMISSION OF JAPAN
4.207 The following summarizes Japan's arguments in its second written submission.
1. Standard of Review and Burden of Proof
(a) Standard of Review
4.208 Article 11 of the DSU provides the proper standa rd of review to be applied by panels
examining the subsidy determ inations of WTO Members: 116 an objective assessment of the matter,
including "an objective assessment of the facts of the case and the applicability of and conformity
with the relevant covered agreements." 117 A panel may not reject an agency's conclusions simply

112 See, e.g., Japan's First Written Submission, para. 599, and US Third-Party Submission, para. 73,
citing United States – Imposition of Countervailing Duties on Imports of Fresh and Chilled Atlantic Salmon
from Norway, SCM/153, 4 December 1992, paras. 328-334.
113 See Committee on Subsidies and Countervailing Measures, Minutes of the Meeting Held
on 28-29 April 1993, SCM/M/65, 31 August 1993, para. 104.
114 See Committee on Subsidies and Countervailing Measures, Minutes of the Meeting Held
on 28 April 1994, SCM/M/69, 21 September 1994, para. 77.
115 See JIA Response to Comments, paras. 740-741. See also Japan's Opening Statement, paras. 46
and 50.
116 Appellate Body Report, US – Countervailing Duty Investigation on DRAMS, para. 182.
117 Ibid. ("A panel's "objective assessment" will be informed by "an examination of whether the agency
provided a reasoned and adequate expl anation as to: (i) how the evidence on the record supported its factual
findings; and (ii) how those factual findings supported the overall subsidy determination." Such explanation

because the panel would have arrived at a different outcome if it were making the determination itself.
Rather, a panel should, on the basis of the record evidence before it, "inqui re whether the evidence
and explanation relied on by the investigating authority reasonably supports its conclusions." 118 A
panel should "examine the evidence in the light of the investigating authority's methodology", and in
order to do so, a panel should "identify the inference drawn by the agency from the evidence, and then
consider whether the evidence c ould sustain that inference." 119 An impermissible de novo review
would occur "[w]here a panel examines whether a pie ce of evidence could directly lead to an ultimate
conclusion – rather than support an intermediate infe rence that the agency sought to draw from that
particular piece of evidence "120
4.209 Where an investigating authority relies on the totality of circumstantial evidence in finding
entrustment or direction, "this imposes upon a panel th e obligation to consider, in the context of the
totality of the evidence, how the interaction of certain pieces of evidence may justify certain
inferences that could not have been justified by a review of the individual pieces of evidence in
isolation."
121
(b) Burden of Proof
4.210 Two fundamental principles of the WTO dispute settlement procedures are of particular
relevance to this case: (1) "[T]he burden of proof rests upon the party…who asserts the affirmative of
a particular claim…." 122; and (2) A "responding Member's law will be treated as WTO-consistent
until proven otherwise." 123 The determination of the investiga ting authority in the present case must
be assumed to be WTO-consistent in its entirety, and the burden rests on Korea to prove otherwise.
2. Korea's Claims of Error
(a) Japan's Guidelines
(i) The Limited Scope of Korea's Claim
4.211 Korea has limited its clai m under Article 14 of the SCM Agreement to whether the method
used by the JIA in the benefit calculation was "pr ovided for" in Japan's national legislation or
implementing regulations.
(ii) The JIA's Benefit Calculation Methodology Was Provided for in Japan's Law
• The Panel should reject Korea's "as such" claim
4.212 A claim that the calculati on methodology has not been provided for in Japan's "national
legislation or implementing regulations" is by definition an "as such" challenge but Korea's claim falls
far short of the standard for "as such" challenges. Korea did not claim that the application of benefit
calculation formulae in the Final Determination caused any impairment of procedural rights of
interested parties during the investigation, that the formulae are inconsistent with methods set forth in
the Guidelines, or that the formulae in the Final Determination were themsel ves inconsistent with
Article 14 of the SCM Agreement.

should be "discernible from the published determina tion itself ... The explanation provided … should also
address alternative explanations that could reasonably be drawn from the evidence . . . ."") (emphasis added).
118 Appellate Body Report, US – Countervailing Duty Investigation on DRAMS, para. 188.
119 Ibid., para. 151.
120 Ibid., para. 151 (original emphasis; footnote omitted).
121 Ibid., para. 157 (original emphasis).
122 Appellate Body Report, US – Wool Shirts and Blouses, p. 14.
123 Appellate Body Report, US – Carbon Steel, para. 157 (emphasis in original).

• Korea continues to confuse method with application
4.213 The chapeau of Article 14 clearly delineates between the method used by the investigating
authority to calculate benefit, which must be pr ovided for in national legislation or implementing
regulations and the application of that method to each particular case, which must be transparent and
adequately explained. The method the JIA used to calculate bene fit was provided for in Japan's
Guidelines. Its application was set out in the Final Determination. The application of a method will
inevitably be more detailed than the Guidelines upon which any investigating authority will rely.
• Article 14 does not prescribe how WTO Members must apply their Guidelines
4.214 Article 14 does not prescribe any particular methodology that Members must adopt, but
provides "considerable leeway in adopting a reasonable methodology." 124 Paragraphs (a) through (d)
of Article 14 should not be interpreted as "rigid rules that purport to contemplate every conceivable
factual circumstance". 125 However, Korea urges the Panel to adopt such an interpretation. Such
argument negates the discretion accorded to each WTO Member as explained by the Appellate Body
and the panel. Japan's Guidelines set its benefit calculation methods as required under the chapeau of
Article 14. The Guidelines are sufficiently deta iled and in compliance with Article 14. The
Guidelines left the application of the methods to individual cases.
• The Panel should reject Korea's argument th at any failure to comply with Article 14
renders the countervailing duty order invalid
4.215 When a breach is found through a WTO disput e settlement procedure, under the general
principle pursuant to Article 19.1 of the DSU, th e Member concerned receives a recommendation to
bring its measures into conformity and will have the discretion to determine the means of
implementation and a reasonable period of time for doing so. 126 The countervailing duty as a whole
would not be considered to be invalid.
(b) The Record Evidence
4.216 There is "no basis in the SCM Agreement or in the DSU to impose upon an investigating
authority a particular standard for the evidence s upporting its finding of entrustment or direction". 127
The SCM Agreement requires "positive evidence" only with resp ect to specificity under Article 2 and
injury under Article 15. 128 The use of circumstantial evidence has been recognized by the Appellate
Body129, which has found that Article 1.1(a)(1)(iv) is , in essence, an anti-circumvention provision" 130
and that indirect or circumstantial evidence play an especially important role. Korea's premise, that
only "positive evidence", "smoking gun" or "dir ect evidence" qualify as evidence in a subsidy
investigation, in arguing that the JIA "shifted the burden of proof" is wrong.
4.217 The JIA conducted a reasonable and objective ex amination of the extensive evidence on the
record and made its determination on the basis of evidence viewed in its to tality. It also addressed
alternative explanations regarding such evidence gi ven from interested parties in the course of the

124 Panel Report, EC – Countervailing Measures on DRAM Chips, para. 7.213.
125 Appellate Body Report, US – Softwood Lumber IV , para. 92. See also Panel Report, US –
Countervailing Measures on Certain EC Products, paras. 7.114, 7.118.
 126 Appellate Body Report, US – Anti-Dumping Measures on Oil Country Tubular Goods, para. 187.
127 Appellate Body Report, US – Countervailing Duty Investigation on DRAMS, para. 138.
128 Ibid., footnote 250. See also FWS of Japan, paras. 259-61.
129 See, e.g. , Appellate Body Report, US – Countervailing Duty Investigation on DRAMS ,
paras. 144-58.
130 Appellate Body Report, US – Countervailing Duty Investigation on DRAMS, para. 113.

investigation. When it disregarded such altern ative explanations, it explained the reasons why it
chose to discount such alternatives in reaching its conclusions.
(c) Designation of Certain Financial Institution as "Interested Parties"
4.218 Korea has not made any persuasive argument that financial institutions cannot be included as
"interested parties" under the SCM Agreement and fails to establish a prima facie case.
(d) Financial Contribution
(i) The JIA Correctly Found a Transfer of "Funds"
4.219 The ordinary meaning of the term "funds" in the context of Article 1.1(a)(1)(i) of the
SCM Agreement in light of its object and purpose encompasses debt-to-equity swaps and the extension
of maturities of loans. The ordinary meani ng of the word "funds" encompasses more than just
"money" and includes as well all financial resources, which have monetary or exchangeable value or
provide financial gains. 131 As a consequence, Korea's claim re garding "government revenue that is
otherwise foregone" is irrelevant and should be rejected.
(ii) The JIA Correctly Determined that the Private Creditors Were Entrusted or Directed
• Summary of argument and general approach

4.220 "Entrustment or direction" occurs when a gove rnment "gives responsibility to" or "exercises
its authority over" a private body. 132 The SCM Agreement imposes no particular evidentiary standard
for the evidence for the determination of entrustment or direction. 133 In light of the anti-
circumventive nature of an "entrustment or dir ection" case, circumstantial evidence may play a key
role in a determination unde r Article 1.1(a)(1) of the SCM Agreement. The JIA found, based on the
totality of the evidence before it, that the Governme nt of Korea's involvement in the bailout programs
for Hynix was not a mere facilitation for such pr ograms, and the bailout programs were not an
"inadvertent or a mere by-product of governmental regulation". 134 A review of the JIA's analysis of
the individual pieces of circumstantial evidence in conjunction with other pieces of evidence, as the
JIA did, as well as the accuracy of the individual pieces of evidence, and an assessment whether the
intermediate findings of fact made by the JI A on the basis of these evidence, and the overall
conclusion based on these intermediate findings, dem onstrates that the JIA's determination provided a
reasoned and adequate explanation.
• Rebuttal to Korea's arguments

4.221 Korea's argument that the JIA's finding of entrustment or direction rests solely on a three-
prong "syllogism" misstates the JIA's determination and overlooks the fact that the JIA considered
other factors (e.g., the Government of Korea's power to control the private bodies, the Government of
Korea's intervention into the progress of the October 2001 and December 2002 Programs).135
- The Government of Korea's intent

131 See, e.g., Oxford English Dictionary (5th ed. 2002) at 1049; Concise Oxford English Dictionary
(10th ed. 2002) at 919.
132 Appellate Body Report, US – Countervailing Duty Investigation on DRAMS, paras. 110-11.
133 Appellate Body Report, US – Countervailing Duty Investigation on DRAMS, para. 138.
134 Appellate Body Report, US – Countervailing Duty Investigation on DRAMS, para. 114.
135 See FWS of Japan, paras. 335-46 for the summary of these factors.

4.222 The JIA had abundant evidence before it that the Government of Korea had expressed a clear
intent to save Hynix.
136 As clarified by the Appellate Body, in some circumstances, "guidance" can
constitute entrustment or direction. 137 Whether the government's action is ultimately not inconsistent
with the private bodies' own interests is not a fact or that needs to be considered in assessing the
government's action of entrustment or direction.138
4.223 Contrary to Korea's allegation, the JIA did not ignore the newspaper article cited by Korea,
but rather addressed it and explained the weight it was given. 139 The JIA sufficiently discussed other
evidence related to the Government of Korea' s actions related to the October 2001 Program. 140 The
JIA fulfilled its responsibility to provide reas oned explanation on its determination under the
SCM Agreement. In assessing the accuracy and adequacy of any statements by interested parties
during the investigation, it was reas onable for the JIA to c onsider whether, in light of the totality of
the evidence before it, such statem ents were accurate and adequate, and if the evidence demonstrated
that they were not, to reach a finding that such statements are not reliable.
- Lack of investors and the lack of su fficient analysis by participating banks
4.224 As a premise, the JIA focused on the commercia l reasonableness of the participating banks'
decisions and decision making process, and the JIA's conclusion that the banks acted in a non-
commercial manner sheds light on some of the other evidence on the record, as the Panel in EC –
Countervailing Measures on DRAM Chips acknowledged that "such non- commercial behaviour may
well be seen as an indication of possible government entrustment or direction".141
4.225 Next, with respect to the creditor banks for which the JIA did not make finding on whether
entrustment or direction was made, it should be noted that the JIA had sent questionnaires to these
banks and asked them to provide information concer ning their decisions to participate in the Hynix
bailout programs, but only one responded. Thus, the JIA relied on the facts that were otherwise
available, including those provided by responsive bank. Also, the fact that the JIA did not make such
finding does not suggest that the banks acted in commercial manner.
- Korea's Specific Arguments on the JIA's Assess ment of the Lack of Investors Willing to
Participate in the Bailout Programs
4.226 The JIA's finding was based on abundant of evid ence that there existed no investors, either
new or existing creditors, in the general commercial market who would ha ve invested in or provided
loans to Hynix from a normal commercial perspective such as views of investment analysts,
investment trust companies, and purchasers of the GDRs, i.e., an outsider's point of view.142 The JIA
further examined the commercial reasonableness for ex isting creditors to provide additional financing
to Hynix even where no investors in the genera l commercial market would provide any financing. 143
The JIA followed the same proc ess in examining banks' financing decisions in the October 2001

136 See, e.g., JPN-02-17-21, 24-25, 112, 113, 235, 321-323, 328, 329, 334, and 386-406.
137 Appellate Body Report, US – Countervailing Duty Investigation on DRAMS, para. 116.
139 Annex 3 of the Final Determination, para. 401 (JPN-04).
140 See Annex 1 of Final Determination, paras. 269-75.
141 Panel Report, EC – Countervailing Measures on DRAM Chips, para. 7.59.
142 See Annex 1 of Final Determination, paras. 261-68 (JPN-02) for the JIA's analysis on the
October 2001 Program and ibid., paras. 322-27 for the same on the December 2002 Program.
143 See Annex 1 of Final Determination, paras. 204-221 (JPN-02).

Program144 and the December 2002 Program 145 on the premise that existing creditors would possibly
provide additional funding in order to maximize the recovery of credit.146
4.227 The Arthur Andersen Report, which all the banks alleged to have formed the basis for their
decision to participate in the October 2001 Program , was not ready until more than a month after the
conclusion of the October 2001 Program. With respect to the December 2002 Program and the
Deutsche Bank Report, the JIA examined the accuracy and adequacy of the Deutsche Bank Report.
However, the JIA found it was not an objective third party analysis as the Deutsche Bank [[BCI]]. 147
There also was evidence on the reco rd that the government intervened in the preparation of the
Deutsche Bank Report 148, as acknowledged by NACF. 149 In addition, KEB and Woori Bank refused
to submit minutes of Special Committee for Corporate Restructuring irrespective of the JIA's request.
Thus, it did not have sufficient third party charact er to substantiate a commercial judgment, given
Hynix's serious financial situation.150
4.228 The JIA also pointed to a number of anomalies in this Report for which no satisfactory
explanation was provided. 151 Equally important is the fact that all the creditors seemed to have
ignored these anomalies and that they went ahead with the excessively risky investment in Hynix
based on this unreliable Report, casting doubt on the ge neral claim by the creditors that they based
their decision on the Deutsche Bank Report and th at this decision was therefore commercially
reasonable.
4.229 The offer made by Micron in April 2002 cannot be evidence of the situation in
December 2002 and the Memorandum of Unders tanding between Hynix and Micron was not
submitted to the JIA at the time of the investigation. 152 None of the Korean banks stated that it relied
on the Micron offer in evaluating the value of Hynix.
- Korea's Specific Arguments concerning the Lack of Analysis by Participating Banks
4.230 Exhibits KOR-27 and KOR-29 confirm a number of the JIA's findings on Woori Bank. With
respect to the October 2001 Program, KOR-27 shows that the Bank [[BCI]]; that the Arthur Andersen
report [[BCI]] in the October 2001 Program; and that Woori Bank took into account the [[BCI]].
With respect to the December 2002 Program, KOR- 29 shows that Woori Bank accepted the Deutsche
Bank Report at face value, despite of the many s hortcomings both from a procedural and substantive
point of view and its own admission that the Deutsche Bank was[[BCI]].
(e) The Determination of Benefit
(i) Introduction and Overview of Japan's Argument
4.231 The JIA's conclusion that Hynix could not raise funds on the commercial market comparable
to those raised through the October 2001 Program and the December 2002 Program was reasonable

144 See Annex 1 of Final Determination, paras. 269-97 (JPN-02).
145 See Annex 1 of Final Determination, paras. 328-74 (JPN-02).
146 Annex 3 of Final Determination, paras. 140-41 (JPN-04) (emphasis added).
147 Annex 1 of the Final Determination, paras. 340-42 (JPN-02); Annex 3 of the Final Determination,
paras. 480-83 (JPN-04).
148 Annex 1 of the Final Determination, paras. 334–36 (JPN-02); Annex 3 of the Final Determination,
paras. 472-74 (JPN-04).
149 Annex 3 of the Final Determination, paras. 526 and 528 (JPN-04).
150 Annex 1 of the Final Determination, paras. 338-42 (JPN-02).
151 Annex 1 of the Final Determination, para. 343 (JPN-02); Annex 3 of Final Determination,
paras. 489, 491-492, 495-499, 501-503, and 505.
152 See Japan's Answer to Q.44 of the Panel's Questions (1st Substantive Meeting).

and is supported by facts on record.
153 Participation in these Programs by financial institutions, for
which the JIA did not make any finding whether they were entrusted or directed by the Government
of Korea, cannot be the benchmark to determine the benefit as these financial institutions also acted in
consideration of non-commercial factors.
4.232 The terms and conditions of the October 2001 and the December 2002 Programs were so
heavily distorted by past subsidies, as well as the c oncurrent government entrustment or direction for
the particular subsidy, that they were not obtai ned from the commercial market. The evidence on the
record also established, inter alia, that the Government of Korea inte rvened into the contents of the
Deutsche Bank Report154, which provided the financial terms of the December 2002 Program.
(ii) Rebuttal to Korea's Arguments
• Korea's flawed argument based on the going concern value

4.233 The assertion that the going concern value was higher than the liquidation value and thus the
banks' participation reflected market be nchmark is erroneous and unsubstantiated.
155 The Arthur
Andersen Report was only finalized after the decisions to participate had already been taken and its
going-concern value was based on Hynix's financial conditions after its receipts of the actual
financings as executed under the October 2001 Program. 156 For the Deutsche Bank Report, the
estimated recovery rates in case of turnaround scenarios, i.e., its going-concern values for creditors,
contain errors and various other deficiencies.
4.234 Neither Article 1.1(b) nor Article 14 provides any particular methodology that an
investigating authority should use where no comme rcial benchmarks from the actual market are
available as an "investigating authority is entitled to considerable leeway in adopting a reasonable
methodology."157
4.235 With respect to the assertion that the JIA did not examine the normal practice of participants
in transactions of the same type, Korea disregards the fact that the Government of Korea and other
interested parties refused to submit information of the financings provided to other companies subject
to the CRPA during the investigation, despite the request of the JIA. Thus, the JIA was precluded
from considering such potential market benchmarks.158
• Korea's flawed argument using the banks - for which the JIA made no finding of whether
they have been entrusted or directed - as benchmarks

4.236 In light of the fact that the banks, to which the JIA sent questionnaires, were the major
creditors to Hynix, selected based on the response of the Government of Korea on this point, and the
response of KEB, the lead bank in Hynix's Creditors Council ( i.e., that the credit of such other banks

153 Such facts include the combination of Hynix's disastrous and deteriorating financial state, its bad
history of servicing debt, the collapse of the stock price after the GDR issuance of June 2001, the reality that no
new investors put funds into Hynix, including so-called vulture funds, that no existing creditor provided any
financing outside of the October 2001 an d December 2002 Programs. See Annex 1 of the Final Determination,
paras. 170, 261, 263, 265-68, 323, 324 325-27, footnote 47 (JPN-02); Annex 3 of Final Determination para. 448
(JPN-04).
154 Annex 1 of the Final Determination, paras. 334-36 (JPN-02); Annex 3 of the Final Determination,
paras. 472-74.
155 See Annex 1 of the Final Determination, para. 343 (JPN-02), Opening Statement of Japan,
paras. 55-60.
156 See Annex 1 of the Final Determination, paras. 276 and 299, and footnote 362 (JPN-02). See also
Opening Statement of Japan at the First Substantive Meeting of the Panel, para. 32.
157 Panel Report, EC – Countervailing Measures on DRAM Chips, para. 7.213.
158 See also FWS of Japan, paras. 627-31.

"is small" and that KEB does not "think this information is necessary for the countervailing duty
investigation procedure"), the JIA's selection of banks to investigate was reasonable.
4.237 Article 14 does not require an investigating au thority to accept as a benchmark a market so
distorted by the government's intervention that the trade-distorting potential of the subsidy would not
be properly recognized.
159 To require use of such a distorted benchmark would lead to an
underestimation of the trade-distorting potential of the subsidy.
4.238 The "market" in this case is the financing by private entities that is commercially available to
Hynix. If the government is heavily subsidizing a company, then private entities would construct
their financial arrangements to the company based on its subsidy-distor ted financial conditions. It is
therefore clear that the government's intervention is distorting "the market" available to the company.
In some cases, such as this one, the scale and timi ng of the subsidies is such that it is not just a
question of impacting on the terms of the financ ing, but actually creates the existence of such
financing itself. At the time of the Oct ober 2001 Program and the December 2002 Program, no
commercial investment was available to Hynix160 and it was well recognized that it would go bankrupt
without a new financial infusion.161
4.239 In the case at hand, the JIA did not make any finding of whether certain banks were entrusted
or directed, but this does not mean that such ba nks necessarily constitute a market benchmark. These
other creditors had not acted in a commercially r easonable manner. Apart from Kookmin Bank, none
of these other banks provided responses to the JIA's questionnaires, forcing the JIA to rely on the facts
available.162 With respect to the December 2002 Program , the JIA had no choice but to base its fact
finding on the information from those banks that replied.
4.240 Subsidies such as the D/A financing, the KDB program and the May 2001 Program were not
granted in the distant past. They remained in effect and enabled Hynix to survive until the
October 2001 Program, which in turn enabled Hyni x to stay in business until the December 2002
Program. Given the extent of the subsidies provide d, it is evident that the terms and conditions of
these banks' financings in the October 2001 and December 2002 Programs were affected and distorted
by the earlier bail-out programs.
4.241 In the case at hand, the government's role in the restructuring of Hynix through public bodies
and entrusted or directed private bodies was so predominant both prior to and at the time of the actual
programs that were countervailed, that a comparis on with a distorted private market would become
completely circular.
(f) Imposition of a Countervailing Duty on Imports F ound to Have Been Subsidized during the
Period of Investigation
(i) The Limited Nature of Korea's Claim
4.242 Korea's claim under "Articles 19 and 21" has b een narrowed down to its arguments based on
Articles 19.4 and 21.1.

159 Appellate Body Report, US – Softwood Lumber IV, paras. 90-95.
160 See Annex 1 of Final Determination, para. 190 (JPN-02). See also Annex 1 of Final Determination,
paras. 261-68 (JPN-02) for the JIA's analysis on the October 2001 Program and ibid., paras. 322-27 for the same
on the December 2002 Program.
161 See, e.g., Oral Statement of Korea, para. 59.
162 See Annex 1 of Final Determination, footnote 362 (JPN-02).

(ii) The Determination was Fully Consistent with Article 19.4
4.243 Article 19.4 of the SCM Agreement explicitly references the amount of the subsidy " found to
exist", i.e., using the past tense of "find," was made. A subsidy can only be "found" to exist during
the period of investigation. If Korea's interpre tation of Article 19.4 is accepted, investigating
authorities would not be able to complete the inves tigation, as they would be forced to examine the
amount of benefit concurrently with the imposition of a countervailing duty.
(iii) The Determination was Fully Consistent with Article 21.1
4.244 Article 21 covers "Duration and Review of Countervailing Duties…." Article 21 is
inapplicable in a dispute over the imposition of countervailing duties in accordance with the final
determination of an investigation. Korea's interpre tation would negate the clear intent of the drafters,
who chose to place Article 21.1 u nder the provision dealing with reviews, rather than under Article
19, which imposes disciplines with respect to investigations.
(iv) Article VI of the GATT 1994, and the Prov isions of the SCM Agreement Provide
Incontrovertible Textual Support for Japan's Position
4.245 Article VI of GATT 1994 and the provisions of the SCM Agreement provide vital textual
support for use of a period of investigating ("PO I") to determine the amount of the subsidy.
Article VI:3 of GATT 1994 provides, in part, that the subsidy is that " determined to have been
granted." The drafters have used the past perfect te nse (referring to a subsidy "determined to have
been granted") rather than the present tense (a subsidy "being granted"). The countervailing duty may
be imposed on the basis of a subsidy "determined to have been granted" prior to the imposition of the
duty, i.e., during the POI.
4.246 Under Articles 10 and 11.1 of the SCM Agreement, the investigating authority determines the
existence of the subsidy ( i.e., subsidization), as well as the degree of the subsidy ( i.e., the amount of
subsidy) as of the time as alleged in the applica tion. Article 15 provides that the determination of
subsidy must precede the investigating authority' s examination of injury. Consequently, the
determination of the amount of subsidies, which c onstitutes the basis to dete rmine the existence of
subsidization, must also be made on the past data as of the time contemporaneous with the period of
time in which the injury is determined. These provi sions inform Article 19 that a final determination
must be made based on the evidence on the record wh ich relates to the POI. Article 19.4, in turn,
authorizes imposition of countervailing duties where a subsidy has been "found" to exist during the
POI. Nothing in the SCM Agreement requires a redetermination of subsidy at the time of imposition
of the duties.
(v) Korea Wrongly Assumes that the Investigating Au thority "Fully Allocated" the Subsidies to
the 2001-2005 Period
4.247 The JIA did not make any finding on the expiry date of the effects of the non-recurring
subsidy granted in the October 2001 Program but de termined only that the amount of the subsidy to
be allocated to the POI was one-fifth of the origin ally granted amount of the non-recurring subsidy.
This determination was a finding of the subsidy allocation for 2003 and does not represent a finding
that the appropriate amount of the subsidy to be allocated to 2004 or 2005 would necessarily be one-
fifth of the total amount of the subsidy.163
4.248 The issue of the allocation of subsidies in la ter years must be determined upon review of
relevant facts for those years in a review proceeding under Article 21 of the SCM Agreement. The
JIA made no findings with respect to the amount of be nefit that might be allocated to the period after

the POI or how such amount would be allocated. Such a finding cannot be made concurrently with
the imposition of a countervailing duty, because, inter alia , the allocation factor to be used in the
calculation of the amount of benefit for the relevant subsequent periods and the residual amount of the
subsidy may also change.164
(vi) Korea's Claim Disregards Relevant Findings by the Appellate Body
4.249 Japan cited a number of WTO precedents 165 that directly supported Japan's argument, and
negated Korea's claim. Korea has not commented on the merits of these rulings. Furthermore,
similarities of the ch aracteristics of the Anti-Dumping Agreement and the SCM Agreement lead to the
logical conclusion that both Agreements should be in terpreted similarly, where possible. There is no
obligation either under the Anti-Dumping Agreement or the SCM Agreement that the investigating
authority must re-calculate the anti-dumping or countervailing duty rate absent an affirmative act.
(g) Effects of Subsidies in Injury Determination
(i) Causal Link between the Subsidized Imports and Injury
4.250 Article 15.5 of the SCM Agreement requires an investigating authority only to demonstrate a
"causal relationship between the subsidized imports and the injury to the domestic industry" and to
conduct a non-attribution analysis in which the inv estigating authority examines "known factors other
than the subsidized imports" to ensure that any in jury caused by such known factors is not attributed
to the subsidized imports. The "effects" are thos e set forth in Articles 15.2 and 15.4. Article 15.5
contains no additional requirement for an independent assessment of the effect of the subsidy itself.
4.251 Because "serious prejudice" under Article 6.3 of the SCM Agreement is an "entirely different
concept from injury" under Article 15, Article 6.3 does not create any requirements under Article 15.
The guidance provided by the Appellate Body that the parallel injury causation provisions in the Anti-
Dumping Agreement do not specify particular analytical methodologies or approaches. 166 T h e
provisions of the Anti-Dumping Agreement that correspond to Articles 15.1 and 15.2 of the
SCM Agreement "do not set out a specific methodology."167 The "particular methods and approaches"
for non-attribution analyses under Article 15.5 "are not prescribed" 168 and "Article 15.5 does not
impose any particular methodology when conducting the causation analysis set forth therein".169
(ii) The JIA Correctly Found that Hynix's Exports We re through the Effects of Subsidies Causing
Injury to the Domestic Industry
4.252 Even assuming arguendo that Article 15.5 requires an i nvestigating authority to examine
causation between the effects of subsidies and th e injury, the JIA still is in compliance with
Article 15.5 as it found that the subsidized imports injured the domestic industry through the effects of
subsidies as the subsidies themselves allowed the importation of the subsidized imports, thereby
causing injury to the domestic industry. As a matter of fact, Hynix was able to continue its business,
including exports of its DRAMs to Japan only because of subsidies.

164 See paragraph 51 of International Accounting Standard 16 (JPN-15).
165 See, e.g., Appellate Body Report, EC – Bed Linen (Article 21.5 – India), para. 123; Appellate Body
Report, Mexico – Anti-Dumping Measures on Rice , para. 165 (emphasis added, footnotes omitted). See also
Panel Report, EC – Tube or Pipe Fittings, para. 7.102.
166 Appellate Body Report, US—Hot-Rolled Steel , para. 224.
167 Appellate Body Report, EC—Bed Linen (Article 21.5-India) , para. 113.
168 Appellate Body Report, US—Hot-Rolled Steel , para. 224.
169 Panel Report, EC – Countervailing Measures on DRAM Chips, para. 7.405.

G. S
ECOND ORAL STATEMENTS OF KOREA
4.253 The following summarizes Korea's arguments in its second oral statements.
1. Opening Statement of Korea at the Second Meeting of the Panel
(a) Introduction
4.254 Korea's opening presentation at the second panel meeting focuses on four issues: (1) the
proper understanding of the panel's task in this proceeding, (2) the appropriate method for
determining whether an allegedly government-direc ted debt restructuring confers a benefit on the
recipient, (3) the relationship between the amortizat ion of a subsidy benefit and the duration of the
countervailing duty, and (4) the requirement that ther e be a finding that the subsidized imports are,
through the effects of the subsidy, causing injury to the domestic industry.
(b) The Panel's Task in this Proceeding
(i) The Interpretation of the Relevant Agreements
4.255 Although there appears to be a vast gulf in how Korea and Japan see this case, there are
certain basic rules for interpreti ng the terms of the WTO Agreements on which the parties should be
able to agree.
4.256 First, the panel must begin its analysis with an examination of the text of the relevant
provision, giving meaning to each term. Second, the individual terms of the Agreements must be
"interpreted in good faith in acco rdance with the ordinary meaning to be given to the terms of the
treaty in their context and in the li ght of its object and purpose." And, third, the panel must exercise
caution in reading meaning into provisions that is not supported by the text itself.
4.257 The application of these principles to the issues in this case should be straightforward. For
example, in order to properly interpret the provisions of the SCM Agreement relating to "interested
parties," it is necessary to assign some meaning to the word "interested." Japan's interpretation -
which would permit an investigating authority to d esignate any entity that it sends a questionnaire to
as an "interested party" - would render the word "interested" entirely superfluous.
4.258 Similarly, the interpretation of the first clause of the first sentence of Article 14 must reflect
the actual language of that provision — which focuses on the methods actually used by the
investigating authority. An investigating authority that uses methods that are not provided for in its
national legislation or implementing regulations does not act consistently with the requirements of the
first clause of the first sentence of Article 14, rega rdless of what other methods might be described in
the legislation and regulations.
4.259 Finally, the phrase "direct transfer of funds" in sub-paragraph (i) of Article 1.1(a)(1) must be
interpreted in light of the ordinary meaning of those terms — which does not encompass extensions of
loan maturities or debt-equity swaps. Japan's suggestion that the SCM Agreement be read expansively
cannot overcome the clear meaning of the language of the Agreement and, in particular, the phrase
"transfer of funds."
(ii) The Requirement of a Prima Facie Case
4.260 Japan has argued repeatedly that Korea has failed in a number of instances to make a prima
facie case. But the use of the Latin phrase should not obscure the obligations in this case. Korea does
not have an obligation to prove that there were no subsidies, or that the findings by the Japanese
Investigating Authority ("JIA") were factually wrong. Instead, Korea only needs to show that the JIA

failed to comply with the requirements of the SCM Agreement. There are a number of ways for Korea
to meet that obligation - for example, by identif ying instances in which th e JIA ignored evidence,
failed to consider alternative explanations, imposed improper burdens of proof, improperly resorted to
facts available instead of creditor-specific info rmation, or based its determination on unsupported
assumptions. If Korea demonstrates that there were su ch errors, then it has established that the JIA's
decision was inconsistent with the obligations of the SCM Agreement - even if Korea does not prove
that the JIA's assumptions were, in fact, incorrect.
(iii) Evidentiary Requirements under the SCM Agreement
4.261 The Appellate Body has stated that the evidence relied upon by an investigating authority in a
countervailing duty proceeding must "demonstrate" that the relevant subsidy criteria exist.
Furthermore, the Appellate Body has clarified that, in applying the standard of review set forth in
Article 11 of the DSU, panels mu st undertake a "critical and search ing", "in-depth" examination to
"test whether the reasoning of the authority is coherent and internally consistent ," and to ensure that
"there was positive evidence before [the investigati ng authority] to support the inferences made and
conclusions reached by it." 170 As the Appellate Body has clarified, "[a]n investigating authority that
uses a methodology premised on unsubstantiated ass umptions does not conduct an examination based
on positive evidence."171
4.262 The JIA's decision cannot withstand such scrutiny. Consider, for example, its treatment of
loan-maturity extensions and debt-equity swaps. The JIA's Notice of Important Facts "deemed" those
transactions to involve a two-step process in which Hynix first repaid its outstanding debts in full, and
the creditors then used the funds received from Hyni x to make new loans and equity infusions. But
that assumption is illogical and completely withou t support: There was no evidence that Hynix, its
creditors, or any lender or investor in Korea actu ally considered the loan-maturity extensions and
debt-equity swaps to be equivalent to full repayments followed by new loans and new equity infusions
- especially in light of Hynix's insolvency.
4.263 A similar problem can be seen with the JIA's finding of entrustment or direction. The JIA's
analysis of "entrustment or direction" began with the assumption that, in light of "the deterioration of
Hynix's financial situation, ... there was no investor that would invest in or make loans to Hynix in the
general commercial market from a normal commercial perspective." But, there was no evidence to
support that assumption. In reality, private creditors acting solely from a "normal commercial
perspective" routinely engage in restructuring tr ansactions with insolvent debtors whose finances are
deteriorating.
4.264 Japan has attempted to distract the Panel from the unsupported assumptions, unreasonable
inferences and other obvious flaws in the JIA's analys is by invoking the concept of the "totality of the
evidence." But Japan's interpretation is fundament ally illogical. When an investigating authority
invokes the "totality of the evidence" to support its findings, it is necessarily adopting the position that
all of the evidence identified as supporting its conclusion was relied upon to reach the conclusion.
After all, if some of that evidence that the inves tigating authority relied upon turns out to be incorrect,
or to have been analyzed incorrectly, then the l ogic of the investigating authority's initial decision -
which was based on a consideration of all of the evidence - can no longer hold.
4.265 In Korea's view, the evidence cited by the JIA is insufficient on its face to support a finding of
entrustment or direction. But even if ther e were doubt, the Panel cannot uphold a decision that
purports to be based on the "totality of the evid ence," when some of the evidence relied upon by the

170 See United States – Investigation of the International Trade Commission in Softwood Lumber from
Canada; Recourse to Article 21.5 of the DSU by Canada, WT/DS277/AB/RW, 13 April 2006, para. 93.
171 Mexico – Definitive Anti-Dumpin g Measures on Beef and Rice , WT/DS295/AB/R,
29 November 2005, para. 205.

investigating authority turns out to be incorrect or inconsistent with the investigating authority's
interpretation.
(c) The Benefit Determination
(i) The Appropriate Benchmark
4.266 As mentioned, the JIA's benefit analysis "dee med" the restructuring transactions to be new
loans and new equity investments by creditors who se pre-existing claims had already been repaid in
full. The JIA therefore used the practices of inv estors considering "new" loans and investments as the
benchmark for its benefit analysis. But that analys is is fundamentally inc onsistent with the JIA's
factual findings that Hynix was unable to repay its existing debts at the time of the restructuring
transactions.
4.267 The problem for Hynix's creditors was that they could not get their money back from Hynix,
because Hynix was insolvent. The cr editors had, therefore, to try to maximize their returns given the
fact that they had already committed their money to Hynix. The creditors did not have the option of
taking back their money in full and investing it so mewhere else. The behaviour of persons who did
have that option is, therefore, irrelevant to the analysis of the options available to Hynix's creditors.
4.268 Japan has admitted that the JIA never considered the normal market practices of creditors of
insolvent companies. Japan has also admitted that the JIA never made any findings regarding Hynix's
going-concern and liquidation values at the time of the restructurings — even though those figures
would have been critically important to creditors of insolvent companies acting in accordance with
usual market practice. In the absence of such fi ndings, there was no evidentiary basis for the JIA's
conclusion that the restructurings were inconsistent with market benchmarks.
(ii) The Evidence Concerning Hynix's Going-Concern and Liquidation Values
4.269 The evidence before the JIA included reports fro m various financial advisors and industry
experts, as well as analyses from the creditors th emselves, confirming that Hynix's going-concern
value was higher than its liquidation value at the time of the October 2001 restructuring and at the
time of the December 2002 restructuring.
4.270 In its analysis of the October 2001 restructuri ng, the JIA disregarded the valuation analyses
performed by outside consultants, because the final versions of the reports were not completed until
after the restructuring had been approved. But, even if the JIA were correct about the timing of those
reports, it would not affect the benefit analysis. As Japan has conceded, creditors acting in accordance
with the usual market practices would have obtained similar valuation analyses. And, when presented
with such figures, creditors acting in accordance with usual market practices would have agreed to
restructure Hynix's debts. Consequently, there was no benefit to Hynix from the alleged government
entrustment or direction.
4.271 The JIA's analysis of the December 2002 restruct uring took a different approach: It claimed
that the report by the outside consultant was so obviously flawed that no creditor acting under usual
market practices would have relied on it. But the JI A reached that conclusion by taking statements
out of context and portraying minor disagreements a bout presentation as evidence of error. In reality,
its criticisms were without merit. An objective and unbiased analysis would have found that the
financial consultant's report relating to the De cember 2002 restructuring was consistent with the
normal practices of financial advisors assisting credito rs in figuring out what to do with an insolvent
debtor, and that the creditors' reliance on that report was consistent with normal market practices.
4.272
On the whole, there was no evidence to support the JIA's assertion that the restructurings were
inconsistent with normal market practices. Consequently, the JIA's finding of a benefit to Hynix from

the October 2001 and December 2002 restructurings w as inconsistent with the requirements of the
SCM Agreement.
(iii) Participation of Non-Entrusted or-Directed Creditors
4.273 Only four of the banks that participated in the restructurings were found by the JIA to have
been entrusted or directed by the Korean government. The JIA did not find entrustment or direction
of any of the more than one hundred other financial institutions that participated in the restructuring
on the same terms. Indeed, the JIA did not even contact most of these institutions - even though many
of them held a higher share of Hynix's debt than some of the banks the JIA did investigate.
4.274 Japan has asserted that the JIA was justified in ignoring the behaviour of the financial
institutions it never contacted, because Hynix's fina ncial condition at the time of the restructurings
was distorted by past subsidies. But Japan's argu ments concerning the relevance of past subsidies are
inconsistent with the provisions of Article 14 of the SCM Agreement. Article 14 provides that the
benefit of a subsidy is to be m easured solely by the difference betw een the terms of the subsidized
transaction and the terms of an equivalent market benchmark transaction. By contrast, Japan's
proposed approach would define the benefit from subs idies to include not only the difference between
the subsidized financing and the mark et benchmarks, but also any future financing, even if that future
financing is fully consistent with market benchmarks.
4.275 As Korea has demonstrated, Japan's interpretati on would also lead to absurd results, where
two identical companies with identical subsidies in a prior period and identical financing in the
investigation period might nevertheless be subjected to drastically different countervailing duties.
Such an interpretation of the SCM Agreement cannot be correct.
(d) Imposition of Duties Beyond the Amortization Period
4.276 It is undisputed that the alleged subsidy bene fit from the October 2001 restructuring was fully
allocated to the period from 2001 to 2005 by the me thods adopted in the JIA's determination.
Because the transaction in question was found by Ja pan to be a non-recurring subsidy, there is no
basis for assuming that it might somehow be resuscitated to provide a new subsidy and new benefits
in the future.
4.277 Japan has suggested that there might have been uncertainty about the subsidy rate in 2006,
because the volume of sales or production used as th e denominator for the calculation of the duty rate
in 2006 was unknown at the time of the JIA's decisi on. But, no matter what Hynix's sales were in
2006, the duty rate relating to th e October 2001 restructuring would have been zero - because a
subsidy benefit of zero divided by any number results in a rate of zero.
4.278 Japan also contends that it was possible that the subsidy amortization period might have
changed after the JIA's determination — if, for exam ple, the estimated useful lives of Hynix's assets,
and thus the subsidy amortization pe riod, were modified. But, this issue is also irrelevant: The
estimated useful lives of Hynix's assets during th e entire amortization period was already known at
the time the JIA made its final determination in January 2006, because the amortization period had
ended in December 2005.
4.279 In this case, the JIA knew at the time that it ma de its decision in January 2006 that there was
no continuing benefit from the October 2001 restru cturing. It knew that the duty was no longer
necessary to counteract any alleged subsidizatio n arising from the October 2001 restructuring.
Consequently, the imposition of duti es is inconsistent with the pr ovisions of Article 21.1 of the SCM
Agreement, which specifically states that "A counterva iling duty shall remain in force only as long as
and to the extent necessary to counteract subsidization which is causing injury." In addition, it is also

inconsistent with the requiremen ts of Article 19.4, which provides that "No countervailing duty shall
be levied on any imported product in excess of the amount of the subsidy found to exist...."
(e) Causation of Injury "Through the Effects of Subsidies"
4.280 Japan contends that the phrase "through the eff ects of subsidies" in the first sentence of
Article 15.5 has no distinct meaning, and that the on ly purpose of the first sentence of Article 15.5 is
to introduce the remaining sentences of Article 15 .5. But Japan's interpretation cannot be correct,
because it would not give meaning to every word in the first sentence of Article 15.5 — or, indeed, to
the first sentence of Article 15.5 as a whole.
4.281 In its determination in this case, the JIA never stated that it was unnecessary to show that the
injury had occurred "through the effects of the subs idy." Instead, the JIA cl aimed that the evidence
showed that the injury had occurred "through the eff ects of the subsidy," because the mere fact that
Hynix was still in operation, and able to export, refl ected the fact that the alleged subsidies had saved
Hynix from bankruptcy. But, as Korea has shown, this conclusion makes no sense. Under the Korean
bankruptcy laws, the "bankruptcy" of Hynix would have led to debt restructuring, not liquidation, as
long as Hynix's going concern value was higher than its liquidation value. There is no basis for the
JIA's assumption that Hynix would have been liquidated in the absence of the alleged subsidies.
4.282 Japan has responded that there is nothing in the SCM Agreement that required the JIA to make
findings about the operation of the Korean bankruptcy laws. But, it was the JIA (and not Korea) that
chose to base the causation analysis on an assump tion about how bankruptcy would have affected
Hynix's production and exports. It was the JIA that asserted, without any evidence to support it, that
bankruptcy would have necessarily required Hynix to cease production and export. Because the JIA's
assertion was just unsupported (and, indeed, flatly wrong), the JIA's determination cannot be upheld
under the relevant standard of review.
(f) Conclusion
4.283 The logic that led the JIA to find government "e ntrustment or direction" and to conclude that
Hynix benefited from that alleged government action is flawed. The credito rs acted in accordance
with their rational self-interest, and the debt restructurings they adopted were consistent with the usual
market practices of creditors of insolvent compan ies. Consequently, there was no reason to assume,
as the JIA did, that there must have been government interference, and there is no reason to conclude
that the alleged entrustment or direction made Hy nix "better off." Because the JIA's determination
was inconsistent with basic logic, everyda y experience, and the requirements of the SCM Agreement,
it cannot be upheld by the Panel.
2. Closing Statement of Korea at the Second Meeting of the Panel
4.284 Korea has engaged in a great deal of discussion at its meetings with the Panel and in its past
written submissions about the circumstances of the Hynix restructurings that are at the heart of this
case. As noted, there is no doubt that Hynix was in financial distress and unable to pay its debts in
full at the time of the restructurings. But, contrary to Japan's apparent view, Hynix's difficult financial
situation is not the end of the analysis. Instead, it is only the beginning.
4.285 Korea has presented arguments - based on the evidence and the JIA's own determinations -
which in Korea's view compel the conclusion that there was no entrustment or direction, that there
was no benefit, and that there was no injury through th e effects of the subsidies. Korea believes that
it is clear that Hynix's condition left the creditors with no real options other than to restructure Hynix's
debts. Japan, it seems, wants to outlaw bankruptcy and informal debt workouts. The answer is clear:
The restructuring of Hynix's debts was not the result of government entrustment or direction that

made Hynix better off than the market alternatives, but was, instead, the expected outcome of rational
creditors following the usual market practices.
4.286 Nevertheless, as noted previously, it is not Korea' s obligation in this proceeding to prove that
there were no subsidies. Instead, Korea is require d only to show that the JIA failed to live up to its
obligations under the SCM Agreement.
4.287 Japan has repeatedly accused Korea of failing to present a prima facie case. Consider, for
example, paragraph 27 of Japan's response to Korea's questions, where Japan stated:
Japan notes that it is Korea's responsibility to show a prima facie case with respect to
the value of Hynix if liquidated in accordan ce with the relevant provisions of Korean
insolvency laws, if Korea wishes to advance such a claim in this dispute.
As a matter of law, this statement is simply wr ong. Korea does not bear the burden of proving there
were no subsidies. Instead, Korea's burden is simp ly to establish that the JIA's findings were not
consistent with the requirements of the SCM Agreement.
4.288 In examining whether the JIA complied with tho se requirements, it may be useful to pause,
for a moment, to consider some of the things that Japan has admitted the JIA did not do. Among
other things, in its response to Korea's questions, Japan admitted that the JIA made no findings as to
what Hynix's going concern or liquidation value might have been at the time of the restructurings. 172
And, in its statement at the second meeting of the Panel, Japan admitted that the JIA made no findings
as to what Hynix's creditors — or what other priv ate actors in the position of Hynix's creditors making
decisions in accordance with usual market practices — would have done in the absence of the alleged
entrustment or direction.
4.289 This can be seen plainly in paragraphs 33 to 36 of Japan's Opening Statement. In
paragraph 33, Japan stated explicitl y that "Hynix would have been unable to continue its business if
the situation had been left untouched, i.e., if Hynix's creditors would not have taken actions to allow
Hynix to continue its business." But, in the very next sentence, Japan went on to clarify that:
This finding, however, does not mean that the JIA made a finding as to what steps
Hynix creditors would have taken had no subsidies been provided. The fact in this
case is that the actual subsidies, not some potential restructuring, were granted to save
Hynix.173
In those two sentences, Japan has admitted that the JIA had no basis for finding a benefit in this case.

4.290 As the Appellate Body has made clear, a finding of a benefit under Articles 1 and 14 requires
a determination that the recipient has been made "b etter off" than the alternatives available in the
relevant market.
174 Now, Japan has admitted that the JIA made no findings as to the alternatives that
were available in the relevant market if the allege d entrustment or direction had not occurred. Japan
has, therefore, conceded that the JIA made no finding as to whether the alleged entrustment or
direction made Hynix "better off."
4.291 In case there were any doubt about what Japan meant, Japan continued on to repeat twice
more that the JIA failed to examine what would have happened without th e alleged subsidies.
According to Japan, "Whether or not any other theo retical restructuring would have saved Hynix, if

172 See Japan's Response to Korea's First Questions, paras. 23-27.
173 Japan's Second Opening Statement, para. 34.
174 See, e.g., Canada – Measures Affectin g the Export of Civilian Aircraft , WT/DS70/AB/R,
2 August 1999, para. 157.

the subsidies had not been granted, is an irrelevant question."
175 Japan admits the JIA did not look at
what would happen in a market-based restructuring b ecause that is not what happened; according to
Japan subsidies are what happened. In Japan's view looking at "other potential bailout plans" would
be "pointless."176
4.292 Under the SCM Agreement, however, looking at the "other potential bailout plans" that would
have been available from the market is not "pointl ess." It is, instead, the entire point. A government
financial contribution is not a subsidy unless it conf ers a benefit on the recipient, and it only confers a
benefit on the recipient if it makes the recipient "bette r off" than the available market alternatives. By
declaring an analysis of the available market a lternatives "pointless", Japan has simply read the
benefit requirement out of the Agreement. The Panel obviously cannot uphold that result.
4.293 Korea has plainly met its burden of proof in this proceeding: In its submissions, it has
identified instances in which the JIA ignored eviden ce, failed to consider alternative explanations,
imposed improper burdens of proof, improperly resorted to facts available instead of creditor-specific
information, and based its determination on un supported assumptions. As a result, Korea has
established that the JIA's decision was inc onsistent with the obligations of the SCM Agreement. In its
statement at the Second Substantive meeting of the Panel, Japan has admitted that Korea are right.
H. SECOND ORAL STATEMENTS BY JAPAN
4.294 The following summarizes Japan's arguments in its second oral statements.
1. Opening Statement of Japan at the Second Meeting of the Panel
(a) Korea's Economic Theories Arguments are Irrelevant
4.295 In light of the irrelevance of its argument and the Panel's standard of review, Korea's
economic theories argument cannot serve as the basi s for the Panel to make any assessment of the
JIA's determination.
(b) Japan's Provision of Methods is Consistent with Article 14
4.296 The application of the method under Article 14 need only fall within the umbrella of the
methods "provided for". Beyond the "provided for" requirement, Article 14 does not specify a
particular level of detail.177
(c) The "Assumptions" Alleged by Korea
(i) The First Category of an "Assumption" Alleged by Korea is Based on an Incorrect
Understanding of the JIA's Determination178
4.297 The JIA first made a finding that there was no financing available from the viewpoint of
outside investors. The JIA then examined the existing creditors " on the premise that existing
creditors would possibly provide additional funding in order to maximize the recovery of credit. "179
The JIA examined the actual decisions made by th e existing creditors by reviewing the processes and
materials actually considered by the creditors.

175 Japan's Second Opening Statement, para. 35 (emphasis added).
176 Id.
177 Panel Report, US – Softwood Lumber IV, para. 92.
178 SWS of Korea, paras. 51and 59.
179 Annex 3 of Final Determination, para. 141 (JPN-04) (emphasis added).

(ii) The Second Category of an "Assumption" Alleged by Korea Is in Fact a Factual Finding
Based on the Evidence on the Record180
4.298 Korea's second category of an alleged "assumption" is not an assumption, but a finding of fact
that the Government of Korea in fact had intervened in the existing creditors' preparation of the Hynix
bailout programs and in individual banks' decision making to provide financing to Hynix181.
(iii) The Third Category of an "Assumption" Alle ged by Korea is Based on an Incorrect
Understanding of the JIA's Findings and the Evidence182
4.299 The third category of Korea's alleged "assumptions" is made regarding the JIA's injury
finding. The JIA did not assume, but found, that Hynix was able to continue production and export
because of the Government of Korea' subsidies.183
(iv) The Fourth Category of an "Assumption" Alleged by Korea Is in Fact a Factual Finding
Based on the Evidence on the Record 184
4.300 The fourth category of an alleged "assumption" is contradicted by the Final Determination.
Korea has not identified any failure to consider th e Government of Korea and the other interested
parties' arguments and has not identified any spec ific evidence on the record in support of its
assertion.
(d) Positive Evidence and Standard of Review
(i) Korea's Erroneous Application of a "Positive Evidence" Standard
4.301 The Appellate Body's findings cited by Korea 185 concern only injury determinations under
Article 3 of the AD Agreement and Article 15 of the SCM Agreement.

(ii) Non-Record Evidence Should Not Be Examined
4.302 Regardless of how Korea tries to characterize th e non-record evidence it submits, in light of
Article 12.2 and the Panel's standard of review, it is obvious that the fact that the JIA did not consider
such evidence and argument based thereon presented to the JIA does not affect the reasonableness of
the JIA's determination. KOR-34, 42, 43 and 44 should also be excluded from the Panel's
consideration.
(e) Interested Parties
(i) Korea's Argument on the Scope of Interested Parties Is Without Merit
4.303 Korea's argument on the scope of intere sted parties under Article 12.9 of the SCM Agreement
is inconsistent with Articles 12.9 and 23 of the SCM Agreement.

180 SWS of Korea, para. 51.
181 See, e.g., Annex 1 of the Final Determination, paras. 269-75 and 328-37.
182 SWS of Korea, paras. 51, 79.
183 See Annex 1 of the Final Determination, paras. 550 and 605 (JPN-02).
184 SWS of Korea, para. 53.
185 See SWS of Korea, paras. 6, 68-70, 79, fn. 5, 50-53, 66, in which Korea cites the Appellate Body's
findings in US – Softwood Lumber VI, para. 92 and Mexico-AD Measures on Rice, para. 204.

(ii) Korea's "Adverse Facts Available" Argument Is Without Merit
4.304 The JIA has not applied "adverse facts available" , and Korea fails to identify how any of the
examples it raises can be viewed as "adverse facts available."
(f) Revenue Foregone/Transfer of Funds
(i) Korea's Interpretation of "Transfer of Funds" Is Erroneous
4.305 Korea's argument that a "transfer of funds" onl y means that "money must change hands" is
unsubstantiated.
(ii) The Extension of Maturity of Loans and Debt-to-Equity Swap
4.306 The JIA considered that an extension of a loan maturity consists of two elements ( i.e,. the
original loan is repaid and a new loan is granted) and that the debt-to-equity swap consists of two
elements (i.e., the existing loan is satisfied and equity is issued). These interpretations are reasonable
and entirely consistent with the nature of these transactions.
(g) Financial Contribution
(i) The "Syllogism" Korea Asserts Is an Erroneous Understanding
4.307 Korea's argument on a "syllogism" is based on e ither a misunderstanding or a misstatement of
the JIA's actual finding on financial contribution.

(ii) The Decisions of Woori Bank and Chohung Bank
4.308 An examination of the relevant evidence in its totality indicates that the decisions by these
banks were not made from a commercial viewpoint.
(iii) The JIA's Finding on Government Intent Was Reasonable
4.309 The JIA considered all record evidence, examin ed such evidence, and made findings as to the
weight and credibility of such evidence in light of the other evidence and facts.
(iv) Prime Minister's Decree No. 408 Does Not Prohibit Government Intervention
4.310 Contrary to Korea's assertion, Article 5 of the Decree permits the Financial Services Agencies
to "request cooperation or assistance of Financial Institutions, etc. for the purpose of stability of the
financial market…" and provided the power to make such request to the Government of Korea.
(h) Benefit
(i) Korea's Argument that Hynix's Debts Were Worthless Is Without Merit
4.311 The record evidence shows that loans were swapped at their full principal amount.186
(ii) Korea's Going-Concern Value Argument Is Without Merit
• Korea's Arguments are Based on Assumptions Without Any Evidence

186 See Variance of New Equity Issuance and Capital Amount (JPN-24).

4.312 Even assuming, arguendo, that the going-concern value was higher than its liquidation value,
the evidence contradicts an assumption that conseque ntly creditors would always participate in a
restructuring.187
4.313 The JIA examined the evidence of the actual d ecision-making of individual banks taking into
account the possibility that they may participat e even when no investors from an outsiders'
commercial view point would, but found that the fi nancial institutions participated upon consideration
of non-commercial factors. 188 The JIA concluded that these Programs were not obtained on a
commercial basis and accordingly could not be the benchmark to determine the benefit. 189 The JIA
also established that the terms and conditions of the Programs stood on Hynix's financial condition
that was heavily distorted by subsidies. 190 These facts demonstrate that such terms and conditions
were achieved because of the Government of Korea.
• The JIA's Findings on The October 2001 Program Were Reasonable

4.314 The evidence on the record shows that Woori Bank and Chohung Bank did not evaluate the
available options in deciding participation in the October 2001 Program, contrary to Korea's
acknowledgement that "any cred itor" considering options " would require an analysis showing the
effect of choosing each of those options." 191 Other Hynix creditors decided to participate without
reviewing the Arthur Andersen Report valuation.
• The JIA's Findings on The December 2002 Program Were Reasonable

4.315 The Deutsche Bank Report was hardly an indepe ndent third party report, and was prepared
under the scrutiny and intervention by the Government of Korea, which had requested Deutsche Bank
to revise the Report after reviewing the draft.192
4.316 Korea ignores the going-concern values calculated under all of the [[BCI]]. The JIA
reasonably found that the lack of analysis on [[BCI]] 193 is strange. Deutsche Bank's consideration of
the [[BCI]] necessitates an examination of the details of the feasibility of such, [[BCI]].
4.317 The JIA pointed out that the Deutsche Ba nk Report did not explain why it relied on a
recovery rate of [[BCI]] per cent to assess the valid ity of liquidation value instead of the rate of
[[BCI]] per cent. For creditors, these recovery rat es would be the material issue to examine whether
they would be better off, but the Deutsche Bank Repo rt failed to mention such material fact. The JIA
correctly found that the recovery rate calcula tions under the [[BCI]] in the Deutsche Bank Report
would have [[BCI]]194 Hynix admitted that an error was made in the Report.195

187 See Annex 1 of the Final Determination, para. 200 (JPN-02).
188 See Annex 1 of the Final Determination, paras. 278-88, 299, 347-65 and 376, and footnote 362
(JPN-02).
189 See Annex 1 of the Final Determination, paras. 299 and 376 (JPN-02).
190 See Annex 1 of the Final Determination, paras. 299 and 376 (JPN-02).
191 SWS of Korea, para. 184 (emphasis added).
192 See Annex 1 of the Final Determination, paras. 334-35 (JPN-02). See also Annex 3 of the Final
Determination, para. 526 (JPN-04) (NACF stated that " despite the intervention of the government, the
conclusion of the . . . Report remained 'normalization of operation' of Hynix to be the top priority".) (emphasis
added).
193 Annex 1 of the Final Determination, para. 344 (JPN-02).
194 See Notes (5) in page 13 of the Deutsche Bank Report (KOR-20).
195 See Annex 3 of Final Determination, para. 500 (JPN-04).

• The JIA's Treatment of Other Creditors Was Reasonable

4.318 The JIA reasonably identified the financial in stitutions which should be investigated and
found that the Other Creditors participated in the bailout programs for non-commercial reasons.
• The Distortion to the Market Caused by Past Subsidies

4.319 The JIA found that Hynix was able to obtain financing under the terms and conditions of the
Programs because of prior subsidies, and therefor e, their terms and conditions were not those
obtainable from the commercial market. 196 This finding is separate from the finding that Other
Creditors made their decisions to participate based on non-commercial considerations.
4.320 The issue is the government's role in structuri ng the prices in the market. The Government of
Korea's subsidies played a predominant role in crea ting the terms and conditions of the Programs. In
light of the JIA's discretion in calculating benefit 197, the JIA's calculation of the benefit where there
was no comparable market benchmark is reasonable.
• The JIA Reasonably Found that Past Subsidies Caused a Distortion

4.321 Korea erroneously assumes that Hynix could have repurchased its debt at discounted value,
disregarding the evidence on the record to the contrary.
4.322 To determine the available commercial loans, the JIA examined the interest rate that would be
available to Hynix, based on the information with respect to simila rly situated companies. Korea's
argument that the JIA should have used the "usual practice" of creditors is baseless.
(i) Specificity
4.323 The relevant Programs were designed and executed solely for Hynix, and thus de jure specific
to Hynix.
(j) Change in Ownership
4.324 The Hynix bailout programs can not be evaluate d as a "change in ownership" in the meaning
of the Appellate Body's findings.198
(k) Allocation of Subsidies
4.325 Article 21 of the SCM Agreement concerns circumstances after the imposition of a
countervailing duty and thus does not a pply to an original investigation. 199 As Korea agreed, a
"withdrawal" of a subsidy in Article 19.1 requir es an affirmative action by the government or
recipient, which has not occurred. Neither Article 19.1 nor Article 21 supports Korea's argument.
(l) Injury Determination
4.326 Korea's argument that the SCM Agreement's use the same terms ("the effect of the subsidy")
for both serious prejudice and material injury necess itates an identical analysis ignores the different
provision in which the term was used.

196 Annex 1 of the Final Determination, paras. 299, 376 (JPN-02).
197 See Appellate Body Report, US–Softwood Lumber IV, para. 92.
198 See, e.g., Appellate Body Report, US - Countervailing Measures on Certain EC Products, paras. 117
et seq.
199 Appellate Body Report, US – Carbon Steel, para. 70 (emphasis added).

2. Closing Statement of Japan at the Second Meeting of the Panel
(a) Introduction
4.327 Japan would like to address certain significan t issues that Korea argues in its Opening
Statement.
(b) Korea's Erroneous Understanding of its own Obligation to Establish a Prima Facie Case
4.328 Korea's argument concerning a prima facie case 200 is entirely erroneous. As Japan has
already explained201, "a prima facie case must be based on 'evidence and legal argument' put forward
by the complaining party in relation to each of the elements of the claim." 202 Thus, Korea's argument
that "[to establish a prima facie case means nothing more than that Korea] must present arguments
that are sufficient to persuade the Panel" 203 is wrong – such argument must be based on evidence.
Furthermore, the examples Korea raises as in stances of Korea's failure to establish a prima facie
case204, as pointed out by Japan, are all instances in which Korea first made a claim, or tried to make a
claim, to which Japan rebutted by pointi ng out that Korea failed to establish a prima facie case in
forwarding the particular claim. For example, in response to Korea's argument that there was no
rational basis for the JIA's finding that the Hynix shares had no value, Japan first demonstrated that in
paragraphs 414 to 415 of Japan's FWS that there had been a reasonable basis for the JIA's
determination, then pointed out, in paragraph 416 therein which Korea cited, that Korea failed to
establish a prima facie case to contradict the reasonableness of the JIA's finding. Japan has not once
in this panel proceeding requ ested that Korea establish a prima facie case that the Government of
Korea did not provide subsidy to Hynix. Each of Japan's indication of Kore a's failure of establishing
a prima facie case point to Korea's failure to establish a prima facie case of its claim that alleges that
the JIA's investigation and determination had b een inconsistent with the requirements of the
SCM Agreement.
(c) Submission of an "Argument" in a Panel
4.329 Japan would like to further clarify its view on the example Korea raised concerning the
admissibility of a mathematical proof in the second m eeting of the Panel. If such mathematical proof
is relevant to the dispute before a panel, it may be subject to examination by a panel. In such instance,
Appendix 4 of the DSU may become relevant. However, if a mathematical proof is irrelevant to the
matter before the panel, any argument based on such proof similarly would be irrelevant. This is a
matter of relevance, not admissibility. As a separa te matter, in a case where the issue is whether an
investigating agency should have considered a pa rticular mathematical proof, unless the evidence and
the arguments on the record of the investigation de monstrates that the particular mathematical proof
was before the investigating agency, an ex post submission of evidence or presentation of argument of
such mathematical proof is inadmissible in light of the standard of review of a panel.205

200 Korea's Opening Statement for the Second Panel Meeting, paras. 12-17.
201 FWS of Japan, paras. 24-27.
202 Appellate Body Report, US – Gambling , paras. 140-41 (emphasis original). See also Appellate
Body Report, Thailand – H- Beams, para.136.
203 Korea's Opening Statement for the Second Panel Meeting, para. 13. See also ibid., para. 16.
204 Korea's Opening Statement for the Second Panel Meeting, para. 13.
205 See FWS of Japan, paras. 30-36, SWS of Japan, paras. 5-15, Opening Statement of Japan at the First
Substantive Meeting of the Panel, paras. 2-11, Opening Statement of Japan at the Second Substantive Meeting
of the Panel, paras. 2-6.

(d) Korea's Argument on the Interpretation of the Extension of the Maturity of Loans and the
Debt-To-Equity Swap has no Merit
4.330 Korea's argument on the extension of the matur ity of loans and debt-to-equity swaps in its
Opening Statement shows that its argument is based on a distorted understanding of the JIA's finding
and Japan's statements. Japan does not argue, nor did the JIA find, that "Hynix first repaid its
outstanding debts in full, which funds that the cred itors then used to make new and equity infusions"
as alleged by Korea.
206 The JIA's statements on the nature of these transactions, as stated in
paragraphs 103 and 104 of the Essential Facts, are th e JIA's reasonable interpretation of facts, not the
facts themselves. It is not an issue of substitu ting a finding based on evid ence with an assumption as
Korea alleges. The issue of the interpretation must be distinguished from the issue of fact-finding.
4.331 Korea's attempt to separate a debt-to-equity swap into debt forgiveness and issuance of the
equity does not comport to the clear designation of "e quity infusion" as a direct transfer of funds in
Article 1.1(a)(1)(i). Korea argues that a debt-to-equity swap is a type of debt forgiveness, which must
be classified in Article 1.1(a)(1)(ii). However, wh ere certain monetary value is given to the equity-
issuing company in exchange fo r the equity, such transaction is the equity infusion. Korea has not
provided any explanation of this apparent discrepancy between its interpretation and the nature of the
transaction.
(e) Korea's Argument on Individual Banks' Analysis was based on an Isolated Portion of
Evidence and Failed to Address other Relevant Evidence
4.332 Korea again argues in its Opening Statement that Woori Bank considered the expected loss,
Hynix's going concern value, and liquidation value in the October 2001 Program. 207 Korea again
considered in isolation only a part of the evidence, ignoring the other evidence – unlike the JIA, which
assessed the evidence in its totality . In the October 2001 Program, Woori Bank did not consider all
options available, as discussed in Japan's Opening Statement. 208 In addition, Woori Bank repeatedly
emphasized public interest concerns, such as [[BCI]]. 209 Furthermore, Woori Bank's President stated
even before the October 2001 Program was pr epared, "If the Council for Creditor Financial
Institutions agrees to support Hynix, we can change the current debt of Hynix into investment. We
can also provide more financial aid,"210 indicating that Woori Bank prioritized certain interests to save
Hynix over its own economic interests.
4.333 As this example shows, Korea's allegations on the analysis of individual banks are based on a
highly selective presentation of a porti on of the evidence, and failed to consider the entire record of
evidence, ignoring the JIA's determination, thus making the request of the de novo review to the
Panel.
(f) Korea Now Admits that Deutsche Bank Prepared the Report in its Capacity as Financial
Advisor to Hynix
4.334 Although Korea previously questioned the JIA' s finding that the contractual relationship
between Hynix and Deutsche Bank called into question neutral, external nature of Deutsche Bank

206 Korea's Opening Statement for the Second Panel Meeting, para. 25.
207 Korea's Opening Statement for the Second Panel Meeting, paras. 25 and 54. While Korea also
presents arguments regarding Chohung Bank's consid eration in October 2001 Program and Woori Bank's
consideration in December 2002 Program, which Japan has already rebutted in prio r submissions, and will not
repeat herein.
208 Opening Statement of Japan at the Second Substantive Meeting of the Panel, para. 70.
209 See evidence listed in the footnote 347 of the Annex 1 of the Final Determination (JPN-02-347).
210 Annex 1 of the Final Determination, footnote 348 (JPN-02). See also evidence listed therein
(JPN-02-348)

Report211, Korea recognize that Deutsche Bank was " Hynix's financial advisor" 212 and thereby
admitted that the financial advisor was not exclusiv ely representing Hynix's creditors. The fact that
Deutsche Bank was one of Hynix's financial advisors is a fact, which the JIA considered in relation to
the other relevant facts.
(g) The Deutsche Bank Report is not Immune from Review
4.335 Korea suggests that the JIA should have been deferential to Deutsche Bank Report because it
"was prepared by one of the world's leading financial services firms." 213 However, it is not axiomatic
that the brand name of a financial advisor necessi tates the reliability of its work. Indeed, the
Government of Korea itself has recognized that th e objectivity of highly-esteemed financial advisors
may be compromised.214 In the context of the October 2001 Program, for example, Korea's Minister
of Finance and Economy acknowledged before the National Assembly that "the creditor banks do not
consider that the [Salomon Smith Barney] Report is reliable, and it is expected that a different,
objective organization will carry out the evaluation." 215 Like Deutsche Bank, Salomon Smith Barney
was the one of the world leading firms. Korea's su ggestion of brand name reliability in this dispute
does not square with the Government of Korea's intervention into the Deutsche Bank Report. Korea
completely ignores the record evid ence that the Government of Korea "request[ed Deutsche Bank] to
revise its contents . . . [breaking] its promise . . . not to interfere with inspections made by . . .
Deutsche Bank" and that the Government of Korea "requested Deutsche Bank to review the plan."216
(h) Korea's Alleged Scope of Entrustment or Dir ection Based on its own Economic Theory is
Contrary to the Scope under the SCM Agreement
4.336 Korea alleges that the Government of Korea's entrustment or direction is irrelevant because
creditors had no options other th an further financing to Hynix. 217 According to Korea, creditors had
no choice but to "make new investments needed … when the company's going-concern value exceeds
the liquidation value."218 This argument is flawed legally, factually, and theoretically.
4.337 Legally, the government's "twist[ing]" of the ar ms of creditors can be an example of the
government's entrustment or direc tion, and is quite relevant to an entrustment or direction under
Article 1.1(a)(1)(iv). Entrustment or direc tion by the government may be found where the
government's entrustment or direction is one of the factors influencing the decision of the creditors to
finance the debtor. Korea's interpretation that creditors would never be subject to government
entrustment or direction whenever the going-conc ern value is higher than the liquidation value,
regardless of the manner in which the government intervenes, is erroneous interpretation of the
SCM Agreement. It does not have to be the sole basis for their decision to provide financing.
4.338 Factually, Hynix's creditors could not reach the terms and conditions of the October 2001
Program and the December 2002 Program until th e Government of Korea intervened. The
October 2001 Program then offered three options for cr editors to choose from. In this case, therefore,

211 See, e.g. , SWS of Korea, paras. 191-92 (citing Annex 1 of the Final Determination, para. 340
(JPN-02).
214 See Annex 1 of the Final Determination, para. 276 (JPN-02); Annex 3 of the Final Determination,
para. 367 (JPN-04).
215 Annex 3 of the Final Determination, para. 367 (JPN-04).
216 Annex 1 of the Final Determination, para. 334 (JPN-02).
217 See Korea's Opening Statement for the Second Panel Meeting, para. 44 ("whether the government
twisted their arms or left them entirely alone, the creditors did not have the option of taking back their money in
full and investing it somewhere else.")
218 Korea's Opening Statement for the Second Panel Meeting, para. 49.

there were options for banks to choose from, and there was room for the Government of Korea to
entrust or direct creditors to provide financing to Hynix.
4.339 Theoretically, creditors always have choices to remain as creditors of a troubled company or
to cash out and leave the company. A going concer n value is always based on the prediction of the
future. Accordingly, such prediction always i nvolves a certain amount of uncertainty. Creditors
usually assess risk of potential failure of the predic tion or predictions. The result of the assessment
may vary by creditors. For example, an additiona l investment if it failed could threaten the very
existence of the creditor. Depending on the situati on of the debtor and individual creditors, it is not
commercially reasonable for a creditor to extend fi nancing blindly even when going concern value
exceeds liquidation value. In this context, what b ecomes relevant is the creditors' assessment of the
risk. An economic theory on creditors' behaviour by no means dictates what a particular creditor will
do according to a theory given the particular situation. Korea's argument is simply misuse of a theory.
A theory does not decide reality.
(i) The JIA's Investigation Sufficiently Covered Hynix's Representative Financial Institutions
4.340 Regarding the JIA's selection of Hynix's cred itor financial institutions, Korea ignores
evidence that Hynix did submit during the investigation.
 219 The lists submitted by Hynix in the
investigation confirm that the JIA's investigati on sufficiently covers Hynix's representative creditor
financial institutions, as the JIA sent its questionnair es to 18 financial institutions, or [[BCI]] per cent
of Hynix's total debts out of 19 financial institutions or [[BCI]] per cent thereof identified in the list as
of October 2001, and 8 financial ins titutions, or [[BCI]] per cent of the total debts out of 10 financial
institutions or [[BCI]] per cent thereof identified in the other list as of December 2002. In addition,
the KEB, the main bank of Hynix and chair of th e Hynix's Creditor Financial Institutions Council,
also responded that "we decided to omit the full 114 name of companies because their amount of
credit is small," and "we do not think this information is necessary for the countervailing duty
investigation procedure."
220 Therefore, the Investigating Authority reasonably found that it had
sufficiently covered Hynix's representative creditor financial institutions.
(j) Korea's Interpretation of EC Re gulations is Incorrect; EC's Regulations in fact Support
Japan's View
4.341 Korea's citation of Article 15(1) of the EC's anti-subsidy regulations does not support Korea's
argument concerning the relationship between an amortization period and countervailing duties. 221
The provision that "unless… it has been demonstrated that th e subsidies no longer confer any
benefit" supports Japan's point that a determination of whether a subsidy no longer confers any
benefit subsequent to the POI necessitates a new i nvestigation which demonstrates such fact. There
was no such "demonstration" in this case.
(k) Korea's Interpretation of "Found to Exist" is out of Context of the SCM Agreement
4.342 Korea's ad hoc comment at the second meeting of the Panel on the term "found" in
Article 19.4, while informative on grammatical terms, did nothing to undermine Japan's interpretation,
which is amply supported by the text of this Article and the context of other Articles of the
SCM Agreement and Article V:3 of the GATT, as clarif ied by the Appellate Body reports in Mexico –

219 Evidence listed in the footnote 2 of Annex 3 (JPN-04-2).
220 Annex 3 of the Final Determination, para. 10 (JPN-04), and evidence listed in footnote 3 of Annex 3
(JPN-04-3).
221 Korea's Opening Statement for the Second Panel Meeting, para. 95. As Korea has already conceded
that an expiry of an amortization period does not amount to a "withdrawal of a subsidy" (see Opening Statement
of Japan at the Second Substantive Meeting of the Panel, para. 150), Korea's citation concerning a withdrawal of
a subsidy is irrelevant.

Antidumping Measures on Rice 222 and EC-Bed Linens (Article 21.5 – EC) 223 and the panel reports in
US-Lead and Bismuth Steel and US-Lead and Bismuth II.224
(l) Conclusion
4.343 In conclusion, Japan would like to recall its obligations under the SCM Agreement. The
Agreement gives investigating authorities certain oblig ations: to request information, to accept
information and argument, to consider such, to reach reasoned conclusions , and to explain their
conclusions. Japan's investigating authority did just that and did so reasonably. Thus, in applying its
standard of review, which is to examine whether th e JIA acted reasonably, the Panel should find that
Japan fulfilled its obligations under the SCM Agreement. Japan would like to thank the Panel for its
careful consideration and efforts in this dispute.
V. ARGUMENTS OF THE THIRD PARTIES
5.1 The arguments of the third parties, China, th e European Communities and the United States,
are set out in their written submissions and oral st atements to the Panel, and in their answers to
questions. The third parties' arguments as presented in their written submissions and oral statements
are summarized in this section.
A. THIRD PARTY WRITTEN SUBMISSION OF CHINA
5.2 The following summarizes China's arguments in its third party written submission
1. Introduction
5.3 In its third party submission, China presents its views on two key issues involved in this
dispute: (i) whether the effect of past subsidi es could be a proper ground for rejecting a primary
market benchmark; and (ii) for non-recurring subs idies that are allocated over time, whether the
imposition period of the CVDs against such s ubsidies may extend beyond the allocation period
established by the investigating authority.
2. Effects of Past Subsidies over the Primary Market Benchmark
5.4 In the investigation carried out by the JIA, it was ruled that the investment decisions by
private entities were influenced by Hynix's financial s ituation enhanced by past subsidies, and for this
and other reasons, the JIA refused to deem such investment decisions as market benchmark.
5.5 Firstly, China observes that the threshold for ab andoning a primary benchmark is very high.
In accordance with Article 14 (a) and (b) of the SCM Agreement , the market benchmark for
government provision of equity capital is the usual investment practice of private investors in the
territory of that Member while the benchmark for government loans is the amount the firm would pay
on a comparable commercial loan which the firm could actually obtain on the market. In China's
view, both the words "usual" and "actually" imply that the benchmarks contemplated under Article 14
point to the actions of private entities in the marketpl ace. Thus, in this dispute, the decisions by those
private financial institutions, which had not been found to be entrusted or directed by the Government
of Korea, to participate in the restructurings at issue obviously represent the usual and actual practice

222 Appellate Body Report, Mexico – Antidumping Measures on Rice, paras. 165-66.
223 Appellate Body Report, EC-Bed Linen (Article 21.5-EC), para. 123.
224 Panel Report, US-Lead and Bismuth II , para. 6.57. See also Panel Report, US-Lead and Bismuth
Steel, para. 6.50. For additional discussion on this point, see FWS of Japan, paras. 479-502, SWS of Japan,
paras. 135-139, and the Opening Statement of Japan at the Second Substantive Meeting of the Panel,
paras.149-53.

of private investors, and thus constitute a prim ary market benchmark for measuring the benefits
conferred by the alleged subsidies by the Government of Korea.
5.6 By reference to the holdings of the Appellate Body in US – Softwood Lumber IV which
relates to paragraph (d) of Article 14, China submits that in orde r to abandon a primary benchmark,
the investigating authority must meet the high threshold, which, in that particular dispute, is that the
private prices are aligned with those of the govern ment-provided goods such that both prices have no
noticeable differences. China submits that such high threshold should apply to the present dispute
involving paragraphs (a) and (b) of Article 14.
5.7 In China's view, the actions of private financial institutions in this dispute represent the actual
market reaction with respect to the same target company and under the particular circumstances
surrounding the company and the transactions at issue. Such actions are more persuasive than those
terms and conditions that the recipient "could" obtain from the market.
5.8 Therefore, China believes that unless the investigating authority has sufficient evidence on the
record that shows the investment decisions by the private entities are so distorted as to fail to reflect
the actual market situation, such decisions as primary market benc hmark should not be disregarded
lightly.
5.9 Secondly, China does not consider appropriate the JIA's reliance on the effect and influence
of the previous subsidies as one of the factors that justify the disregard of the primary benchmark.
5.10 In China's view, a rationale private investor will undoubtedly take into account the financial
situation of the target company before making an investment decision. However, whether such
financial situation is enhanced by the effects of previous subsidies is out of the concern of the
investor. Based on China's understanding of the position of the Appellate Body in Canada – Aircraft,
the market benchmark shall be the terms and conditions available to the recipient at the time of the
transaction and under the particular situation of the recipient. This market benchmark does not bear
any qualification to the effect that the recipient must not have received any previous subsidies.
5.11 In addition, China submits that in case of a CVD investigation targeting multiple subsidies,
the existence and amount of benefit of each i ndividual financial contribution should be assessed
independently. However, in this dispute, China not es that although such an approach was adopted by
the JIA, it was finally ruled that the previous subs idies enhanced Hynix's situ ation and therefore, the
investment decisions made by the private financ ial institutions were distorted by the previous
subsidies. China believes such a position held by the JIA would be problematic for a CVD
investigation involving multiple subsidy programs in that it would mean that once a previous subsidy
is found, the subsequent action of the private inve stor would always be tainted by the previous
subsidy. According to the JIA's approach, this may probably rendered the primary market benchmark
unusable and meaningless. In China's view, such a position would undermine the basic concept of
benefit and the guidelines provided for in Article 14 of the SCM Agreement.
5.12 In summary, in China's view, in considerati on of the high threshold of rejecting a primary
benchmark, the effect of past subsidies on the fina ncial situation of the company at issue cannot be a
proper factor that justifies the rejection of the actions of private investors as market benchmark.
3. Imposition Period v.s. Allocation Period
5.13 The second issue that China comments on is wh ether, for non-recurring subsidies allocated
over time, the imposition period of CVDs against such subsidies can extend beyond the allocation
period established by the investigating authority.

5.14 Firstly, China finds no clear guideline under the SCM Agreement as to how to allocate
subsidies in a CVD investigation, but certain disciplines do exist between the lines of the
SCM Agreement. China recalls that the word "offsetting" under Article VI:3 of GATT 1994 informs
the purpose of CVDs, i.e. to offset (or counteract) subsidies, which is also echoed by Article 19.4 and
Article 21.1 of the SCM Agreement which respectively require that CVDs may not exceed the amount
of subsidy found to exist and CVDs may only exist as long as and to the extent necessary to
counteract subsidization.
5.15 In China's view, in case of non-recurring subsid ies allocated over time, once the investigation
authority establishes the total amount of the subsidi es and the relevant allocation period, two things
have become definite: (i) the amount of benefit allocated to a specific year; and (ii) the period of
existence of the subsidy. By way of allocation, the one-time subsidies are deemed to be granted
repeatedly during each year within the allocation period and in the amount equal to the allocated
amount.
5.16 Having said that, if the investigating authority imposes a CVD order with duration beyond the
allocation period, the order that remains in effect after the allocation period would be offsetting a
subsidy that is not deemed to exist at that time. Thus, such an order would contradict the underlying
purpose of a CVD measure as provided in Article VI:3 of GATT 1994.
5.17 In the investigation at issue, when the JIA made the final determination, the JIA was clearly
aware that the benefit accruing from the October 2001 Restructuring had been allocated within the
fixed period of five years which ended in 2005. Nevertheless, the JIA imposed the CVD order of
18.1 per cent which would remain in effect from 2006 until 2010. Therefore, such an order is
offsetting a subsidy that does not exist as of 2006 and is inconsistent with Article 21.1 of the
SCM Agreement because it fails to remain in force only as long as and to the extent necessary to
counteract subsidization.
5.18 Secondly, China does not agree to the reas oning of Japan that, like an anti-dumping
investigation, in case of a CVD investigation, the investigating authority also needs to rely on the
historical data for the investigation period and may disregard the fact that a subsidy may cease to exist
after such period.
5.19 In accordance with Article 18.1 of the SCM Agreement, no CVD shall be imposed if the
subsidy is eliminated. This provision also supports the view that even if a subsidy is found to exist
during the period of investigation, a CVD s till cannot be imposed so long as it has be established
during the investigation that the subsidy at issue will cease to exist after the investigation period. This
understanding is in line with Article VI:3 of GATT 1994 regarding the purpose of CVD as well as
Article 21.1 of the SCM Agreement discussed above.
5.20 Furthermore, in China's view, for the particular issue under discussion, it is not appropriate to
refer to the "parallel provision" in the AD Agreement due to the different nature of AD and CVD
investigations.
5.21 In case of AD investigations, the investigating authority when concluding the investigation
can only make sure whether dumping occurred dur ing the period of the investigation and is not aware
whether dumping will continue. This is true b ecause: (i) dumping margin can only be calculated
based on the transaction and cost data available to the investigating au thority at the time of
investigation and such data is related to the act ual situation during a past period of time (i.e.
investigation period); and (ii) dumping is an act by the exporter and it may be changed by the
exporter at its own discretion. Therefore, it is reasonable to deem a finding of dumping during a
recent past period of investigation as a finding of "present" dumping in the context of Article 11.1 of
the AD Agreement.

5.22 In contrast, in case of CVD investigations, the investigating authority, in most cases, is able to
ascertain whether the subsidy will continue to exist afte r the investigation. For example, in case of
recurring subsidies having a definite term, the inv estigating authority may establish the exact date of
expiry of such subsidies. In case of non-recurri ng subsidies allocated over time, as discussed above,
the investigating authority may also establish th e period of existence of the subsidies once it
determines the period of allocation.
5.23 In China's view, so long as the investigating authority establishes that the subsidy exists in a
fixed period of time, the presence of subsidies dur ing a past investigation period cannot be simply
regarded as "present" subsidization for the purpose of Article 21.1 of the SCM Agreement . Thus,
China submits that Japan's argument based on the AD Agreement does not support its view that the
JIA has properly imposed a CVD with duration be yond the relevant allocation period against a
subsidy the benefit of which had been fully allocated.
5.24 In summary, given the above understanding of the provisions in the SCM Agreement and
GATT 1994 , China submits that in case of non-recurring subsidies that are allocated over time, the
imposition period of CVDs that relate to such s ubsidies shall not extend beyond the allocation period
as established by the investigating authorities.
4. Conclusion
5.25 In conclusion, China is of the following views on the key issues discussed above:
• China believes that in considering whether to reject the actions of private investors as
market benchmark, the effect of previous subsidies on the company at issue is not a
relevant factor to be taken into account;
• For non-recurring subsidies that are allocated ove r time by the investigating authority, the
imposition period of CVDs against such subs idies should not extend beyond the allocation
period of such subsidies as established by the authority.
B. THIRD PARTY ORAL STATEMENT OF CHINA
5.26 The following summarizes China's arguments in its third party oral statement.
1. Effects Of Past Subsidies Over The Primary Market Benchmark
5.27 The first legal issue China would like to address is whether the effect of past subsidies could
be a proper ground for rejecting a primary market benchmark.
5.28 In the investigation carried out by the JIA, it was ruled that Hynix's financial situation had
been enhanced by past subsidies, and consequently the investment decisions by the private financial
institutions were influenced by such financial situa tion. For this and other reasons, the JIA refused to
deem the investment decisions as market benchmar k. In this respect, China submits the following
views.
5.29 First, China observes that the threshold for ab andoning a primary market benchmark is very
high. In accordance with Article 14 (a) and (b) of the SCM Agreement, the market benchmark for
government provision of equity capital is the usual investment practice of private investors in the
territory of that Member. And the market benc hmark for government loans is the amount the firm
would pay on a comparable commercial loan which the firm could actually obtain on the market. In
China's view, both the words "usual" and "actually" imply that the benchmarks contemplated under
Article 14 point to the actions of private entities in th e marketplace. In this dispute, the decisions by
those private financial institutions not found to be en trusted or directed by the Government of Korea

obviously represent the usual and actual practice of private investors. Such decisions should
constitute a primary market benchmark for calculating the benefits of the alleged subsidies.
5.30 Meanwhile, considering the Appellate Body's holdings in US – Softwood Lumber IV in
respect of paragraph (d) of Article 14, China believ es that the investigating authority must meet very
high threshold before it can reject the primary benc hmark. China submits that such high threshold
should also apply to the present dispute involving para graphs (a) and (b) of Article 14. Furthermore,
since the private investors decided to invest in the same target company under the same conditions,
such decisions are more persuasive than those terms and conditions that the recipient "could" obtain in
the market.
5.31 Therefore, China believes that , unless the JIA has sufficient evidence on the record showing
that, the private investment decisions are so distorte d as to fail to reflect the actual market situation,
such decisions as primary market benchmark should not be disregarded lightly.
5.32 Second, the JIA relied on the effect and influence of previous subsidies as one of the basis for
disregarding the primary market benchmark. China does not think it appropriate to do so.
5.33 In China's view, before making an investment decision on a target company, a rationale
private investor will certainly take into account the financial situation of that company. However,
whether such financial situation is enhanced by the effects of previous subsidies is out of the concern
of the investor. As the Appellate Body ruled in Canada – Aircraft, the market benchmark shall be the
terms and conditions available to the recipient at the time of the transaction and under the particular
situation of the recipient. There is no such re quirement on the market benchmark that the recipient
must not have received any subsidy previously.
5.34 In addition, China submits that the JIA's appr oach would be problematic in a countervailing
investigation involving multiple subsidies. The JIA's position would mean that once a previous
subsidy is found, the subsequent action of the pr ivate investor would always be tainted by the
previous subsidy. In China's view, such a position undermines the concept of benefit and the
guidelines under Article 14 of the SCM Agreement, and would probably render the primary market
benchmark unusable and meaningless.
5.35 In summary, taking into account the high thres hold of rejecting a primary benchmark, China
submits that the effect of past subsidies on the cu rrent financial situation of the subject company is
NOT such a proper factor that can justify the disreg ard of the actions of private investors as market
benchmark.
2. Imposition Period v.s. Allocation Period
5.36 The second issue China would like to address is whether, for non-recurring subsidies
allocated over time, the imposition period of counterv ailing duties against such subsidies can extend
beyond the allocation period established by the investigating authority.
5.37 First, China observes that certa in disciplines on allocation of subsidies do exist between the
lines of the SCM Agreement . China recalls that the word "offsetting" under Article VI:3 of
GATT 1994 informs the purpose of a countervailing duty, namely, to offset subsidies. Such purpose is
echoed by two provisions in the SCM Agreement. Article 19.4 provides that countervailing duties
may not exceed the amount of subsidy found to ex ist while Article 21.1 requires that countervailing
duties may only exist as long as and to the extent necessary to counteract subsidization.
5.38 In China's view, in the case of non-recurring subsidies allocated over time, by way of
allocation, the one-time subsidies are deemed to be granted repeatedly during each year within the
allocation period and in an amount equal to the allo cated amount. Therefore, if the investigating

authority imposes a countervailing duty with duration beyond the allocation period, the duty existing
after the allocation period would be offsetting a subs idy that is not there. Thus, such a duty would
contradict the purpose of countervailing measures.
5.39 Turning to this investigation at issue, when making the fi nal determination, the JIA was
clearly aware that the benefit of the October 2001 Restructuring had been allocated within five years
until 2005. Nevertheless, the JI A decided to impose the countervailing duty of 18.1 per cent from
2006 until 2010. Accordingly, such a duty is offse tting a subsidy that does not exist as of 2006. It
thus violates Article 21.1 of the SCM Agreement as it fails to remain in force only as long as and to
the extent necessary to counteract subsidization.
5.40 Second, China does not agree to Japan's pos ition that the investigating authority may
disregard the fact that a subsidy may cease to exist after the investigation period.
5.41 Under Article 18.1 of the SCM Agreement, no countervailing duty shall be imposed if the
subsidy is eliminated. This provi sion supports the view that even if a subsidy is found to exist during
the period of investigation, a countervailing duty still cannot be imposed, so long as it has be
established that the subsidy at issue will cease to exist after the investigation period.
5.42 Furthermore, for the particular issue under di scussion, China does not consider it appropriate
to refer to the "parallel provision" in the AD Agreement due to the different nature of anti-dumping
and countervailing investigations.
5.43 In the case of anti-dumping investigations , when concluding the investigation, the
investigating authority can only establish whether dumping occurred during the period of the
investigation while is not aware whether dumping will continue. This is so because dumping margin
can only be calculated based on historical data availa ble to the investigating authority at the time of
investigation. In addition, dumping is an act by exporters and may be changed by exporters at their
own discretions. Therefore, it is reasonable to deem a finding of dumping during a recent past period
of investigation as a finding of "present" dumping in the context of Article 11.1 of the AD Agreement.
5.44 By contrast, in the case of countervailing investig ations, the investigating authority, in most
cases, is able to ascertain whether the subsidy will continue to ex ist after the investigation. A vivid
example is the case of non-recurring subsidies allocated over time. As discussed above, the
investigating authority may establish the period of existence once it determines the period of
allocation.
5.45 In China's view, so long as the investigating authority establishes that the subsidy only exists
in a fixed period of time, the presence of subsidies during a past investigation period cannot be simply
regarded as "present" subsidization for the purpose of Article 21.1 of the SCM Agreement.
5.46 Therefore, given the above understanding of the provisions in the SCM Agreement and
GATT 1994, China submits that in the case of non-r ecurring subsidies allocated over time, the
imposition period of countervailing duties agains t such subsidies shall not extend beyond the
allocation period established by the investigating authorities.
C. THIRD PARTY WRITTEN SUBMISSION OF THE EUROPEAN COMMUNITIES
5.47 The following summarizes the European Comm unities arguments in its third party written
submission.

1. Article 6.2 of the DSU
5.48 In Korea – Dairy the Appellate Body set out a four stage test for fulfilling the requirements of
Article 6.2 DSU. As regards the fourth requirement , the Appellate Body considered that Article 6.2
demands only a brief summary of the legal basis of the complaint, but the summary must, in any
event, be one that is "sufficient to present the probl em clearly". In other words, it is not enough that
the legal basis of the complaint is summarily identified; the identif ication must "present the problem
clearly".
5.49 In EC – Bananas the Appellate Body stated that there are two important reasons for insisting
on precision in the request for a panel. First, it ofte n forms the basis for the terms of reference of the
panel pursuant to Article 7 of the DSU; and, se cond, it informs the defending party and the third
parties of the legal basis of the complaint. Th ese reasons were further described by the Appellate
Body in Brazil – Desiccated Coconut. In view of Japan's arguments in section II of its first written
submission, it is in particular the reason relating to the rights of defence or "due process" that is at
stake in this case.
5.50 In this respect the Appellate Body found in Thailand – H-Beams that :
Article 6.2 of the DSU calls for sufficient clar ity with respect to the legal basis of the
complaint, that is, with respect to the "claims" that are being asserted by the
complaining party. A defending party is entitled to know what case it has to answer,
and what violations have been alleged so that it can begin preparing its defence.
Likewise, those Members of the WTO who intend to participate as third parties in
panel proceedings must be informed of the legal basis of the complaint. This
requirement of due process is fundamental to ensuring a fair and orderly conduct of
dispute settlement proceedings.
5.51 In US – OCTC Sunset Reviews the Appellate Body specified further that for a panel request to
"present the problem clearly", it must plainly connect the challenged measure(s) with the provision(s)
of the covered agreements claime d to have been infringed. In EC-Bananas the Appellate Body
considered that there is a si gnificant difference between the claims identified in the request for the
establishment of a panel, which establishes the panel' s terms of reference under Article 7 of the DSU,
and the arguments supporting those claims. However, in Korea – Dairy the Appellate Body
considered whether the listing of articles of an agre ement is generally sufficient to meet the standard
of Article 6.2 DSU. Therefore, the analysis must be made on a case-by-case basis.
5.52 The Panel should first examine whether Korea h as presented claims that are not based on the
legal bases identified in its panel request. In the second stage the Panel should examine on a case by
case basis whether the mere listing of treaty articles is sufficient. It would appear that for the second
stage analysis the Panel has some discretion in or der to assess whether the ability of the respondent to
defend itself was prejudiced.
2. Burden of Proof and Standard of Review
5.53 Any investigation involves an enquiry into fact s, evidence, law and legal characterisation of
the facts. Some degree of factual inference is inev itable in all investigations. If there is significant
factual inference, such a situation is sometimes described as one in which there is "circumstantial
evidence", although what really char acterises such cases is the degree of factual inference. In such
cases the authority may particularly look at the to tality of the facts and evidence when reaching its
determinations. Where it appears that necessary fact s or evidence are being withheld, the procedures
set out in Article 12.7.

5.54 The SCM Agreement does not expressly impose on Members obligations regarding burden of
proof rules to be applied by authorities in investig ations. Article 1 uses the term "shall be deemed to
exist", supporting the view that inference may be appropriate or necessary when determining the
existence of a subsidy, and particularly the imputat ion of the measure to a government. Past panels
and the Appellate Body have conf irmed this. This is consistent with the fact that a subsidy
investigation, unlike a dumping investigation, enquires into the behaviour of governments. Whilst
governments are subject to the same or an even hi gher obligation of co-operation as companies, there
may be practical differences between the investig ation of companies and the investigation of
governments. For this and other reasons, in practice it is likely to be more difficult for an
investigating authority to conduct effective verificati ons on government premises. This situation also
has implications for the Panel's standard of review.
3. Interested Parties
5.55 Article 12.7 refers to any interested Member or interested party. The term "Member" includes
"government" as that term is first used in Article 1. 1(a)(1). The term "government" is then used a
second time in Article 1.1(a)(1), being defined as "a government or any public body within the
territory of a Member". It follows that a bank that is a "public body" that is alleged to have made a
financial contribution is necessarily to be identified with "government" and in turn with "Member";
thus being in turn an interested Member or party w ithin the meaning of Article 12.7. Article 1.1(a)(1)
then refers to "a private body" that is entrusted or directed by government to carry out one or more of
the functions illustrated, which would normally be vested in the government, and the practice in no
real sense differs from practices normally followed by governments. It follows that a bank that is a
"private body" that is alleged to ha ve been entrusted or directed is also an interested Member or party
within the meaning of Article 12.7.
4. Financial Contribution
• Direct transfer of funds

5.56 Article 1.1(a)(1)(i) of the SCM Agreement does not provide that a subsidy is deemed to exist
if there is a direct transfer of funds. Rather, it provi des that a subsidy is deemed to exist if " a
government practice involves a direct transfer of funds". This wording reflects the well established
principle that the analysis is conducted on an accrual basis, rather than a payment basis. A subsidy
exists at the moment it is granted, even if there has not yet been a direct transfer of funds. The
subsidy does not only come into existence at some later date when, for example, an amount of money
is actually paid to the recipient pursuant to the term s of the grant. Thus, all that is required is that
there is a "government practice" (such as a grant) that "involves" "a direct transfer of funds" (a grant
involves now or in the future a direct transfer of funds).
5.57 It follows that whenever the terms of the "govern ment practice" (be it a grant, loan or equity
infusion) are modified, and particularly in any manne r that is more favourable to the recipient, then
there is a new "government practice" within the meaning of Article 1.1(a)(1)(i) which "involves"
(now or in the future) "a direct transfer of f unds". There is no doubt that the extension of the
maturities of existing loans and a debt-to-equi ty swap qualify as "government practice" that
"involves" (now or in the future) "a direct transf er of funds", thus triggering the application of
Article 1.1(a)(1)(i) of the SCM Agreement.
•
 Revenue foregone

5.58 In the light of the preceding observations, the EC agrees with Japan that Korea's submissions
with respect to revenue foregone are irrelevant.

• Entrustment or direction

5.59 The EC generally agrees with the submissions of Japan rather than those of Korea. The EC
believes that these issues have already been extensively discussed in the Panel Report in EC-DRAMs,
and subsequently in the Appellate Body Report in US-DRAMs, and the EC concurs with those
findings. The EC respectfully invites this Pane l to follow the same ap proach in these Panel
proceedings. The EC reserves the right to re-visit this issue in its oral statement.
5. Benefit
• Any method used to calculate benefit to the recipient must be provided for in legislation
or implementing regulations

5.60 The first obligation in the chapeau of Article 14 requires that any method used by the
investigating authority to calculate the benefit to the recipient is provided for in the national
legislation or implementing regulations. The EC disagrees with Korea's assertion that if there is an
inconsistency with the first obligation in the chap eau of Article 14, it necessarily follows that the
measure imposing countervailing duties "cannot be sust ained" or is "invalid". Japan's municipal law
is, at least in part, entitled "Guidelines …", whereas the chapeau of Article 14 refers to "legislation"
and "implementing regulations". The EC believes th at as a general matter in the municipal laws of
WTO Members the terms "legislation" and "regul ation" would generally suggest measures having
binding force, whereas the term "guidelines" might not. Notwithstanding this the use by Japan of
"Guidelines" should be considered capable of being consistent with the chapeau of Article 14.
5.61 There is a distinction between the "method" and its application in specific cases. The fact
that, when applying a method in a specific case, it is necessary to elaborate it, does not automatically
mean that there is an inconsistency with the fi rst obligation in the chapeau of Article 14. The
dictionary meanings (which are re levant to although not determinativ e of the meaning) of the term
"method" include: "procedure for attaining an obj ect; systematic arrangement, order." The term
"method" thus indicates something that can be describ ed in relatively abstract and brief terms. The
use of the term "provided for" is significant. Th e relevant obligation does not require, for example,
that the method be "exhaustively set out"; but mere ly "provided for". The use of this term simply
indicates something that is "foreseen".
• Any such method used to calculate benefit to the recipient must be consistent with the
guidelines in Article 14, paragraphs (a) to (d)

5.62 What must be consistent with the guidelines set out in paragraphs (a) to (d) of Article 14 is
both the method set out in the national legislation or implementing regulations; and the method used
in the measure imposing the countervailing duty. Ko rea has failed to precisely explain exactly which
part of Japan's legislation or regulations (including Japan's Guidelines) is supposed to be inconsistent
with paragraphs (a) to (d) of Article 14, and why. "Extensions of loan maturities" are capable of
falling within, for example, paragraph (b) of Article 14; and thus within the corresponding provisions
of Japan's legislation and regulations (including Japan's Guidelines). The fact that the measure
imposing countervailing duties calculates an amount of benefit with respect to such instruments does
not indicate any inconsistency with the SCM Agreement . The position is the same with respect to
debt-equity swaps.
6. Specificity
5.63 These issues have already been extens ively discussed in the Panel Report in EC-DRAMs, and
the EC concurs with the Panel in that case on this matter. The EC invites this Panel to follow the
same approach in these Panel proceedings.

7. Imposition of countervailing duties
5.64 Countervailing duties are levied on imported pro ducts, calculated in terms of subsidization
per unit of the subsidized and exported product, typically at an ad valorem rate. The ad valorem rate
is determined by expressing the amount of the s ubsidy as a percentage of the total value of the
relevant sales of the firm in question. There is no other basis on which the ad valorem rate could be
calculated. The calculation can only be made on the b asis of data relating to the investigation period.
The amount of the subsidy will therefore be the amount of the subsidy granted during the
investigation period (or allocated to the investigati on period, if the subsidy pre-dates the investigation
period). As will the value of the relevant sales. It is permissible to allocate large "non-recurring"
subsidies over a period of time, starting with the year in which the subsidy is granted. This approach
reflects the duration of the economic "benefit" to the recipient of such subsidies and ensures that such
large non-recurring subsidies do not escape from an appr opriate remedy. After the end of year five,
and in the context of assessment or refund proceedin gs based on a period of investigation or review
contemporaneous with the exports fo r which final liability is being est ablished, and with reference to
year six or later, the amount of the subsidy, and thus the duty, would be zero.
5.65 The starting date for the period of allocation must be the year in which the subsidy is granted.
The EC sees no basis on which the starting date could be deferred. That would be to dissociate the
date on which the subsidy was granted from the remedy , in a manner that would be inconsistent with
the SCM Agreement. Once the allocation period had ended, there is no further subsidy, and therefore
no further remedy under the SCM Agreement. Where the allocation period ends after the date on
which final measures are imposed, the final measure may nevertheless potentially remain in force for
the five years provided for in Article 21.3, subject always to the possibility of assessment or refund
proceedings, or changed circumstances proceedings under Article 21.2 of the SCM Agreement. The
expiry of the allocation period does not trigger an automatic termination of the countervailing duty.
Even if such a termination is requested by the exporting country, due process must be respected and
the investigating authority has the right to investig ate, for example, any new allegations of subsidy,
before deciding whether to continue the measure.
5.66 The Panel should reject Korea's claim under Article 19.4. The subsidy is always found to
have "existed" during the investigation period, as a proxy for present subsidy. It is never found to
exist on the date on which the countervailing duty is le vied. The allocation period is used merely for
calculating the ad valorem rate of the countervailing duty. Th e rule in Article 19.4 might operate
during assessment or refund proceedings. It has no relevance to the facts of the present case. The
position with respect to Korea's claim under Article 19.1 is less clear. There is a distinction between a
subsidy being "withdrawn" (such as, for example, the repayment of a grant); and a notional allocation
period expiring. On the other hand, Korea argues that it is not justified for a Member to decide to
impose a remedy, even in circumst ances where that Member has itsel f effectively recognised that the
subsidy is no longer having any effects
 – a point with which one might at first sight have some
sympathy. That might also be seen as a point under Article 15, and here too the question(s) of
causation and non-attribution are resolved by referen ce to the injury investigation period, and not the
date of the final measure.
5.67 No equivalent to the phrase in question "unl ess the subsidy or subsidies are withdrawn"
appears in the Anti-Dumping Agreement. That is presumably because dumping is in essence a matter
of behaviour over time. Whereas a subsidy is grante d at a specific moment or moments of time, even
if it may have its effects over an extended period of time. This suggests that the phrase is concerned
with the punctual question of grant/withdrawal, rather than economic effects over time.
8. Causation
5.68 Once a subsidy to a company has been allocated to a specific product, it may be determined
that the subsidy has had the effect of lowering th e price of that product. In an environment of

continuous subsidisation there may be no historical trend of higher prices, but the application of
straightforward economic reasoning nevertheless dictates such a conclusion. The position under
Part III of the SCM Agreement is not fundamentally different, even if, under Part V of the
SCM Agreement the particular focus is on imports, given the nature of the remedy to be imposed.
D. THIRD PARTY ORAL STATEMENT OF THE EUROPEAN COMMUNITIES
5.69 The following summarizes the European Communities arguments in its third party oral
statement.
• Introduction

5.70 The European Communities makes its third part y oral statement because of its systemic
interest in the correct interpretation of the SCM Agreement. There are six issues to comment on, and
they are:
• Article 6.2 of the DSU;
• the circumstances in which the market benchmark for determining benefit may be
other than the market of the granting Member;
• the need to use the position of an outside inv estor, rather than an inside investor, as
the market benchmark;
• the distinction between the existence and grant of a subsidy;
• the point at which a subsidy may be de emed to exist within the meaning of
Article 1.1 of the SCM Agreement; and
• the circumstances in which the change of ownership case law may be relevant.
1. Article 6.2 of the DSU
5.71 In view of its systemic interest in this case the European Communities did not enter into
details in its written submission on whether or not certain items on Korea's panel request "presented
the problem clearly" in accordance with Article 6.2 of the DSU. The United States has in its written
submission addressed two of these items in more detail.
5.72 The European Communities would like to echo the concerns that the United States has
presented in particular on item 15. Under this item Korea generally listed seven different articles of
the SCM Agreement and two articles of the GATT. Korea claimed that these provisions have been
breached because Japan "failed to conduct a thor ough and complete investigation, and failed to
conduct its investigation and make determinations in accordance w ith fundamental substantive and
procedural requirements".
5.73 The European Communities is of the view that item 15 is a prime example of a claim that
does not present a problem clearly. A number of provisions are cited generally although some of
them contain multiple obligations . In addition, these provisions are connected with an alleged
omission and reference is just made to the breach of "fundamental subs tantive and procedural
requirements".
5.74 The European Communities is of the view that such a presentation of the problem breaches
the due process rights of the defendant.

2. The market benchmark for determining the ex istence and amount of a benefit is the
market of the granting member, provided th at it has not itself been distorted by
government subsidies
5.75 When determining whether or not a financia l contribution confers a benefit, and when
determining what the amount of any such benefit may be, it may be necessary to compare the actions
of the government with a market benchmark. Article 14(d) of the SCM Agreement refers, in the case
of the provision of goods or services or the purch ase of goods by a government, to the prevailing
market conditions for the good or service in question in the country of provision or purchase. The
other provisions of Article 14 do not contain the same language.
5.76 Thus, in the case of Article 14(d), the market benchmark relates to the Member, rather than
the markets of other Members or the international ma rket. The different market benchmarks could be
different, depending, for example, on prevailing inter est rates and currency exchange rates. In these
circumstances, the correct benchmark is the market of the Member.
5.77 However, the situation prevailing on the territory of the Member must nevertheless be capable
of falling within the term "prevailing market conditions", meaning market conditions that have not
been predominantly distorted by government subsidy or intervention. If, as would appear to be the
case, the capital markets in Korea were distorted dur ing the relevant period by government subsidy or
intervention, then it may be the case that there is, in fact, no "market" as such on the territory of the
granting Member suitable for use as a benchmark. In such circumstances, th e investigating authority
may determine that there are no reliable market benc hmarks in the granting Member, and rely instead
on suitable alternatives.
225
3. The market benchmark for determining the exis tence and amount of benefit is that of
an outside not an inside investor
5.78 The European Communities then tu rned to a related but different question, namely that of
whether the market benchmark for determining the existence and amount of benefit is that of an
outside investor (that is, one that has no existing exposure to the bene ficiary) or an inside investor
(that is, one that has an existing exposure to the beneficiary). The European Communities considers
that the market benchmark is that of an outside inv estor, not an inside investor. That is especially the
case in circumstances where the existing exposure of the inside investor has been created as a result of
past government action. That is, when the government has previously entrusted or directed a private
bank to take or maintain positions in Hynix other than on market terms, as would appear to be the
case.
5.79 Parties attempting to minimise or eliminate th e amount of benefit sometimes argue for an
inside investor perspective. They do so because th ey believe that a "market" benchmark based on the
existing position of an inside investor may be lowe r. That is based in turn on a rejection of the
"expected utility model" of investment, according to which rational investors do not let the value of
past investments affect present or future investment decisions; in favour of the so-called "prospect
theory", according to which investors will continue to make investments in a particular project or
entity in the hopes of minimizing past losses, even if the investment would not be justified based only
on the potential for future return.
5.80 The European Communities considers that the SCM Agreement is based on a fundamental
distinction between government on the one hand a nd markets on the other hand; and that any

225Appellate Body Report, US-Softwood Lumber , paras. 89 to 107; Panel Report, EC DRAMs ,
paras. 7.158 to 7.159 and footnote 171.

measurement of benefit must be ma de by reference to an objective ma rket benchmark, that being one
that does not depend on the subjective position of an existing stakeholder in the company.226
4. Distinction between the existence of a subsidy and the grant of a subsidy
5.81 The next point on which the European Communities would like to briefly comment relates to
the distinction between the existence of a subs idy within the meaning of Article 1.1 of the
SCM Agreement, and the moment at which a subsidy becomes available or is granted.
5.82 Some subsidies may be unconditional from the mo ment they exist, in which case the moment
of existence is the same as the moment of granting. This explains why it may not always be
necessary to distinguish precisely between the two, a nd why the term "granting" may be used to refer
to the same moment as the moment of existence.
5.83 Other types of subsidies may be contingent on fu ture events. Thus, the moment of existence
and the moment of granting (when th e contingency is fulfilled) are, by definition, not the same, the
moment of granting being after the moment of existence. In such cases it is necessary to distinguish
between the existence of the subsidy, and the subsequent granting, when the contingency is
fulfilled.
5.84 This view is confirmed by the c onsistent manner (at least 15 times) in which the word "exist"
is used in the SCM Agreement to refer to the moment at which a su bsidy is deemed to exist within the
meaning of Article 1.1. 227 The distinction between the existence of a subsidy and the granting of a
subsidy was also confirmed by the Appellate Body in the Brazil – Aircraft case. 228 The Appellate
Body also confirmed in the same case that "grantin g" occurs when all the legal conditions have been
fulfilled that entitle the beneficiary to receive the subsidies, which is not the case if the exports in
question have not yet occurred. 229 Consistent with this approach , the Appellate Body found in the
Canada – Automotive Industry case that it is the "underlying legal instrument" that must provide
expressly or by necessary implication that "the subsid y is available [or grante d] only upon fulfilment
of the condition of export performance".230
5.85 Thus, whilst the European Communities agrees with Japan that an actual "transfer of funds" is
not essential in order for a subsidy to exist within the meaning of Article 1.1 of the SCM Agreement,

 227 SCM Agreement , Article 1.1 "a subsidy shall be deemed to exist"; Article 4.2 "the existence and
nature of the subsidy in question"; Article 4.5 "the existence and nature of the measures in question";
Article 7.2(a) "the existence and nature of the subsidy"; Article 11.1 "the existence, degree and effect of any
alleged subsidy"; Article 11.2 "the existence of a subsidy"; Article 11.2(iii) "the existence, amount and nature
of the subsidy"; Article 11.6 "the existence of a subsidy"; Article 17.1(b) "a subsidy exists"; Article 19.1 "the
existence and amount of the subsidy"; Article 19.4 "the subsidy found to exist"; Article 22.4 "the existence of
a subsidy"; Article 22.4(iii) "the existence of a subsidy"; Article 24.3 "the existence and nature of any
subsidy"; Annex III, para. 2 "no subsidy should be presumed to exist".
 228 Appellate Body Report, Brazil Aircraft , para. 156 : "… we see the issue of the existence of a
subsidy and the issue of the point at which that subsidy is granted as two legally distinct issues." (original
emphasis).
 229 Appellate Body Report, Brazil Aircraft, para. 158 "We agree with the Panel that "PROEX payments
may be 'granted' where the unconditional legal right of the beneficiary to receive the payments has arisen, even
if the payments themselves have not yet occurred." We also agree with the Panel that the export subsidies for
regional aircraft under PROEX have not yet been "granted" when the letter of commitment is issued, because, at
that point, the export sales contract has not yet been concluded and the export shipments have not yet occurred.
For the purposes of Article 27.4, we conclude that the export subsidies for regional aircraft under PROEX are
"granted" when all the legal conditions have been fulfilled that entitle the benefici ary to receive the subsidies.
We share the Panel's view that such an unconditional legal right exists when the NTN-I bonds are issued."
(footnotes omitted).
230 Appellate Body Report, Canada – Automotive Industry, para. 100.

in making that point the European Communities wishes to make it clear that there are circumstances
in which a distinction must be drawn between existence and grant, and these should not be considered
to occur at the same moment in all cases.
5. Point at which a subsidy may be deemed to exist within the meaning of Article 1.1 of the
SCM Agreement
5.86 The European Communities made a penultimate point relating to the moment at which a
subsidy may be deemed to exist within the meaning of Article 1.1 of the SCM Agreement. In this
respect, the European Communities is of the view th at a subsidy cannot be said to exist within the
meaning of Article 1.1 until each of the relevant requirements set out in that provision has been
fulfilled. Thus, in the case of a grant, for exampl e, it would normally be necessary to identify such
matters as the identity of the granting authority; th e identity of the beneficiaries; the form, amount
and terms and conditions of the grant; the time at which the grant would be made; the purpose of the
grant; and so forth. Prior to the requirements of Article 1.1 being met, it is not the case that all and
any government action or omission, even if relating to the eventual beneficiary, are sufficient for there
to be a subsidy within the meaning of Article 1.1.
5.87 Thus, whilst the European Communities agrees with Japan that an actual "transfer of funds" is
not essential in order for a subsidy to exist within the meaning of Article 1.1 of the SCM Agreement,
in making that point the European Communities wishes to make it clear that a subsidy cannot be said
to exist within the meaning of Article 1.1 until such time as each of the relevant requirements set out
therein has been demonstrated to be met.
6. The relevance of the change of ownership case law does not depend on privatisation
5.88 Finally, the European Communities would like to comment on the assertion made in the third
party written submission of the United States that the change of ownership case law is not relevant to
this case.
231 The European Communities disagrees in prin ciple with the United States suggestion that
the case law should be so restricted. In particul ar, the European Communities disagrees that the
change of ownership case law is irrelevant, unless ther e is a privatisation. The Appellate Body has
expressly stated otherwise.232
E. THIRD PARTY WRITTEN SUBMISSION OF THE UNITED STATES
5.89 The following summarizes the United States arguments in its third party written submission.
1. Procedural Issues
5.90 Claims 10 and 15 of Korea's Panel Request . In Item 10, Korea's panel request refers to
Article 15 of the SCM Agreement in its entirety; likewise, Item 15 is exceedingly vague, cites to a
number of articles containing multiple obligations, and provides no indication of the "problem" that is
the subject of the dispute. Insofar as the articles referenced therein contain multiple obligations, those
aspects of Item 15 do not meet the standard establishe d under Article 6.2 and, like Item 10, should be
considered outside of the Panel's terms of reference.
5.91 Analysis of "Prejudice" to the Respondent . Korea incorrectly asserts that "'prejudice' to
the responding party from alleged insufficiency of a panel request can only be established by a

231 United States third party written submission, paras. 60 to 64.
 232 Appellate Body Report, US-CVDs on Certain Products from the EC , para. 124 : "The Panel's
absolute rule of "no benefit" may be defensible in the context of transactions between two private parties
taking place in reasonably competitive markets; howeve r, it overlooks the ability of governments to obtain
certain results from markets by shaping the circumstances and conditions in which markets operate." (bold italic
emphasis added).

consideration of the 'actual course of panel pro ceedings'" and therefore "a panel cannot rule on a
respondent's claim under Article 6.2 until the end of the process." 233 While panels are not required in
all cases to make findings prior to the conclusion of the proceedings, evaluation of prejudice to the
respondent does not preclude them from doing so, and panels have in the past issued preliminary
rulings regarding DSU Article 6.2 well before the proceedings have concluded. Korea's argument
appears to rest upon a mischaracterization of refere nces by certain panels and the Appellate Body to
the "course of the panel proceedings" in analyzin g compliance with DSU Article 6.2, and would
substantially compromise the ability of respondents and third parties to participate effectively in panel
proceedings where a complaining party has made a number of vague assertions of breaches of WTO
obligations.
2. Burden of Proof, Standard of Review, and Evidence
5.92 Burden of Proof.
 In its submission, Korea often appears to advance facts and arguments
without specifying the legal obligations that it as serts are breached as a result, or identifies legal
obligations it claims have been breached without i ndicating the arguments that support its conclusion.
As the Appellate Body noted in US – Gambling , "A complaining party may not simply submit
evidence and expect the panel to divine from it a claim of WTO-inconsistency. Nor may a
complaining party simply allege facts without relating them to its legal arguments."234 Absent such an
analysis with respect to these claims, the Unite d States submits that Korea has not established a prima
facie case.
5.93 Standard of Review. Certain aspects of Korea's arguments suggest that it misunderstands
the proper standard of review that a panel should apply when reviewing the WTO-consistency of an
investigating authority's countervailing duty determination. It is well established that a panel may not
conduct a de novo review of the evidence before the inv estigating authority or substitute its own
judgment for that of the investigating authority. The SCM Agreement does not require an
investigating authority to take into consideration economic theories that are not on the record of the
proceedings in making its decision. Furt hermore, as the Appellate Body noted in US – Lamb Meat, a
panel may not conclude that a decision is "not reas oned" simply because an alternative explanation is
found to be "plausible." Rather, the explanation under review must be found not "adequate in the
light of that alternative explanation."235
5.94 Evidence. Korea makes a number of incorrect assertions regarding the nature of the evidence
that an investigating authority must identify a nd how it must analyze that evidence in making its
determination. In particular, th roughout its submission, Korea claims that there exists a general
obligation for an investigating authority to identif y "positive evidence demonstrating the existence of
each element required for the imposition of antidumping or countervailing duties." 236 Beyond where
expressly provided, the SCM Agreement does not contain specific standards regarding the evidence
that investigating authorities must use to support their determinations.
3. Subsidy Determination
5.95 JIA's Treatment of Several Banks as "Interested Parties" . Korea claims that the JIA
improperly treated various financial institutions as "interested parties" and inappropriately applied

233 Response of Korea to Preliminary Ruling Request of Japan, paras. 30 and 36.
234 Appellate Body Report, United States – Measures Affecting the Cross-Border Supply of Gambling
and Betting Services, WT/DS285/AB/R, adopted 20 April 2005, paras. 140-41.
235 Appellate Body Report, 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, adopted 16 May 2001,
para. 106.
236 First Written Submission of Korea, paras. 141 and 220.

facts available when these financial institutions failed to respond to requests for information.
237
Korea's narrow interpretation of "interested party" is contradicted by the text of Article 12.9 of the
SCM Agreement , which provides that "interested parties" "shall" include certain entities, such as
foreign exporters or producers of the product under i nvestigation, but then specifies that "This list
shall not preclude Members from allowing domestic or foreign parties other than those mentioned
above to be included as interested parties." Fu rthermore, the ordinary meaning of the term
"interested" supports the conclusion that an entrusted or directed entity may be considered an
"interested party" under the SCM Agreement. Korea's narrow reading of Article 12.9 is also at odds
with how the term "interested pa rty" is used elsewhere in the SCM Agreement , and the panel's
findings in EC – DRAMS support the conclusion that an investigating authority may apply facts
available when a third party entity fails to cooperate with an investigation.
238
5.96 Korea's Interpretation of the "Entrusts or Directs" Standard . Referencing the Appellate
Body report in US – DRAMS, Korea asserts that the evidence relied upon by an investigating authority
in cases involving entrustment or directi on must be "probative and compelling." 239 Neither
Article 1.1(a)(1)(iv) itself nor any other provision of the WTO agreements supports the notion that a
special evidentiary standard exists for purposes of determining the existence of entrustment or
direction. The Appellate Body's report in US – DRAMS states that an investigating authority is not
required to base its determination on a "qualitative standard higher than that contemplated by the SCM
Agreement."240 Korea also argues that the determination was insufficient because "there is actually no
evidence that the Korean government told any of the creditors what to do in any of the
restructurings."241 Korea's argument appears to suggest th at, in order to establish entrustment or
direction, an investigating authority must have evidence of a "direct" or "actual" government
delegation or command, an interpretation th at is unsupported by the text of the SCM Agreement, as
clarified by prior panel and Appellate Body finding s. Furthermore, Korea appears to introduce an
additional requirement of governmental "intent" or "m otive" to a finding of entrustment or direction
which has no support in the text of the SCM Agreement. Korea also suggests that the JIA could not
reach a finding of entrustment or direction absent a finding that the Korean government intended to
save Hynix "at the expense of its creditors." 242 The existence of entrustment or direction under
Article 1.1(a)(1)(iv) is determined by reference to the actions of the government, as well as the
financial condition of the recipient firm at the time the financial contribution is made . As long as the
investigating authority reasonably concludes based on the record that th ere is evidence that a
government has entrusted or directed a body to prov ide a financial contribution, Article 1.1(a)(1)(iv)
is satisfied. Finally, Korea proceeds to critique ev idence cited in the JIA's analysis on a piecemeal
basis, contrary to the holistic approach that the JIA appears to have used in its determination. Insofar
as the JIA appears to have adopted a holistic a pproach, the Panel should evaluate whether the
evidence as a whole supports the determination, and should avoid looking at individual pieces of
evidence in isolation as advocated by Korea in its submission.
5.97 Korea's Interpretation of "Financial Contribution". Korea's interpretation of the term
"direct transfer of funds" is inconsistent with the provisions of Article 1.1(a)(1) and at odds with prior
findings of WTO panels and the Appellate Body. Article 1.1(a)(1)(i) specifies a number of examples
of instruments that may result in a direct transfer of funds, but does not suggest that
Article 1.1(a)(1)(i) is limited to the enumerated in struments. Nothing in the text of the agreement
supports Korea's narrow interpretati on of Article 1.1(a)(1)(i), particularly Korea's suggestion that
"funds" only refers to "money;" indeed, prior panels have concluded that the types of transactions that

237 Id., paras. 153-164.
238 Panel Report, European Communities – Countervailing Measures on Dynamic Random Access
Memory Chips from Korea, WT/DS299/R, adopted 3 August 2005, paras. 7.266-7.267.
239 First Written Submission of Korea, para. 196.
240 Id., para. 139.
241 Id., para. 144.
242 Id., para. 200.

Korea claims do not constitute "d irect transfers of funds" may in fact qualify as such. Korea's
conclusion that the French and Spanish texts of the SCM Agreement support its "money changing
hands" interpretation of "direct transfer of funds" is unsupported by the ordinary meaning of those
terms. Moreover, the Korea – Commercial Vessels panel found that, contrary to what Korea now
asserts, loan restructuring, debt forgiveness and debt -to-equity swaps are direct transfers of funds.
Korea also incorrectly argues that modifications of existing loan terms and debt-to-equity swaps
can only be defined as "revenue foregone " under Article 1.1(a)(1)(ii) of the SCM Agreement .243
Nothing in the text of Article 1.1(a)(1)(i) obligat ed the JIA to treat the se transactions as foregone
revenue under Article 1.1(a)(1)(ii). Further, in the context of Article 1.1(a), the term "revenue" refers
to forms of government revenue, such as taxes, duties, or other monies collected by a government,
rather than income or profit by a creditor, as Korea seems to suggest.
5.98 Korea's Approach to the Benefit Analysis. Korea argues that the government "financial
contribution" that confers a benefit is the gove rnment's action of entrustment or direction 244, and that
therefore the investigating authority was required to evaluate whether the action of entrustment or
direction made Hynix "better off." 245 Korea's emphasis on whether the "restructuring made the
creditors ... "better off'" is misplaced: 246 in determining the existence of a benefit, the issue is the
position of the recipient "but for" or "absent" the government's financial contribution. Korea
misidentifies the "financial contribution" by wh ich the existence of a benefit is determined
under Article 1.1. In essence, Korea confuses the two-step financial contribution analysis
required under Article 1.1(a)(1)(iv) in cases of entrustment or direction with the analysis
required under Article 1.1(b) to determine the ex istence of a benefit. The term "financial
contribution," as stated in Article 1.1(a)(1), n ecessarily refers to the functions of the types listed
in subparagraphs (i) through (iii), irrespectiv e of whether the case is one of government
entrustment or direction. The term does no t, as Korea improperly asserts, refer to the
government action of entrusting or directing. Notably, in US – DRAMS , the Appellate Body
found that "a finding of entrustment or direction, by itself, does not establish the existence of a
financial contribution."
247 Further, Korea's argument would be nearly impossible to apply: Korea's
approach to the benefit analysis would involve comparing the government entrusted or directed
restructuring to a hypothetical non-government entrusted or directed restructuring.
5.99 Privatization Jurisprudence and Determination of Benefit From a Debt-to-Equity Swap.
Citing the Appellate Body report in US – Countervailing Measures on Certain EC Products , Korea
argues that the JIA was required to consider the e ffect of the change in Hynix's share ownership
during the December 2002 restructuring on Hynix's benefit, and that its failure to do so was
inconsistent with Articles 10, 14, 19, and 21 of the SCM Agreement .248 A debt-to-equity swap, in
which creditors exchange the debt owed them for equity shares in a firm, is not the same as the
privatization of a state-owned firm, and Korea has not demonstrated that a privatization occurred in
this case: it has not asserted that the government ow ned Hynix prior to the debt-to-equity swap and
that, through the swap, it transferred all or substantia lly all of Hynix to a new private owner, retaining
no controlling interest for itself. Further, the ques tion posed by privatization analysis is whether the
privatization of a firm extinguishes the benefit received from a prior financial contribution. As Korea
notes, the privatization methodology described above applies to an analysis of the benefit from
subsidies "received before the change in ownership." 249 Here, it is the restructuring debt-to-equity
swap itself that the JIA concluded conferred the benefit. For these reasons, the Appellate Body's

243 Id., paras. 176-178.
244 Id., para. 228.
245 Id., para. 228-29.
246 Id., para. 242 (emphasis added).
247 Appellate Body Report, United States – Countervailing Duty Investigation on Dynamic Random
Access Memory Semiconductors (DRAMS) from Korea, WT/DS296/AB/R, adopted 20 July 2005, para. 124.
248 First Written Submission of Korea, paras. 261-262.
249 Id., para. 261.

assessment of privatization in US – Countervailing Measures on Certain EC Products is irrelevant to
the analysis of whether the December 2002 debt-to-equity swap resulted in a benefit to Hynix.
4. Injury Determination
5.100 Articles 15.5 and 19.1 of the SCM Agreement. Korea's claim that the JIA's injury
determination is inconsistent w ith Articles 15.5 and 19.1 of the SCM Agreement proceeds from the
premise that these provisions require authorities to demonstrate a causal link between the subsidy
practice(s) at issue and the material injury experienced by the domestic industry. Korea's
interpretation of Articles 15.5 and 19.1 is inconsis tent with their language and prior reports discussing
them. The subject of both the first sentence of Ar ticle 15.5 and the third clause of Article 19.1 is the
same: "the subsidized imports." Thus, under each provision, it is the "subsidized imports" that must
be causing injury. This conclusion is buttressed by the second sentence of Article 15.5, which states
that "[t]he demonstration of a causal relationship be tween the subsidized imports and the injury to the
domestic industry shall be based on an examination of all relevant evidence before the authorities."
The "demonstration" that the first clause of this sentence references is the same thing that "must be
demonstrated" for purposes of the first sentence of Article 15.5. Additionall y, footnote 47 of the
SCM Agreement indicates that an authority properly conduc ts the assessment of "the effects of
subsidies" referenced in the first sentence of Artic le 15.5 by examining the volume, price effects, and
impact of the subsidized imports. It does not require an authority to conduct a separate or
independent examination of subsidy practices. In United States – Imposition of Countervailing Duties
on Imports of Fresh and Chilled Atlantic Salmon from Norway, the panel rejected the same argument
that Korea raises here.
250 Contrary to Korea's assertion, WTO panel and Appellate Body reports
reinforce the notion that the Atlantic Salmon panel's interpretation of Artic le 6:4 of the Tokyo Round
Subsidies Code is fully applicable with respect to the nearly identical wording of Article 15.5 of the
SCM Agreement . This reading is further supported by the two previous panel reports addressing
Korean challenges to countervailing duty measur es on DRAMs. In both reports, the panels
considered injury caused by the subsidized imports to be the focus of Article 15.5251.
F. THIRD PARTY ORAL STATEMENT OF THE UNITED STATES
5.101 The following summarizes the United States' arguments in its third party oral statement.
5.102 The United States made a few brief points on the following topics: (1) the preliminary ruling
requests of Japan; (2) certain threshold issues rega rding burden of proof, standard of review, and
evidence; (3) two issues regarding the subsidy de termination of the Japanese investigating authority
(or "JIA"); and (4) the JIA's injury determination.
1. Preliminary Ruling Requests
5.103 Regarding Japan's preliminary ruling requests, a panel must evaluate the consistency of a
panel request with DSU Article 6.2 based on the term s of the request itself. Contrary to Korea's
assertion in its December 1 submission, "information reasonably available to the responding parties at
the time they received the panel request", but that was not included in the request, is not
 relevant to an
assessment of whether the panel request complies with Article 6.2. 252 Korea asserts that information
submitted to the JIA could be deemed "reasonably ava ilable" such that Japan would not be prejudiced
by a defective panel request. The United States beli eves that this assertion is legally irrelevant and

250 SCM/153 (adopted 28 April 1994), paras. 335-339.
251 Panel Report, United States – Countervailing Duty Investigation on Dynamic Random Access
Memory Semiconductors (DRAMS) from Korea , WT/DS296/R, adopted 20 July 2005, modified by Appellate
Body Report, WT/DS296/AB/R., para. 7.320.
252 Initial Comments of the Republic of Korea on the Expanded Request for a Preliminary Ruling in
Japan's First Written Submission (Dec. 1, 2006), para. 7.

factually doubtful. However, even if it were corre ct, Korea ignores the fact that such information was
not "reasonably available" to other WTO Members, including the third parties to this proceeding.
5.104 DSU Article 6.2 establishes a standard that is no different for claims relating to antidumping
and countervailing duty determinations than for claims relating to other types of measures. In all
instances, a panel request must "identify the specific measures at issue and present a brief summary of
the legal basis of the complaint su fficient to present the problem clearly." With respect to Items 10
and 15 of Korea's panel request, the United States agr ees with Japan that, to the extent they reference
articles containing multiple obligations without sp ecifying the particular subprovision at issue,
Items 10 and 15 do not satisfy the requirements of DSU Article 6.2, and the Panel should find them to
be outside the Panel's terms of reference. Korea' s arguments to the contra ry do not accord with the
text of Article 6.2, and, if accepted, would subs tantially compromise the ability of both third parties
and responding Members to participate effectively in panel proceedings.
2. Burden of Proof, Standard of Review, and Evidentiary Standards
5.105 Turning to a different topic, as the United St ates discussed in its written submission, Korea's
first submission fails to make a prima facie case with respect to certain claims, suggests an incorrect
standard of review in analyzing others, and mi scharacterizes how the Panel should properly assess the
evidence before the JIA in evaluating Korea's claims.
5.106 For example, in its five paragraphs challengi ng Japan's specificity determination, Korea does
not cite once to Article 2 of the Agreement on Subsidies and Countervailing Measures (" SCM
Agreement"), much less a particular provisi on or obligation of that Article. 253 Korea simply has not
met its burden of putting forth both evidence and legal argument to support each element of its
claim.254 Korea cannot expect the Panel to make its case for it, by choosing which particular
provisions of the SCM Agreement might be implicated and how Japan might have breached its
obligations under those provisions. In the United St ates' submission, several other areas in which
Korea's submission appears to have failed to set forth a prima facie case were noted.255
5.107 In addition to asking the Panel to make its case for it, Korea would have the Panel engage in a
de novo review of Japan's subsidy determination. Kor ea advances an alternativ e theory to the JIA's
analysis of entrustment or direction, based upon economic and corporate workout theories. 256
However, it appears that the evid ence upon which this theory is b ased was not on the record before
the investigating authority. As the Appellate Body noted in US – DRAMS, a panel's findings may not
be based on facts that were not before the investigating authority at the time it made its
determination.257 Moreover, and just as importantly, as the Appellate Body noted in US – Lamb Meat,
the question before the Panel is not whether an alternative explanation advanced by Korea is
"plausible." Instead, the question is whether the JIA provided a reasoned and adequate explanation of
how the evidence on the record supported its findings, and how those findings supported its overall
determination.
5.108 Additionally, in several portions of its subm ission, Korea erroneously urges the Panel to
impose an evidentiary standard on an investigating authority not contemplated by the SCM
Agreement. Other than where expressly stated, the SCM Agreement does not require an investigating

253 Korea First Written Submission, paras. 253-257.
254 See Appellate Body Report, United States – Measures Affecting the Cross-Border Supply of
Gambling and Betting Services, WT/DS285/AB/R, adopted 20 April 2005, paras. 140-41.
256 See, e.g., Korea First Written Submission, paras. 43-57.
257 Appellate Body Report, United States – Countervailing Duty Investigation on Dynamic Random
Access Memory Semiconductors (DRAMS) from Korea, WT/DS296/AB/R, adopted 20 July 2005, para. 175.

authority to support a subsidy dete rmination with "positive evidence," and the Agreement contains no
requirement that evidence of entrustment or direction be "probative and compelling."
258
5.109 Thus, Korea's first submission rests on a number of incorrect characterizations regarding the
burden of proof, standard of review, and evidentiary standards to be applied in evaluating the claims
raised in this proceeding. The Panel should declin e Korea's invitation to make its case for it, based
upon a de novo review of the evidence and economic theori es not on the record in the investigation,
using evidentiary standards not contemplated by the SCM Agreement.
3. Rejection of Private Benchmarks
5.110 Turning to the JIA's benchmark analysis, the United States addressed Korea's arguments in
the United States' written submission. The United States would like to address the assertion by China
in its own third party submission that there is a "very high threshold" for rejecting as benchmarks
investments or loans made by private entiti es that were not entrusted or directed. 259 Contrary to
China's assertion, the SCM Agreement does not impose a special standard on investigating authorities
in selecting a benchmark. Therefore, consistent with SCM Agreement Article 12.2, the task for the
Panel is to evaluate whether a reasonable, objectiv e decisionmaker, looking at all the evidence on the
investigation record, could have concluded that the benchmark selected by the JIA was appropriate.
5.111 A number of factors may render a private entity's loan or investment an inappropriate
benchmark, and the text of Article 14(a) and (b ) does not impose a higher burden on an investigating
authority in making such a determination. For example, as the panel in EC – DRAMS noted, the
nature of a private entity's relationship with the r ecipient of the financial contribution as well as with
the government, and the particular characteristics of the private entity's investment or loan in relation
to the financial contribution at issue, may make it an inappropriate benchmark for purposes of an
investigating authority's analysis. 260 In such circumstances, an i nvestigating authority may properly
disregard investments or loans of tho se entities insofar as, consistent with SCM Agreement
Article 14(a) or (b), they do not reflect "the usua l investment practice ... of private investors in the
territory" or a "comparable commercial loan," resp ectively. Likewise, circumstances may exist in
which the government's financial contribution affect s the terms on which private entities invest in, or
lend to, a particular industry or company, such that private investments in, or loans to, the subsidy
recipient would not be appropriate benchmarks.
5.112 Furthermore, the United States disagrees with Ch ina's assertion that the threshold is "even
higher if certain private entities also participate in the same transactions that are alleged to be
subsidies."261 In fact, in such circumstan ces, the private loan or investment may be even less likely to
reflect "the usual investment practice ... of privat e investors" or a "comparable commercial loan,"
insofar as the terms on which the loan or inv estment was made may be influenced by the
government's financial contribution. Accordingly, an investigating authority may properly reject such
loans or investments as benchmarks.
5.113 Finally, China's reliance on the Appellate Body's findings in Softwood Lumber is misplaced.
As China concedes, the Appellate Bo dy in that case was analyzing the language of Article 14(d), not
Article 14(a) or (b). Furthermore, the Appellate Body acknowledged that private benchmarks may be
inappropriate if they are affected by extensive government involvement in the market 262, explaining

259 China Third Party Submission, section 2.1.
260 Panel Report, European Communities – Countervailing Measures on Dynamic Random Access
Memory Chips from Korea, WT/DS299/R, adopted 3 August 2005, para. 7.206 fn. 185.
261 China Third Party Submission, para. 15 (emphasis in original).
262 Appellate Body Report, United States - Final Countervailing Duty Determination With Respect to
Certain Softwood Lumber From Canada, WT/DS257/AB/R, adopted 17 February 2004, paras. 100-103.

that private market prices may be inappropria te as benchmarks if the extensive government
involvement in the market indirectly affects those pr ices. Similarly, if a government intervenes in the
market to support a particular industry or company, through grants, loans, or investments, this
government support could influence the decisions of private entities to invest in, or lend to, an
industry or company. In such circumstances, gr ants, loans, or investments by these entities may not
be appropriate benchmarks, even if the entities have not been entrusted or directed by the government.
4. The Chapeau of Article 14
5.114 With respect to Korea's assertion that Japan breached its obligation under the chapeau of
Article 14 to provide in its national legislation or regulations for any method used to calculate the
benefit, the United States does not offer a view on th e particular facts. However, the United States
agrees with the EC that, even if the Panel finds th at Japan breached this obligation, such a finding
does not necessarily mean that the counterva iling duty determination itself is invalid. 263 Nothing in
the text of the chapeau so provides, and Ko rea does not identify any obligation in the WTO
Agreements that requires such a result. If the Pane l finds that Japan acted inconsistently with the
chapeau, then – consistent with DSU Article 19.1 – any recommendation to Japan to bring its
measures into conformity with the Agreement shoul d leave it to Japan to decide precisely how it does
so.
5. Injury Determination
5.115 With respect to the JIA's injury determina tion, the United States disagrees with Korea's
contention that Articles 15.5 and 19.1 of the SCM Agreement require authorities to demonstrate a
causal link between the subsidy practice(s) at issu e and the material injury experienced by the
domestic industry.
5.116 With respect to the text of the pertinent provi sions, the subject of both the first sentence of
Article 15.5 and the third clause of Article 19.1 is the same: "the subsidized imports." Under each
provision, it is the "subsidized imports" that must be causing injury.
5.117 The first sentence of Article 15.5 further states that an authority must demonstrate that the
subsidized imports are causing injury "through the e ffects of subsidies." This phrase does not appear
in the text in isolation. Instead, its meaning is explained by footnote 47 of the SCM Agreement .
Footnote 47 indicates that the pertinent "effects of subsidies" are those set forth in Articles 15.2
and 15.4.
5.118 In turn, both Articles 15.2 and 15.4 of the SCM Agreement concern the "subsidized imports."
Neither provision requires an authority to make an independent assessment of the effects of the
subsidy itself. Rather, Article 15.2 requires the aut hority to consider "the volume of the subsidized
imports" and "the effects of subsidized imports on pr ices." Article 15.4 concerns examination of "the
impact of the subsidized imports on the domestic industry."
5.119 Consequently, footnote 47 to the SCM Agreement indicates that an authority properly
conducts the assessment of the "effects of subsidies" referenced in the first sentence of Article 15.5 by
examining the volume, price effects, and impact of the subsidized imports. Thus, the first sentence of
Article 15.5, along with its footnote, directs an authority to ascertain that the subsidized imports are
causing injury. It does not require the authority to conduct a separate or independent examination of
the effects of subsidy practices.

5.120 This interpretation of Article 15.5 finds support in the Atlantic Salmon GATT panel's
interpretation of virtually identical language in Article 6:4 of the Tokyo Round Subsidies Code.
264 It
is also consistent with numerous dispute panel a nd Appellate Body reports. Indeed, each of the two
previous panel reports addressing Korea's cha llenges to countervailing duty measures on DRAMs
considered injury caused by the subsidized imports to be the focus of Article 15.5.265
5.121 Finally, the Korea – Commercial Vessels panel report on which Korea relies does not purport
to address injury or causation standards in countervailing duty investigations. Instead, it addresses the
unrelated "serious prejudice" provisions of Article 6.3(c) of the SCM Agreement . The Panel's
conclusion in Commercial Vessels was dependent on the distinctive textual structure of Article 6.3 –
one that is not shared by Article 15.5. Indeed, in its submissions to the panel in Commercial Vessels,
Korea argued that the causation standards for "s erious prejudice" inquiries under Article 6 were
different from those for countervailing duty investiga tions under Article 15. Korea was correct at the
time in drawing a distinction between the provisions in Articles 6 and 15. The Panel should draw the
same distinction for purposes of this dispute.
VI. INTERIM REVIEW
6.1 On 16 April 2007, we submitted the Interim Repor t to the parties. Both parties submitted
written requests for the review of precise aspects of the Interim Report. Parties also submitted written
comments on the other party's comments. Neither pa rty requested an interim review meeting. We
have briefly outlined our reaction to the parties' comments below.
A. COMMENTS BY KOREA
6.2 In addressing Korea's comments, we note that Korea has sought to re-argue many of the
points that it made during its submissions. This is not necessarily the purpose of the interim review
mechanism set forth at Article 15.2 of the DSU. In particular, we do not consider that Article 15.2 of
the DSU requires us to provide a defence of our findings at the Interim Review stage.
6.3 Regarding our finding at para. 6.91 of the Inte rim Report (para. 7.91 of this Report), Korea
doubts our assessment of the JIA's use of the word "therefore". We have reviewed Korea's arguments,
but see no need to amend our findings. We remain of the view that the JIA's conclusion was based on
findings of fact, rather than abstract economic theory.
6.4 Regarding para. 6.275 of the Interim Report (p ara. 7.276 of this Report), Korea expresses
concern that the Interim Report appears to accept th e proposition that a benefit may be found solely
on evidence that the creditors failed to undertake a suffi cient analysis of the restructuring. We have
included note 475 to this Report in order to provide some clarification of our finding. We remain of
the view that evidence of reliance on non-commercia l considerations indicates terms more favourable
than those available from the market.
6.5 Regarding paras 6.288 to 6.289 of the Interim Report (paras 7.289 to 7.290 of this Report),
Korea claims that ther e is no basis in the SCM Agreement for applying "facts available" when
creditors that were never contacted do not provide in formation that they were never asked to submit.
Notes 484 and 485 to this Report make it clear that the JIA only applied facts available in respect of
"interested parties", and only treated Other Cred itors to which it sent questionnaires as "interested
parties". Accordingly, there is no factual basis fo r Korea's allegation that we found that the JIA was
entitled to use facts available in respect of Other Cr editors that did not provide information that they

264United States – Imposition of Countervailing Duties on Imports of Fresh and Chilled Atlantic
Salmon from Norway, SCM/153 (adopted 28 April 1994).
265 EC – DRAMS, paras. 7.401-7.402; US – DRAMS (Panel), para. 7.320.

were never asked to submit. We therefore see no need to change our findings in light of Korea's
comment.
6.6 Regarding para. 6.392 of the Interim Report (para. 7.393 of this Report), Korea asserts that an
investigating authority should not be allowed to base its decision on "facts available" whenever
needed information is lacking fro m the record, in light of the investigating authority's need to
complete its investigation. Korea asserts that such an approach in the present case led to Hynix being
"punished for the actions of third parties that it coul d not control". It is a practical reality that an
investigating authority must in all circumstances be able to complete its investigation on the basis of
facts, even if interested parties and third pa rties are non-responsive. However, this does not
necessarily mean that respondents will be "punish ed" as a result of the non-responsiveness of some
third party, since the investigating authority is simply completing its investigation on the basis of
facts. Korea has failed to demonstrate that Hynix was "punished" in the present case. In particular,
Korea failed to establish that the JIA made any a dverse inferences against Hynix. We therefore see
no need to amend our findings in light of Korea's comment.
6.7 Regarding paras 6.441 to 6.443 of the Interim Report (paras 7.442 to 7.444 of this Report),
Korea claims that the Pane l ignored the normal usage of the term "transfer of funds". Korea suggests
that we did so "out of a concern that a finding that extensions of loan maturities and debt-equity swaps
were not 'direct transfers of funds' would mean that those transactions could [not] be classified as
'financial contributions' under the SCM Agreement". This, however, was not a concern that motivated
our findings. Instead, we were concerned to interp ret the term "transfer of funds" in accordance with
the requirements of Article 3.2 of the DSU. We stand by that interpretation, and see no need to amend
our findings in light of Korea's comments.
6.8 Regarding our findings on Korea's Causation of Injury claim, Korea takes issue with our
treatment of (i) the relationship between Article 15.5 of the SCM Agreement and Article VI of the
GATT 1994, (ii) the relevance of the Article 6 serious prejudice causal standard, and (iii) the relevance
of Article 11.2. We considered these issues ca refully in reaching our interim findings, and see no
need to amend our findings in light of Korea's comments.
B. COMMENTS BY JAPAN
6.9 Japan made a number of comments regarding typo graphical and clerical errors contained in
our Interim Report. We are grateful for those comments, and have made the necessary corrections.
Japan also requested certa in changes to avoid suggestions that the Panel was implicitly criticizing
Japan, and to clarify the arguments made by Japan. We have modified certain of our findings in line
with these requests. In addition, Japan made certain substantive comments, to which we respond
below.
6.10 Regarding para. 6.166 of the Interim Report (p ara. 7.166 of this Report), Japan made a
number of comments regarding the Panel's findings on the JIA's treatment of the contractual
relationship between Deutsche Bank and Hynix. We have made a number of changes to clarify our
findings in this regard. In doing so, we stand by our conclusion that the JIA could not properly have
called into question the independence of the De utsche Bank Report on the basis of Deutsche Bank's
contractual relationship with Hynix.
6.11 Regarding paras 6.167 and 6.168 of the Interim Report (paras 7.167 and 7.168 of this Report),
Japan requested a number of changes regarding th e implications of the appointment of Morgan
Stanley Dean Witter Asia Ltd. as a joint financial adviser with Deutsche Bank. According to Japan,
the JIA found that Morgan Stanley disagreed with Deutsche Bank's conclusions, and in any event only
played a supplementary role in the process. Japan also asserts that Korea did not make any arguments
regarding the role of Morgan Stanley in the review of the December 2002 restructuring. First, we do
not consider that the scope of our findings shoul d necessarily be limited to the arguments of the

parties. Provided we remain within our terms of reference, we consider that we have discretion to
apply our own legal reasoning to the matter before us. Second, the facts that Morgan Stanley may
have disagreed with Deutsche Bank, or may only have played a supplementary role in the review of
the restructuring, do not negate our view that th e presence of Morgan Stanley would have limited
Deutsche Bank's ability to favour the interests of Hyni x over those of its creditors. We therefore see
no need to make any of the changes requested by Japan.
6.12 Regarding note 399 to the Interim Report (note 40 1 to this Report), Japan submits that there
was sufficient evidence on the JIA's record indicatin g that the "normalization plan" was actually the
Deutsche Bank Report. However, none of the eviden ce referred to by Japan actually refers to the
Deutsche Bank Report as the "normalization plan". Furthermore, our findings proceed on the basis
that the Deutsche Bank Report and "normalization plan" are one and the same thing. There is
therefore no need to make any change to our findings on the basis of Japan's comment.
6.13 Regarding para. 6.209 and note 431 to the Inte rim Report (para. 7.215 and note 435 to this
Report), Japan submits that there is no evidence to suggest that the creditors actually obtained the
relevant legal opinion. We have deleted the last sentence of para. 6.209 of the Interim Report
pursuant to Japan's request. However, we do not consider it necessary to delete note 437 of this
Report, as Japan's Interim Review arguments still fa il to establish that the JIA found "that the legal
opinion had not been made available to the creditors".
6.14 Regarding paras 6.214 and 6.218 of the Interim Report (paras 7.220 and 7.224 of this Report),
Japan asks the Panel to indicate whether it agrees w ith Japan that a particular calculation error was
made in the Deutsche Bank Report. We have alread y concluded that the JIA failed to find that the
Deutsche Bank Report contained the relevant calculati on error. There is nothing in Japan's Interim
Review comments that leads us to change this conclusion. Absent any appropriate finding by the JIA,
there is no basis for us to conclude that the alleged error existed.
6.15 Regarding paras 6.233 and 6.238 of the Interim Report (paras 7.239 and 7.244 of this Report),
Japan complains that the Panel failed to address the substance of a particular error that the JIA did
find to exist. We have concluded that the JIA did not have a proper basis for finding that the
Deutsche Bank Report contained the relevant calculation error, in the sense that it improperly found
that Hynix had acknowledged the existence of such e rror. There is nothing in Japan's Interim Review
comments to lead us to change this conclusion.
6.16 Regarding paras 6.236 and 6.237 of the Interim Report (paras 7.242 and 7.243 of this Report),
Japan asserts that the Panel incorrectly attributed the JIA's summary of arguments made by Hynix to
the JIA. We have amended the text to clarif y that the phrase we quote is the JIA's summary of
Hynix's argument. However, since the Final Determination sets forth the JIA's summary of Hynix's
argument, technically it is correct to attribute these words to the JIA.
6.17 Japan takes issue with the Panel's treatment, in the Interim Report, of an alleged admission by
NACF that the Government of Korea intervened in the preparation of the Deutsche Bank Report. We
have made a number of changes to our findings rega rding this matter. However, we remain of the
view that the alleged admission by NACF does not impugn the independence of Deutsche Bank or the
commercial reliability of the Deutsche Bank Report.
6.18 Regarding paras 6.250, 6.290 and 6.297 of th e Interim Report (paras 7.251, 7.291 and 7.298
of this Report), Japan objects to the Panel's refere nce to "direct" and "indirect" evidence. Japan
suggests that the term "direct" evidence might be inconsistent with the Panel's observation that the JIA
based its finding of entrustment or direction on circumstantial (and therefore "indirect") evidence. We
have amended our findings accordingly.

6.19 Regarding note 489 to para. 6.292 of the Interim Report ( see para. 7.292 of this Report),
Japan objects to a finding by the Panel regarding the JIA's use of the term "bankruptcy". Since this
finding is not essential for our principal findings, we have deleted the relevant footnote.
6.20 Regarding note 495 to para. 6.295 of the Inte rim Report (note 494 to para. 7.296 of this
Report), Japan objects to the Panel's finding that the JIA failed to make any findings on the existence
or role of "contemporaneous" subsidies. We sta nd by our finding that Japan's arguments regarding
this matter constitute ex post rationalization. We note that Japan has only referred to an ex post
submission (i.e., its response to Question 37 from the Panel) in support of its position ( see para. 55 of
Japan's comments on the Interim Report). Japan s till fails to identify where this issue was addressed
by the JIA. In light of these considerations, we see no need to change our findings in this regard.
6.21 Regarding para. 6.312 of the Interim Report (par a. 7.313 of this Report), Japan submits that
the Panel has made findings on a matter not presented to the Panel by Korea. We disagree. First, we
note that Japan does not assert that this matter falls ou tside our terms of reference. Second, we do not
consider that the scope of our findings should n ecessarily be limited by the arguments developed by
the parties, since we are entitled to apply our own le gal reasoning to the matter before us. Third, we
consider that Korea did in fact make the argumen t that we address at para. 6.312 of the Interim
Report, for Korea argues (at para. 234 of its First Written Submission) that "[a] proper analysis of
these transactions requires consideration of all parts of the exchanges — not only the value of
whatever the recipient received, but also the value of whatever the reci pient gave in return." In doing
so, Korea cited para. 7.212 of the report of the panel in EC – Countervailing Measures on DRAM
Chips. Our finding, in turn, refers to para. 7.213 of th at panel's report, which is an obvious extension
of the reasoning (referred to by Korea) set forth in para. 7.212. For these reasons, we see no need to
amend our findings in line with Japan's comment.
6.22 Regarding para. 6.313 of the Interim Report (par a. 7.314 of this Report), Japan asks the Panel
to make a factual finding that certain interested part ies refused to submit particular information to the
JIA. Since Japan has failed to identify any basis in the JIA's Final Determination for such a finding of
fact, we decline Japan's request.
6.23 Regarding note 543 to para. 6.348 of the Inte rim Report (note 542 to para. 7.349 of this
Report), Japan claims that the Panel erred in finding that loans and loan maturity extensions
constitute non-recurring subsidies. Japan also subm its that the scope of the Panel's findings exceed
the scope of Korea's claim, which was limited to those non-recurring subsidies whose benefit was
allocated by the JIA from 2001 to 2005. We stand by our statement that "one-off loans are more
properly treated as non-recurring subsidies". However, we note that our findings are based in large
part on the JIA's allocation of benefit from the peri od 2001 to 2005. We have therefore limited our
findings to those non-recurring subsidies whose benefit was allocated by the JIA in this way.
VII. FINDINGS
7.1 We shall begin by evaluating Korea's claim regarding the JIA's determination of entrustment
or direction, after we have addressed the general issues of standard of review, burden of proof, and the
rules of treaty interpretation. Before turning to th ose general issues, though, we must first consider
two requests by Japan for preliminary rulings.
A. REQUESTS FOR PRELIMINARY RULINGS
7.2 On 5 September 2006, Japan filed a request for a preliminary ruling pursuant to DSU
Article 6.2, which provides:
The request for the establishment of a panel shall be made in writing. It shall indicate
whether consultations were held, identify the specific measures at issue and provide a

brief summary of the legal basis of the complaint sufficient to present the problem
clearly. In case the applicant requests the establishment of a panel with other than
standard terms of reference, the written re quest shall include the proposed text of
special terms of reference.
7.3 Japan's 5 September request is based on the sec ond sentence of that provision. Japan requests
a preliminary ruling that items 9, 10 and 15 of Korea's Request for the Establishment of a Panel
266
(hereinafter "Request for Establishment") failed to "provide a brief summary of the legal basis of the
complaint sufficient to present the problem clearly."
7.4 Japan included an additional request for preliminary rulings in its First Written Submission.
267
The Panel addressed a number of written 268 and oral questions to Japan on this subject. In light of
Japan's replies to these questions, we understand Japan to argue that:
• sub-paragraphs (b), (c) and (e) of para. 3.1 supra fall outside the Panel's terms of reference, in
so far as those claims allege violations of Articles 10, 11, 12, 14, 15, 22 and 32.1 of the SCM
Agreement, and Articles VI:3 and X:3 of the GATT 1994, because item 15 of the Request for
Establishment, in which those provisions are enumerated, did not cover the issues identified
in sub-paragraphs (b), (c) and (e); and
• items 3, 4, 5, 6, 7, 9, 12, 13, and 15 of Korea's Request for Establishment are inadmissible
because those items did not "provide a brief su mmary of the legal basis of the complaint
sufficient to present the problem clearly," contrary to Article 6.2 of the DSU.
7.5 Before addressing each of Japan's requests in de tail, we must first resolve a basic difference
between the parties regarding the interpretation a nd application of the second sentence of Article 6.2
of the DSU. In particular, we must decide whet her consistency with the second sentence of
Article 6.2 may be assessed exclusively on the basis of the text of the Request for Establishment, as
alleged by Japan, or whether cons istency must be determined on the basis of whether or not Japan
suffered prejudice during the course of the Panel proceed ings as a result of the lack of specificity in
the Request for Establishment, as argued by Korea.
7.6 In calling for a prejudice-based approach, Korea relies heavily on the ruling of the Appellate
Body in Korea – Dairy. In that case, the Appellate Body applied DSU Article 6.2 taking into account
"whether the ability of the respondent to defend itsel f was prejudiced, given th e actual course of the
panel proceedings, by the fact that the panel request simply listed the provisions claimed to have been
violated."269 Korea interprets the Appellate Body to mean that DSU Article 6.2 must always be
applied at the end of the panel proceedings, in light of whether or not the respondent actually suffers
prejudice during the course of the proceedings.
7.7 However, we note that the Appellate Body also ruled in another case, US – Carbon Steel, that:
The requirements of precision in the request for the establishment of a panel flow
from the two essential purposes of the terms of reference. First, the terms of
reference define the scope of the dispute. Secondly, the terms of reference, and the
request for the establishment of a panel on which they are based, serve the due
process objective of notifying the parties and third parties of the nature of a
complainant's case.
 When faced with an issue relating to the scope of its terms of
reference, a panel must scrutinize carefully the request for establishment of a

266 Document WT/DS336/5, attached at Annex A-1.
267 See Japan's First Written Submission, para. 23.
268 See Questions 1, 2 and 3 from the Panel.
269 Korea – Dairy, Appellate Body Report, para. 127.

panel "to ensure its compliance with both the letter and the spirit of Article 6.2 of the
DSU."
270 (footnote omitted, bold emphasis supplied)
7.8 The Appellate Body's ruling in US – Carbon Steel would seem to indicate that the sufficiency
of the request, in terms of the due process objective of DSU Article 6.2, should be assessed purely on
the basis of the text of the request. This appr oach was subsequently applied by the panel in Canada –
Wheat Exports and Grain Imports , which found - during its analysis of the US Request for
Establishment relatively early in the panel process - that:
the summary of the legal basis for the Un ited States' claims under Article 2 of the
TRIMs Agreement presents the problem raised with sufficient clarity, such that
Canada is able to know the case it has to an swer and begin preparing its defence. We
also think that the summary provided is sufficient to inform the third parties about the
legal basis of the complaint and to give them an opportunity effectively to respond to
the United States' complaint. We therefor e do not consider that the summary of the
legal basis for the claims under Article 2 of the TRIMs Agreement fails to comply
with the requirements of Article 6.2.
271
7.9 We agree with the approach adopted by the Appellate Body in US – Carbon Steel , as
subsequently applied by the panel in Canada – Wheat Exports and Grain Imports . In our view, the
due process objective of the second sentence of Article 6.2 of the DSU may only properly be upheld if
panels apply that provision on the basis of the text of the Request for Establishment. We believe that
consideration of an actual prejudice suffered dur ing the panel process undermines that due process
objective, since it allows a Member to correct any lack of clarity in its request during the panel
proceedings, even though the request may not have b een sufficiently clear for the respondent to begin
preparing its defence at the beginning of the panel process.
7.10 Accordingly, we shall address Japan's requests for preliminary rulings on the basis of the
totality of the text of Korea's Request for Estab lishment, by establishing whether or not the problem
was presented with sufficient clarity such that Japan was able to know the case it had to answer and
begin preparing its defence.
1. Japan's 5 September Request
7.11 Japan's 5 September request concerns items 9, 10 and 15 of Korea's Request for
Establishment.
(a) Item 9
7.12 Item 9 of Korea's Request for Establishment alleges a violation of:
Articles 14 and 19.4 of the SCM Agreement and Article VI:3 of the GATT 1994
because, inter alia, Japan failed to properly measure the benefit in accordance with
the principles of the SCM Agreement, which resulted in countervailing duties levied
in excess of the amount allowed under the SCM Agreement and the GATT 1994.
7.13 According to Japan, item 9 fails to comply with Korea's obligations under DSU Article 6.2 for
two reasons. First, Article 14 establishes "not one single, distinct obligation, but rather multiple
obligations,"272 and "[i]n such a situation, the listing of artic les of an agreement, in and of itself, may

270 US – Carbon Steel, para. 126.
271 Canada – Wheat Exports and Grain Imports, para. 6.10, sub-paragraph 51.
 272 Appellate Body Report, Korea – Dairy, para. 124.

fall short of the standard of Article 6.2."
273 Second, Japan asserts that Korea provides no indication of
the "principles of the SCM Agreement" Japan is alleged to have violated.
7.14 Korea submits that item 9 is not a "mere listing" of articles of treaties. Instead, it contains a
narrative description of the "problem". Korea also notes that Article 14 is one of the few provisions
of the SCM Agreement that does not contain separate paragraphs — there is no Article 14.1 or 14.2
or 14.3. In addition, Article 19.4 (the other prov ision cited by this claim) contains only a single
obligation (limiting the amount of countervailing duti es imposed to the amount of the subsidy found
to exist). Korea asserts that, when Articles 14 and 19.4 of the SCM Agreement are read together and
in the context of Article VI:3 of the GATT 1994 and of Korea's other claims under Article 14, the
meaning of item 9 should be clear: Korea is obj ecting to the imposition of duties in excess of the
amount of the benefit that may permissibly be cal culated under the provisions of Article 14 (and, in
particular, the provisions of Article 14 addressing the calculation of subsidy benefits).
7.15 We recall that, although DSU Article 6.2 requires that requests for establishment must be
"sufficient to present the problem clearly", they need only provide a "brief summary" of the legal
basis of the complaint. We consider that item 9 satisfies that standard, since it requires very little
effort on the part of the reader
274 to identify the "problem" described in all the elements of that item:
it is that Japan violated Article 14 because it failed to calculate the amount of benefit in conformity
with the guidelines set forth in that provision, a nd thereby collected countervailing duties in excess of
the amount of the subsidy found to exist, or th e amount equal to the estimated bounty or subsidy
determined to have been granted, contrary to Article 19.4 of the SCM Agreement and Article VI:3 of
the GATT 1994. Item 9 therefore presented the problem rais ed with sufficient clarity, such that Japan
was able to know the case it had to answer and begin preparing its defence.
(b) Item 10
7.16 Item 10 of Korea's Request for Establishment alleges a violation of:
Article 15 of the SCM Agreement because, inter alia , Japan improperly found
material injury caused by the allegedly s ubsidized imports without proper evidentiary
or legal foundations.
7.17 Korea also made a claim regarding Article 15.5 of the SCM Agreement in item 11 of its
Request for Establishment. Korea confirmed at the Panel's first substantive meeting with the parties
that it was not pursuing any Article 15 claim other than that covered by item 11. 275 Since Korea has
not pursued any other claim under Article 15, there is no need for us to address Japan's request for a
preliminary ruling regarding item 10 of Korea's Request for Establishment.
(c) Item 15
7.18 Item 15 of Korea's Request for Establishment alleges a violation of:
Articles 10, 11, 12, 14, 15, 22, and 32.1 of the SCM Agreement and Articles VI:3
and X:3 of the GATT 1994 because Japan, inter alia, failed to conduct a thorough
and complete investigation, and failed to conduct its investigation and make
determinations in accordance with funda mental substantive and procedural
requirements.

 273 Ibid.
274 We consider that a complaining party is entitled to expect that the respondent Member reading the
Request for Establishment is familiar with WTO issues and parlance.
275 See Korea's oral statement at the first substantive meeting, para. 97.

7.19 Japan asserts that Korea does not identify for which of the multiple obligations encompassed
in Articles 10, 11, 12, 14, 15, 22, and 32.1 of the SCM Agreement, or the very general obligations
under Articles VI:3 and X:3 of the GATT 1994, it is alleging an inconsistency. Japan submits that
there is no indication as to which aspects of these nine articles Japan allegedly breached in terms of its
failure "to conduct a thorough and complete investig ation" or "make determinations in accordance
with fundamental substantive and procedural re quirements." Japan submits that, absent greater
specificity, Korea could present innumerable claims while the Panel's terms of reference would
remain vague and undefined, and Japan and third parties would be denied their fundamental due
process rights to defend their interests.
7.20 Korea submits that item 15 is not a "mere listing" of articles of treaties. Instead, it contains a
narrative description of the "problem" — which is that "Japan failed to conduct a thorough and
complete investigation, and failed to conduct its investigation and make determinations in accordance
with fundamental substantive and procedural requirements."
7.21 Item 15 cites nine separate provisions of the SCM Agreement and GATT 1994 . These
provisions address an extremely broad variety of issues, ranging from the sufficiency of an application
for countervailing relief (Article 11.2) to the conduct of on-site verifi cations (Article 12.6). In the
context of such a multitude of diverse obligations, it is simply not possible to tell from item 15, even
when read in conjunction with the remainder of Korea's Request for Establishment, what specific
"problem" Korea is addressing under item 15. Acco rdingly, we find that item 15 did not meet the
minimum requirements of DSU Article 6.2, since the language was not sufficiently clear for Japan to
know the case it had to answer and begin preparing its defence.
2. Japan's Additional Request
7.22 We recall that the first part of Japan's a dditional request concerns the admissibility of
sub-paragraphs (b), (c ) and (e) of para. 3.1 supra, in so far as those claims allege violations of
Articles 10, 11, 12, 14, 15, 22 and 32.1 of the SCM Agreement, and Articles VI:3 and X:3 of the
GATT 1994 , by virtue of item 15 of the Request for Es tablishment. We have already ruled that
item 15 of Korea's Request for Establishment does not meet the requirements of the second sentence
of Article 6.2 of the DSU. Any claims based on item 15 therefore fall outside our terms of reference.
Accordingly, we rule that any claims in s ub-paragraphs (b), (c) and (e) of para. 3.1 supra,
276 in so far
as they are based on item 15 of Korea's Request for Establishment, are inadmissible.
7.23 The second part of Japan's additional request concerns the consistency of items 3, 4, 5, 6, 7, 9,
12, 13, and 15 of Korea's Request for Establishmen t with the second sentence of Article 6.2 of the
DSU. For each item, Japan asserts that Korea faile d to present the problem clearly because "Korea
presented the 'mere listing of the treaty articles' as th e legal basis of its claims, despite the fact that
these articles provide[] [for] multiple obligations."277 Korea provided detailed comments in respect of
Japan's arguments concerning items 3, 4 and 9. Fo r the remainder, Korea relied on its argument that
conformity with Article 6.2 of the DSU should be assessed in light of any prejudice suffered by the
respondent during the Panel proceedings. 278 We shall address each item in turn, noting that we have
already examined the conformity of items 9, 10 a nd 15 with the second sentence of Article 6.2 of the
DSU in the context of Japan's 5 September request.
(a) Items 3, 4 and 9
7.24 Items 3, 4 and 9 of Korea's Request for Establishment allege violations of:

276 Sub-paragraphs (b), (c) and (e) concern entrustment or direction, benefit, and interested parties
respectively.
277 See Japan's reply to Question 3 from the Panel.
278 See Korea's comments on Japan's replies to Questions 1, 2 and 3 from the Panel.

3. Articles 1.1 and 14 of the SCM Agreement because, inter alia, Japan failed to
demonstrate that a benefit was conferre d upon the respondent Hynix Semiconductor,
Inc., ("Hynix"), given available market benchmarks and the circumstances of
financial restructuring.
4. Articles 1.1 and 14 of the SCM Agreement because, inter alia, the analyses of
the "commercial rationality" of loans and ot her investments in Hynix, and the other
analyses related to the determination of the financial contribution and benefit to
Hynix, that were undertaken by Japan are in consistent with Japan's obligations under
the SCM Agreement.
9. Articles 14 and 19.4 of the SCM Agreement and Article VI:3 of the GATT
1994 because, inter alia, Japan failed to properly measu re the benefit in accordance
with the principles of the SCM Agreement , which resulted in countervailing duties
levied in excess of the amount allowed under the SCM Agreement and the
GATT 1994.
7.25 Korea asserts that, taken together, items 3, 4 and 9 reflect a clear and concisely expressed
position that the JIA's determination of bene fit failed to follow the provisions of the SCM Agreement
concerning the determination of benefit, a nd therefore led to the improper imposition of
countervailing duties.
7.26 In our view, whether taken together or individua lly, the above items meet the requirements of
the second sentence of Article 6.2 of the DSU. Items 3 and 4 concern Articles 1.1 and 14 of the
SCM Agreement. Although Article 1.1 of the SCM Agreement contains a number of sub-paragraphs,
it is evident – in the context of a claim expressly re ferring to benefit – that the relevant provision is
Article 1.1(b). That is the only provision in Article 1.1 dealing with benefit.
7.27 Since it is now well established that the existence and amount of benefit are determined by
reference to the market, Korea's reliance on Article 14 is also self-explanatory. Korea's claim under
the chapeau of Article 14 is addressed at item 8 of the Re quest for Establishment. Accordingly, these
other claims necessarily concern the remainder of Article 14, i.e., the guidelines. We do not consider
that a Member need necessarily specify precisely wh ich of the four guidelines it seeks to rely on in its
Request for Establishment (especially in a case wher e certain of the measures at issue, such as debt-
to-equity swaps, are not expressly mentioned in those guidelines).
7.28 We have already ruled on the admissibility of ite m 9. We are of the view that the claim being
made under Article 19.4 of the SCM Agreement and Article VI:3 of the GATT 1994 is readily
apparent from the text of Korea's Request for Estab lishment, since item 9 refers directly to a matter
expressly covered by those provisions, namely th e alleged imposition of countervailing duties in
excess of the amount of subsidy found to exist, or determined to have been granted.
7.29 In short, we find that items 3, 4 and 9 of Ko rea's Request for Establishment met the minimum
requirements of DSU Article 6.2, since the language was suffi ciently clear for Japan to know the case
it had to answer and begin preparing its defence.
(b) Item 5
7.30 Item 5 of Korea's Request for Establishment alleges a violation of:
Article 2 of the SCM Agreement because, inter alia, Japan did not properly establish
that all of the alleged subsidies were specific to Hynix on the basis of positive
evidence.

7.31 Japan asserts that Korea failed to specify which sub-paragraph of Article 2 it was relying on.
We acknowledge that Article 2 contains a number of sub-paragraphs, dealing with different types of
specificity. However, we also note that the JIA failed to indicate whether it had made a finding of de
facto or de jure specificity.279 In these circumstances, it would be wholly unreasonable to expect that
Korea could specify the precise sub-paragraph of Article 2 at issue in this claim. In the context of the
JIA's determination of specificity, the language of item 5 was sufficiently clear for Japan to know the
case it had to answer and begin preparing its defe nce. We therefore find that item 5 of Korea's
Request for Establishment met the minimum requirements of DSU Article 6.2.
(c) Item 6
7.32 Item 6 of Korea's Request for Establishment alleges a violation of:
Articles 1 and 2 of the SCM Agreement because, inter alia , Japan imposed an
improper burden of proof on Hynix and Korea; reached conclusions without
adequate evidentiary basis, and thereby fa iled to base its decisions on affirmative,
objective, and verifiable evidence.
7.33 Read in the context of the five preceding items , we consider that the reader could readily
discern that item 6 concerns the JIA's treatment of evidence in respect of its determinations of
entrustment or direction, financial contribution, be nefit and specificity. Accordingly, we find that
item 6 of Korea's Request for Establishment met the minimum requirements of DSU Article 6.2, since
the language was sufficiently clear for Japan to know the case it had to answer and begin preparing its
defence.
(d) Item 7
7.34 Item 7 of Korea's Request for Establishment alleges a violation of:
Article 12 of the SCM Agreement because, inter alia , Japan improperly treated
entities that had no interest in the inves tigation as "interested parties," improperly
applied "facts available" instead of cons idering the information on the record, and
improperly made adverse inferences against the interests of Hynix due to allegedly
inadequate cooperation by other interested parties or by other entities that were not
under Hynix's control and that were not obligated to participate in the investigation.
7.35 Although item 7 does not state expressly which su b-paragraphs of Article 12 are concerned
by this claim, we consider that the description of the problem is sufficiently clear for a reader to
understand that the claim concerns sub-paragraphs 7 and 9 of Article 12, since those are the
provisions concerning the problem described in item 7, namely the use of facts available and the
definition of interested parties. Accordingly, we find that item 7 of Korea's Request for Establishment
met the minimum requirements of DSU Article 6.2, since the language was sufficiently clear for Japan
to know the case it had to answer and begin preparing its defence.
(e) Item 12
7.36 Item 12 of Korea's Request for Establishment alleges a violation of:
Articles 10 and 32.1 of the SCM Agreement because, inter alia , the countervailing
duties imposed by Japan against DRAMS originating in Korea were not in

279 For this reason, the Panel addressed Question 48 to Japan, asking whether the JIA had found de
facto or de jure specificity. (Japan replied that the JIA had found de jure specificity.)

accordance with the relevant provisions of the SCM Agreement or the relevant
provisions of GATT 1994.
7.37 Item 12 therefore concerns Articles 10 and 32 of the SCM Agreement. Article 10 does not
contain any sub-paragraphs, and Korea has specifica lly identified the first sub-paragraph of Article
32. Given the text of these two provisions, and the la nguage of item 12, we consider that the problem
covered by item 12 is readily apparent to the reader . It is that Japan alle gedly imposed countervailing
duties contrary to the provisions of the SCM Agreement and the GATT 1994 , in violation of the
express terms of Articles 10 and 32.1. Accordingly, we find that item 12 of Korea's Request for
Establishment met the minimum requirements of DSU Article 6.2, since the language was sufficiently
clear for Japan to know the case it had to answer and begin preparing its defence.
(f) Item 13
7.38 Item 13 of Korea's Request for Establishment alleges a violation of:
Articles 10, 14, 19, and 21 of the SCM Agreement because, inter alia, Japan imposed
and maintained countervailing duties w ithout determining whether a benefit
continued to exist following changes in the ownership of Hynix.
7.39 Item 13 refers to four provisions of the SCM Agreement. We believe that, in the context of
items 3 and 4, a reference to Article 14 combined w ith a reference to the determination of benefit met
the requirements of Article 6.2 of the DSU, given the relevance of the Article 14 guidelines for
determining the existence of benefit. Furthermor e, although Articles 19 and 21 contain multiple sub-
provisions, the reference to the continued existence of benefit in conjunction wi th references to those
provisions suggests strongly that Korea's claim is likely to be based on Articles 19.4 and 21.1 in
particular. In addition, since Article 10 is con cerned with the imposition of countervailing duties in
violation of the provisions of the SCM Agreement and GATT 1994, a reference to Article 10 in the
context of any claim against a determination leading to the imposition of countervailing duties would
make sense to the reader. For these reasons , we find that item 13 of Korea's Request for
Establishment met the minimum requirements of DSU Article 6.2, since the language was sufficiently
clear for Japan to know the case it had to answer and begin preparing its defence.
3. Conclusion
7.40 For the above reasons, we uphold Japan's request that item 15 of Korea's Request for
Establishment failed to meet the requirements of the second sentence of Article 6.2 of the DSU.
Claims made under that item are, therefore, inadmissi ble. We reject the remainder of Japan's requests
for preliminary rulings.
 280
B. GENERAL ISSUES
1. Standard of Review
7.41 Article 11 of the DSU sets out the applicable standard of review in proceedings under the
SCM Agreement and the GATT 1994. Article 11 of the DSU states, in relevant part, that:

280 Accordingly, we find that the clai ms set out in sub-paragraphs (a), (d), (e), (f), (g), (h) and (i) of
para. 3.1 above fall within our terms of reference. The claims set forth at sub-paragraphs (b) and (c) fall outside
our terms of reference, insofar as they concern Articles 10, 11, 12 and 22 of the SCM Agreement , and
Article X:3 of the GATT 1994.

[A] panel should make an objective assessment of the matter before it, including an
objective assessment of the facts of the cas e and the applicability of and conformity
with the relevant covered agreements... (emphasis added)
7.42 In US – Countervailing Duty Investigation on DRAMS , the Appellate Body offered the
following guidance regarding the application of Article 11 of the DSU in the context of reviewing an
investigating authority's subsidy determination:
[W]e are of the view that the "objective assessment" to be made by a panel reviewing
an investigating authority's subsidy determination will be informed by an examination
of whether the agency provided a reasoned and adequate explanation as to: (i) how
the evidence on the record supported its factual findings; and (ii) how those factual
findings supported the overall subsidy dete rmination. Such explanation should be
discernible from the published determination itself. The explanation provided by the
investigating authority—with respect to its factual findings as well as its ultimate
subsidy determination—should also address alternative explanations that could
reasonably be drawn from the evidence, as we ll as the reasons why the agency chose
to discount such alternatives in coming to its conclusions.
A panel may not reject an agency's conclusions simply because the panel would have
arrived at a different outcome if it were ma king the determination itself. In addition,
in the absence of an allegation that the agen cy failed to investigate sufficiently or to
collect certain information, a panel must limit its examination to the evidence that
was before the agency during the course of the investigation, and must take into
account all such evidence submitted by the parti es to the dispute. In other words, a
panel may not conduct a de novo review of the evidence or substitute its judgement
for that of the investigating authority. A failure to apply the proper standard of
review constitutes legal error under Article 11 of the DSU.
These general principles reflect the fact that a panel examining a subsidy
determination should bear in mind its role as reviewer of agency action, rather than as
initial trier of fact . Thus, a panel examining the evidentiary basis for a subsidy
determination should, on the basis of the r ecord evidence before the panel, inquire
whether the evidence and explanation relie d on by the investigating authority
reasonably supports its conclusions. ...
281 (footnotes omitted)
7.43 We are, therefore, conscious of the fact that it is not our role to perform a de novo review
of the evidence which was before the JIA at the time it made its determination. We will examine
whether on the basis of the record before it, a reasonable and objective investigating authority
could have reached the conclusions that the JIA re ached. Our task is first to understand what the
JIA decided and how it came to those decisions. Our examination of those decisions
will be
informed by whether the JIA provided a reasoned and adequate explanation as to: (i) how the
evidence on the record supported its factual findings ; and (ii) how those factual findings supported
the overall subsidy determination. At the same time, we believe that our examination of the JIA's
conclusions must be critical and searching, and that we would not be fulfilling our function if we were
to simply defer to the conclusions of the JIA.282
2. Burden of Proof
7.44 We recall the general principles applicable to burden of proof in WTO dispute settlement,
which require that a party claiming a violation of a provision of a covered agreement by another

281 Appellate Body Report, US – Countervailing Duty Investigation on DRAMS, paras. 186-188.
282 Appellate Body Report, US – Softwood Lumber VI (Article 21.5 – Canada), para. 93.

Member must assert and prove its claim.
283 In this dispute, Korea, which has claimed that Japan acted
inconsistently with the SCM Agreement and the GATT 1994, thus bears the burden of demonstrating
that Japan acted inconsistently with the relevant pr ovisions of those covered agreements. In addition,
it is generally for each party asserting a fact to provide proof thereof. 284 We note in addition that a
prima facie case is one which, in the absence of effectiv e refutation by the other party, requires a
panel, as a matter of law, to rule in favour of the party presenting the prima facie case.
3. Treaty Interpretation
7.45 Article 3.2 of the DSU directs panels to clarify the existing provisions of the covered
agreements "in accordance with customary rules of in terpretation of public international law". It is
well settled in WTO case law that the principles codified in Articles 31, 32 and 33 of the Vienna
Convention are such customary rules. These provisions read as follows:
Article 31: General rule of interpretation

1. A treaty shall be interpreted in goo d faith in accordance with the ordinary
meaning to be given to the terms of the trea ty in their context and in the light of its
object and purpose.

2. The context for the purpose of the interpretation of a treaty shall comprise, in
addition to the text, including its preamble and annexes:

(a) any agreement relating to the tr eaty which was made between all the
parties in connection with the conclusion of the treaty;
(b) any instrument which was made by one or more parties in connection
with the conclusion of the treaty and accepted by the other parties as an
instrument related to the treaty.

3. There shall be taken into account, together with the context:

(a) any subsequent agreement between the parties regarding the
interpretation of the treaty or the application of its provisions;
(b) any subsequent practice in the application of the treaty which
establishes the agreement of the parties regarding its interpretation;
(c) any relevant rules of internati onal law applicable in the relations
between the parties.

4. A special meaning shall be given to a term if it is established that the parties
so intended.

Article 32: Supplementary means of interpretation

Recourse may be had to supplementary me ans of interpretation, including the
preparatory work of the treaty and the circumstances of its conclusion, in order to
confirm the meaning resulting from the application of article 31, or to determine the
meaning when the interpretation according to article 31:

(a) leaves the meaning ambiguous or obscure; or
(b) leads to a result which is ma nifestly absurd or unreasonable.

283 Appellate Body Report, US – Wool Shirts and Blouses, p. 16.
284 Ibid.

Article 33: Interpretation of treaties authenticated in two or more languages

1. When a treaty has been authenticated in two or more languages, the text is
equally authoritative in each language, unless the treaty provides or the parties agree
that, in case of divergence, a particular text shall prevail.

2. A version of the treaty in a language other than one of those in which the text
was authenticated shall be considered an au thentic text only if the treaty so provides
or the parties so agree.

3. The terms of the treaty are presumed to have the same meaning in each
authentic text.

4. Except where a particular text preva ils in accordance with paragraph 1, when
a comparison of the authentic texts discloses a difference of meaning which the
application of articles 31 and 32 does not remove, the meaning which best reconciles
the texts, having regard to the object and purpose of the treaty, shall be adopted.

7.46 We shall apply these principles in interpreti ng the relevant provisions of the covered
agreements.
C. A
LLEGED REVERSAL OF THE BURDEN OF PROOF
7.47 Korea claims that the Japan acted inconsistently with Articles 1 and 2 of the SCM Agreement,
on the basis that the JIA reversed the burden of proof in the countervailing duty proceeding by basing
its subsidy determination on the absence of evidence disproving the existence of subsidies. Japan
submits that the Panel should reject Korea's claim and argument.
7.48 This claim is concerned with the treatment of evidence by the JIA. Since we consider Korea's
arguments regarding the treatment of evidence as part of our broader analysis of Korea's substantive
claims under Articles 1 and 2 of the SCM Agreement, we see no need to rule on this claim in the
abstract.
D. T
HE JIA'S DETERMINATION OF ENTRUSTMENT OR DIRECTION OF CERTAIN PRIVATE BODIES
1. Introduction
7.49 Hynix's creditors comprised both public and private bodies. 285 Ordinarily, measures taken by
private bodies may not be treated as subsidies. This is because Article 1.1(a)(1) of the
SCM Agreement defines a "subsidy" as a "financial contribution" that confers a "benefit" and, in
general, only government, or public body, actions may constitute "finan cial contributions". Thus, if
the government or a public body carries out one of the functions illustrated in subparagraphs (i) to
(iii), then such action constitutes a financial contri bution in the sense of Article 1.1(a)(1) of the
SCM Agreement. If a private body undertakes the same action, there is generally no financial
contribution in the sense of Article 1.1(a)(1) of the SCM Agreement. However, Article 1.1(a)(1)(iv)
of the SCM Agreement provides that measures taken by private bodies may be treated as "financial
contributions" if such measures are taken pursuant to government entrustment or direction. Thus, if it
were established that a private body was entrusted or directed by the government to carry out one of
the functions illustrated in subpara graphs (i) to (iii), that priv ate body action would constitute a
financial contribution in the sense of Article 1.1(a)(1) of the SCM Agreement.

285 Korea has not raised any claims regarding the JIA's designation of certain entities as "public
bodies".

7.50 The JIA found that four of Hynix's private creditors (KEB, Woori Bank, Chohung Bank and
NACF, referred to hereinafter as the "Four Credito rs") had been entrusted or directed by the
Government of Korea to participate in the Oct ober 2001 and December 2002 restructurings. Thus,
having established that these Four Creditors had carri ed out a function illustrated in subparagraph (i),
the JIA treated their participation in the restruct urings as financial contributions. The JIA made no
findings of entrustment or direction in respect of the remaining (private) creditors that also
participated in the restructurings (referred to hereinafter as the "Other Creditors").
7.51 In a nutshell, the JIA found that the decisions of the Four Creditors to participate in the
restructurings were not commercially reasonable, and could therefore only be explained by some
external, non-commercial factor, namely the involveme nt in the restructurings of the Government of
Korea. To support this explanation various statemen ts by Government ministers, officials and others,
and non-attributed statements, and various circumstan ces relating to the restructurings, were referred
to in the JIA's determination as circumstantial eviden ce of entrustment or direction. It was the totality
of this evidence that was the basis for the JIA's finding.
2. The Claim
7.52 Korea claims that Japan acted inconsistently with its ob ligations under Article 1.1(a) of the
SCM Agreement, on the basis that the JIA did not have a proper basis for its finding that the
Government of Korea "entrusted or directed" the Four Creditors to participate in the October 2001
and December 2002 debt restructurings.
7.53 Japan submits that the Panel should reject Korea's claim and argument.
3. Applicable Provisions
7.54 Korea's claim pertains to paragraph (iv) of Article 1.1(a)(1) of the SCM Agreement.
Article 1.1(a)(1) of the SCM Agreement provides in its totality that:
1.1 For the purpose of this Agreement, a subsidy shall be deemed to exist if:

(a)(1) there is a financial contribution by a government or any public body
within the territory of a Member (referred to in this Agreement as
"government"), i.e. where:

(i) a government practice involves a direct transfer of funds (e.g. grants,
loans, and equity infusion), potential direct transfers of funds or liabilities
(e.g. loan guarantees);

(ii) government revenue that is otherwise due is foregone or not collected
(e.g. fiscal incentives such as tax credits);

(iii) a government provides goods or services other than general
infrastructure, or purchases goods;

(iv) a government makes payments to a funding mechanism, or entrusts
or directs a private body to carry out one or more of the type of functions
illustrated in (i) to (iii) above which would normally be vested in the
government and the practice, in no r eal sense, differs from practices
normally followed by governments ..." (emphasis added, footnote omitted)

4. The JIA's Determination
7.55 The JIA provided the following summary of its finding of entrustment or direction 286 in
respect of the October 2001 restructuring:
(289) The measures taken by KEB, Woor i Bank, Chohung Bank and NACF for the
October 2001 Program were "new loans", "d ebt-to-equity swap", and "extension of
maturity and interest rate reduction", wh ich would constitute practices involving
direct transfers of funds within the meaning of Article 1.1(a)(1)(i) of the
SCM Agreement if the Government of Korea had directly carried out such practices.
(290) At the time of October 2001, the deterioration of Hynix's financial situation was
such that its rating was downgraded even to "Selective Default", and it was unable to
raise funds from the commercial market. The Investigating Authorities therefore find
that there was no investor that would invest in or make loans to Hynix in the general
commercial market from a normal commercial perspective.
(291) Under such circumstances, KEB, Woori Bank, Chohung Bank and NACF made
financing decisions that were not based on commercial consideration.
(292) It is generally inconceivable that fi nancial institutions which are private bodies
voluntarily make financing decisions that are not based on commercial consideration.
It is reasonable to conclude that some kind of external factor existed when they made
financing decisions that was not based on commercial consideration.
(293) At the time of the October 2001 Program, the Government of Korea was in a
position to exert substantial influence on th ese financial institutions. This is because
there was a legal framework that allowed the government to be involved in the
individual business activities of banks in Korea at that time, the Government of Korea
held all or a large proportion of stocks in KEB, Woori Bank and Chohung Bank, and
NACF was a quasi-public body. Moreover, the Government of Korea had the
political intent to have Hynix survive at th at time, had been ascertaining at all times
the progress of discussion and implementation of the October 2001 Program, which
commenced from the end of July 2001, as well as the previous bailout measures by
the creditor financial institutions, con tinuously contacted creditor financial
institutions, exerted pressure on some creditors , and had the intention to intervene in
the October 2001 Program depending on the pr ogress of the considerations given to
the October 2001 Program.
(294) Moreover, in the course of the inves tigation, the Investigating Authorities did
not find any external factor which could ha ve influenced the decision making of the
financial institutions other than the facts described above.
(295) Based on the above facts, it is reasona ble to find that the financing judgments
of KEB, Woori Bank, Chohung Bank a nd NACF, which were not based on
commercial consideration, were made pursuant to the Government of Korea's
involvement.

286 We note that the JIA made findings of "entrustment or direction", without specifying whether it
found "entrustment", "direction", or both. The Appellate Body has confirmed that the concept of "entrustment"
is not the same as the concept of "direction" ( see US – Countervailing Duty Investigation on DRAMS, Appellate
Body Report, para. 116, quoted at para. 77 infra). We do not pursue this issue, though, since it is not a matter
that has been raised by Korea.

(296) Because Hynix was not able to obtain funds from the commercial market at the
time of the October 2001 Program, this involvement of the government was
indispensable to the provision of funds by the above-mentioned creditor financial
institutions. It is reasonable to find that such involvement of the government towards
private bodies constitutes entrustment or direction within the meaning of
Article 1.1(a)(1)(iv) of the SCM Agreement.
(297) Therefore, the measures taken by KEB, Woori Bank, Chohung Bank and
NACF in the October 2001 Program constitute the financial contributions based on
the government's entrustment or direction w ithin the meaning of Article 1.1(a)(1)(iv)
of the SCM Agreement.
287
7.56 The JIA summarised its finding of entrustment or direction in respect of the December 2002
restructuring in very similar terms.288
5. Main Arguments of Korea
7.57 Korea asserts that the JIA's finding of "entrustment or direction" was based on a syllogism
comprised of the following three premises:
(1) The Korean government had expressed an intention to "keep Hynix alive";
(2) No rational creditor would have entered in to the restructuring transactions, in view
of Hynix's poor, and deteriorating, financial condition; and
(3) The evidence submitted by the individual creditors (or the findings made by the
JIA based on facts available where the creditors were non-responsive) did not
establish that the creditors had conducted a sufficient analysis of the various
transactions before entering into them.
7.58 According to Korea, the conclusion of the syllogi sm was that the actions of Hynix's creditors
could, in the JIA's view, only be explained by Korean government pressure to save Hynix.
7.59 Korea submits that each of the premises of the JIA's syllogism was flawed, because they were
based on presumptions rather than evidence. Kor ea submits that (a) the JIA's analysis of the
Government of Korea's alleged intent was biased a nd inconsistent with the evidence, as none of the
evidence cited by the JIA demonstrated a government desire to save Hynix at the expense of its
creditors; (b) the JIA's inference of entrustment or direction incorrectly assumed that creditors will
never agree to restructure the debts of insolvent corporations without government intervention;
(c) the JIA's analysis of the internal examinations of the restructuring transactions by the creditor
banks does not support its conclusions, since the evidence submitted by the individual creditors
established that they had conducted a sufficient analys is of the various transactions before entering
into them; and (d) the willingness of Other Creditors to enter into the same transactions on the same
terms confirms that the transactions were based on commercial considerations.
6. Main Arguments of Japan
7.60 Japan submits that Korea's syllogism argument fa ils to correctly identify all of the elements
underpinning the JIA's determination of entrustment or direction. Jap an rejects Korea's argument that
none of the press reports or stories cited by the JIA reported a government desire to save Hynix at the
expense of its creditors. Japan also denies that the JIA arrived at its finding of entrustment or
direction on the basis of an assumption that no rational investor would have entered into the

287 See Annex 1 (Essential Facts).
288 See Annex 1 (Essential Facts), paras. 366 – 374.

restructuring transactions. Furthermore, Japan rej ects Korea's argument that the evidence submitted
by the individual creditors showed that the creditors had conducted a sufficient analysis of the various
transactions before entering into them. Finally, Japan denies that the willingness of Other Creditors to
enter into the same transactions on the same term s confirms that the transactions were based on
commercial considerations.
7. Evaluation by the Panel
7.61 Korea's arguments raise four substantive issues regarding the JIA's determination of
entrustment or direction: (1) the alleged presumption that no rational creditor would have restructured
Hynix; (2) the determination of the Government of Korea's intent to save Hynix; (3) the JIA's
analysis of the commercial reasonableness of th e participation of the Four Creditors in the
restructurings; and (4) the participation of Other Creditors in the restructurings. In making these
arguments, Korea does not challenge the basic methodological approach adopted by the JIA, i.e., a
conclusion of entrustment or direction based on intermediate factual conclusions regarding the actions
and intent of the Government of Korea, and the commercial reasonableness of the restructurings etc.
Instead, Korea challenges the validity of a number of the intermediate factual conclusions reached by
the JIA. Before examining the four substantive issues raised by Korea's arguments, we shall first
address certain legal, interpretational, and evidentiary issues raised by the parties' arguments.
(a) Legal, Interpretational, and Evidentiary Issues
(i) General Considerations
7.62 The concept of "entrustment or direction" is not defined in the SCM Agreement. However, its
meaning has gradually been distilled through four WTO cases: US – Export Restraints ; Korea –
Commercial Vessels; US – Countervailing Duty Investigation on DRAMS ; and EC – Countervailing
Measures on DRAM Chips . Only one of these cases was appealed to the Appellate Body. In
reviewing the interpretation applied by the panel in US – Countervailing Duty Investigation on
DRAMS, the Appellate Body found that "[a] finding of entrustment or direction ... requires that the
government give responsibility to a private body – or exercise its authority over a private body – in
order to effectuate a financial contribution".
289 In particular, the Appellate Body found:
110. The term "entrusts" connotes the ac tion of giving responsibility to someone
for a task or an object. In the context of paragraph (iv) of Article 1.1(a)(1), the
government gives responsibility to a private body "to carry out" one of the types of
functions listed in paragraphs (i) through (iii) of Article 1.1(a)(1). As the United
States acknowledges, "delegation" (the word used by the Panel) may be a means by
which a government gives responsibility to a private body to carry out one of the
functions listed in paragra phs (i) through (iii). Delega tion is usually achieved by
formal means, but delegation also could be informal. Moreover, there may be other
means, be they formal or informal, th at governments could employ for the same
purpose. Therefore, an interpretation of the term "entrusts" that is limited to acts of
"delegation" is too narrow.
111. As for the term "directs", we note th at some of the definitions—such as "give
authoritative instructions to" and "order (a person) to do"—suggest that the person or
entity that "directs" has authority over th e person or entity that is directed. In
contrast, some of the other defini tions—such as "inform or guide"—do not
necessarily convey this sense of authority. In our view, that the private body under
paragraph (iv) is directed "to carry out" a function underscores the notion of authority
that is included in some of the definitions of the term "direct". This understanding of

289 Appellate Body Report, US - Countervailing Duty Investigation on DRAMS, para. 113.

the term "directs" is reinforced by th e Spanish and French versions of the
 SCM Agreement, which use the verbs "ordenar" and "ordonner", respectively. Both
of these verbs unambiguously convey a sense of authority exercised over someone.
In the context of paragraph (iv), this authority is exercised by a government over a
private body. A "command" (the word used by the Panel) is certainly one way in
which a government can exercise authority ov er a private body in the sense foreseen
by Article 1.1(a)(1)(iv), but governments are likely to have other means at their
disposal to exercise authority over a private body. Some of these means may be more
subtle than a "command" or may not involve the same degree of compulsion. Thus,
an interpretation of the term "directs" that is limited to acts of "command" is also too
narrow.

113. We recall, moreover, that Article 1.1(a)(1) of the SCM Agreement is
concerned with the existence of a financial contribution. Paragraph (iv), in particular,
is intended to ensure that governments do not evade their obligations under the
 SCM Agreement by using private bodies to take actions that would otherwise fall
within Article 1.1(a)(1), were they to be taken by the government itself. In other
words, Article 1.1(a)(1)(iv) is, in essence, an anti-circumvention provision. A finding
of entrustment or direction, therefore, requires that the government give responsibility
to a private body—or exercise its authority over a private body—in order to
effectuate a financial contribution.
114. It follows, therefore, that not a ll government acts necessarily amount to
entrustment or direction. We note that both the United States and Korea agree that
"mere policy pronouncements" by a governmen t would not, by themselves, constitute
entrustment or direction for purposes of Article 1.1(a)(1)(iv). Furthermore,
entrustment and direction—through the givi ng of responsibility to or exercise of
authority over a private body—imply a more active role than mere acts of
encouragement. Additionally, we agree with the panel in US – Export Restraints
that entrustment and direction do not cove r "the situation in which the government
intervenes in the market in so me way, which may or may not have a particular result
simply based on the given factual circum stances and the exercise of free choice by
the actors in that market". Thus, government "entrustment" or "direction" cannot be
inadvertent or a mere by-product of government al regulation. This is consistent with
the Appellate Body's statement in US – Softwood Lumber IV that "not all government
measures capable of conferring benefits woul d necessarily fall within Article 1.1(a)";
otherwise paragraphs (i) through (iv) of Article 1.1(a) would not be necessary
"because all government measures conferring benefits, per se, would be subsidies."
115. Furthermore, such an interpretation is consistent with the object and purpose
of the SCM Agreement, which reflects a delicate balance between the Members that
sought to impose more disciplines on the use of subsidies and those that sought to
impose more disciplines on the application of countervailing measures. Indeed, the
Appellate Body has said that the object and purpose of the SCM Agreement is "to
strengthen and improve GATT disciplines relating to the use of both subsidies and
countervailing measures, while, recognizing at the same time, the right of Members to
impose such measures under certain conditions". This balance must be borne in mind
in interpreting paragraph (iv), which a llows Members to apply countervailing
measures to products in situations where a government uses a private body as a proxy
to provide a financial contribution (provided, of course, that the other requirements of
a countervailable subsidy are proved as well). At the same time, the interpretation of
paragraph (iv) cannot be so broad so as to allow Members to apply countervailing

measures to products whenever a governme nt is merely exercising its general
regulatory powers.
116. In sum, we are of the view that, pursuant to paragraph (iv), "entrustment"
occurs where a government gives responsib ility to a private body, and "direction"
refers to situations where the government ex ercises its authority over a private body.
In both instances, the government uses a pr ivate body as proxy to effectuate one of
the types of financial contributions listed in paragraphs (i) through (iii). It may be
difficult to identify precisely, in the abstract, the types of government actions that
constitute entrustment or direction and those that do not. The particular label used to
describe the governmental action is not n ecessarily dispositive. Indeed, as Korea
acknowledges, in some circum stances, "guidance" by a government can constitute
direction. In most cases, one would expect entrustment or direction of a private body
to involve some form of threat or inducem ent, which could, in turn, serve as evidence
of entrustment or direction. The determin ation of entrustment or direction will hinge
on the particular facts of the case. (footnotes omitted)
7.63 We consider that the above findings of the Appellate Body provide important guidance for
interpreting and applying Article 1.1(a)(1)(iv) in the present case.
(ii) In the Creditors' Own Interests
7.64 On several occasions in its First Written Submission, Korea suggested that the JIA could not
find entrustment or direction absent a finding that Hynix's creditors were forced to enter into
transactions that were not "in their own interests" . At para. 20, for example, Korea asserted that
"[t]here is no indication whatsoever that the govern ment attempted to interven e to force the creditors
to enter into transactions that were not in their own interests".
7.65 Japan responded that there is no requirement in Article 1.1(a)(1)(iv) that the alleged
entrustment or direction must require private bodies to act contrary to their own interests.
7.66 In response to Question 64
290 from the Panel, Korea asserted that:
As a conceptual matter, sub-paragraph (iv) of Article 1.1(a) does not limit a finding
of "entrustment or direction" to situations in which private entities are forced by a
government to undertake actions that are not in their own interests. A government
could, for example, order a bank to make a loan on commercial terms to a
creditworthy borrower. In such cases, ther e might be entrustment or direction, but
there would also be no benefit to the recipient — and, as a result, there would be no
subsidy.
7.67 We therefore understand Korea to accept, as a le gal matter, that an investigating authority
may find the existence of a financial contribution on the basis of entrustment or direction of private
bodies, even if those private bodies are not required to act contrary to their own interests.
7.68 As an evidentiary matter, though, Korea argued that:

290 Question 64:
At para. 48 of its oral statement, Korea a sserts that "[t]here is no evidence that the
Government of Korea wanted the banks to take any measures that were inconsistent with the
banks' own best interests". Does the fact that a bank might have acted in a manner consistent
with its own best interests exclude a finding of entrustment / direction? Is there government
entrustment / direction if a government directs a bank to make a loan that the bank would have
made anyway? Please explain.

a finding that a transaction was or was not in the private entity's own interests would
ordinarily be relevant to a determination whether entrus tment or direction occurred
that is based on circumstantial evidence. Obviously, a finding that a particular
transaction was not in the private entity's ow n interests would lead to an inference
that some "external," "non-commercial" factor (to use the JIA's phraseology) had
caused the private entity to en ter into the transaction. On the other hand, such an
inference would obviously be improper when there is a finding that the particular
transaction actually was in the private entity's own interests.
7.69 Japan stated that a private body's action contra ry to its own interests would be evidence
indicating that the private body would have acted pursuant to certain external factors, including inter
alia government entrustment or direction. We note that the JIA's determination of entrustment or
direction is in large part premised on a finding th at the relevant creditors acted on non-commercial
terms, and therefore contrary to their own (commerc ial) interests. Furthermore, we note that Japan
asserted at para. 311 of its First Written Submission that "a creditor's provision of financing to a
company against the creditor's interests would be an element that might indicate the government's
intervention".
7.70 In principle, we agree with the parties that conduct which is contrary to a private body's
commercial interests might be indicative of government entrustment or direction. In the Panel's view
it could not be determinative of itself, because it sa ys nothing about the conduct of the government
concerned. Evidence of non-commercial conduct woul d therefore need to be coupled with other
evidence having sufficient probative value in order to arrive at a finding of entrustment or direction.
(iii) Direct / Circumstantial Evidence
7.71 In its First Written Submission, Korea argued that the JIA's finding of entrustment or
direction was invalid because "there is actually no evidence that the Korean government told any of
the creditors what to do in any of the restructurings".
291
7.72 This statement might suggest that, in Korea's view, an investigating authority may not
properly find entrustment or direction in the absence of direct and conclusive evidence, or a "smoking
gun",292 that demonstrates a government had explicitly "told" a private body to provide financial
contribution. Japan rejects such an interpretation. 293 Subsequently, and pursuant to Japan's rejection
of this argument, Korea clarified that, in its view "a finding of 'entrustment or direction' based on
circumstantial evidence does not require a 'smoking gun.'" 294 Accordingly, there is no dispute
between the parties on this issue.
7.73 We agree with the parties' view on this matter, since the entrustment or direction of a private
body will rarely be formal, or explicit. For this reason, allegations of government entrustment or
direction are likely to be based on pieces of ci rcumstantial evidence, as was the case in the
investigation at hand. The JIA made its findings on the basis of intermediate factual conclusions
drawn from the totality of the evidence it reviewed. 295 In assessing Korea's claims regarding the JIA's
treatment of record evidence in its totality, we shall be guided by the following statement of the
Appellate Body in US – Countervailing Duty Investigation on DRAMS:

291 See Korea's First Written Submission, para. 144.
292 See Korea's Second Written Submission, para. 143.
293 See Japan's First Written Submission., para. 244.
294 See Korea's Second Written Submission, para. 143.
295 See, for example, paras. 285 and 288 of Annex 1 (Essential Facts), and para. 150 of Japan's First
Written Submission.

150. ... if, as here, an investigating authority relies on individual pieces of
circumstantial evidence viewed together as support for a finding of entrustment or
direction, a panel reviewing such a dete rmination normally should consider that
evidence in its totality, rather than individua lly, in order to assess its probative value
with respect to the agency's determinati on. Indeed, requiring that each piece of
circumstantial evidence, on its own, establish entrustment or direction effectively
precludes an agency from finding entrustment or direction on the basis of
circumstantial evidence. Individual pieces of circumstantial evidence, by their very
nature, are not likely to establish a proposition, unless and until viewed in conjunction
with other pieces of evidence.
151. Furthermore, in order to examine the evidence in the light of the investigating
authority's methodology, a panel's analysis usually should seek to review the agency's
decision on its own terms, in particular, by identifying the inference drawn by the
agency from the evidence, and then by c onsidering whether the evidence could
sustain that inference. Where a panel examines whether a piece of evidence could
directly lead to an ultimate conclusion—rath er than support an intermediate inference
that the agency sought to draw from that particular piece of evidence—the panel risks
constructing a case different from that put forward by the investigating authority. In
so doing, the panel ceases to review the agency's determination and embarks on its
own de novo evaluation of the investigating auth ority's decision. As we explain
below, panels may not conduct a de novo review of agency determinations.
152. In this case, as we observed above, the USDOC relied on the evidence to
arrive at certain factual conclusions as an intermediate step in its analysis before
finding entrustment or direction. These intermediate factual conclusions were: (i) the
GOK pursued a policy of preventing the financial collapse of Hynix; (ii) the GOK
held control or influence over Hynix's Gr oup B and C creditors; and (iii) the GOK
pressured certain of Hynix's Group B and C creditors into participating in the
financial restructuring. A proper assessment by the Panel, therefore, would have
considered whether the individual piece of evidence being examined could tend to
support—not establish in and of itself—the particular intermediate factual
conclusion that the USDOC was seeking to draw from it. By looking instead to
whether such evidence directly supported a finding of entrustment or direction, the
Panel determined certain pieces of evidence not to be probative when, in fact, had
they been properly viewed in the framewo rk of the USDOC's examination, their
relevance would not have been overlooked. (footnotes omitted)
7.74 We add that in the assessment of circumstantia l evidence, which could be taken to suggest
entrustment or direction, an investigating au thority must also take into account evidence,
circumstantial or otherwise, which is contrary to th at suggestion. This is the very nature of an
investigating authority's obligation to evaluate the ev idence before it in order properly to arrive at its
conclusions.
(iv) Probative and Compelling Evidence
7.75 At para. 196 of its First Written Submission, Korea argues that the Appellate Body clarified in
the US – Countervailing Duty Investigation on DRAMS case that "the evidence relied upon by an
investigating authority in making [a] determination [of entrustment or direction] must be 'probative
and compelling'."
7.76 Japan denies the existence of any evidentiary standard that imposes a qualitative standard
higher than that contemplated by the SCM Agreement , and argues that the above finding by the
Appellate Body did not set out any new evidentiary standard.

7.77 In US – Countervailing Duty Investigation on DRAMS , the panel had stated that the evidence
of entrustment and direction "must in all cases be probative and compelling".
296 Although the
Appellate Body upheld the standa rd applied by the panel, it suggested that the panel would have
erroneously applied a qualitative standard higher than that contemplated by the SCM Agreement if the
panel had interpreted "compelling" to mean "of such weight as to require the decision-maker to arrive
at one given conclusion". 297 The Appellate Body found that the panel had not applied such a
qualitatively higher standard. According to the Appellate Body, "the Panel properly examined
whether the USDOC's evidence could support its conclusion". 298 The Appellate Body emphasised
that "neither the SCM Agreement nor the DSU explicitly articulates a standard for the evidence
required to substantiate a finding of entrustment or direction". 299 The Appellate Body stated further
that there is "no basis in the SCM Agreement or in the DSU to impose upon an investigating authority
a particular standard for the evidence supporting its finding of entrustment or direction."300
7.78 In light of the above guidance afforded by the Appellate Body in US – Countervailing Duty
Investigation on DRAMS , we shall not be requiring the JIA's finding of entrustment or direction to
have been based on a "probative and compelling" sta ndard of evidence. Rather, we shall consider
whether or not the JIA's evidence could support its conclusion.
(v) Positive Evidence
7.79 In its First Written Submission, Korea claimed th at there exists a general obligation for an
investigating authority to identif y "positive evidence demonstrating the existence of each element
required for the imposition of antidumping or countervailing duties."301
7.80 According to Japan, the "positive evidence" standa rd only applies to findings of specificity
and injury (by virtue of Articles 2.4 and 15.1 of the SCM Agreement, respectively). Japan submits
that this standard does not apply to findings of entrustment or direction.
7.81 Whereas Article 2.4 of the SCM Agreement provides that "[a]ny determination of specificity
... shall be clearly substantiated on the basis of pos itive evidence", and Article 15.1 provides that "[a]
determination of injury ... sha ll be based on positive evidence", no requirement for positive evidence
is imposed in respect of findings of government entrustment or direction under Article 1.1(a)(1)(iv).302
Furthermore, we have already noted the Appellate Body's finding in US – Countervailing Duty
Investigation on DRAMS that there is "no basis in the SCM Agreement or in the DSU to impose upon
an investigating authority a particular standard for the evidence supporting its finding of entrustment
or direction."303 Accordingly, we do not consider it appropr iate to consider whether or not the JIA's
finding of entrustment or direction was based on "p ositive evidence", in so far as the application of
such a standard would exclude the possibility that circumstantial evidence could properly support the
JIA's conclusion. Rather, in addressing the substan tive arguments made by the parties in respect of

296 US – Countervailing Duty Investigation on DRAMS, para. 7.35.
297 Appellate Body Report, US – Countervailing Duty Investigation on DRAMS, paras. 137 and 139.
298 Appellate Body Report, US – Countervailing Duty Investigation on DRAMS, para. 139.
299 Appellate Body Report, US – Countervailing Duty Investigation on DRAMS, para. 138.
 300 Appellate Body Report, US – Countervailing Duty Investigation on DRAMS, para. 138.
 301 See First Written Submission of Korea, para. 141; see also para. 220 ("While the JIA might have
rejected the creditor's description of the analysis they performed, it did not present any positive evidence
demonstrating that the creditors had actually failed to perform a rational analysis.").
302 We note that the Appellate Body has referred to the need for investigating authorities to rely on
"positive evidence" in the context of suns et reviews under Article 11.3 of the Anti-Dumping Agreement (see US
– Oil Country Tubular Goods Sunset Reviews, Report of the Appellate Body, para. 302). In light of the express
wording of Article 1.1(a)(1)(iv) of the SCM Agreement, and the Appellate Body's own findings regarding the
absence of special evidentiary rules in respect of findings of government entrustment or direction, we see no
need to apply a "positive evidence" standard in the present case.
 303 Appellate Body Report, US – Countervailing Duty Investigation on DRAMS, para. 138.

Korea's claim against the JIA's determination of en trustment or direction, we shall simply examine
whether or not the JIA's evidence could support its conclusion of entrustment or direction.
7.82 It is to those substantive arguments that we now turn.
(b) The Alleged Presumption That No Rational Creditor Would Have Entered Into The
Restructuring Transactions, In View Of Hy nix's Poor, And Deteriorating, Financial
Condition304
(i) Arguments of Korea
7.83 Korea asserts that the JIA's analysis of "entrust ment or direction" in connection with both the
October 2001 and December 2002 restructurings began with the following statement:
[T]he deterioration of Hynix's financial situation was such that its rating was
downgraded even to "Selective Default," and it was unable to raise funds from the
commercial market. The Investigating Aut horities therefore find that there was no
investor that would invest in or make loans to Hynix in the general commercial
market from a normal commercial perspective.
Under such circumstances, KEB, Woori Bank, Chohung Bank and NACF made
financing decisions that were not based on commercial consideration[s].305
7.84 Korea submits that this analysis is based explicitly on the assumption that "there was no
investor that would invest in or make loans to Hynix in the general commercial market from a normal
commercial perspective." Korea also submits that, more importantly, the JIA's description of its
analysis makes clear that it used that assumption as the basis for its inference that "KEB, Woori Bank,

304 This is the first premise of the alleged syllogism identified by Korea. Korea submits that the JIA's
determination on entrustment or direction took the form of a syllogism based on three premises. Japan denies
that the JIA's determination of entrustment or directi on was based solely on the three elements identified by
Korea. According to Japan, the JIA relied on additional elements not included in Korea's syllogism argument.
Although the parties disagree on whether or not Korea has properly identified all of the elements considered,
and intermediate factual conclusions drawn, by the JIA, we do not consider it necessary to resolve this issue in
order to dispose of Korea's claims. Korea has made specific arguments against cer tain of the intermediate
factual conclusions drawn by the JIA. These arguments may be assessed in their own right, irrespective of
whether or not these arguments cover all of the factors considered by the JIA. If upheld, these arguments would
undermine the validity of the JIA's determination of entrustment or direction, since that determination was made
on the basis of the totality of the intermediate factual conclusions drawn by the JIA. The JIA did not claim in its
determination, nor has Japan claimed in these proceedings, that any one of the intermediate conclusions, or a
combination of some of them, supported the JIA's finding. We make no findings regarding any elements of the
JIA's determination of entrustment or direction that are not covered by Korea's claims and / or arguments. This
would include, for example, the JIA's reliance on the extent of the Government of Korea's shareholdings in the
Four Creditors.
305 See Annex 1 (Essential Facts), paras. 290-91 (discussing October 2001 restructuring). Korea notes
that the corresponding statement regarding the December 2002 restructuring was as follows:
At the time of December 2002, there was no prospect of impr ovement in Hynix's
financial conditions, and since October 2001, Hynix's credit rating had remained
downgraded to "Selective Default." Hynix was in the situation where the company
could not obtain financing from the commercial market. The Investigating
Authorities find that, from a normal commercial perspective, there existed no
investors who would invest in, or make loans available to, Hynix in the general
commercial market.
Under such conditions, KEB, Woori Bank, Chohung Bank, and NACF made
financing decisions that were not based on commercial consideration[s].
Annex 1 (Essential Facts), paras. 367-68.

Chohung Bank and NACF made financing deci sions that were not based on commercial
consideration."
306 According to Korea, therefore, the finding that the individual banks did not act in
accordance with commercial considerations was base d on the assumption that "there was no investor
that would invest in or make loans to Hyni x in the general commercial market from a normal
commercial perspective." Korea submits that if the JIA had not made that assumption — if it had
assumed, instead, that creditors of insolvent ba nks operating from normal commercial perspectives
often do agree to debt restructurings — then the outcome would have been completely different: the
JIA would have had no logical basis for concl uding that "KEB, Woori Bank, Chohung Bank and
NACF made financing decisions that were not based on commercial consideration."
7.85 Based on the allegedly different perspectives of "inside" investors (i.e., existing investors) and
"outside" investors (i.e., potential new investors), Korea challenges the JIA's alleged presumption that
no rational investor would have entered into the r estructuring transactions. Korea argues that this
presumption has no basis in economics or the evid ence. Korea submits that rational, profit-
maximizing creditors can have sound reasons to prov ide new loans, extend the maturities of existing
loans, swap debt for equity, or forgive loans entirely, even when the borrower is insolvent. Korea
further argues that there is ample support for the proposition that existing creditors acting solely from
a "normal commercial perspective"
307 do engage in restructuring transactions all the time.
7.86 Korea submits that "inside" investors have different claims on the future income of a
company than "outside" investors, who have not ye t made any investments in the company. Korea
asserts that when the borrowing comp any is insolvent, the difference in the pre-existing claims held
by "inside" investors and "outside" investors beco mes an important factor. Korea asserts that an
insolvent company, by definition, cannot pay its outstanding debts in full — which means that some
portion of the pre-existing claims held by the "inside" investors will not be met by the company's
current operations. According to Korea, the "inside" investors will therefore have a claim on a portion
of the additional returns from an y new investments made in the co mpany, whether those investments
are made by "inside" or "outside" investors, due so lely to their unsatisfied pre-existing claims. Korea
submits that the need to share any returns from new investments with creditors holding pre-existing
claims means that the investment arithmetic for "o utside" investors is different from the investment
arithmetic for "inside" investors. Korea submits that the JIA failed to take this difference into
account, and wrongly presumed that because it was not economically rational for outside
 investors to
participate in the Hynix restructurings, it was similarly irrational for Hynix's existing creditors to do
so. Korea asserts that it was economically rationa l for Hynix's creditors to participate in the
restructurings, since there was record evidence demonstrating th at Hynix's going concern value
exceeded its liquidation value.
(ii) Arguments of Japan
7.87 Japan rejects Korea's assertion that the JIA arrived at its finding of entrustment or direction on
the basis of an assumption that no rational invest or would have entered into the restructuring
transactions. According to Japan, the JIA did not make a determination that participation in the
various programmes was per se irrational in the abstract. Ra ther, the JIA examined the actual
decision-making processes of each financial institution on an institution-by-institution basis, including
a review of the actual internal examination documents and the specific individual circumstances of
each of the institutions. Japan asser ts that the JIA neither applied a generic standard of inherent
rationality nor a fixed economic model. Japan not es that the JIA accepted the "premise that existing
creditors would possibly provide additional funding in order to maximize the recovery of credit."
308
According to Japan, the JIA examin ed the actual decision-making processes of the creditors to assess
whether their actions demonstrated that they were acting in accordance with this premise.

308 See Annex 3 (Rebuttals and Surrebuttals), para. 141.

(iii) Evaluation by the Panel
7.88 In support of its argument, Korea presented th e Panel with a substantial volume of evidence
and argument regarding the economics of corporate r estructuring. As mentioned above, Korea's basic
point is that "inside" investors, such as Hynix's cr editors, have different clai ms on the future income
of a company than "outside" investors, who have not yet made any investments in the company.
7.89 We consider that there are two elements to Ko rea's arguments. First, we understand Korea to
assert that the JIA presumed that it was not economically rational for outside investors to participate
in the Hynix restructurings. Second, we understand Ko rea to argue that the JIA failed to consider the
economic rationality of the restructurings from the perspective of Hynix's inside investors, i.e., its
existing creditors.
The alleged presumption
7.90 As noted by Korea, the JIA found that:
[T]he deterioration of Hynix's financial situation was such that its rating was
downgraded even to "Selective Default," and it was unable to raise funds from the
commercial market. The Investigating Authorities therefore find that there was no
investor that would invest in or make loans to Hynix in the general commercial
market from a normal commercial perspective.
309 (emphasis supplied)
7.91 We have emphasised the word "therefore" in the above extract because it demonstrates that
the JIA's conclusion "that there was no investor that would invest in or make loans to Hynix in the
general commercial market from a normal commercial perspective" ( i.e., from an outside investor's
perspective310), was premised on the JIA's statement, in th e previous sentence, that "Hynix's financial
situation was such that its rating was downgraded even to 'Selective Default,' and it was unable to
raise funds from the commercial market." The conclusion "that there was no investor that would
invest in or make loans to Hynix in the ge neral commercial market from a normal commercial
perspective" was not, therefore, a presum ption based on abstract economic theory.
311 It was, instead,
a finding of fact based on evidence regarding Hynix's inability to raise funds from potential outside
investors.312 We therefore reject Korea's argument that the JIA presumed that it was not economically
rational for outside investors to participate in the Hynix restructurings.

310 Japan explained in response to Question 31 from the Panel that this was a finding from the
perspective of outside investors. Korea has not challenged Japan's explanation, which seems reasonable in the
overall context of the JIA's determination.
311 The parties disagree on the admissibility of certain evidence provided by Korea in support of its
economic arguments. In light of our finding that the JIA's determination of entrustment or direction did not
depend on presumptions based on abstract economic theory, and in light of our finding in the next sub-section of
our Report that the JIA did acknowledge the economic rationale for inside investors to participate in
restructurings of insolvent companies, there can be no relevant dispute between the parties regarding the validity
of Korea's economic arguments, and therefore no need for us to consider Korea's evidence – or the admissibility
thereof – in further detail.
312 The relevant evidence in respect of the October 2001 restructuring was set out at paras. 261 – 268 of
Annex 1 (Essential Facts). The relevant evidence in respect of the December 2002 restructuring was set out at
paras. 322 – 327 of Annex 1 (Essential Facts). Korea's only challenge to the JIA's intermediate factual
conclusion that there was no outside investor willing to invest in Hynix concerns the offer made by Micron in
April 2002 for Hynix's Memory Division ( see para. 67 of Korea's oral statem ent at the first substantive
meeting). Since this offer was made in April 2002, it has no bearing on the JIA's treatment of the October 2001
restructuring. Furthermore, we can find no reference to any evidence on the JIA's reco rd of an offer by Micron
at the time of the December 2002 rest ructuring. Indeed, Korea has acknowledged (at para. 211 of its Second
Written Submission) that there was "no offer from Micron on the table" at that time. Accordingly, the existence

The inside investor perspective

7.92 As noted above, the JIA made findings regardin g the absence of new, outside investors.
Elsewhere in its findings, the JIA also c onsidered whether or not the decisions of existing creditors to
participate in the restructurings were based on commercial considerations. In particular, the JIA made
factual findings regarding the alleged reliance of Hynix's existing creditors on internal and external
analyses of the viability of the October 2001 and December 2002 restructurings. 313 The JIA did so
because it explicitly accepted the "pre mise that existing creditors would possibly provide additional
funding in order to maximize the recovery of credit." 314 Japan has confirmed that this means that the
JIA accepted "the notion that existing creditors might engage in restructuring measures that potential,
outside investors would not". 315 Furthermore, the JIA accepted th at debt forgiveness by creditors
might be "commercial" "[i]f such action is reasonably found to be unavoidable in order to maximize
the debt recovery". 316 Accordingly, we find that the JIA e xplicitly accepted that an inside investor
standard was an appropriate standa rd to apply to the question of the commerciality, or otherwise, of
the restructurings.
7.93 For these reasons, we are not persuaded that the JIA failed to consider the economic
rationality of the restructurings from the perspective of Hynix's inside investors, i.e., its existing
creditors.
Conclusion
7.94 In light of the above, we reject Korea's argument that the JIA's findings were exclusively
based on presumptions concerning the perspective of outside investors.
(c) The Government of Korea's Alleged Intent To "Keep Hynix Alive"
7.95 The JIA's determination of entrustment or dir ection was based in part on its intermediate
factual conclusion that the Government of Korea had the political intent to save Hynix. 317 K o r e a
challenges that intermediate factual conclusi on in order to impugn the validity of the JIA's
determination of government entrustment or direction.
(i) The JIA's findings
7.96 In respect of the October 2001 restructuring, the JIA found:
Given the totality of these facts, the Investigating Authorities find that the
Government of Korea had a political intent to make Hynix survive at the time, had

of Micron's offer in April 2002 does not undermine the JIA's finding that there were no outside investors willing
to invest in Hynix at the time of either the October 2001 or December 2002 restructurings.
313 See Sections 2.8.2.2.3 and 2.9.2.2.3 of Annex 1 (Essential Facts).
314 See Annex 3 (Rebuttals and Surrebuttals), para. 141. Despite references to this statement by Japan
in its First Written Submission ( see para. 379) and in subsequent submissions to the Panel ( see, for example,
para. 90 of Japan's Second Written Submission), Korea only acknowledged this statement in its final submission
to the Panel after the Second Substantive Meeting ( see Korea's Final Comments, para. 4). This statement
appears to have been overlooked by Korea during the earlier stages of the Panel proceedings.
315 See Japan's response to Question 98 from the Panel. There is, therefore, no dispute between the
parties regarding the appropriateness of analyzing the restructurings from the perspective of inside investors. In
other words, it was common ground between the parties that an inside investor standard can be a valid
benchmark for the purpose of assessi ng the commercial reasonableness of conduct in the context of the
SCM Agreement. Accordingly, there is no need for us to make any findings on whether or not the inside
investor perspective constitutes a valid market benchmark for the purpose of establishing the existence of
subsidization under the SCM Agreement.
316 See Annex 3 (Rebuttals and Surrebuttals), para. 429.
317 See, for example, Annex 1 (Essential Facts), para. 293.

been ascertaining at all times the progress of discussion of the October 2001
Program, which is considered to have started at the end of July 2001, kept in contact
with creditor financial institutions, and had an intention to intervene depending on the
circumstances.
318
7.97 Regarding the December 2002 restructuring, the JIA found similarly that:
Further, taking into account the facts that the Government of Korea had a strong
interest in the Hynix problem since the end of 2000, that the government had kept
contacting the creditor financial institu tions, requesting their cooperation and
monitoring them, and that in 2002 the government undertook intervention as
described above, the Investigating Authoriti es find that it was commonly recognized
that the Government of Korea had the intent to support Hynix at the time of the
December 2002 Program.
319
(ii) Arguments of Korea
7.98 Korea submits that the JIA's analysis of the G overnment of Korea's alleged intent was biased
and inconsistent with the evidence, as none of the evidence cited by the JIA demonstrated a
government desire to save Hynix at the expense of its creditors.
7.99 According to Korea, the press reports and statements cited by the JIA do not demonstrate any
intent of the Government of Korea to save Hynix. First, Korea asserts that, because there is no formal
process for developing a government intent, the pr ocess of assigning meaning to government action is
speculative. Korea asserts that no government is a single entity with a single mind. Korea suggests
that, because of differences of view within a govern ment, and inter-agency battles, a "healthy degree
of skepticism"320 is required for any effort to discern a specific government intent from such reports.
7.100 Second, Korea asserts that there is no indication whatsoever that the Government attempted to
intervene to force the creditors to enter into transactions that were not in their own interests. Korea
asserts that the reports cited by the JIA merely in dicated that the Government of Korea viewed the
restructurings as matters to be left to the creditors . Korea prepared Attachments 2 and 3 to its First
Written Submission in support of this argument. Although Korea acknowledges that the Government
of Korea was "keeping an eye on" 321 developments, Korea asserts that this monitoring, and the
expressed desire for expeditious resolution by th e creditors, was entirely consistent with the
government's prudential role in preventing serious harm to the overall financial sector.
7.101 Third, Korea asserts that the JIA only reached the conclusion that the Government of Korea
had the intent to save Hynix because of the JIA's a lleged assumption that the creditors were not acting
in their own interests. Korea asserts that if the JI A had believed, instead, that the restructurings were
in the creditors' interest, the JIA would undoubted ly have viewed the Korean government's role
differently — that any government encouragement of restructurings that really were the best deal
possible for the creditors had nothing to do with a desire to save Hynix, and everything to do with an
intent to save the banks. Korea submits that the JIA would not then have attributed the allegedly
entrusted or directed creditors' participation in th e restructurings to "some kind of external factor",
322
namely the Government of Korea's intent to save Hynix.

318 See Annex 1 of the Final Determination, para. 275.
320 See Korea's First Written Submission, para. 199.
321 See Korea's First Written Submission, para. 202.

(iii) Arguments of Japan
7.102 Japan rejects Korea's argument that none of the press reports or stories cited by the JIA
reported a government desire to save Hynix at the e xpense of its creditors. According to Japan, the
JIA reached findings of fact based on the totality of th e evidence with respect to the issue in question.
These findings of fact took into account various pieces of evidence including, but not limited to, news
reports. Japan asserts that Korea's approach seeks to evaluate each piece of evidence separately and to
disregard those that do not directly prove a particul ar point, and should be re jected as inconsistent
with the Appellate Body's clear guidance in US – Countervailing Duty Investigation on DRAMS on
how WTO panels are to review the findings of an investigating authority re lating to determinations
that were made based on an assessment of the evidence in its totality.
(iv) Evaluation of the Panel
7.103 We have identified three main elements to Korea's arguments: (1) the singularity of
government intent; (2) the reports of the intent of the Government of Korea; and (3) the assumption
regarding the commercial interests of the creditors. We shall examine each element in turn.
Singularity of Government Intent

7.104 Depending on the circumstances, there may well be a certain degree of speculation in seeking
to establish the intent of a government in the abstract. However, to the extent that Korea is suggesting
that the motivations behind government actions or statements are not relevant in determining the
existence of government entrustment or direction, we disagree. In the case of alleged government
entrustment or direction, it is reasonable for an investigating authority to seek to determine the
motivations behind certain actions or statements by government agencies or representatives.
Entrustment or direction necessarily entails the c onveying, by a government, of a message of some
sort to third parties to the effect that they have the responsibility to take a particular course of action,
or must behave in a particular way. Identifying motive and intent can assist in determining whether
such a message was conveyed. Provided appropria te caution is exercised in assessing the reliability
of evidence, in our view an investigating authorit y may do so on the basis of statements properly
attributed to named government agencies or repr esentatives, in the absence of express denials,
corrections, or other evidence to the contrary.
Reports of the Intent of the Government of Korea
7.105 Upon review of the evidence relied on by the JIA in respect of the October 2001 restructuring,
we consider that Korea has failed to establish a prima facie case that a reasonable and impartial
investigating authority could not properly have conc luded that the relevant reports demonstrated the
Government of Korea's intent to save Hynix. In our view, the evidence of "Government Action" cited
by the JIA 323 could properly be interpreted as indica ting that the Government of Korea had a
preference for the continued existence of Hynix, an d that the Government of Korea was prepared to
intervene directly in the Hynix restructuring process.324
7.106 In particular, the JIA noted that on 2 July 2001 the President of Korea hosted an Economic
Ministers' Meeting at which the May 2001 restru cturing of Hynix was reported as one of the
achievements of the FSC – a government body - during th e first half of 2001. This could properly be
treated as evidence that the FSC, and therefore the G overnment of Korea, had been directly involved

323 See paras. 269 – 275 and 328 – 337 of Annex 1 (Essential Facts).
324 We do not wish to suggest that evidence of government intent to save Hynix in and of itself could
support a finding of government entrustment or direction to save Hynix.

in the May 2001 restructuring, and that direct G overnment of Korea involvement in the October 2001
restructuring would not have been unprecedented.325
7.107 In addition, the JIA observed that on 24 Ju ly 2001 the Economic Ministers announced their
decision "to strongly promote the structural reform of the six companies subject to the KDB Program,
including Hynix", 326 and envisaged "additional restructuring measures" 327 for those companies.
Furthermore, it was decided that "the financial supervisory authorities [would] check the progress" 328
made pursuant to these decisions. In our view, an objective and impartial investigating authority
might properly interpret these reports, emanating from a government entity, as evidence that the
Government of Korea intended to pursue the restructuring of Hynix beyond the May 2001
restructuring.
7.108 Furthermore, the JIA noted that on 3 August 2001 the Deputy Prime Minister stated that "[i]f
Hynix says it needs an additional KRW 1 trillion, and if the creditor group cannot make a decision
whether or not to provide additional suppor t, the financial authorities should decide",
329 and that "[i]n
the event that the creditor group is unable to resolve the Hy nix Semiconductor issue, the government
will come forward to make a quick decision". 330 The JIA found that the Deputy Prime Minister also
stated on 8 August 2001 that "[c]reditor banks w ill help settle the problem of several companies 331
engaged in deals with foreign countries within this month, and in the case that it does not settle, the
government will directly step in". 332 We consider that these statements might properly be treated as
further evidence that the Government of Korea wa s prepared to intervene directly in the Hynix
restructuring process, and to "save Hynix" in one way or other.
7.109 Regarding the December 2002 restructuring, the JIA found that at least one Hynix creditor
complained of "the government's headlong approach toward the handling of Hynix". 333 In addition,
the JIA observes that on 15 November 2002 the 2002 Re port of the National Audit Results stated that
"KDB, through discussions with interested parties such as the government and the creditor group,
should determine and implement an action plan for dealing with Hynix Semiconductors as soon as
possible".334 In our view, an objective and impartial investigating authority might properly conclude
from these statements, read in light of relevant evidence regarding the October 2001 restructuring,
that the Government of Korea was di rectly involved in the December 2002 restructuring, and that this
was because the Government of Korea's intent was that Hynix should be saved.
7.110 According to Korea, the evidence collected by the JIA "consistently reported only that the
government viewed the restructurings as matters to be left to the creditors". 335 Korea refers in this

325 The JIA referred to evidence regarding the May 2001 restructuring in its findings of entrustment or
direction in respect of the October 2001 restructuring ( see para. 269 of Annex 1 (Essential Facts)). Korea
asserts (Attachment 2, page 17) that evidence regarding the May 2001 restructuring should have no bearing on
the analysis of the October 2001 rest ructuring. Since the May 2001 restru cturing took place only five months
before the October 2001 restructuring, and since the relevant evidence actually dates from after the May 2001
restructuring, we find that the JIA did not err in cons idering such evidence in the context of the October 2001
restructuring.
326 See Annex 1 (Essential facts), para. 270, fourth indent.
327 Ibid.
328 Ibid.
329 See Annex 1 (Essential Facts), para. 272, first indent.
330 Ibid.
331 The Panel notes that Japan explained in response to Question 24 from the Panel that Hynix could
properly be understood to be one of th e "several companies" at issue. Korea has not disputed this interpretation
of the evidence.
332 Ibid, second indent.
333 See Annex 1 (Essential Facts), para. 334, fifth indent.
334 See Annex 1 (Essential Facts), para. 329, ninth indent, emphasis added.
335 See Korea's First Written Submission, para. 200.

regard to a 3 September 2001 statement by the Chai rman of the FSC that "Hynix is the issue which
should be assessed and determined by the creditor fi nancial institution group", and his request to FSC
officials "to take no part and even to refrain from expressing personal opinion".
336 According to
Korea, "[t]his statement clearly indicates the FSC' s position that the resolution of Hynix's situation
was to be left to the creditors, and th at the government should not intervene." 337 However, only five
days later the very same government official was quoted as stating that "the government will
determine how to treat the problems of Hynix ... by the end of September". 338 Not only is the first
statement capable of suggesting to an objective a nd impartial investigating authority that the FSC
Chairman had to instruct officials not to inte rvene in the Hynix process precisely because they had
been doing so, but the second statement could reas onably be taken to demonstrate that the FSC
Chairman himself acknowledged that the Government of Korea was prepared to intervene directly in
the Hynix restructuring process. Korea's argume nt regarding the proper interpretation of the
3 September 2001 statement is therefore not persuasive.
7.111 At the first substantive meeting, Korea subm itted to the Panel a newspaper article dated
1 September 2001, in the form of Exhibit KOR-33. Korea asserted that the treatment of this report
reveals a great deal about the JIA's approach to the evidence in this case. Ko rea also asserted that the
JIA had ignored this article completely in Annex 1 (Essential Facts). Korea drew the Panel's attention
to the following statements reported in the article:
• The Deputy Prime Minister of Korea was quoted as saying "The creditor council will
support Hynix if it sees any hope for Hynix, but the slow down in semiconductor and
other factors can lead them to another decision."
• The President of Shinhan Bank, Lee Inho, was quoted as saying, "Before all financial
support, we should make a right judgment if Hynix can survive or not, and more
financial aid would be difficult."
• The President of Hanvit Bank, Lee Deokhun, was quoted as saying that the creditor's
council might agree to provide additional financial assistance to Hynix. In this regard, he
noted that the alleged Korean government interference "does not matter since the creditor
council is independently searching a support plan to minimize our own financial
damage."
7.112 In our view, this article is not sufficient to establish a prima facie case against the JIA's
finding of a government intent to save Hynix. First, an investigating authority might reasonably
conclude that the reported statements by the Presidents of two private banks were not indicative of the
intent of the Government of Korea in respect of the Hynix restructurings. Second, regarding the
statement of the Deputy Prime Minister, there is no doubt that there was some evidence on the JIA's
record to the effect that the Government of Ko rea would let the creditors decide for themselves
whether or not to restructure Hynix. Howeve r, this does not necessarily invalidate the JIA's
determination, since the JIA might reasonably have found that there was also substantial evidence on
the record to the effect that the Government of Korea intended to save Hynix, through direct
intervention if necessary. Indeed, the JIA's record indicates that the very same Deputy Prime Minister
was quoted only weeks earlier as stating that the Government of Korea would "step in"
339 and resolve
the Hynix issue if necessary. In addition, we not e that the article was not ignored completely in
Annex 1 (Essential Facts), as alleged by Korea. It wa s explicitly referred to by the JIA at para. 281 of
Annex 1 (Essential Facts), in the context of the JIA's analysis of Woori Bank's internal examination of

336 See Annex 1 (Essential Facts), para. 272, fourth indent.
337 See Attachment 2, page 21, Korea's First Written Submission.
338 See Annex 1 (Essential Facts), para. 272, fifth indent.
339 See para. 7.108 supra.

the October 2001 restructuring. For these reasons , we are not persuaded by Korea's arguments
concerning the press report set forth in Exhibit KOR-33.
7.113 We would emphasise that we do not mean to imply that all of the evidence before the JIA was
consistent with the conclusion that the Government of Korea was prepared to in tervene directly in the
Hynix restructuring process. This would be unlikely in an inves tigation based in large part on
circumstantial evidence. Nevertheless, the JIA coul d properly have concluded that the balance of the
record evidence did indicate that the Government of Korea was prepared to in tervene directly in the
Hynix restructuring process. Furthermore, the JI A explicitly reviewed the record evidence in the
context of earlier findings that the Government of Korea had "exerted pressure on certain banks when
it implemented support measures such as KEIC's insurance on the D/A financing and KDB
Program".340 These earlier findings, which dated from late 2000, and which concerned earlier
measures safeguarding the continued viability of Hyni x, have not been challenged by Korea in the
present proceedings. In our view, the JIA properly reasoned that such findings from the recent past
provide relevant context for interpreting the numer ous reports of government intent and intervention
in respect of the October 2001 and December 2002 restructurings.
341 Faced with evidence of
government pressure on Hynix creditors in the recen t past, and evidence that the Government of
Korea was prepared to intervene directly in order to preserve Hynix as a going concern at the time of
the October 2001 and December 2002 restructurings, we consider that the JIA could properly have
concluded that the Government of Korea had the po litical intent to save Hynix at the time of those
restructurings – through direct intervention if necessary - even if not all of the record evidence pointed
in this direction.342
7.114 In light of the above, we find that the JIA could properly have concluded that the Government
of Korea intended to save Hynix at the time of the October 2001 and December 2002 restructurings.
Assumption that the creditors were not acting in their own interests
7.115 Korea asserts that the JIA only reached its conclusion on the Government of Korea having the
intent to save Hynix because of the JIA's alleged assumption – based on an outside investor standard –
that the creditors were not acting in their own in terests. Korea further asserts that the conclusion
therefore cannot be maintained, because the outside i nvestor standard is not the standard that the JIA
should have applied.
7.116 We recall our finding that the JIA applied both an outside and inside investor standard, and
that the JIA applied an inside investor standa rd because it explicitly acknowledged "that existing

341 The JIA acknowledged that inter alia evidence regarding government pressure on creditors does not
date from the time of the restructurings at issue, but nonetheless concluded that such evidence was relevant to its
the findings of entrustment and direction in respect of those restructurings ( see paras. 269 and 328 of Annex 1
(Essential Facts)). Korea submits that evidence in respect of such earlier events "would have no bearing on" the
later restructurings "unless it was demonstrated that there was a continuation of the government policy" ( see
pages 1 and 17 of Attachment 2 to Korea's First Written Submission). We disagree with Korea's evaluation of
the potential relevance of evidence pre-dating the restructurings at issue. We see no reason why an investigation
of alleged government entrustment or direction of Hynix creditors in respect of the October 2001 and
December 2002 restructurings could no t properly have regard to eviden ce of government entrustment or
direction of those same Hynix creditors dating from late 2000.
342 We have noted Attachment 3 to Korea's First Written Submission, which addresses evidence in
Annex 1 (Essential Facts) allegedly "indicating that the Korean Government's 'intent' was to leave decisions
concerning the May 2001, October 2001 and December 2002 re structurings to the creditors." We have already
noted ( see para. 7.112 supra) that statements purporting to leave the decision to creditors need not, when
properly reviewed in the context of other evidence, necessarily be determinative. Reviewing Attachment 3 as a
whole, in the context of the remainder of the evidence considered by the JIA, we do not believe that the
evidence cited by Korea was sufficient to prevent the JIA from properly concluding that the Government of
Korea intended to save Hynix.

creditors would possibly provide additional funding in order to maximize the recovery of credit."
343
The JIA also accepted that debt fo rgiveness by creditors might be "commercial" "[i]f such action is
reasonably found to be unavoidable in order to maximize the debt recovery". 344 We further recall our
finding that the JIA did not rely on presumptions re garding the outside investor standard, but rather
made factual findings regarding the lack of outside i nvestors willing to invest in Hynix at the time of
the restructurings. 345 Thus, there is no basis to Korea's argument that the JIA only reached its
conclusion on the Government of Korea having the intent to save Hynix because of the JIA's alleged
assumption – based on an outside investor standard – that the creditors were not acting in their own
interests.
Conclusion
7.117 For the above reasons, we reject Korea's argumen t that the JIA's analysis of the Government
of Korea's intent was biased and inconsistent with the evidence.346
(d) Commercial reasonableness: the JIA's analysis of the internal examinations of the
restructurings by the Four Creditors
7.118 A further element relied on by the JIA in finding that the Government of Korea had entrusted
or directed the Four Creditors to participate in the restructurings was its intermediate factual
conclusion that the Four Creditors had decided to participate in the restructurings on the basis of non-
commercial considerations.
7.119 Korea submits that the JIA's analysis of the internal examinations of the restructuring
transactions by the creditor banks does not suppor t its conclusions, since the evidence submitted by
the individual creditors established that they ha d conducted a sufficient analysis of the various
transactions before entering into them. Korea do es not dispute that the commercial reasonableness of
the creditors' actions might be relevant to a determination of government entrustment or direction.
7.120 Japan asks the Panel to reject Korea's argument.
(i) Main Arguments of Korea
7.121 Korea submits that the creditor banks that responded to the JIA's questionnaires told the JIA
the same basic story: they had received the in formation needed to analyze the October 2001 and
December 2002 restructuring transactions (in some cases, through draft versions of reports that were
only finalized at the time the restructuring agreem ents were adopted); they had analyzed that
information through their normal internal procedures ; and they had concluded that the restructuring
transactions were in their economic interests, especially in light of the available alternatives.

343 See Annex 3 (Rebuttals and Surrebuttals), para. 141. Despite references to this statement by Japan
in its First Written Submission ( see para. 379) and in subsequent submissions to the Panel ( see, for example,
para. 90 of Japan's Second Written Submission), Korea only acknowledged this statement in its final submission
to the Panel after the Second Substantive Meeting ( see Korea's Final Comments, para. 4). This statement
appears to have been overlooked by Korea during the earlier stages of the Panel proceedings.
344 See Annex 3 (Rebuttals and Surrebuttals), para. 429.
345 Although the JIA ultimately concluded that, because the Four Creditors had not acted on the basis of
commercial considerations, they had likely been influen ced by external factors su ch as the intent of the
Government of Korea to save Hynix, this does not mean that the JIA's conclusions on the Government's intent
were based on assumptions regarding the creditors' failure to act in their commercial interests. The JIA made
distinct factual findings regarding these two matters.
346 We recall that Korea has only challenged the ev identiary basis for the JIA's intermediate factual
conclusion regarding government intent. Korea has not disputed that intermediate factual conclusions regarding
government intent might support a finding of government entrustment or direction.

7.122 According to Korea, the JIA rejected the ba nks' claims in large measure because the JIA
applied an outside investor sta ndard, and could not accept that a ny rational bank would have entered
into those transactions. Korea asserts that, havi ng already decided that the banks' decision-making
processes must have been irrational (from an outside investor perspective), the JIA then considered
the actual evidence of what the banks actually did. Korea asserts that the JIA's finding of subjective
irrationality in the banks' decision-making processes was therefore based on the JIA's conclusion that
the banks' decisions were objectively irrational, from an outside investor perspective.
7.123 Korea submits that the JIA's discussion of the banks' decision-making processes was not an
even-handed assessment of the evidence. Instead, it was a search for excuses to disregard evidence
demonstrating that the banks had actually acted in a rational manner. According to Korea, this bias
can be seen by looking at the sp ecific issues that the JIA relied upon to discount the bank's statements
concerning the October 2001 and December 2002 restructurings:
• October 2001: Korea asserts that the independent analyses by Anjin Accounting and the
Monitor Group had demonstrated that Hynix's going-concern value at the time of the
October 2001 restructuring far exceeded its liquidation value.
Korea accepts that these reports were not finalized until after the terms of the
October 2001 restructuring had been approve d by the banks, but asserts that the banks
testified that they had received the reports in draft form before they made their decisions.
Korea also asserts that at least one of the banks also submitted its own internal analysis,
showing roughly the same results.
• December 2002: Korea asserts that the analyses pr epared by Deutsche Bank and [[BCI]]
in connection with the December 2002 restru cturing had shown that Hynix's going
concern value far exceeded its liquidation value. Korea states that the final versions of
these reports had been prepared and circulated to the banks before the banks made their
decisions to participate in the restructuring.
Korea asserts that the JIA never disputed the calculation of the going-concern value or
liquidation value in those reports. Instead, th e JIA disputed the substantive merits of the
reports.
(ii) Main Arguments of Japan
7.124 Japan submits that the distinction drawn by Korea between objective and subjective
rationality is artificial and not consis tent with the approach of the JIA. Japan asserts that what Korea
calls the objective and the subjective rationality of the creditor banks are not two separate elements
but are rather mutually supporting aspects of the sam e overall intermediate findings that the creditor
banks did not act in a commercially reasonable manner. Japan asserts that the JIA's finding was based
on abundant evidence that there existed no investors, either new or existing creditors, in the general
commercial market who would have invested in or provided loans to Hynix from an outsider
investor's perspective. Japan argues that the JIA did not base its examination of the commercial
reasonableness of the Four Creditors' actions exclus ively from the perspective of outside investors,
but also examined commercial reasonableness from the inside investor perspective.
7.125 Regarding the JIA's examination of the commercial reasonableness of existing creditors'
decisions to participate in the Hynix restructuri ngs, Japan asserts that the JIA followed the same
process for both the October 2001 347 and December 2002348 restructurings. Japan asserts that the JIA
explained this examination process in the following terms:

347 See Annex 1 of Final Determination, paras. 269-97.
348 See Annex 1 of Final Determination, paras. 328-74.

Based thereon, the Investigating Author ities examined the decision-making process
of the individual creditor banks and find that there were decisions that were not
commercially reasonable. It is not found that the decisions of the creditor banks were
commercially unreasonable directly from the fact that it was impossible to raise funds
from the commercial market or from new investors. …
In the Essential Facts, the commercial reasona bleness of the decisions by the creditor
banks to participate in the Hynix bail out measures was examined based on the
specific individual circumstances and on the evidence concerning the review process
pertaining to participation in the bailout measures on the premise that existing
creditors would possibly provide additiona l funding in order to maximize the
recovery of credit.
349
(iii) Evaluation by the Panel
7.126 In the context of its claim regarding the JI A's intermediate factual conclusion that the
decisions of the Four Creditors to participate in the restructurings were not commercially reasonable,
Korea's arguments raise the question of whether or not the JIA improperly applied an outside investor
standard. Korea's arguments also raise issues rega rding the JIA's treatment of internal analyses and
external reports prepared in respect of the Oct ober 2001 and December 2002 restructurings. We shall
examine each of these issues in turn.
Outside / Inside Investor Perspective

7.127 Korea asserts that the JIA rejected the Four Creditors' claims that their actions were
commercially reasonable in large measure because th e JIA applied an outside investor standard.
Korea submits that the JIA's finding of subjective irrationality in the banks' decision-making
processes was based on the JIA's conclusion that the banks' decisions were objectively irrational, from
an outside investor perspective. Korea relies in this regard on the following statement by the JIA:
In the Essential Facts, the Investigating Authorities find it was difficult for Hynix to
raise funds from the commercial market at the time taking into consideration the
worsening DRAM market, the deteriorating financial condition of Hynix, the trends
of Hynix share price and others, the deteri oration in its external credit rating, and
other indicators. Based thereon, the Inv estigating Authorities examined the decision-
making process of the individual creditor ba nks and find that there were decisions
that were not commercially reasonable.
350
7.128 Read in isolation, this statement by the JIA might well support Korea's interpretation of the
JIA's analysis. However, the very next sentence in the JIA's Response to Comments states that "[i]t is
not found that the decisions of the creditor banks were commercially unreasonable directly from the
fact that it was impossible to raise funds from the commercial market or from new investors". 351 This
clarification was made by the JIA in Annex 3 (Rebutta ls and Surrebuttals), in response to virtually the
same argument that Korea has raised in th e present proceedings. The JIA's full response 352 to that
argument reads:

349 See Annex 3 (Rebuttals and Surrebuttals), paras. 140-41.
350 See Annex 3 (Rebuttals and Surrebuttals), para. 140.
351 Ibid.
352 There are differences between the two transla tions of Annex 1 (Essential Facts) and Annex 3
(Rebuttals and Surrebuttals) submitted by the parties. Japan has challenged a number of alleged translation
errors in the version submitted by Korea (see, for example, Japan's First Written Submission, para. 348,
concerning para. 140 of Annex 3 (Rebuttals and Surrebuttals)). Since Korea has not responded to Japan's
argument that Korea's translation of para. 140 of Annex 3 (Rebuttals and Surrebuttals) is erroneous, and since

(140) In the Essential Facts, the Inves tigating Authorities find it was difficult for
Hynix to raise funds from the commercial market at the time taking into consideration
the worsening DRAM market, the deterior ating financial condition of Hynix, the
trends of Hynix share price and others, the deterioration in its external credit rating,
and other indicators. Based thereon, the Investigating Authorities examined the
decision-making process of the individual creditor banks and find that there were
decisions that were not commercially reasonable. It is not found that the decisions of
the creditor banks were commercially unreasonabl e directly from the fact that it was
impossible to raise funds from the co mmercial market or from new investors.
Accordingly, the rebuttal by the Governme nt of Korea that "the Investigating
Authorities concluded that the debt restru cturing acts of the banks were all non-
commercial measures because of the unsatisfactory financial state of Hynix," and
"commercial reasonableness was examined by evaluating the measures from the
perspective of corporations that are provi ding new financing or investment to the
pertinent company" differs from the findings in the Essential Facts; thus this rebuttal
cannot be accepted. When examining the decision-making processes of the individual
creditor banks, the Investigating Author ities conducted substantive bank-by-bank
analysis of their decision-making processes to participate in the Hynix support
measures based on the submitted inter nal examination documents and other
materials that served as a basis for their decisions. Consequently, the rebuttal that
"an abstract and general evaluation of the commercial reasonableness of the debt
restructuring was conducted despite that it must be evaluated from the real and
specific standpoint of the creditor institutions participating in such measures" also
differs from the findings in the Essential Facts; thus this rebuttal cannot be accepted.
(141) In the Essential Facts, the commerci al reasonableness of the decisions by the
creditor banks to participate in the Hyni x bailout measures was examined based on
the specific individual circumstances a nd on the evidence concerning the review
process pertaining to participation in the bailout measures on the premise that existing
creditors would possibly provide additiona l funding in order to maximize the
recovery of credit. No abstract judgment was made as to whether or not the decisions
conform to a fixed economic model. Th e assertions of Hynix and Micron are both
arguments that concern economic models, and are not based on specific evidence
leading to the decisions by the individual banks to participate in the bailout measures.
Accordingly, they cannot be accepted.
(142) In any case, irrespective of whether one is an existing creditor or not, financial
institutions examine a variety of factors from a profit-maximization or loss-
minimization perspective such as the financ ial conditions of the pertinent company,
its future potential, comparison of its goi ng-concern value with its liquidation value
when making investment or lending decisions. If such an examination was carried
out in a reasonable manner, then it can be said that a commercially reasonable
decision had been made based on the results of the examination even if the result was
the incurrence of a loss. On the other ha nd, in the case where the examination was
insufficient, then one cannot make a find ing that a commercially reasonable decision
had been made even if it resulted in generation of profit. In the Essential Facts, the
Investigating Authorities find that the financ ial institutions that participated in the
support did not conduct sufficient examination of this sort, and that they decided to
support non-commercially. (emphasis supplied)

note 19 to Korea's Second Written Submission suggests th at Korea is prepared to accept the translations
proposed by Japan, we proceed on the basis of the translations submitted by Japan.

7.129 We understand Japan to argue that the JIA fi rst established whethe r it was commercially
reasonable for either outside or inside investors to participate in the restructurings from an outside
investor perspective.
353 Japan asserts that the JIA then assessed whether it was commercially
reasonable for individual inside investors to participat e in the restructurings from an inside investor
perspective.354 This is consistent with the JIA's own description of its analysis, as detailed above.
7.130 It is also consistent with the JIA's findings in Annex 1 (Essential Facts). In particular, having
concluded that "Hynix was unable to raise funds fro m the commercial market, and [that] there existed
no investors in the general market who would invest in Hynix or provide a loan to Hynix from a
normal commercial perspective",
355 the JIA examined the "situation of [the] credit examination by
banks".356 With respect to Woori Bank's participation in the October 2001 restructuring, 357 for
example, the JIA made inter alia the following findings:
According to the internal credit examination document concerning the October 2001
Program Woori Bank submitted at the on-the- spot investigation, Woori Bank was
fully aware of the pessimistic financial situa tion of Hynix. It based its approval of the
October 2001 Program on considerations of the public interest [[BCI]].* Moreover,
there was a news report that President of the Bank had stated that the Bank was
prepared to provide support for the debt-to- equity swap and new funds if the creditor
banks agreed.* These facts support the fact that Woori Bank gave priority to the
public interest, i.e., the bailout of Hynix, over its own commercial judgment. At the
same time, according to Woori Bank's response to the questionnaires, the credit rating
of Hynix was [[BCI]]* the soundness classification was [[BCI]] at the end of 2001,
and Woori Bank set aside [[BCI]]% [of claims to Hynix] as a loan-loss reserve.* This
rate was very high compared with the aver age reserve rate for other claims, which
was [[BCI]]%,* and it shows that the bank ha d low expectations of the possibility of
recovering Hynix loans. As described above, with regard to the reports by various
institutions, which was submitted as the basis for its judgment, it was apparent at that
time that the two reports existing at the ti me of the resolution of the October 2001
Program (the SSB Report and the Monitor Group Report) lacked reliability to serve
as the material to substantiate the validity of the financial analysis to participate in the
October 2001 Program from a commercial pe rspective. At the same time, Woori
Bank selected option 1 prior to the release of the Arthur Andersen Report, on which
the October 2001 Program relied. The Investigating Authorities do not find that
Woori Bank's provision of credit under such circumstances as credit provided based
on normal commercial judgment.
358 (* footnotes omitted)
7.131 Thus, in addition to finding that it was not commercially reasonable for investors to
participate in the October 2001 restructuring from an outside investor's perspective, based on
objective considerations such as the poor financ ial state of Hynix, the JIA then considered inter alia
Woori's participation from the inside investor's pe rspective, having regard to what Woori itself had
indicated was "the basis for its judgment" ( i.e., its internal analyses, th e SSB Report, the Monitor
Group Report, and the Anjin Accounting Report).

353 See Annex 1 (Essential Facts), paras. 261-68 for the JIA's analysis of the October 2001 Program and
ibid., paras. 322-27 for the same on the December 2002 Program.
354 Japan made the same argument in response to Questions 99 and 100 from the Panel after the Second
Substantive Meeting.
356 See Annex 1 (Essential Facts), section 2.8.2.2.3.
357 The JIA also examined th e commercial reasonableness of the intern al analyses of the restructurings
undertaken by KEB, Chohung Bank and NACF ( see Annex 1 (Essential Facts), paras. 278, 284 and 287
respectively. Korea has not challeng ed the findings of the JIA regard ing the internal analyses of the
October 2001 restructuring by KEB and NACF.

7.132 In light of these distinct phases in the JIA's analys is, we reject Korea's argument that the JIA's
finding of subjective irrationality in the banks' decision-making processes was based on its conclusion
that the banks' decisions were objectively irrational from the perspective of outside investors.
Internal analyses of the October 2001 restructuring

7.133 Korea submits that the JIA's review of th e Four Creditors' internal analyses of the
October 2001 restructuring does not support the JIA's conclusion that the decisions of the Four
Creditors to participate were not based on commercial considerations. In particular, Korea asserts that
the internal examinations of the October 2001 restructuring by Woori Bank and Chohung Bank
explicitly considered the financial impact of the restructurings on those banks. Korea asserts that
these banks based their decisions to participate in the restructurings on an assessment that doing so
would minimize their losses because Hynix's going concern value exceeded its liquidation value.
7.134 Japan notes that the JIA found that Woori Bank based its approval of the October 2001
Program on considerations of the public interest, "[[BCI]]".
359 The JIA also found that Woori Bank
opted for option [[BCI]]. On the basi s of the JIA's review of Woori's internal analysis, together with
other factors, the JIA reached an intermediate factual conclusion that "Woori Bank did not select
Option [[BCI]] pursuant to a normal commercial judgment".360
7.135 In our view, the JIA could properly have doubted the commercial reasonableness of Woori
Bank's internal credit analysis on the basis of Woor i's failure to consider options [[BCI]] in that
analysis. Under such circumstances, Woori's an alysis of the October 2001 restructuring, which
involved a choice between three options, was incomple te. We also agree with the JIA's assessment
that the commercial reasonableness of that analysis is further undermined by Woori Bank's
consideration of "[[BCI]]", and its statement that "[[BCI]]". 361 I n i t s F i n a l C o m m e n t s , K o r e a
attributes such "public interest" consider ations to Woori's concern for "[[BCI]]". 362 Although Woori
did refer to the need to purchase a guarantee for a loan to a Hynix affiliate, this would not explain
Woori's concern for [[BCI]]. Furthermore, Woori we nt so far as to estimate the [[BCI]] in the event
that Hynix were liquidated, or entered into court receivership. Thus, the relationship between [[BCI]]
and [[BCI]] has not been sufficiently explained by Korea.
7.136 Korea also submits that "the first and most im portant factor identified by Woori [] is the
difference between the estimated going-concern va lue of [[BCI]] trillion Won and the estimated
liquidation value of [[BCI]] trillion Won. In lig ht of these estimates, the Woori Bank analysis
expressly stated that '[[BCI]].'" 363 Although we acknowledge that Woori Bank did estimate that
Hynix's going concern value would exceed its liqui dation value, we note the JIA's finding that
Woori's estimates were unsubstantiated, in the sense that Woori's analysis did not "record any basis
for the estimate".364 We also note that there is nothing in W oori's internal analysis to suggest that its
estimate that Hynix's going concern value exceeded its liquidation value was "the most important
factor identified by Woori", as alleged by Korea. Given Woori's failure to examine options [[BCI]],
and its consideration of non-commerc ial factors pertaining to the public interest, including especially
[[BCI]], Korea has failed to establish a prima facie case that the JIA's review of Woori Bank's internal
analysis was flawed simply by virtue of Woor i's reference to an unsubstantiated estimate that
[[BCI]].365

359 See Annex 3 (Rebuttals and Surrebuttals), para. 400.
360 See Annex 3 (Rebuttals and Surrebuttals), para. 400.
361 See Exhibit KOR-27, page 3.
362 See Korea's Final Comments, para. 41.
363 See Korea's Final Comments, para. 40.
364 See Annex 3 (Rebuttals and Surrebuttals), para. 382.
365 In its Final Comments to the Panel, Korea challenges the JIA's interpretation of a statement made by
the President of Woori Bank. After referring to public in terest considerations in Woori's internal analysis, the

7.137 Regarding Chohung Bank, the JIA found inter alia that:
Chohung Bank extended credit in a non-commerc ial manner on the basis of fact that
inter alia the decision was made to fulfil the [Memorandum of Understanding
(hereinafter "MOU")] rather than based on the possibility of rehabilitating Hynix
and that the Bank selected Option 1 before th e AA Report and others were presented.
With regards to the finding, Chohung Bank asserts that it had "various internal and
external materials;" however, Chohung Bank responded at the on-the-spot
investigation that "the materials that formed the basis of the pertinent examination no
longer remain at our Bank,"* and it has not submitted the aforementioned "various
internal and external materials" to the Investigating Authorities. In addition, although
the internal credit examination document that the Bank submitted contains an analysis
of the liquidation value of Hynix ( i.e., the compensation when selected Option 3),
there is no indication that the Bank evaluated the Hynix going-concern value or the
Hynix share price for the selection of Option 1 or Option 2. Thus, the assertion that
the Bank selected the most favourable option from Options 1, 2, and 3 based on the
impact each option would have on its profit-and-loss is inconsistent with the evidence
on the record of the investigation. Consequently, the assertion that the Bank
"selected Option 1 which was the most favourab le to the Bank, out of Options 1, 2,
and 3, based on the impact it would have on profit-and-loss and the MOU" and the
similar assertion of Hynix cannot be accepted.
366 (* footnote omitted)
7.138 Korea made no arguments regarding these specific findings by the JIA. Furthermore,
regarding Chohung's alleged need to comply with its MOU, we note that the "synthesis opinion" in
Chohung's internal analysis contains two bullet poin ts, both of which refer to the MOU. The first
bullet point states that "non-particip ation ... results in the miscarriage of MOU for this period". The
second bullet point contains the conclusion that "the participation is of help for CHB to achieve
MOU". In addition, we note that there is no quan tification of either the share price or the going
concern value in Chohung's internal analysis of opt ions 1 and 2. In light of these observations, there
is no basis to conclude that the JIA's review of Chohung's internal analysis was flawed.
7.139 For the above reasons, we reject Korea's arguments regarding the JIA's review of the internal
analyses of the October 2001 restructuring performed by Woori Bank and Chohung.
Reliance on external reports for the October 2001 restructuring

7.140 Korea asserts that the creditors worked with a variety of outside experts before deciding to
participate in the October 2001 restructuring. Korea asserts first that Salomon Smith Barney
continued to provide financial advice and extensive studies for review by the creditor group. Second,

JIA referred to "a news report that President of the Bank had stated that the bank was prepared to provide
support for the debt-to-equity swap and new funds if th e creditor banks agreed". The JIA stated that this
confirmed that Woori bank "gave priority to the public interest" (Annex 1 (Essential Facts), para. 281).
According to Korea, "[u]nder any fair reading, that statement indicates only that Woori Bank would be able to []
go along with the decision of the Council for Creditor Financial Institutions, which might include debt-equity
swaps [] and other types of financial support []. There is nothing in the Woori Bank president's statement
suggesting that the Creditors Council was expected to adopt a programme that was not in the creditors' interests,
or that Woori Bank was willing to sacrifice its own interests 'to save Hynix'" (Final Comments, para. 45).
Korea's argument overlooks the explanation provided by Japan, which emphasised that the President's statement
had been made "even before the October 2001 Program was prepared". In this regard, we note that the
statement was dated 31 August 2001, whereas Woori's internal analysis was dated 31 October 2001. In other
words, the President's statement was made before Woori's internal analysis had been completed. In these
circumstances, the JIA could properly have relied on the President's statement as evidence that Woori
participated in the October 2001 restructuring on the basis of non-commercial considerations.
366 See Annex 3 (Rebuttals and Surrebuttals), para. 407.

the creditors drew upon an assessment of Hynix's operational strengths and weaknesses provided by
the Monitor Group on [[BCI]]. Third, the credit ors conducted a valuation exercise, with Anjin
Accounting estimating the liquidation value of Hynix versus its value as a going concern. 367 Korea
asserts that the analysis prepared by Anjin Accoun ting indicated that Hynix's going-concern value far
exceeded its liquidation value.
7.141 We shall examine the JIA's treatment of each of the external reports referred to by Korea.
SSB Report

7.142 According to Japan, the JIA found that SSB was Hynix's financial adviser at the time it
compiled its Report. Furthermore, the Deputy Prime Minister Chin Nyum stated the creditor banks
did not consider that the SSB Report was reliable, and it was expected that a different, objective
organization would carry out the evaluation. 368 The JIA therefore found that the SSB Report was not
an objective source of information to decide whether to provide credit. In particular, the JIA found
that "the SSB Report lacked reliability to serve as a material to substantiate the validity of the
financial analysis to participate in the October 2001 Program from a commercial perspective".369
7.143 Korea does not challenge the JIA's finding regarding the lack of objectivity of the SSB report.
Accordingly, there is no basis for us to conclude that the JIA improperly concluded that "the SSB
Report lacked reliability to serve as a material to subs tantiate the validity of the financial analysis to
participate in the October 2001 Program from a commercial perspective".370
Monitor Group Reports

7.144 There were two Monitor Group Reports on the JIA's record. One was dated [[BCI]], the other
[[BCI]].
7.145 According to Japan, the JIA found that the [[BCI ]] Monitor Group Report merely outlined the
relative position of Hynix in the DRAM market, especially its capabilities in manufacturing and
technology, as well as its problems, but did not addr ess matters concerning Hynix's financial situation
or the possibility of debt repayment. The JIA th erefore found that the [[BCI]] Monitor Group Report
lacked reliability to substantiate the validity of the financial analysis from a commercial perspective in
connection with the participation in the Oct ober 2001 Program. Regarding the [[BCI]] Monitor

367 In its Final Comments to the Panel, Korea challenges Japan's assertion that Woori Bank had
informed the JIA that it had relied on the Anjin Accounting Report when deciding to participate in the
October 2001 restructuring ( see paras. 38 and 39 of Korea's Final Comments). We note that Japan's assertion
was made on at least two occasions in its First Written Submission ( see paras. 164 and 169). We also note
Article 14 of our Working Procedures, which provides:
Each party shall submit all factual evidence to the Panel no later than during the first
substantive meeting, except with respect to ev idence necessary for purposes of rebuttals or
answers to questions. Exceptions to this pr ocedure will be granted upon a showing of good
cause. The other party shall be accorded a period of time for comment, as appropriate, on any
new factual evidence submitted after the first substantive meeting.
According to Article 14, therefore, Korea's challenge to Japan's factual assertion (which was supported
by references to the JIA's Final Determination) should have been made by the end of the Panel's first substantive
meeting with the parties. Since Korea has not demonstr ated good cause for failing to challenge Japan's factual
assertion in good time, we proceed on the basis that Woori Bank did tell the JIA that it had relied on the Anjin
Accounting Report when deciding to participate in the October 2001 restructuring. In any event, Korea's
argument would not change our evaluation of the JIA's treatment of Woori's internal analysis, nor of the JIA's
handling of the Anjin Accounting Report. It would simply mean that the Anjin issue would not apply in respect
of Woori Bank.
369 See ibid.
370 See ibid.

Group Report, the JIA found that this also could not serve as the basis for the decisions of the
financial institutions to choose one of three options because this Report was issued after the resolution
of the October 2001 restructuring.
371
7.146 Korea does not dispute the JIA's finding th at the [[BCI]] Monitor Group Report was
insufficient to justify creditors' participation in the October 2001 restructuring because it did not
address matters concerning Hynix's financial situation or the possibility of debt repayment.372
7.147 We note that the Monitor Group's [[BCI]] Report did contain an analysis of Hynix's
"[[BCI]]", but that report was only completed in [[BCI]], and was therefore not available to the
creditors at the time they decided to participate in the October 2001 restructuring. While Korea does
not dispute that the [[BCI]] report was not availabl e to creditors in October 2001, Korea asserts that
the Monitor Group's analysis was already underway at the time the decision to participate in the
October 2001 restructuring was made, and that Monitor Group officials were in contact with
representatives of the creditors. We are unable to accept this argument, though, since Korea has
presented no evidence from the JIA's record in support th ereof. In this regard, Korea complains that
the JIA refused to accept that the creditors had access to the Monitor Group's analysis before deciding
to participate in the October 2001 restructuring because "it could not be confirmed whether the …
report[s] were disclosed at the draft stage".
373 We consider that it was entirely reasonable for the JIA
to have acted in this manner. The JIA had eviden ce on its record that the report was dated after the
restructuring. It allowed the parties to address the issue, at least because the Essential Facts disclosed
the JIA's finding and the nature of the evidence which underpinned the finding. One might reasonably
suppose that there would have been some record of any informal contacts between Monitor Group and
creditors' officials, such as minut es of meetings, notes to file, or records of telephone conversations,
and that such evidence would have been submitted to the JIA pursuant to its requests for all materials
used by the creditors in deciding whether or not to participate in the restructurings, or in response to
the Essential Facts. 374 Similarly, given the extent of the October 2001 restructuring, one might
reasonably suppose that creditors would have kept any draft versions of the Monitor Group's [[BCI]]
Report that were made available to them, in order to maintain a complete internal record of the
reasons for their participation in that restructuri ng. In our view, the complete absence of any such
evidence provides a reasonable basis for the JIA to conclude that input from the Monitor Group's
[[BCI]] Report was not available to creditors at the time of the October 2001 restructuring.375
7.148 Accordingly, there is no basis to conclude that the JIA erred in finding that the [[BCI]]
Monitor Group Report did not properly establish the commercial reasonableness of the Four
Creditors' participation in the October 2001 restructuring.

371 See ibid.
372 At para. 218 of its First Written Submission, Korea asserts that "the independent analyses by Anjin
Accounting and the Monitor Group had demonstrated that Hynix's going-concern value at the time of the
October 2001 restructuring far exceeded its liquidation value". Later in the same paragraph, however, Korea
clarifies that this statement is made in respect of the [[BCI]] Monitor Group Report.
373 See JIA Annex 3 (Rebuttals and Surrebuttals), para. 380 ("In the responses to the questionnaire of
the Government of Japan questionnaire and at the on-the-spot investigations in Korea, it [could] not be
confirmed whether or not the Anjin Accounting Report and the Monitor Group Report were disclosed during
their draft stage. In additi on, there should be some kind of evidence if such drafts would have been obtained.
No evidence, however, has been presented. Accordingly, this rebuttal is not substantiated by any evidence or
information on the record and cannot be accepted.")
374 See Japan's reply to Question 25 from the Panel. Korea has not denied Japan's assertion that the JIA
requested all materials used by the creditors in their examination of the restructurings.
375 This is supported by the fact that the only internal analysis shown to the Panel that refers to any
Monitor Group data is the internal analysis conducted by [[BCI]]. Korea confirmed, in response to
Question 113 from the Panel, that this data was taken from the [[BCI]] Monitor Group Report.

Anjin Accounting Report

7.149 According to Japan, the JIA found that the Anjin Accounting Report could not have served as
a basis for creditors to decide to participate in the October 2001 restructuring because it was issued
after those decisions to participate were made.
7.150 In response to Question 66 from the Panel, Kor ea asserted that, although the final version of
this report was not available at the time the cred itors made their decision to participate in the
October 2001 restructuring, the Anjin Accounting analysis was already underway at the time the
decision was made, and the Anjin Accounting analys ts were in contact with representatives of the
creditors prior to the approval of the restructuri ng. In its First Written Submission, Korea also
suggests that the creditors obtained draft versions of the Anjin Accounting Report, and argues that the
JIA never explained why the banks would have kept copies of draft reports after they received the
final versions that supported their decisions in mo re polished form. In support, Korea submits an
affidavit to the effect that "it is quite common for drafts of such presentations, reports and analyses to
be circulated among creditors while a restructuring is being negotiated".
376
7.151 We note that Korea has not pointed to any record evidence in support of its argument that the
Anjin Accounting analysts were in contact with re presentatives of the creditors prior to the approval
of the restructuring. In contrast, Woori' s internal analysis states that "[[BCI]]". 377 As noted by the
JIA378, this suggests that Woori had not, at that time, received any input from Anjin regarding Hynix's
liquidation value.
7.152 We recall that, although it has not relied on r ecord evidence, Korea has provided the Panel
with an affidavit in support of its position. Japan challenges both the probative value and the
admissibility of that affidavit. Regarding admissib ility, Japan asserts that th e affidavit was not on the
JIA's record. Korea has not disputed this. We agree with Japan that the Panel should refrain from
considering non-record evidence when reviewing the JIA's determination. Accordingly, it is not
necessary for the Panel to make any findings regardi ng the probative value of the affidavit. Moreover
the affidavit does not attest to the proposition that the draft Anjin Accounting Report was seen by the
banks prior to the October 2001 restructuring.
7.153 Furthermore, (as indicated above in respect of the Monitor Group Report,) we consider that
the fact that the report was published after the r estructuring, and the absence of any evidence of
informal contacts between Anjin an d the creditors, or evidence de monstrating that creditors had
access to draft versions of the Anjin Report, co nstitutes a sufficient basis for a reasonable and
objective investigating authority to conclude that An jin's analysis was not made available to creditors
at the time they decided to participate in the October 2001 restructuring.379
7.154 In light of the above, there is no basis to conclude that the JIA erred in finding that the Anjin
Accounting Report did not properly establish the co mmercial reasonableness of the Four Creditors'
participation in the October 2001 restructuring.
Internal analyses of the December 2002 restructuring

7.155 In considering the individual decisions of the Four Creditors to participate in the
December 2002 restructuring, the JIA made frequent re ferences to its analysis – and rejection – of a

376 See Korea's First Written Submission, note 193.
377 See [[BCI]]'s internal analysis of the October 2001 restructuring, page 2, Exhibit KOR-27.
378 See para. 381 of Annex 3 (Rebuttals and Surrebuttals).
379 Furthermore, we note that there are no references to any Anjin data in either the [[BCI]]' internal
analyses of the October 2001 restructuring.

report prepared by Deutsche Bank.
380 Indeed, the JIA begins its anal ysis of the creditors' internal
examination of the December 2002 restructuring by evaluating the Deutsche Bank Report. The JIA
does so because:
In the responses to the questionnaires and the responses at the on-the-spot
investigation regarding their decision to participate in the December 2002 Program
under such conditions, the creditor banks allege d that they had determined to provide
credit after having examined the Deutsche Bank Report. ... 381
7.156 It is apparent that the JIA first concluded that the Deutsche Bank Report alone did not provide
a sufficient basis "to substantiate commercial judgments", 382 and then analyzed the Four Creditors'
internal analyses in light of that conclusion.383 If the JIA had reached a different conclusion regarding
the Deutsche Bank Report, its approach to the inte rnal examinations of the Four Creditors would
necessarily have been markedly different.
7.157 We conclude from this that the JIA's considera tion of the adequacy of the internal analyses
was predicated on its findings concerning the insu fficiency of the Deutsche Bank Report in providing
a commercial justification for their participation in the December 2002 restructuring.
The December 2002 Restructuring: Creditors' Reliance on the Deutsche Bank Report

7.158 Korea asserts that the analysis prepared by Deutsche Bank
384 in connection with the
December 2002 restructuring had shown that Hynix's going concern value far exceeded its liquidation
value. Korea states that the final version of this report had been prepared and circulated to the banks
before the banks made their decisions to participate in the restructuring.
7.159 The JIA did not dispute that the Deutsche Bank Report was available to creditors at the time
that they undertook the December 2002 restructuring. However, the JIA rejected the Deutsche Bank
Report as proof of the commercial reasonableness of the banks' participation in the December 2002
restructuring for both formal and substantive reasons . On form, the JIA disputed the independence of
the Report. In particular, it found that "the Deut sche Bank Report does not have sufficient third-party
character to substantiate commercial judgments"385 for two reasons:
• First, the Deutsche Bank [[BCI]], and theref ore its independence from Hynix's interests
was questionable.386

380 See, for example, paras. 350, 351, 354, 355, 356, 357, 358, 362 and 363 of Annex 1 (Essential
Facts).
383 Furthermore, for KEB and [[BCI]], the JIA applied facts available on the basis of non-cooperation.
As a result, the JIA proceeded on the basis that these banks had decided to participate in the December 2002
restructuring "based on the Deutsche Bank Report". ( See Annex 1 (Essential Facts), paras. 349 and 354.) This
confirms that the JIA's analysis of these banks' participation in the December 2002 restructuring was necessarily
premised on its assessment of the Deutsche Bank Report. In addition, the JIA explicitly rejected Chohung's
claim that it had relied on an internal examination in addition to the Deutsche Bank Report. The JIA found
instead that Chohung "simply accepted the Deutsche Bank Report" (Annex 3 (Rebuttals and Surrebuttals,
para. 522).
384 Korea explains that the Deutsche Bank Report was based on input from [[BCI]]. [[BCI]] is an
outside consulting firm (see Korea's Second Written Submission, para. 187).
 385 Annex 1 (Essential Facts), para. 342.

• Second, the Government of Korea intervened into the process of the preparation of the
Deutsche Bank Report, … 387
7.160 On substance, the JIA found that the Deutsch e Bank Report contained discrepancies, which
"should have been easy for a person who engages in the corporate financing business to identify" 388,
and that therefore "the Deutsche Bank Report, reviewed from the aspect of its content as well, is not a
sufficient basis for the commercial financing judgment of experienced financial institutions."389
7.161 Korea asserts that each and every one of th e "discrepancies" advanced by the JIA was
demonstrably wrong. We shall examine each of these issues in turn, starting with the JIA's
conclusions regarding the independence of the Deutsche Bank Report.
The Independence of the Deutsche Bank Report

7.162 The JIA questioned the independence of the De utsche Bank Report, on the basis that [[BCI]],
and that the Government of Korea had intervened in the preparation of the Report. This was, in turn,
one of the factors relied upon by the JIA in its finding that the Deutsche Bank Report was not reliable,
in a commercial sense, and thus that the behaviou r of the Four Creditors in entering into the
December 2002 restructuring was non-commercial. "Non-commerciality", in the JIA's view, was an
indicator that the Four Creditors were entrusted or directed by the Government of Korea to enter into
that restructuring.
[[BCI]] contract
7.163 According to Korea, the evidence before the JIA demonstrated that Deutsche Bank had a
contractual relationship with [[ BCI]] to pay the fees for any professional services obtained by the
creditors in connection with the restructuring. Korea provided the Panel with a Memorandum of
Understanding between [[BCI]] of which stipulated that:
[[BCI]] may … seek advice from public ac countants, lawyers or other assessment
specialists. In this case, [[BCI]] shall assume the fee expenses paid for them.390
7.164 Korea submits that [[BCI]] agreement to pa y Deutsche Bank's fees as required by [[BCI]]
agreement with its creditors does not in any way call into question Deutsche Bank's independence.
7.165 Korea asserts that the panel rejected a simila r argument raised by the European Communities
in the Korea – Commercial Vessels case:
We understand the EC to argue that the An jin report should not have been relied on
by DHI's creditors since the report was commissioned by DHI and KDB, a public
body, both of which had an interest in seeing DHI restructured rather than liquidated.
Korea submits that Anjin was retained by the KDB, on behalf of all creditors. Korea
asserts that, although DHI was mentioned in the retainer agreement, this was only
because DHI was responsible for paying Anjin's fees….
The EC has not challenged these statements by Anjin. In particular, the EC has not
disputed that it is standard practice for companies under receivership / workout to pay

389 Ibid.
390 See Memorandum of Understanding, [[BCI]]. See also Memorandum of Understanding, [[BCI]]
(Exhibit KOR-36).

the fees of professional advisors. Nor has the EC disputed that DHI "was not in a
position to receive reports and/or updates thereof from Anjin." We also note that the
cover letter accompanying Anjin's report w as addressed exclusively to KDB, and not
to DHI. Since we have no reason to believe that DHI was in a position to influence
the substance of Anjin's report, there is no reason to discredit the Anjin report merely
because Anjin's fees were paid by DHI.
391
7.166 In light of Korea's argument regarding [[BCI]] of the abovementioned MOU, the Panel asked
Japan to provide a copy of the contract between [[BCI]] and Deutsche Bank. Upon review of the
document submitted by Japan, we note that the cont ract referred to by the JIA was not between
Deutsche Bank and [[BCI]] exclusively. [[BCI]] 392, was also party to the contract. Thus, Deutsche
Bank was "jointly engaged" by [[BCI]]. Accordingl y, there is nothing of a contractual nature to
suggest that Deutsche Bank was likely to have prep ared its report in such a way as to favour the
interests of [[BCI]] over those of the creditors (as represented by [[BCI]]). 393 In addition, the contract
appoints Deutsche Bank "[[BCI]], including the split of [[BCI]] into several entities, other solutions to
the restructuring of [[BCI]] and any possible sale or transfer of all or some of [[BCI]] semiconductor
businesses".394 Deutsche Bank's work, therefore, was rest ricted to the restructuring of [[BCI]]
(whether by refinancing [[BCI]], breaking [[BCI]] up, or trying to sell its businesses). Accordingly,
there is nothing to suggest that Deutsche Bank had b een [[BCI]] before then, such that it possibly had
vested interests resulting from advice that it may have given [[BCI]] in the past. Nor is there anything
to suggest that Deutsche Bank had been appointed to act as [[BCI]], to give credence to the view that
it might have drafted its report in such a way as to favour the continued existence of [[BCI]] as a
going concern.
7.167 Finally, we note that the contract refers exp licitly to the appointment of [[BCI]] as "joint
[[BCI]] with Deutsche Bank for the business and financial restructuring of" 395 [[BCI]]. In our view,
the participation of an additional [[BCI]] also c ontradicts the proposition that Deutsche Bank could be
expected to have acted in a way that might favour the interests of [[BCI]] over those of the creditors.
7.168 In its Final Determination, the JIA did not prov ide any analysis of the contents of Deutsche
Bank's contract with [[BCI]]. The contract was evidence on the JIA's record. On our review of that
contract, we do not consider that the JIA could have properly come to the conclusion that it did
regarding that contract. For the reasons given above, we consider that the JIA could not properly have
called into question the independence of the Deutsc he Bank on the basis of the contract appointing
Deutsche Bank as (joint) [[BCI]].
396

391 See Korea – Commercial Vessels, paras. 7.440 to 7.443.
392 See 22 May 2002 contractual document, page 11.
393 Japan argues that the fact that the Deutsche Bank Report was "[[BCI]]" ( see Deutsche Bank Report,
[[BCI]] section) indicates that the Re port was prepared [[BCI]]. In fact, [[BCI]] provides that the Report was
"[[BCI]]". Since the Report was also prepared [[BCI]], we do not consider that the phrase "[[BCI]]" could mean
that the Report was prepared exclusivel y [[BCI]]. Furthermore, there is no reference to the JIA having referred
to the phrase "[[BCI]]" in assessing the independence of the Deutsche Bank Report in the Final Determination.
394 See 22 May 2002 contractual document, page 1. There is no suggestion by the JIA that this contract
precluded Deutsche Bank from considering the liquidation of Hynix.
395 See 22 May 2002 contractual document, page 2.
396 Japan has sought to rely on the statement by the panel in Korea – Commercial Vessels that "the
cover letter accompanying Anjin's report was addressed exclusively to KDB, and not to DHI" ( see para. 7.443).
Japan asserts that the Deutsche Bank Report was addressed to [[BCI]]. In Korea – Commercial Vessels, the fact
that the cover letter accompanying the report was not addr essed to the company being restructured was one of
several factors that led the panel to conclude that the restructured company was not "in a position to influence
the substance of" (ibid.) the relevant report. While the JIA has not made any findings regarding the addressees
of the cover letter accompanying Deutsche Bank's Report, we agree with that panel's view that the critical issue
is whether or not the restructured company was in a position to influence the substance of the consultant's

Government intervention in the preparation of the Deutsche Bank Report
7.169 The JIA referred to a number of press reports (from August, September and October 2002) to
the effect that the Government of Korea had inte rvened in the preparation of the Deutsche Bank
Report.397 The JIA relied on this evidence in orde r to impugn the commercial reliability of the
Deutsche Bank Report, and to therefore find that the decisions made by the Four Creditors to enter
into the December 2002 restructuring were not comme rcially based. Although the JIA did not rely on
this evidence explicitly, Japan asserts 398 that the JIA also relied on a finding that NACF had admitted
that the Government of Korea had intervened in the preparation of the Deutsche Bank Report.
7.170 Korea submits that the JIA neglected to menti on that it had specifically asked KEB, the lead
creditor bank, to comment on those reports at verifi cation. Korea asserts that KEB denied that those
reports were accurate, and stated that there were no changes between the draft and final report.
Korea further asserts that even if the press reports relied upon by the JIA had been correct, they did
not in any way impugn the accuracy of the Deutsc he Bank Report's calculation of Hynix's going-
concern and liquidation values. Instead, Korea say s that the press reports indicated only that the
government was encouraging the creditors to consider the sale of Hynix as an alternative to keeping it
operating as an independent entity, and sought to have the Deutsche Bank consider that alternative.
7.171 Japan submits that KEB failed to provide evid ence in support of its assertion that there had
been no changes between the draft and final versions of the report. Japan asserts that KEB failed to
provide the JIA with a draft copy of the report pre-dating the press reports relied on by the JIA.
7.172 We note that the press reports that the JIA relied on as evidence of intervention by the
Government of Korea in the preparation of the Deutsche Bank Report are descr ibed in para. 334 of
Annex 1 (Essential Facts). We emphasise that these reports were relied on by the JIA as evidence of a
specific fact, i.e., government involvement in the preparation of the restructuring plan set forth in the
Deutsche Bank Report.399 We have therefore reviewed these repor ts from that perspective, in order to
establish whether or not the JIA might properly ha ve relied on them as evidence of government
intervention in the preparation of the Deutsch e Bank Report. Although we necessarily begin by
reviewing the reports individually, we also consider them collectively, in case aspects of different
reports together might support a finding of gove rnment intervention even where reports taken
individually do not.400
7.173 The first report, dated 23 August 2002, quotes the President of KEB referring to creditors
"having discussion[s] with the government". We note that this report refers only to "discussion[s]",
but does not say that such discussions took the form of government involvement in the preparation of

report. We do not consider that the JIA could properly have treated the mere fact that the Deutsche Bank Report
was addressed to [[BCI]] as evidence that [[BCI]] was in a position to influence the substance of that Report.
398 See para. 94 of Japan's Second Written Submission.
399 We note that we have accepted that certain of th ese reports could properly have been treated as
evidence of the Government of Korea's intent to save Hynix ( see para. 7.109 supra). This does not necessarily
mean that the same reports could properly be treated of something far more specific, namely the Government's
intervention in the preparation of the Deutsche Bank Report.
400 The JIA merely referred to the press reports indi vidually. The JIA did not explain how the reports
could be read together to support a finding of government intervention in the preparation of the Deutsche Bank
Report. Nevertheless, we note the statement by the Appellate Body in US – Countervailing Duty Investigation
on DRAMS (para. 150) that "a panel reviewing [] a determination normally should consider that evidence in its
totality, rather than individually, in order to assess its probative value with respect to the agency's determination.
Indeed, requiring that each piece of circumstantial evid ence, on its own, establish entrustment or direction
effectively precludes an agency from finding entrustment or direction on the basis of circumstantial evidence.
Individual pieces of circumstantial evidence, by their very nature, are not likely to establish a proposition, unless
and until viewed in conjunction with other pieces of evidence."

the Deutsche Bank Report per se. Furthermore, the relevant "d iscussion[s]" were not between the
Government of Korea and Deutsche Bank (as an al legation of government intervention in Deutsche
Bank's Report might suggest), but between the Government and creditors.
7.174 The second report, dated 25 August 2002, refers to the Deutsche Bank restructuring plan
being "re-evaluate[d]" after "due diligence" by the "government" and KEB. This could be
circumstantial evidence of intervention. However, this report does not contain any quotes attributed
to particular individuals or entities, and its evidentiary value could not be said to be strong.
7.175 The third report, dated 26 August 2002, quotes a minority shareholder representative referring
to media reports of government intervention in th e contents of the Deutsche Bank Report. We note
that this is hearsay, in the sense that the relevant minority shareholder representative him/herself is not
quoted as stating that the Government had interven ed in the Deutsche Bank Report. Moreover, we
note that this report was published the day after th e second report, and that the statements may well
have been in reaction to that second, non-attributed, report.
7.176 The fourth report, dated 2 September 2002, re fers to statements by "a spokesperson
representing the administration and the creditors" to the effect that the FSC had informed creditors
that they should sell Hynix. We note that these statements do not specifically refer to the Government
interfering in the preparation and contents of the Deutsche Bank Report. They indicate only that the
Government of Korea was of the opinion that Hynix should be sold.
7.177 The fifth report, dated 25 August 2002, refers to statements by unnamed observers to the
effect that the Government "seems to be sticking to the option of selling" Hynix. We note that this
report does not specifically refer to the Government interfering in the preparation and contents of the
Deutsche Bank Report.
7.178 The sixth report, dated 12 September 2002, refers to comments by unnamed Hynix and
creditor representatives to the effect that "the government asked for several corrections in the
normalization plan". Although the comments are not attributed to named individuals, they are
attributed to at least one named entity ( i.e., Hynix). This report refers expressly to government
intervention in the preparation of what is referred to as "the normalization plan"
401.
7.179 The seventh report, dated 13 September 2002, re fers to reports that KEB "was apparently
dissatisfied with the report, and [that] the governme nt requested Deutsche Bank to review the plan".
This report is inconclusive, since it suggests that it was KEB, the lead creditor, that was dissatisfied
with Deutsche Bank's draft Report. The evidentiary value of this report is not strong, as it does not
attribute any statements to named entities or individuals.
7.180 The eighth report, dated 18 September 2002, quotes a Minister expressing his opinion at a
seminar that Hynix should not be maintained as a going- concern. We note that this is not evidence of
government involvement in the Deutsche Bank Report. It is simply evidence of the Minister's opinion
about how Hynix should be treated in the future.
7.181 The ninth and last report, dated 3 October 2002, quotes a KDB official stating that the
immediate sale of Hynix was impossible, and that it should be maintained as a going-concern. We
note that this is not evidence of Government inte rvention in the preparation of the Deutsche Bank
Report. It is simply evidence of KDB's opinion th at Hynix should be maintained as a going concern.
Furthermore, since KDB was a public body creditor of Hynix (and therefore directly involved in the
December 2002 restructuring), there is nothing surprising in the fact that KDB had formed an opinion

401 Neither party addressed the question of whether this reference to "the normalization plan" is a
reference to the Deutsche Bank Report, or to something else. Whilst it is not clear to the Panel that
"normalization plan" is a reference to the Deutsche Bank Report, we have assumed that it is such a reference.

on the restructuring. Accordingly, we fail to see how KDB's statement might properly suggest to the
JIA some broader government intervention in the Deutsche Bank Report.
7.182 We recall that the JIA presented the aboveme ntioned press reports as evidence that the
Government of Korea had intervened in the prepar ation of the Deutsche Bank Report. However, out
of the nine reports relied on by the JIA, only one (the sixth) suggests that the government did
intervene in the Deutsche Bank Report. The re maining reports are eith er unsubstantiated (by
reference to quotes from named individuals or entiti es), or do not refer to government intervention in
the Deutsche Bank Report. 402 Some of the reports indicate that the Government of Korea was of the
opinion that the restructuring sh ould take a particular form ( i.e., sale). There is no suggestion in any
of these reports that the Government then acted on its opinion and intervened in the preparation of the
Deutsche Bank Report. In the face of so much reportage about Hynix, and the opinions of people
concerned about its future, it is difficult to accept th at there would not have been more evidence of
intervention by the Government in the preparation of the Deutsche Bank Report than the single
mention of intervention in "the normalization plan" in the sixth report. Furthermore, there is nothing
in the other reports which might add weight to a fi nding of government intervention in the preparation
of the Deutsche Bank Report, based on the sixth report . As such, we consider that the reports relied
on by the JIA - whether read in isolation or as a whole - provide precious little support for a finding
that the Government of Korea intervened in the preparation of the Deutsche Bank Report.
7.183 Nor do we consider that additional support is provided by the alleged admission of
government intervention in the preparation of the Deutsche Bank Report by NACF. The JIA notes
that NACF used the phrase "despite the interventi on of the government" in its rebuttal arguments.
403
According to the JIA:
NACF thereby admits that the Govern ment of Korea intervened in the
December 2002 Program. If there were such aw areness, it would serve to substantiate
that a detailed examination on the conten ts of the Deutsche Bank Report should have
been conducted when making a commercial decision concerning the December 2002
Program.404
7.184 Korea denies that NACF had made any admission of Government involvement in the
Deutsche Bank Report. Korea asserts that NACF had actually argued that:
despite the intervention of the government, the conclusion of the Deutsche Bank
Report remained "normalization of operation" of Hynix to be the top priority, and that
participating in the debt restructuring based thereon, even if it took some time to
accomplish, would be a more appropriate option than liquidation, because it would be
impossible for unsecured creditors to recover more than 50% of their claims with the

402 We note Korea's argument regarding KEB's statem ent that there were no ch anges between the draft
and final versions of the report. We have examined Exhibit JPN-26, and find that the copy of the allegedly draft
report provided by KEB in support of this statement was dated November 2002. That document therefore
provides no indication of whether or not changes were made to the report at the time that the abovementioned
press reports were made (August, September and Octobe r 2002). Accordingly, the JIA could properly have
disregarded KEB's statement in analysing potential changes to the report during the period covered by the
abovementioned press reports.
403 We note that Japan did not refer to this issue in the context of the alleged intervention of the
Government of Korea in the preparation of the Deutsche Bank Report. Japan referred to this issue in the context
of the alleged substantive "discrepancies" in the Report ( see para. 368 of Japan's First Written Submission, final
bullet point). It is therefore in this context that we review this issue.
404 See Annex 3 (Rebuttals and Surrebuttals), para. 528.

Hynix liquidation value of [ ]%, and the debt-to-equity swap of 50% of unsecured
claims would cause no losses whatsoever to NACF.
405
7.185 Korea submits that the JIA and Japan have sei zed upon the phrase "despite the intervention of
the government" as an alleged admission, whereas the obvious import of the NACF's argument was
actually that any alleged intervention by the gove rnment had no effect on the analysis presented by
Deutsche Bank.
7.186 Japan submits that the abovementioned NACF statement clearly indicates that the
Government of Korea intervened in the terms a nd conditions of the December 2002 restructuring, and
that the terms and conditions of that restructuring were changed.
7.187 It is possible that Korea may be correct in arguing that the thrust of NACF's argument was
that any alleged government involvement did not affect Deutsche Bank's analysis. However, the
language used by NACF might also properly have been understood by the JIA to mean that NACF
was arguing that, although the government did interv ene, it did not affect the substance of Deutsche
Bank's analysis. The text employed by NACF is inconclusive.
7.188 In the absence of any other evid ence of intervention, or evid ence that the Government of
Korea had the means to exercise influence over Deutsche Bank, we are unable to accept that an
objective and impartial investigating authority mi ght properly find that the Government of Korea
intervened in the preparation of the Deutsche Bank Report on the basis of a single, non-attributed,
press report indicating that the Government of Korea had done so, read in lig ht of an inconclusive
statement by one of the creditors.406
7.189 Furthermore, even if there had been suffici ent evidence of government intervention in the
Deutsche Bank Report, that should only have suggested to the JIA that creditors might have
questioned the credibility of the Report, and therefor e approached the substance of the Report with
circumspection. Indeed, this was precisely the conc lusion drawn by the JIA in respect of the alleged
admission by NACF, in the sense that the JIA merely indicated that NACF should have conducted a
"detailed examination"407 of (rather than reject outright) the Deutsche Bank Report as a result of its
possible suspicions of government intervention. The value of this slight evidence of intervention, as
an element of establishing the non-commerciality of the Deutsche Bank Report, and then in turn
establishing entrustment or direction, is made much less significant or irrelevant if the Report itself is
not shown to have been rendered "non-commercial" by reason of any alleged intervention. As
discussed in the following section of our Report, we have reviewed the alleged "discrepancies" in the
Deutsche Bank Report identified by the JIA. We find that the JIA erred in identifying those
"discrepancies". Without such "d iscrepancies", we see no reason to doubt that creditors could have
had full confidence in the credibility and integrity of the Deutsche Bank Report. Furthermore, if we
find, as we do, that the JIA was in error in concluding that the Report was not commercially
reasonable, then the JIA's concern about NACF' s statement, and what NACF should have done,
necessarily falls away.

405 See Annex 3 (Rebuttals and Surrebuttals), para. 526.
406 The JIA should benefit from any doubt in our minds regarding the quality of the evidence in the
abovementioned press reports. However, those press reports were only capable of suggesting that the JIA
should consider the issue of government intervention in the preparation of the Deutsche Bank Report, and not
that such intervention actually occurred. Most of them do not even deal with the proposition that there was
intervention. Whilst it was not necessary for the JIA to establish the perfect truth, it was also incumbent on the
JIA to be objective and unbiased in its assessment of the evidence before it. There is no doubt in our minds that
the alleged evidence of intervention was an insufficient "building block" in the analysis undertaken by the JIA,
either of itself or when considered in the context of the other evidence which we have found to have been
improperly assessed by the JIA.
407 See Annex 3 (Rebuttals and Surrebuttals), para. 528.

7.190 For the above reasons, we consider that th e JIA could not properly have impugned the
independence of the Deutsche Bank Report.
The Substance of the Deutsche Bank Report

7.191 The JIA identified the following alleged "discrepancies" in the Deutsche Bank Report:
• The Deutsche Bank Report does not [[BCI]].408
• The Deutsche Bank Report concluded that [[BCI]] with respect to Hynix's going-concern
values.409
• In comparing the liquidation values with th e going-concern values, the Deutsche Bank
Report [[BCI]].410
• Recovery rates [[BCI]].411
• The Deutsche Bank Report concluded that the proposal to sell off the memory division
was [[BCI]].412
7.192 Japan also asserts that, in its rebuttal comment s, Hynix voluntarily admitted that the Deutsche
Bank Report had an error. The JIA found that, upon correction of the error acknowledged by Hynix,
the collection rates of going-concern values would be [[BCI]] the rates in the Deutsche Bank
Report.
413
7.193 The JIA relied on such "discrepancies" to conclude that the Deutsche Bank Report did not
establish the commercial reasonableness of the decisions of the Four Creditors to participate in the
restructurings.414 We shall examine each of these "discrepancies" in turn.
Liquidation Value
7.194 The first such "discrepancy" relates to the De utsche Bank Report's alle ged failure to properly
support its conclusion about Hynix's liquidation value. The JIA found that:
The evaluation of Hynix's liquidation value was made by [[BCI]], but according to
the report, it evaluated [[BCI]]. The same report evaluated Hynix's liquidation value,
[[BCI]]. In other words, the evaluation wa s lower than the asset value, which was
premised that sales would be made in a cer tain period of time. The Deutsche Bank
Report cites the factors that [[BCI]]. The report, however, does not [[BCI]] with
regard to these factors.*
415 (* footnotes omitted)
7.195 The first part of this finding suggests that th e JIA was concerned that [[BCI]] had initially
opted for a lower liquidation value than it could have done ( i.e., [[BCI]]), and that Deutsche Bank

409 Ibid.
410 Ibid.
411 Ibid.
412 Ibid.
413 See Annex 3 (Rebuttals and Surrebuttals), paras. 500-01.
415 See Annex 1 (Essential Facts), para. 343, first bullet point. The JIA also addressed this issue at

[[BCI]]. However, since Deutsche Bank [[BCI]]
416, any such concern regarding the liquidation value
actually applied by Deutsche Bank [[BCI]].
7.196 Indeed, Japan has confirmed that the JIA was not concerned with the amount of the
liquidation value applied by Deutsche Bank per se.417 Instead, in respect of the latter part of the above
finding by the JIA, Japan has explained that the real problem identified by the JIA was the fact that
Deutsche Bank "suggested that the actual liquidation value could potentially be either higher or lower
than the assessed liquidation value", without "[[BCI]]".418
7.197 First, we note that Deutsche Bank explicitly stat ed that its Report "[[BCI]]". Deutsche Bank
therefore "[[BCI]]". 419 In addition, Deutsche Bank stated that it was not "[[BCI]]" 420 information
contained in its Report. Such warnings seem to the Panel to be reasonable in the context of a
restructuring, where time is of the essence. In li ght of these warnings, Hynix's creditors were fully
aware that Deutsche Bank's analysis was not as thorough and complete as it might otherwise have
been.
421
7.198 Second, we have examined the factors 422 that, according to the Deutsche Bank Report, could
[[BCI]] the actual liquidation value realized by H ynix's creditors in the event that Hynix were
liquidated. They relate to process ([[BCI]]), exec ution ([[BCI]]), and the fact that a particular
category of creditors might exercise certain rights against Hynix. In our view, such factors do not
lend themselves to precise quantification. Given th at the liquidation process might take from [[BCI]],
and recalling the explicit warnings provided by De utsche Bank, we do not consider that Deutsche
Bank could reasonably have been expected to quantify [[BCI]] over such an extended period of time.
7.199 In light of the above, we find that the JIA ha d no reasonable, objective basis for suggesting
that the Deutsche Bank's calculation of the liqui dation value was a discrepancy which impugned the
commerciality of the Report.
Going-Concern Scenarios

7.200 The second alleged "discrepancy" relates to th e Report's treatment of four possible going
concern scenarios, and which was to be preferred. The JIA found that:
with respect to the going-concern value, the report shows [[BCI]].* Among them,
[[BCI]]. Among those, [[BCI]]. In spite of that, the Deutsche Bank Report
[[BCI]].*
423 (* footnotes omitted)
7.201 Deutsche Bank had calculated [[BCI]] going-conc ern values, based on [[BCI]]. The JIA
criticised Deutsche Bank for focusing on one scenario ([[BCI]]) 424, in which the going-concern value

416 Japan acknowledges this point in its reply to Question 82 from the Panel (at para. 10).
417 In response to Question 82 from the Panel (para. 11 ), Japan stated that the issue raised by the JIA
did not concern the amount of the liquidation value, but rather the sufficiency of Deutsche Bank's analysis based
on that liquidation value.
418 See Japan's reply to Question 78 from the Panel.
419 See [[BCI]].
420 Ibid.
421 To avoid any misunderstanding, this does not mean that the Panel considers Deutsche Bank's
analysis to have been incomplete. It simply mean s that the Panel acknowledge s that, in the pressured
circumstances of a restructuring, it may not be realistic to expect the analysis to be as thorough as it might be in
other circumstances.
422 The JIA seems to query why Deutsche Bank should refer to these factors given that they were
"[[BCI]]". In our view, Deutsche Banks's reference to the same factors as those identified by [[BCI]] could
reasonably be explained by the fact that Deutsche Bank used the liquidation value calculated by [[BCI]].
423 See Annex 1 (Essential Facts), para. 343, second bullet point.

[[BCI]] identified by Deutsche Bank ([[BCI]]). Japan asserts that Deutsche Bank should have
assessed [[BCI]]. Korea submits that the Deutsche Bank Report had estimated Hynix's going concern
value at [[BCI]] billion Won using "conservative" assumptions about DRAM pricing and Hynix's past
track record to predict the likely yields with th e new 15 micron process technology. However, to
"stress test" the model, Deutsche Bank also generated separate estimates using a "worst case scenario"
for pricing, and using yield rates far below Hynix's historical experience.
425 Under these "worst case
scenarios" to "stress test" the model, Deutsche Bank found that Hynix's "going concern" value would
be lower than the liquidation value that had been estimated by [[BCI]]. Korea states that Deutsche
Bank specifically indicated that its estimate of a going-concern value of [[BCI]] billion Won was
based on "conservative" projections, and that other, lower values, were calculated using "worst-case
scenarios" intended to "stress test" the model. Korea asserts that an unbiased reader could hardly fail
to tell which of those scenarios was considered more likely.
7.202 In order to seek clarification, the Panel a ddressed the following question to Korea: If
"[[BCI]] was most likely to occur, why did DB identify [[BCI]]?"
426 Korea provided the following
response:
According to the Deutsche Bank report, [[BCI] ] analysis was used as the basis for the
[[BCI]] projections used to calculate Hynix's going-concern value under the [[BCI]]
option.* The Deutsche Bank report refers to two separate scenarios prepared by
[[BCI]] — a [[BCI]] case and a [[BCI]] case.* The [[BCI]] case assumed a [[BCI]] in
DRAM prices in 2004. The [[BCI]] case a ssumed that the [[BCI]] would be delayed
until 2006.* According to Deutsche Bank, the projected prices under [[BCI]] case
were [[BCI]]*
Deutsche Bank's primary calculation of Hynix's going-concern value under the
[[BCI]] option was based on the [[BCI]] prep ared by [[BCI]]. In addition, Deutsche
Bank's primary calculation also assumed that Hynix would be able to implement new
production technologies to achieve an [[BCI] ] percent yield rate in accordance with
its historical experience. Based on these two assumptions, Deutsche Bank calculated
that Hynix's total going-concern va lue was [[BCI]] billion Won — which
corresponded to a payout to [[BCI]] creditors of [[BCI]] billion Won.*
In addition, the Deutsche Bank report also added its own [[BCI]] intended to [[BCI]]
Hynix's business. These [[BCI]] scenarios differed from the primary calculation in
two respects: (1) the [[BCI]] scenario assumed that there would be no [[BCI]] in
DRAM prices in 2004 or 2006, and (2) the [[BCI]] scenario also assumed that Hynix
would only achieve a [[BCI]] percent yield rate (and not the [[BCI]] percent yield rate
achieved in the past) when the next generation of technology was implemented.*
Based on [[BCI]] scenarios, Deutsche Bank calculated [[BCI]] for Hynix's going-
concern value under the [[BCI]] option:
(1) a calculation that assumed [[BCI]];
(2) a calculation that assumed [[BCI]]; and
(3) a calculation that assumed [[BCI]].

424 See [[BCI]], together with para. 197 of Korea's Second Written Submission and Korea's reply to
Question 109 from the Panel. Japan has not challenged Korea's statement that the yield element of the
conservative scenario was based on Hynix's track record.
425 Korea refers in this regard to page 9 of the Deutsche Bank Report.
426 See Question 109 from the Panel to Korea.

Significantly, the Deutsche Bank Report indicated that the [[BCI]]
was intended to [[BCI]].* (* footnotes (referring to Deutsche Bank
Report) omitted)
7.203 Although Japan claimed
427 that Korea had failed to answer Panel Question 109, it did not
dispute Korea's explanation of the bases for the di fferent scenarios examined by Deutsche Bank. In
particular, neither Japan nor the JIA has disputed that Deutsche Bank proceeded [[BCI]]. Nor have
Japan or the JIA disputed that Deutsche Bank projected [[BCI]].
7.204 Furthermore, we note that [[BCI]]. Much of this information was provided by [[BCI]]. Using
this information, we consider that Hynix's cred itors had before them a Report which was based on
[[BCI]], which were one critical factor in the anal ysis undertaken by the Deutsche Bank. [[BCI]], in
the Deutsche Bank Report. [[BCI]]. Hynix's creditors were theref ore able to assess for themselves
whether the projections were reliable, and what was the likelihood of [[BCI]]. They would also have
been able to establish for themselves that De utsche Bank chose to base its assessment on one
particular scenario because that scenario assumed [[BCI]], and was based on [[BCI]].
7.205 Although [[BCI]] had been prepared by Deutsche Bank, we consider that this was consistent
with its statement that "[[BCI]]" for Hynix "[[BCI]]".428 In light of this [[BCI]], Deutsche Bank might
properly have considered itself obliged to prepar e [[BCI]] for the creditors. However, having access
to the information [[BCI]] were b ased, the creditors would have been able to establish for themselves
that [[BCI]] that were less likely to materialize. Deutsche Bank itself made [[BCI]], and gave the
creditors [[BCI]], and [[BCI]]. In these circumst ances, the fact that Deutsche Bank [[BCI]], in our
view does not mean that Hynix's creditors should not have trusted Deutsche Bank's analysis.
7.206 Accordingly, we find that the JIA had no reasonable, objective basis for condemning
Deutsche Bank's failure to provide a more comprehe nsive explanation of its choice of going-concern
scenario as a discrepancy which impugned the commerciality of the Report.
Rate of Recovery of the Liquidation Value
7.207 The third alleged "discrepancy" relates to the way the Deutsche Bank Report analysed the rate
of return to creditors under the liquidation scenario. The JIA found that:
As the liquidation value to be compared to the going-concern value ... , Deutsche
Bank Report used [[BCI]].429 (* footnotes omitted)
7.208 By way of clarification, Japan stated:
The IA also pointed out that the denominator of the going-concern value used to
calculate the recovery rate is not consis tent with the denominator to calculate
[[BCI]] percent recovery rate upon liquidation. * In calculating the recovery rate in
the [[BCI]] scenario, [[BCI]]. However, the same debts are not included in the
denominator in calculating the recovery rate for the [[BCI]] cases. Accordingly the
recovery rate of [[BCI]] percent upon liqui dation in the report is the ratio of the
expected payback amount vis-à-vis [[BCI]]. The recovery rates fo r the [[BCI]] cases
are the rates for [[BCI]]. When recalculate d the recovery rates for [[BCI]] scenarios,
these rates in [[BCI]] of the Deutsche Bank Report would be [[BCI]]. Thus, the IA
found that, [[BCI]] comparison of the liquidation with the going-concern case could

427 See Japan's Comments on Korea's Responses to the Panel's Questions Following the Second
Substantive Meeting, paras. 4 – 8.
428 See [[BCI]].
429 See Annex 1 (Essential Facts), para. 343, third bullet point.

not properly be made.* This improper comparison stems from the fact that [[BCI]] of
the Deutsche Bank Report is wrong - the correct amount for the liquidation case is
KRW [[BCI]] billion, not KRW [[BCI]] billion. The details of such errors are
explained in Exhibit JPN-27. Korea has not addressed this imbalanced comparison of
the recovery rates based on the going-con cern value and the liquidation value except
the background of the addition of the [[BCI]].
430 (* footnotes omitted)
7.209 In light of the above, we understand that the JIA identified three main errors in Deutsche
Bank's analysis of the rate of return under the liquidation scenario. First, Deutsche Bank allegedly
erred in choosing to apply a rate of [[BCI]] per cen t, instead of [[BCI]] per cent. Second, Deutsche
Bank allegedly erred in calculating the absolute amount of return that a rate of [[BCI]] per cent would
have yielded. Third, the JIA found that the assumptio ns used to calculate the [[BCI]] per cent rate of
return in respect of the liquidation value should also have been applied when calculating the rate of
return under the going-concern value. We shall address each of the alleged errors in turn.
The choice of rate of return

7.210 According to Korea, the initial [[BCI]] Report had assumed that the distribution of Hynix's
liquidation value would be based on the outst anding debts at the time of the December 2002
restructuring. Based on that assumption, [[BCI]] ca lculated that the [[BCI]] would recover [[BCI]]
per cent of the overall liquidation value. Korea asserts that a [[BCI]] obtained by the creditors
suggested, however, that [[BCI]]'s assumption was fl awed. According to this opinion, if Hynix were
liquidated, [[BCI]] for purposes of distributing H ynix's liquidation value among its creditors. Korea
states that after such a reversal of the October 2001 debt-to-equity swap, Hynix would have a larger
amount of debt outstanding, and the percentage of the total liquidation value available to [[BCI]]
would therefore be smaller. Korea asserts that under this assumption, [[BCI]] would only recover
[[BCI]] per cent of the overall liquidation value.
7.211 According to Korea, both the JIA and Japan have ignored th e fact that the Deutsche Bank
Report presented its calculations using both the [[BCI]] per cent figure and the higher [[BCI]] per cent
recovery rate [[BCI]] on which it provided the co mparison of expected pay-outs [[BCI]]. Korea
asserts that [[BCI]]. [[BCI]] addressed the calculation of the pay-out under [[BCI]] scenario with the
assumption of a [[BCI]] per cent recovery rate. [[BCI]] addressed the calculation of the pay-out under
[[BCI]] scenario with the assumption of either a [[BCI]] or [[BCI]] per cent recovery rate.
7.212 Japan submits that Korea has misunderstood th e JIA's assessment of the Deutsche Bank's
estimate of Hynix's liquidation value. According to Japan, the JIA pointed out that the Deutsche Bank
Report did not explain why it relied on a recovery rate of [[BCI]] per cent to assess the validity of
liquidation value instead of the rate of [[BCI]] per cent. Japan asserts that these recovery rates would
be the material issue for creditors in examining whether they would be better off, and that the
Deutsche Bank Report therefore should have explaine d why it was applying the [[BCI]] per cent rate
instead of the [[BCI]] or [[BCI]] per cent rates, ra ther than merely referring to these alternative rates
in the[[BCI]]. Japan submits that the JIA correctly found that "such a material issue relating to
creditors' interests should ha ve been clearly stated,"
431 which the Deutsche Bank Report failed to do.
Japan states that the JIA therefore reasonably found that there was a " strange handling of the
liquidation value of Hynix provided in the Deutsche Bank Report".432
7.213 On the basis of Japan's argument, we do not understand Japan to contest Deutsche Bank's use
of the [[BCI]] per cent rate. Instead, we understand that the JIA challenged Deutsche Bank's failure to

430 See Japan's oral statement at the Second Substantive Meeting, para. 113.
431 See Annex 3 (Rebuttals and Surrebuttals), para. 496.
432 See Annex 3 (Rebuttals and Surrebuttals), para. 499.

explain why it applied this rate instead of other, alternative rates. The JIA addressed this issue at
para. 496 of Annex 3 (Rebuttals and Surrebuttals) in the following terms:
Hynix states that, because the December 2002 Program comprised restructuring
measures carried out as part of the CRPA procedures, [[BCI]]. If the [[BCI]]
that were extinguished by debt-to-equity swap or debt forgiveness under the
October 2001 Program [[BCI]], it would s ubstantially harm the interests of all
creditors. Such a material issue relating to creditors' interests should have been
clearly stated. The Deutsche Bank Report, however, did not refer to it. The
report of [[BCI]] only states that [[BCI]], but no legal grounds were
indicated.
433
7.214 According to Japan, the JIA ther efore found that the existence of such a [[BCI]] would be a
"material issue", and that the Deutsche Bank Report ha d failed to discuss such a material issue. Japan
asserts that if there were material risks associated w ith a particular valuation, such "should have been
clearly stated" to permit the creditor banks to make an informed assessment of the risks and ultimately
a decision. Japan also disputes Korea's argument that "the [[BCI]] clearly indicated that [[BCI]]" 434,
since Japan states that the [[BCI]] was not submitted to the JIA.
7.215 In our view, the Deutsche Bank Report would have been expected to emphasise the existence
of the [[BCI]] if it had applied one of the altern ative rates (of [[BCI]] and [[BCI]] per cent) provided
for in the [[BCI]]. However, since the Deutsche Bank adopted a more cautionary approach, and
actually applied the [[BCI]] per cent rate in the ta ble on page 12 of its Report, there was no "[[BCI]]"
that creditors should have been informed of. In other words, if they took that table at face value, there
would be no risks that they were unaware of, since th e risk had already been factored into the applied
rate of [[BCI]] per cent. Furthermore, note 5 to th at table refers to "[[ BCI]]" of the Deutsche Bank
Report. Section 5 (on page 62) provides a breakdown of the [[BCI]] per cent rate of return, clearly
indicating that the total amount of debt held by un secured creditors is KRW [[BCI]] billion. As Japan
did for the purpose of preparing its Exhibit JPN-27, Hynix's creditors would have readily been able to
ascertain that this figure included [[BCI]]. The failure 435 to spell out (in the Deutsche Bank Report)
why this debt had been included would not necessarily have called into question the validity of the
Report, especially as the JIA found that [[BCI]], wh ich was available to creditors, pointed out the
nature of [[BCI]] (without providing the precise legal grounds).436
7.216 Japan also argues that it was not clear that the "[[BCI]] clearly indicated that [[BCI]]" because
the relevant [[BCI]] had not been submitted to the JI A. We can find no reference to this issue in the
JIA's Final Determination. In other words, there is no indication in the Final Determination that the
JIA doubted that the [[BCI]] required [[BCI]]. 437 It would therefore be inappropriate for us to accept
this argument ex post. Furthermore, Japan has failed to demonstrate that, even if the JIA did have any
doubts regarding the substance of the [[BCI]], it had requested a copy thereof.
7.217 In light of the above, we find that the JIA had no reasonable, objective basis for finding that
the Deutsche Bank's choice of rate of return involved a discrepancy which impugned the
commerciality of the Report.

433 See Annex 3 (Rebuttals and Surrebuttals), para. 496.
434 See Korea's Responses to Panel Question 129, para. 67.
435 On balance, it is not entirely clear to the Panel that [[BCI]] had not been made available to the
creditors. At para. 202 of its Second Written Submission, Korea refers to the opinion having been "obtained by
the creditors". Japan has not contested the factual accuracy of this statement. In light of our finding, it is not
necessary for the Panel to pursue this matter further.
436 See Annex 3 (Rebuttals and Surrebuttals), para. 496, including note 91.
437 Although the JIA stated that "no legal ground [s] were indicated" (Annex 3 (Rebuttals and
Surrebuttals), para. 496), the JIA di d not register any doubt regarding th e substantive accuracy of the legal
advice at issue.

The absolute amount of return

7.218 Korea submits that Japan's argument that the Deutsche Bank Report erroneously calculated
the absolute amount that a [[BCI]] per cent ra te of return would have yielded constitutes ex post
rationalization that we should reject.
7.219 Japan asserts that the calculation erro r was "clearly and fully described" 438 in the following
extract from Annex 1 (Essential Facts):
As the liquidation value to be compar ed to the going-concern value [[BCI]],
Deutsche Bank Report used [[BCI]].439

7.220 We are unable to accept Japan's argument that th is extract "clearly and fully described" the
point made by Japan in these proceedings. The above extract is concerned primarily with the rate of
return applied in the Deutsche Bank Re port, rather than the absolute amount of return. While the last
sentence of the extract does refer to [[BCI]]". In other words, it is a complaint that Deutsche Bank
calculated [[BCI]]. It is not a complaint that, in applying [[BCI]], Deutsche Bank erroneously arrived
at [[BCI]].440 Japan's argument regarding the absolute amount of return calculated by Deutsche Bank
[[BCI]] is not, therefore, "clearly and fully descr ibed" in the manner alleged by Japan. In these
circumstances, we find that Japan's argument constitutes ex post rationalization that we decline to take
into account.441
7.221 In light of the above, we find that the JIA had no reasonable, objective basis for finding that
the Deutsche Bank used inappropriately different assumptions in calculating the going concern and
liquidation values, and therefore that this di d not involve a discrepancy which impugned the
commerciality of the Report.
The asymmetric application of the assumptions underlying the [[BCI]] per cent rate of return

7.222 This issue concerns the alleged failure by De utsche Bank to use [[BCI]]. Japan asserts that
Deutsche Bank should have calculated the payout ratio under the [[BCI]] option based on the
assumption that [[BCI]], as was the case for the cal culation of Hynix's liquidation value. According
to Japan, correction of this error would reduce the recovery rates for [[BCI]].

438 See Japan's Comments on Korea's Responses to the Panel's Questions After the Second Substantive
Meeting, para. 49.
439 See Annex 1 (Essential Facts), para. 343, third bullet point.
440 In its Final Comments to the Panel, Korea argued that even if this issue had been raised by the JIA,
it would not provide a basis for rejecting the Deutsche Bank Report because Deutsche Bank did not consider the
returns under [[BCI]] that would accrue to [[BCI]] from th e equity they held as a result of the October 2001
debt-equity swaps. In light of our finding that the JIA had not raised this issue, there is no need for us to
consider Korea's additional argument.
441 Japan seeks to have us consider its argument on the basis of a finding by the Appellate Body that
"Article 22.5 [of the SCM Agreement] does not require the agency to cite or discuss every piece of supporting
record evidence for each fact in the fina l determination" (Appellate Body Report, US – Countervailing Duty
Investigation on DRAMS, para. 164). Upon review, we find that the Appellate Body's finding would not require
us to consider Japan's ex post rationalization. The Appellate Body in that case was dealing with a decision by
the panel not to consider record evidence that was not explicitly included in the investigating authority's final
determination. In our view, that factual situation is different from the one before us, where it is a question of the
JIA having failed to include a finding, or intermediate factual conclusion , in its Final Determination. Such
rationalization falls within the rubric of "reasons" referred to in Article 22.5. Furthermore, it is well established
that it is inappropriate for panels to consider ex post rationalization. (See, for example, Appellate Body Report,
US – Softwood Lumber VI (Article 21.5 – Canada): "A panel's examination of those conclusions must be critical
and searching, and be based on the information contained in the record and the explanations given by the
authority in its published report." (emphasis supplied))

7.223 Korea submits that the [[BCI]] clearly indicat ed that [[BCI]] for purposes of distributing
Hynix's liquidation value among its creditors only if Hy nix were liquidated. The [[BCI]] did not state
that [[BCI]] in the event that the creditors cho se the [[BCI]] option and Hynix was not liquidated.
Instead, if the creditors chose the [[BCI]] option, the debt that was swapped for equity in the October
2001 restructuring would remain as equity. Furthermore, Korea asserts that the debts that were
converted into equity in October 2001 were not debts in December 2002 — they were equity.
According to Korea, that [[BCI]] into debts unless Hynix were liquidated — which would not occur if
the creditors opted for the [[BCI]] option.
7.224 We note Korea's argument that the relevant [[ BCI]] only called for [[BCI]] in the event that
Hynix were liquidated in December 2002. Japan has not disputed this. Nor did the JIA challenge the
substance of the [[BCI]]. There is no reason for us to doubt that the relevant [[BCI]] did not call for
[[BCI]] in the event that Hynix were maintained as a going-concern in December 2002. We therefore
see no reason why Deutsche Bank should have factored this [[BCI]]. As different legal obligations
would apparently apply ([[BCI]]) depending on wh ether Hynix were liquidated or maintained as a
going-concern in December 2002, we see no reason wh y those different obligations should not have
been reflected in Deutsche Bank's calculation of the liquidation and going-concern values. Indeed, we
consider that such an approach would have distorted Deutsche Bank's [[BCI]].
7.225 In light of the above, we find that the JIA had no reasonable, objective basis for finding that
the Deutsche Bank's calculation of the absolute am ount of return involved a discrepancy which
impugned the commerciality of the Report.
Expected Recovery Under the Going-Concern Scenarios

7.226 The fourth alleged "discrepancy" involved the relevance of [[BCI]]. The JIA provided the
following critique of [[BCI]]:
Further, the recovery rate of unsecured claims at the end of 2006 would be [[BCI]].
Accordingly, the recovery rate [[BCI]]. In other words, [[BCI]]%, which is the
recovery rate calculated by [[BCI]]. 442
7.227 Korea asserts that the JIA's objection is based on a misunderstanding of the Deutsche Bank's
calculation of the recovery under [[BCI]] scenar io. Korea submits that the Deutsche Bank Report
indicated that the December 2002 restructuring was projected to put Hynix in a position where it
could service all of its outstanding debts (after th e debt-to-equity swap) and provide an additional
return to its shareholders. Korea asserts that the creditors would therefore be expected to recover the
full amount of any debts they continued to hold after the restructuring plus whatever additional returns
they earned on the equity they had received for participating in debt-to-equity swaps.
7.228 Korea submits that since the creditors had to sw ap half of their [[BCI]] into equity in the
December 2002 restructuring, this meant that they would only be holding half as much [[BCI]] after
the restructuring as they had before. Korea asserts that, as indicated in the Deutsche Bank report, the
December 2002 restructuring was projected to put Hynix in a position where it could service all of its
outstanding debts (after the debt-to-equity swap) and provide an additional return to its shareholders.
According to Korea, therefore, the creditors woul d be expected to recover the full amount of any
debts they continued to hold after the restructuring plus whatever additional returns they earned on the
equity they had received for participating in debt-to-equity swaps. According to Korea, their recovery
of the full amount of any [[BCI]] they continued to hold after the restructuring was, therefore,
equivalent to the recovery of one-half of the amount of the debts they held before the restructuring.
Korea states that the creditors could therefore expe ct to recover a minimum of [[BCI]], even if the
equity they received in the debt-to-equity swaps had no value, plus [[BCI]] (which were not subject to

442 Annex 1 (Essential Facts), para. 343, fourth indent.

the debt-to-equity swap). Korea states that if th e equity were projected to have some value, their
percentage recovery would be ev en higher. Korea submits that, taking all of these factors into
consideration, the Deutsche Bank reached the figure of [[BCI]] per cent for recovery by creditors
under [[BCI]] scenario.
7.229 Japan objects to Korea's reference to [[BCI]]. 443 Other than that, however, Japan makes no
rebuttal of Korea's arguments.444
7.230 We agree with Japan that the important figur e for present purposes is the recovery rate for
unsecured debt. However, this does not resolve th e issue before us, as the Deutsche Bank recovery
rate was properly limited [[BCI]]. (In other words, Deutsche Bank did not proceed on the basis of the
[[BCI]]per cent figure cited by Korea.) Korea h as provided a reasonable explanation, showing that
the Deutsche Bank properly calculated the recovery ra tes for [[BCI]] scenarios. In particular, Korea
has explained that Deutsche Bank could properly ex clude [[BCI]]. Since Japan has failed to rebut
Korea's explanation, we uphold Korea's argument that the JIA's criticism of the Deutsche Bank's
methodology is unwarranted.
445
7.231 In light of the above, we find that the JIA had no reasonable, objective basis for finding that
the unsecured claims which had been converted into equity should have been taken up in the recovery
rate calculations for the going concern scenarios, and th at the JIA should not have considered that this
impugned the commerciality of the Report.
Sale Value Versus Liquidation Value
7.232 The fifth "discrepancy" referred to by the JIA is a claimed lack of analysis in the Deutsche
Bank Report of the comparative merits of a sale of Hynix's memory business and its liquidation. The
JIA criticised the Deutsche Bank Report because [[BCI]] 446 Japan clarified that the JIA's concern was
that "Deutsche Bank did not explain reasons that [[BCI]]"447
7.233 Korea asserts that Japan's argument is based on a misreading of the Deutsche Bank Report.
Korea asserts that the Report explicitly recognized that [[BCI]], explaining that:
[[BCI]]
– [[ BCI]]:
– [[ BCI]]
– [[ BCI]]
– [[ BCI]]
– [[ BCI]].448
7.234 Korea submits that, in light of these risks, Deutsche Bank recommended that the creditors
pursue [[BCI]].449

443 See para. 115 of Japan's oral statement at the Second Substantive Meeting.
444 There is a reference to Deutsche Bank's calculation of [[BCI]] at para. 116 of Japan's oral statement
at the second substantive meeting. However, that reference was made in respect of a separate "discrepancy"
identified by the JIA, namely Hynix's alleged admission of an error in the Deutsche Bank Report. That issue is
addressed infra.
445 We note that the above finding by the JIA referred to [[BCI]]. We recall our finding that Deutsche
Bank did not err in applying a liquidation recovery rate of [[BCI]].
446 See Annex 1 (Essential Facts), para. 343, fifth bullet point.
447 See Japan's oral statement at the second substantive meeting, para. 117.
448 Korea refers in this regard to [[BCI]] of the Deutsche Bank Report.

7.235 Although the JIA asserts that Deutsche Bank "conc luded that the proposal [[BCI]]" we note
that this was not actually the conclusion reached by Deutsche Bank. Instead, [[BCI]]. Having
reached this conclusion, in our view Deutsche Bank did not specify any [[BCI]].
7.236 Instead, Deutsche Bank proposed that [[BCI]]. In the event that [[BCI]], Deutsche Bank
could have advised whether [[BCI]]. Again, though, that would not have been a [[BCI]]. Since
Deutsche Bank rejected liquidation in favour of [[B CI]], it makes no sense to talk in terms of sale
being preferred over [[BCI]]; [[BCI]] could be pursued [[BCI]].
7.237 The JIA has not identified any downside to Deutsche Bank keeping the [[BCI]] option alive in
this way. However, as noted by Deutsche Bank, there was an upside to this proposal, in the sense that
"[[BCI]]."
450
7.238 In light of the above, we find that the JIA had no reasonable, objective basis for its conclusion
that Deutsche Bank erred in its treatment of the sale and liquidation options respectively, and that this
should not have been considered by the JIA as impugning the commerciality of the Report.
Admission of Error by Hynix
7.239 The final alleged "discrepancy" identified by the JIA was an error, said to be admitted by
Hynix, which when corrected would have had [[BCI]]. The JIA found that:
In its rebuttal, Hynix voluntarily admits th at the Deutsche Bank Report had an error.
Additionally, when recalculated based on the Hynix's assertion, the recovery rate of
the unsecured claims comes to [[BCI]]% .* Given that Deutsche Bank states a
recovery rate in units of [[BCI]]%, th e explanation of Hynix which ignores such
[[BCI]]% difference stating [[BCI]] is not reasonable. Moreover, if the assertion of
Hynix were to be correct, the reliability of the totality of the recovery rate of
[[BCI]]%, [[BCI]]%, [[BCI]]%, [[BCI]]% as presented in the Deutsche Bank Report
would be weakened. In either case, even if the rebuttal by Hynix were assumed to be
correct, it still could not precisely explain the basis the Deutsche Bank Report used in
calculating the recovery rate. Therefore, the rebuttal by Hynix cannot be accepted.
451
(* footnote omitted)
7.240 Korea denies that Hynix admitted that the Deutsche Bank Report contained any analytical
errors. Korea asserts that, in the course of explaining how the Deutsche Bank report calculated the
expected recovery to the creditors, Hynix noted th at there was a typographical error in one of the
[[BCI]] set forth in [[BCI]] to the report. According to Korea, Hynix pointed out that [[BCI]] in
question stated that a percentage figure had been calculated by dividing the expected recovery amount
by total [[BCI]] debts, when it should have indicat ed that the percentage figure was calculated by
dividing the expected recovery amount by the sum of [[BCI]] debts. Korea asserts that nothing in
Hynix's comment suggested that there was an e rror in the Deutsche Bank Report's calculations or
results. Korea submits that, to the contrary, Hynix' s comment was intended to show that there was no
error in the Deutsche Bank report's calculations . Korea states that an unbiased and objective
investigating authority would have easily recognized the difference between a typographical error and
an analytical mistake.
7.241 Japan asserts that the JIA reviewed Deutsch e Bank's calculations in light of Hynix's
explanation and found that there were still discrep ancies between the results from the recalculation
and the recovery rates shown in the Deutsche Ba nk Report. Japan argues that these discrepancies

449 Korea refers in this regard to [[BCI]] of the Deutsche Bank Report.
450 See Deutsche Bank Report, [[BCI]].
451 See Annex 3 (Rebuttals and Surrebuttals), para. 502.

called into question the reliability of the Deutsc he Bank Report's valuations as of 2006, and would
have affected the calculation of the recovery rates under each the going-concern scenarios. According
to Japan, the JIA therefore reasonably found that " if the assertion of Hynix were to be correct, the
reliability of the totality of the recovery rate of [[ BCI]]%, [[ BCI]]%, [[ BCI]]%, [[ BCI]]% as
presented in the Deutsche Bank Report would be weakened."452
7.242 We have reviewed carefully the JIA's summary of Hynix's statement regarding this matter.
According to the JIA, Hynix stated that:
there is an error [[BCI]] in footnote (5) on page 13 of the report. It explains that
[[BCI]].453 (emphasis in BCI supplied)
7.243 We fail to see how the JIA could have concluded from this statement that Hynix had admitted
that the Deutsche Bank Report contained any analyti cal errors. According to the JIA's summary of
Hynix's argument, Hynix merely identified "an erro r [[BCI]]". (emphasis supplied) An error [[BCI]]
is not the same as an error in the application of a fo rmula. On the basis of a plain reading of the JIA's
own description of Hynix's submission, we conclude that Hynix was simply stating that Deutsche
Bank had noted that [[BCI]]. While Deutsche Bank may therefore have committed an unfortunate
typographical error, there is no suggestion in H ynix's statement that Deutsche Bank committed the
more serious analytical error of failing to [[BCI]] when performing the relevant calculation. 454
Deutsche Bank's calculation in this regard included [[ BCI]], as Hynix pointed this out to the JIA in its
submissions.
7.244 We note that both the JIA and Japan asserted that the correction of the error identified by
Hynix would undermine the reliability of Deutsche Bank's going-concern valuations. We are not
persuaded by this assertion as we have established that, in fact, Hynix had not identified any
analytical error that required correction. In these circumstances, we are unable to accept that the error
identified by Hynix– called into question the reliab ility of the Deutsche Bank Report's valuations. It
was nothing more than a typographical error.
Conclusion

7.245 We have found that the JIA could not prope rly have rejected the Deutsche Bank Report on
formal considerations regarding the independence of Deutsche Bank. We have also found that the
JIA erred in its analysis of the substance of the Deutsche Bank Report. When these two findings are
combined, we conclude that the JIA's determina tion that the Deutsche Bank Report did not provide
the existing creditors with a proper commercial basis for participating in the December 2002
restructuring was not reasonable and objective.
Conclusion

7.246 For the above reasons, we reject Korea's arguments that the JIA erred in its analysis of the
internal examinations of the October 2001 restruct uring by the Four Creditors. However, we uphold
Korea's arguments in respect of the December 2002 restructuring.
7.247 We recall that the JIA's rejection of the Deutsche Bank Report played a central role in its
conclusion that the participation of the Four Cred itors in the December 2002 restructuring was not
commercially reasonable to the extent that it col oured the JIA's assessment of the Four Creditors'
internal analyses of the restructuring. Given our conclusion that an objective and impartial

452 See Annex 3 (Rebuttals and Surrebuttals), para. 502.
453 See Annex 3 (Rebuttals and Surrebuttals), para. 500.
454 We note that there was no suggestion by either the JIA or Japan that [[BCI]] should not have been
included by Deutsche Bank.

investigating authority could not properly have rejected the Deutsche Bank Report on the grounds
selected by the JIA, we must also conclude that the JIA could not properly have relied on the
Deutsche Bank Report as a basis for concluding that the participation of the Four Creditors in the
December 2002 restructuring was not commercially reasonable.
(e) The Participation of Other Creditors In The Same Transactions And On the Same Terms
(i) Main Arguments of Korea
7.248 Korea asserts that there were a number of Othe r Creditors who entered into the restructuring
transactions at the same time and on the same term s as the banks that the JIA found to be acting under
government entrustment or direction. The JIA made no finding that these Other Creditors were acting
under government entrustment or direction. Korea notes that the majority of those institutions were
never investigated or contacted by the JIA. According to Korea, the willingness of these Other
Creditors to enter into the sa me transactions as the allegedly government-directed creditors
completely refutes the JIA's claim that the credito rs only entered into the transactions because of
government pressure.
 455
(ii) Main Arguments of Japan
7.249 Japan submits that Korea's argument is without merit because it confuses the requirements for
findings of "entrustment or direction" under Article 1.1(a)(1)(iv) and benefit under Article 1.1(b) and
because it is based on a misreading of the JIA's factual determination. Japan asserts that, to the extent
that Korea's argument suggests that the existence of other creditors provides evidence of a benchmark,
which negates the proposition that a benefit was pr ovided by the entrusted or directed creditors,
Korea's argument is not relevant to the finding of en trustment or direction. According to Japan, the
SCM Agreement separates the question of "entrustment or direction" under Article 1.1(a)(1)(iv) and
benefit under Article 1.1(b). Japan also submits that the JIA found, applying facts available, that all
banks participated in the October 2001 and D ecember 2002 restructurings on the basis of non-
commercial factors.
(iii) Evaluation by the Panel
7.250 In light of our conclusion that the JIA's reasoning did not properly support the finding that the
Four Creditors were entrusted or directed to participate in the December 2002 restructuring, 456 we
only evaluate Korea's argument regarding the role of Other Creditors in respect of the October 2001
restructuring.
7.251 Korea has made essentially the same argument in the context of its claim against the JIA's
determination of benefit. In light of our evaluati on of Korea's argument in that context, we reject

455 Korea asserts at note 68 to its oral statement at the Second Substantive Meeting that Citibank's
participation in the restructuring transactions on the sa me terms as the allegedly "e ntrusted or directed" banks
provides further evidence that there wa s no entrustment or direction. Korea notes Japan's assertion that the JIA
was justified in ignoring Citibank's participation in the restructurings (s ee, e.g., Japan's Second Written
Submission, para. 107), but states that all of the points raised by Japan were rebutted in the proceedings before
the JIA. Korea refers in this regard to paras. 33, 36, 274, 314, 316, 430, and 547 of Annex 3 (Rebuttals and
Surrebuttals). We are not prepared to review the JIA's determination in respect of Citibank on the basis of
Korea's simple reference to arguments made by the Government of Korea and Hynix to the JIA. Korea has not
even endorsed all of these arguments, let alone developed them in the context of Kor ea's claims in the present
proceedings. We are not prepared to review the abovementioned section of Annex 3 (Rebuttals and
Surrebuttals) and make relevant arguments on Korea's behalf. Accordingly, we make no findings regarding the
JIA's determination of entrustment or direction on the basis of Korea's reference to the JIA's treatment of
Citibank.
456 See para. 7.254 infra.

Korea's argument that the participation of Other Creditors in the October 2001 restructuring precluded
a finding that the Four Creditors were entrusted or di rected by the Government of Korea. As we note
in section E.6 infra, there was no evidence from Other Credito rs on the JIA's record regarding the
reasons why they participated in the October 2001 restructuring. There was no such evidence because
Other Creditors failed to respond to the JIA's questionnaire. 457 There was, however, evidence
(applicable through facts available) suggesting th at the Other Creditors had participated in the
October 2001 restructuring on the basi s of non-commercial considerations, 458 just as the Four
Creditors had done. Furthermore, given the JIA's finding of extensive government intervention in the
October 2001 restructuring, the JIA could properly have concluded that there was also a credible
possibility that the Other Creditors may have been acting under government entrus tment or direction.
As a result of the failure of certain Other Creditors to respond to the JIA's questionnaire, it was not
possible for the JIA to exclude this possibility. In these circumstan ces, we do not consider that the
JIA was required to overlook evidence of entrustm ent or direction of the Four Creditors simply
because Other Creditors also participated in the October 2001 restructuring.
(f) Conclusion
7.252 For the above reasons, we reject Korea's claim that the JIA did not have a proper basis for
finding that the Four Creditors were entrusted or directed by the Government of Korea to participate
in the October 2001 restructuring, contrary to Article 1.1(a)(1)(iv) of the SCM Agreement.
7.253 Regarding the December 2002 restructuring, we note that the JIA's determination of
entrustment or direction was based on "the to tality of numerous items of evidence obtained". 459 We
also note that the JIA began its summary of its dete rmination of entrustment or direction regarding the
December 2002 restructuring by referring to its finding that the Four Creditors' decisions to
participate in that restructuring "were not based on commercial consideration[s]". 460 Commercial
reasonableness therefore played an important role in the JIA's finding of entrustment or direction. As
noted above, the JIA's finding that the Four Cred itors' participation in the restructuring was not
commercially reasonable was to a great extent based on its rejection of the Deutsche Bank Report.
Our finding that the JIA erred in both its formal and substantive analysis of the Deutsche Bank Report
therefore invalidates the JIA's finding that the Four Creditors' participation in the December 2002 was
not commercially reasonable, revealing a fatal flaw in the JIA's determination of entrustment or
direction. While the JIA also based its determinati on of entrustment or direction on evidence that the
Government of Korea "was in a position to be able to exercise sufficient influence on" the Four
Creditors, and that the Government of Korea "had the political intent to have Hynix survive", and
"had been ascertaining at all times the progress of discussion of the December 2002 Program", 461 the
JIA declined to find that such evidence in and of itself ( i.e., absent consideration that the restructuring
was not commercially reasonable) demonstrated that the Government of Korea gave responsibility to
the Four Creditors, or actually exercised any authority over the Four Creditors, in order to effectuate
the December 2002 restructuring. 462 Since the JIA made no such finding, there is no basis for us to

457 One Other Creditor, Kookmin, did reply to the JIA's questionnaire. Kookmin's reply indicated that
it had participated in the October 2001 restructuring on the basis of the Anjin Accounting Report. We find
elsewhere that the JIA dealt appropriately with evidence regarding the availability of the Anjin Report.
458 For this reason, we disagree with Korea's asse rtion that there was "no information on the record
providing any indication that the [Other Creditors] particip ated in the restructuring transactions for any reason
other than a rational calculation of their own self-interest" (Korea's Second Written Submission, para. 226).
459 See Annex 3 (Rebuttals and Surrebuttals), para. 20. See also para. 295 of Japan's First Written
Submission.
462 We note that the EC – Countervailing Measures on DRAM Chips panel referred (at para. 7.131) to
"the absence of any convincing evidence of the commercial reasonableness of [the] investments" "in
combination with the very important amount of government shareholding power" in upholding the investigating
authority's determination of government entrustment or direction, thereby conf irming that circumstantial

conclude whether or not the JIA could properly ha ve relied on such evidence (absent consideration
that the restructuring was not commercially reasonable) to make a determination of government
entrustment or direction.
463 It is not our role to conduct a de novo examination of that issue by asking
whether such a finding could have been made by the JIA.464
7.254 Accordingly, we uphold Korea's claim that the JIA did not have a proper basis for finding that
the Four Creditors were entrusted or directed by the Government of Korea to participate in the
December 2002 restructuring, contrary to Article 1.1(a)(1)(iv) of the SCM Agreement.
E. THE JIA'S DETERMINATION OF BENEFIT
1. Introduction
7.255 The SCM Agreement defines a subsidy as a financial contribution by a government or public
body that confers a "benefit". Thus, having established that the October 2001 and December 2002
restructurings constituted financial contributions, the JIA was required to establish that they conferred
a "benefit" in order to treat them as subsidies.
7.256 Although the concept of "benefit" is not defined in the SCM Agreement, it is now well
established that benefit is determined by reference to the market. Thus, a benefit is conferred if the
recipient receives a financial contribution on term s more favourable than those available to the
recipient in the market.465
7.257 Accordingly, the JIA was required to determine whether the public bodies and the Four
Creditors participated in the restructurings on terms more favourable than the market would have
done. Korea claims that the JIA erred in making that determination.
7.258 In particular, Korea claims that Japan acted inconsistently with Articles 1.1(b) and 14 of the
SCM Agreement because the JIA committed a number of errors in its determinations of the existence
and amount of benefit conferred to Hynix by the October 2001 and December 2002 restructurings.
Korea further claims that Japan's imposition of co untervailing duties based on this "flawed analysis"
was inconsistent with the requirements of 19.4 of the SCM Agreement and Article VI:3 of the
GATT 1994.

evidence of a government's simple ability to exercise authority over a private body is not sufficient for a finding
of entrustment or direction. There must be some additional evidence indicating that the government actually
exercised that authority in order to effectuate a financial contribution.
463 We understand Japan to agree with such an approach, as Japan has argued that "it is important to
note the method in which the [JIA] made its findings of entrustment or direction" ( see Japan's First Written
Submission, para. 89). Japan refers in support to the statement of the Appellate Body in US – Countervailing
Duty Investigation on DRAMS that a panel cannot "construct a case di fferent from that put forward by the
investigating authority." (US – Countervailing Duty Investigation on DRAMS , para. 151). Although Japan has
also referred (see Japan's oral statement at the Second Substantive Meeting, para. 80) to the fact that the panel in
EC – Countervailing Measures on DRAM Chips upheld the investigating authority's determination of
entrustment or direction despite disagreeing with some element of the investigating authority's analysis, we note
that it did so in "the absence of any convincing evidence of the commercial reasonableness of such investments"
(para. 7.131). Given our finding that the JIA's determination on commercial reasonableness is unsound, it
would not be appropriate for us to proceed in the same manner.
464 Appellate Body Report, United States – Definitive Safeguard Measures on Imports of Certain Steel
Products, para. 303 ("As we stated above, because a panel may not conduct a de novo Review of the evidence
before the competent authority, it is the explanation given by the competent authority for its determination that
alone enables panels to determine whether there has been compliance with the requirements of Article XIX of
the GATT 1994 and of Articles 2 and 4 of the Agreement on Safeguards.")
465 See, for example, Canada – Aircraft , Appellate Body Report, para. 157, and EC – Countervailing
Measures on DRAM Chips, Panel Report, para. 7.175.

7.259 Japan asks the Panel to reject Korea's claim.
2. Applicable provisions
7.260 Article 1.1(b) provides that a subsidy shall be deemed to exist only where there is a financial
contribution by a government or public body and "a benefit is thereby conferred".
7.261 Article 14 contains four sub-paragraphs, whic h set forth guidelines for calculating the benefit
conferred by different types of financial contributions. Korea's claim pertains to paragraphs (a) and (b)
of Article 14, which read as follows:
For the purpose of Part V, any method used by the investigating authority to calculate
the benefit to the recipient conferred pursu ant to paragraph 1 of Article 1 shall be
provided for in the national legislation or implementing regulations of the Member
concerned and its application to each pa rticular case shall be transparent and
adequately explained. Furthermore, any such method shall be consistent with the
following guidelines:

(a) government provision of equity capital shall not be
considered as conferring a benefit, unless the investment decision can
be regarded as inconsistent with the usual investment practice
(including for the provision of risk capital) of private investors in the
territory of that Member;
(b) a loan by a government shall not be considered as conferring
a benefit, unless there is a difference between the amount that the
firm receiving the loan pays on th e government loan and the amount
the firm would pay on a comparable commercial loan which the firm
could actually obtain on the market. In this case the benefit shall be
the difference between these two amounts ...
7.262 Article 19.4 of the SCM Agreement provides:
No countervailing duty shall be levied
51 on any imported product in excess of the
amount of the subsidy found to exist, calcula ted in terms of subs idization per unit of
the subsidized and exported product.
51 As used in this Agreement "levy" shall mean the definitive or final legal assessment or
collection of a duty or tax.
7.263 Article VI:3 of the GATT 1994 provides in part:
No countervailing duty shall be levied on any product of the territory of any
contracting party imported into the territory of another contracting party in excess
of an amount equal to the estimated bounty or subsidy determined to have been
granted, directly or indirectly, on the manufacture, production or export of such
product in the country of origin or exportation….
3. Main Arguments of Korea
7.264 Korea has made a number of arguments in support of its claim. We understand Korea's
primary arguments to be that the JIA errone ously: (i) ignored relevant economic evidence
demonstrating that commercial actors routinely ente r into similar transactions with borrowers in
Hynix's financial condition; (ii) improperly faile d to determine whether the alleged government

direction of the restructurings made Hynix "bette r off"; (iii) concluded that the terms of the
restructuring transactions between Hynix and certain Other Creditors did not constitute valid market
benchmarks for the benefit analysis; and (iv) calculated the benefit conf erred by the financial
contributions without assigning any value to what H ynix exchanged in return and without taking into
account the creditors' existing claims. We shall address each of these arguments in turn.
4. The relevance of the evidence relied on by the JIA
(a) Arguments of Korea
7.265 Korea's first argument is that the JIA ignored relevant economic evidence demonstrating that
commercial actors routinely enter into similar tr ansactions with borrowers in Hynix's financial
condition. This argument concerns the evidence relie d on by the JIA in establishing the existence of
benefit. It is premised on Korea's economic arguments regarding the differences between the
investment perspectives of new, outside investor s and existing, inside investors. These arguments
have been described more fully above.
466
7.266 In its First Written Submission, Korea asserted th at the JIA erred by examining whether the
debt restructurings, rather than the government en trustment or direction of those restructurings,
conferred a benefit. Korea argued that transact ions entered into by private bodies — whether
government directed or not — do not themselves cons titute "financial contributions" under Article 1.1
of the SCM Agreement. Korea argued that "[i]nstead, it is the government's action of 'entrusting or
directing' the private creditors that constitutes th e 'financial contribution' under Article 1.1(a)." 467
According to Korea, "the issue is whether the alleged government involv ement resulted in better
restructuring transactions for Hynix than it would ha ve been able to negotiate in the absence of
government involvement".468
7.267 In order to seek clarification of Korea's argument, the Panel put Question 70 to Korea:
At para. 229 of its First Written Submission, Korea argues that "the issue is whether
the alleged government involvement resulted in better restructuring transactions for
Hynix than it would have been able to negotiate in the absence of government
involvement" (emphasis added). Is this a different way of saying that the JIA was
required to compare the terms of the governme nt-directed restructurings at issue with
the terms that would have been available to Hynix in the market?
7.268 Korea replied:
If the relevant "market" is properly defined as non-government-directed entities in the
same position as Hynix's creditors, then it should not matter whether the relevant
benchmark is defined as "restructuring transactions for Hynix than it would have been
able to negotiate in the absence of government involvement" or as "the terms that
would have been available to Hynix in the market." However, if the relevant
"market" is improperly defined as non-gove rnment-directed entities in a different
position — for example, investors that do not hold Hynix debt — then the two
descriptions of the relevant benchmark would lead to different results.
7.269 Korea developed this argument further in its Second Written Submission. At para. 172,
Korea states:

466 See para. 7.85 supra.
467 See Korea's First Written Submission, para. 228.
468 See Korea First Written Submission, para. 229.

According to Japan, the JIA's conclusion on this issue was supported by Hynix's
"disastrous and ever deteriorating financial state, its bad history of serving debt, the
collapse of the stock price, and the reality that no new investors were willing to put
funds into Hynix."* But such findings, if th ey ever were made, are simply irrelevant.
Contrary to Japan's assumption, Hynix did not "raise" funds on the commercial
market in the October 2001 and December 2002 restructurings. Instead, its existing
debts were restructured in those transacti ons. The only issue is whether Hynix would
have been able to obtain equivalent de bt restructuring from creditors acting in
accordance with the "usual prac tice" in the relevant market. On that issue, the JIA
made no findings. (* footnote omitted)
(b) Arguments of Japan
7.270 Japan responded that, according to Article 1.1 of the SCM Agreement, it is the financial
contributions resulting from the government entrustmen t or direction that must be found to have
conferred the benefit, not the government entrustment or direction per se.
(c) Evaluation by the Panel
7.271 We understand Korea's basic argument to be that the JIA should have used non-government-
directed entities in the same position as Hynix's creditors – i.e., "inside" investors holding debt of little
worth - as evidence that the restructurings at issu e were commercially reasonable, and therefore did
not confer a benefit. Korea's argument therefore comprises two elements. First, Korea complains that
the JIA applied an outside investor standard, that is not relevant for the purpose of assessing whether a
benefit was conferred by the actions of Hynix's existing creditors. Second, Korea complains that the
JIA determined the existence of benefit without comparing what Hynix's creditors did with evidence
of what non-entrusted or directed, market-based inside investors would have done.
7.272 We have already addressed the first element of Korea's argument. In particular, we have
already found that the JIA applied both an inside a nd an outside investor standard when analyzing the
commercial reasonableness of the decisions by cr editors to participate in the October 2001 and
December 2002 restructurings. The JIA did so because it explicitly accepted the "premise that
existing creditors would possibly provide additional funding in order to maximize the recovery of
credit."
469 The JIA also accepted that debt forgiveness by creditors might be "commercial" "[i]f such
action is reasonably found to be unavoidable in order to maximize the debt recovery."470
7.273 The problem identified by Korea in the second element of its argument is that the JIA
concluded that there was benefit as soon as it found that the actions of Hynix's creditors were not
commercially reasonable, without verifying that (hypothetical) non-entrusted or directed inside
investors acting on market principles would have acted any differently. In other words, Korea
complains that the JIA did not establish its own market benchmark by which to ascertain whether or
not a benefit was conferred on Hynix by its credit ors. Korea submits that the JIA should have
established this benchmark by reference to evidence of what "creditors acting in accordance with the
'usual practice' in the relevant market"
471 would have done. Korea asserts that, no matter the creditors'
motivations for participating in the restructurings , the JIA could only conclude that a benefit was

469 See Annex 3 (Rebuttals and Surrebuttals), para. 141. Despite references to this statement by Japan
in its First Written Submission ( see para. 379) and in subsequent submissions to the Panel (insert refs), Korea
only acknowledged this statement in its final submission to the Panel after the Second Substantive Meeting ( see
Korea's Final Comments, para. 4). This statement appears to have been overlooked by Korea during the earlier
stages of the Panel proceedings.
470 See Annex 3 (Rebuttals and Surrebuttals), para. 429.
471 See Korea's First Written Submission, para. 172.

conferred if the terms of the restructurings were shown to be more favourable than the terms that
would have been offered by creditors following usual market practices. According to Korea:
it does not matter whether Hynix's creditors actually made their decisions by flipping
coins, tossing darts at a board, or consu lting fortune-tellers. No matter how bizarre
the JIA may have found the creditors' d ecision-making process, the restructuring
transactions did not confer a benefit on Hynix as long as Hynix could have received
equivalent terms from creditors following usual market practices.
472
7.274 Korea asserts that a market-based inside investor would have participated in the restructurings
because (1) it would have acquired an independent anal ysis before deciding what to do; and (2) that
analysis would have demonstrated that Hynix's going concern value exceeded its liquidation value.
Accordingly, Korea submits that there was no difference between what Hynix's creditors did and what
market-based inside investors would have done. Fo r this reason, Korea submits that no benefit was
conferred on Hynix by the restructurings.
7.275 As noted above, it is now well established that th e concept of benefit is defined by reference
to the market, such that a financial contribu tion confers a "benefit" within the meaning of
Article 1.1(b) of the SCM Agreement when it is made available on terms that are more favourable than
the recipient could have obtained on the market. While an investigating authority must apply this
standard on the basis of relevant ev idence, there are no provisions in the SCM Agreement regarding
the precise nature of the evidence on which an inv estigating authority must rely. The guidelines set
forth in Article 14 of the SCM Agreement offer some guidance on the types of evidence that might be
relevant. However, the Article 14 guidelines do not cover all eventualities. For example,
Article 14(b) does not indicate how an investigating authority should establish the existence of benefit
conferred by a loan in the event that there are no "comparable commercial loans which the firm could
actually obtain on the market".473
7.276 In certain circumstances, an investigating aut hority might examine the existence of benefit by
gathering available evidence of the terms that the ma rket would have offered, and by comparing those
terms with those of the financial contribution at issue. This is the approach advocated by Korea in the
present case. In other circumstances, an investiga ting authority might rely on evidence of whether or
not the financial contribution was provided on the b asis of commercial considerations. This is the
approach adopted by the JIA in the present case. In our view, both types of evidence are relevant in
determining the existence of benefit. The first, because such evidence provides a market benchmark
against which to determine whether or not the terms on offer were more favourable than those
available from the market. The second, b ecause evidence of reliance on non-commercial
considerations indicates terms more favourable than those available from the market (as the market is
presumed to operate on the basis of commercial considerations). 474 Depending on the particular
circumstances of a case, an investigating authority might also rely on other types of evidence that
could be equally relevant. 475

472 See Korea's First Written Submission, para. 176.
473 It is for this reason that the panel in EC – Countervailing Measures on DRAM Chips recognized that
"an investigating authority is entitled to considerab le leeway in adopting a reasonable methodology" ( EC –
Countervailing Measures on DRAM Chips, para. 7.213) for calculating the amount of benefit.
474 We note that such an approach to determining th e existence of benefit was upheld by the panel in
EC – Countervailing Measures on DRAM Chips . That panel upheld the investigating authority's finding of
benefit in respect of the October 2001 restructuring on the basis that the investigating authority had reasonably
concluded that none of the non-entrusted / directed creditors had acted "in a commercially reasonable manner".
(EC – Countervailing Measures on DRAM Chips, para. 7.209)
475 An investigating authority might also be confronted with both types of evidence described above,
and one type of evidence might not support the conclusion suggested by the other. For example, there might be
evidence that, although the financial contribution was not provided on the basis of commercial considerations, it

7.277 In light of the above, we find that the JIA's determination of the ex istence of benefit was
based on relevant economic evidence. 476 We therefore reject Korea's argument that the JIA
improperly ignored relevant economic evidence simp ly because it failed to co llect evidence of what
(hypothetical) market-based inside investors would have done.
5. Commercial Reasonableness: Whether The Restructurings Made Hynix "Better Off"
(a) Arguments of Korea
7.278 Korea asserts that a financial contribution only confers a benefit if it makes the recipient
"better off" than it otherwise would have been. Korea states that there was no question that the
economic evidence indicated that it was commercially reasonable for Hynix's creditors to participate
in the restructurings, since Hynix's going concern va lue exceeded its liquidation value at the time of
both the October 2001 and December 2002 restructurings . Korea asserts that market operators would
have participated in the restructurings under these circumstances. Accordi ng to Korea, therefore,
Hynix was not made "better off" by the creditors than it would have been by the market.
(b) Arguments of Japan
7.279 Japan asserts that benefit should be established from the perspective of Hynix, the recipient of
the financial contributions, and not its creditors. Jap an submits that the fact that Hynix was "better
off" than it would otherwise have been absent th e financial contribution is demonstrated by the
evidence. Japan refers in particular to evidence that Hynix was not able to obtain financing from "a
normal commercial perspective".477
(c) Evaluation by the Panel
7.280 We recall that the JIA assessed the commercia l reasonableness of the October 2001 and
December 2002 restructurings in the context of its determination of gove rnment entrustment or
direction. We have already established that an investigating authority might properly rely on evidence
of whether or not a financial contribution was comme rcially reasonable in determining whether or not
that financial contribution confers a benefit in the meaning of Article 1.1(b) of the SCM Agreement.478

would in fact have been provided by "creditors acting in accordance with the 'usual practice' in the relevant
market". In such cases, the investigating authority would need to weigh the probative value of one type of
evidence against the probative va lue of the other. This was not the case in the investigation at issue, however,
since the JIA was not confront ed with evidence that "cred itors acting in accordance with the 'usual practice' in
the relevant market" would have restructured Hynix on the same terms as the Four Creditors did. Nor, in our
view (for the reasons set forth above), was the JIA required to collect such evidence. (Korea does not argue that
the JIA was presented with evidence that "creditors acting in accordance with the 'usual practice' in the relevant
market" would have restructured Hynix on the same terms as the Four Creditors did. Although the Government
of Korea argued before the JIA that inside an d outside creditors have different interests (see Annex 3 (Rebuttals
and Surrebuttals, para. 136), it did not provide evidence of the terms on which "creditors acting in accordance
with the 'usual practice' in the relevant market" would have restructured Hynix. Furthermore, the Government
of Korea argued during the underlying investigation that the JIA should have regard to "the actual
circumstances of creditor financial institutions" ( see Annex 3 (Rebuttals and Surrebuttals, para. 136, emphasis
supplied). The Government of Korea did not refer, during the underlying investigation, to evidence of what
hypothetical market-based inside investors would have done.)
476 We wish to emphasise that our finding in this regard concerns the JIA's determination of the
existence of benefit. It does not concern the JIA's calculation of the amount of benefit, for quantification of the
amount of benefit conferred by a fina ncial contribution necessarily requires more than merely concluding that
the financial contribution was not commercially reasonable.
477 See Japan's First Written Submission, para. 412.
478 As discussed above, we consider that the JIA applied both an outside and inside investor standard in
considering the commercial reasonableness of the restructurings. We recall that the parties agree that the inside
investor standard is an appropriate one. Accordingly, there is no need for us to make any findings on this issue.

We understand Korea's argument that the restructurings did not make Hynix "better off" to mean that
Korea considers that the restructurings were commercially reasonable, and were therefore not made
on terms more favourable than those available from the market.
7.281 The JIA concluded that the Four Creditors ha d failed to participate in the October 2001
restructuring on the basis of commercial considerations. We have rejected Korea's arguments
challenging that conclusion. Since we uphold the JIA's finding that the October 2001 restructuring
was not commercially reasonable
479, it follows that we also uphold the JIA's determination that the
October 2001 restructuring conferred a benefit on Hynix.
7.282 Regarding the December 2002 restructuring, we recall our finding that the JIA did not
properly establish that the participation of the Four Creditors was based on non-commercial
considerations. In particular, we found that the JI A's erroneous analysis (in form and substance) of
the Deutsche Bank Report invalidated the JIA's finding that the Four Creditors' participation in the
December 2002 was not commercially reasonable. 480 Since the JIA determined benefit by reference
to the market, and commercial reasonableness, it therefore follows that we reject the JIA's
determination that the December 2002 restructuring conferred a benefit on Hynix.
6. The Use of Hynix's Non-Entrusted or Directed Creditors as Market Benchmarks
7.283 Korea asserts that a large number of Other Creditors, i.e., creditors that had not been found by
the JIA to have been entrusted or directed by the Government of Korea, participated in the October
2001 and December 2002 restructurings on the same terms as the Four Creditors that were found to
have acted as the result of government entrustment or direction. Korea submits that private entities
not acting under the entrustment or direction of th e government constitute the "market", and therefore
define the market outcome. According to Korea, the fact that these private en tities participated in the
transactions on the same terms as the government bodies and the allegedly government-directed banks
indicates that the transactions did not confer a benefit on Hynix.
7.284 We recall that the JIA did not find that th e Other Creditors had conferred any (financial
contribution or) benefit on Hynix. Thus, Korea is not challenging any finding by the JIA that the
Other Creditors themselves conferred a benefit. Rather, Korea's argument is addressing the potential
impact of evidence regarding the Other Creditors on the JIA's determination that the participation of
the Four Creditors conferred a benefit on Hynix. Korea's argument is therefore concerned with the
JIA's treatment of the evidence on its record. Ko rea's basic argument is that evidence that Other
(non-entrusted or directed) Creditors also participat ed in the restructurings should have trumped the
evidence relied on by the JIA to fi nd that the Four Creditors participated in the restructurings on non-
market considerations (leading to a finding that the restructurings did not confer a benefit on Hynix).
7.285 In light of our conclusion that the JIA could not properly have determined that the Four
Creditors participated in the December 2002 restructuring on the basis of non-commercial
considerations, we only evaluate Korea's argument re garding the role of Other Creditors in respect of
the October 2001 restructuring. The JIA made the following findings regarding the participation of
Other Creditors in the October 2001 restructuring:
Hynix had been saved from bankruptcy by the government's subsidies (KEIC's
insurance on the D/A financing, the KDB Program and the May 2001 Program). The
Investigating Authorities find that th e October 2001 Program was implemented
standing on the financial situation supported by such subsidies. As described above,
it was commonly recognized in Korea at that time that the Government of Korea
placed the promotion of normalization of Hynix, a major semiconductor enterprise, as

479 See para. 7.244 supra.
480 See para. 7.246 supra.

one of its economic policies, and had the po litical intent to have Hynix survive.
Furthermore, the Investigating Authoriti es find that the Government of Korea was
deeply involved in the October 2001 Program. In addition, the selection of Options 2
and 3 had also been made before the rel ease of the Arthur Andersen Report, which
compares the going-concern value with the liq uidation value that form the basis for
selecting such options.
362 Therefore, the Investigati ng Authorities find that the
financial contributions standing on such a situation do not constitute financing from
the commercial market ( i.e., the market benchmark), even if the October 2001
Program included financial contributions wh ich were not found to be a financial
contribution based on the entrustment or direction of the government.
481
Note 362 reads:
Of the interested parties to whom the Investigating Authorities had sent the
questionnaire, the Investigating Authoriti es received no questionnaire responses from
commercial banks that selected option 2 or 3 except for Kookmin Bank. Therefore,
the Investigating Authorities have no choice but to rely on the determination of the
commercial validity in their selection of these options on information from the banks
that provided their responses, taking the fact of refusal to respond into account.
Kookmin Bank responded at the on-the-spot i nvestigation that "each bank made their
decision independently whether to take th e bailout measure in accordance with its
internal rule, referring to the Arthur Ande rsen's material. Kookmin Bank also made
its decision in the same manner." This res ponse, however, is contradictory to the
release date of the Arthur Andersen Repor t. The Kookmin Bank's response and other
above-mentioned evidence show that each bank selected the option under the
influence of external factors other than comme rcial factors. It is also reasonable to
find that, given the fact that no banks relevant to the option 3 submitted their
responses to the questionnaire, and given the information that the Investigating
Authorities received from other sources discussed above, external factors were
involved in the final repayment conditions of option 3.
7.286 In light of these findings, we understand that the JIA discounted the evidence that Other
Creditors had also participated in the October 2001 restructuring because (1) the JIA found that the
October 2001 restructuring was based on prior subsid ies, and (2) the JIA found, on the basis of facts
available, that the Other Creditors had acted on non -commercial considerations. We shall begin by
examining the second element relied on by the JIA.
(a) The "non-commercial nature" of the behaviour of the Other Creditors
7.287 Korea asserts that Japan has o ffered no evidence to support its assertion that the JIA properly
found that the Other Creditors' decisions to partic ipate in the October 2001 restructuring were based
on non-commercial considerations. Korea asserts th at, when asked for such evidence by the Panel,
the Japanese delegation actually referred to a passage in the JIA's determination addressing the Four
Creditors that were found to have been influenced by government entrustment or direction - and not
the "other" banks and the hundreds of other financ ial institutions that were never contacted by
the JIA.
482
7.288 We note that the JIA's finding regarding th e commercial reasonableness of the decision of
Hynix's Other Creditors to participate in the Oct ober 2001 restructuring was based on facts available,

482 Korea notes in this regard that the Japanese dele gation directed the Panel to paragraphs 290 to 296
of Annex 1 (Essential Facts). Korea asserts that that passage is, however, focused solely on the question
whether KEB, Woori Bank, Chohung Bank and NACF partic ipated in the restructuri ng transactions as a result
of government entrustment or direction.

as those Other Creditors contacted by the JIA (oth er than Kookmin) had failed to respond to its
questionnaire. According to note 362 of Annex 1 (Essential Facts), set forth above, the available facts
applied by the JIA pertained to the participation in the October 2001 restructuring of the banks that
did reply to the JIA's questionnaire, namely the Four Creditors and Kookmin. It is for this reason that
Japan would have referred to evidence regarding the Four Creditors in the circumstances described by
Korea in the preceding paragraph.
7.289 We find elsewhere that the JIA was entitled to tr eat the Other Creditors as interested parties,
and to apply facts available in accordance with Article 12.7 of the SCM Agreement.
483 The JIA was
required to apply facts available in respect of th e Other Creditors because none of the Other Creditors
contacted by the JIA (except Kookmin) had responded to its questionnaire. In other words, there was
no direct evidence on the JIA's record regarding the reasons why Other Cr editors (other than
Kookmin)484 had participated in the October 2001 restructuring.
7.290 Thus, while there was no direct evidence demonstrating that the Other Creditors had
participated in the October 2001 restructuring on th e basis of commercial considerations, there was
indirect evidence (applicable through facts avai lable) suggesting that the Other Creditors had
participated in that restructuring on th e basis of non-commercial considerations, 485 just as the
Four Creditors had done.
7.291 Given the JIA's finding of extensive government intervention in the October 2001
restructuring, there was obviously a risk that th e Other Creditors may also have been acting under
government entrustment or direction. As a result of the failure of Other Creditors to respond to the
JIA's questionnaire, it was not possible fo r the JIA to exclude this possibility. 486 In these
circumstances, we do not consider that the JIA erre d in the treatment of the evidence before it. In
particular, we do not consider that the JIA was ob liged to assume (without evidence in support, and in
the face of evidence to the contra ry) that the Other Creditors had participated in the October 2001
restructuring on the basis of commercial considerations, and then use that assumption to trump
evidence indicating that the Four Creditors had par ticipated in the October 2001 restructuring on the
basis of non-commercial considerations. In these ci rcumstances, the mere participation of Other
Creditors in the October 2001 restructuring (absen t evidence establishing that their participation was
based on commercial considerations) should not ha ve precluded a finding by the JIA that the
participation of the Four Creditors in that restructuring conferred a benefit on Hynix.
(b) Prior Subsidies
7.292 We recall that the JIA found in respect of the October 2001 restructuring that:

483 See section VII.I infra.
484 Note 362 of Annex 1 (Essential Facts) indicates that the available dir ect evidence regarding
Kookmin concerned its claim that it had relied on the Anjin Accounting Report as a basis for participating in the
October 2001 restructuring. This di rect evidence was therefore addressed by the JIA in its treatment of the
Anjin Accounting Report, which the JIA found was only ma de available to creditors after they had already
decided to participate in the October 2001 restructuring.
485 For this reason, we disagree with Korea's asse rtion that there was "no information on the record
providing any indication that the [Other Creditors] particip ated in the restructuring transactions for any reason
other than a rational calculation of their own self-interest" (Korea's Second Written Submission, para. 226).
486 In this regard, we note that much of the evidence of entrustment or direction relied on by the JIA in
respect of the Four Creditors' participation in the October 2001 restructuring might equally have applied to the
Other Creditors. If the JIA had also made a finding of entrustment or direction in respect of the Other Creditors,
the argument presently being made by Korea would not arise. Given the non-responsiveness of Other Creditors,
and the resultant absence of direct evidence regarding the motivations of the participation of Other Creditors in
the restructurings, we do not see why Korea's argument should become decisive simply because the JIA decided
not to make findings of entrustment or direction in respect of those Other Creditors (and thereby allowed Korea
to make the argument that it is currently presenting).

Hynix had been saved from bankruptcy by the government's subsidies (KEIC's
insurance on the D/A financing, the KDB Program and the May 2001 Program). The
Investigating Authorities find that th e October 2001 Program was implemented
standing on the financial situation supported by such subsidies. (...) Therefore, the
Investigating Authorities find that the fi nancial contributions standing on such a
situation do not constitute financ ing from the commercial market ( i.e., the market
benchmark), even if the October 2001 Pr ogram included financial contributions
which were not found to be a financial contribution based on the entrustment or
direction of the government.
487
7.293 The Panel addressed Questions 28, 29, and 32 – 37 to Japan in order to clarify the rationale
behind the JIA's determination. According to Japan, the facts show that Hynix was saved by prior and
contemporaneous subsidies. Japan asserts that b ecause Hynix's financial state was distorted by prior
subsidies, so too was any benchmar k based on Hynix's financial state. 488 Japan asserts that the
financial state of Hynix was necessarily distorted b ecause the very "existence of Hynix was the result
of the prior subsidies", in the sense that Hyni x could not have survived until the time of the
October 2001 restructuring without prior subsidies. We therefore understand Japan to argue that there
can be no market price for any fi nancing of Hynix because, but for prior subsidies, there would not
have been any Hynix debt or equity to be sold on the market.489
7.294 Korea asserts that past subsidies do not ne gate the commercial nature of subsequent
transactions by commercial actors. According to Korea, Article 14 of the SCM Agreement requires
investigating authorities to look to actual market transactions and practices as the benchmark for
determining whether a benefit has been confe rred. Korea submits that nothing in the SCM Agreement
permits an investigating authority to second guess the market, or to disregard actual market behaviour
based on the investigating authority's beliefs about what should have happened. Korea asserts that the
JIA erroneously disregarded actual market transacti ons, because it considered them inconsistent with
the hypothetical transactions that it believed hypotheti cally would have existed if certain past events
had hypothetically not occurred.
7.295 We begin by acknowledging that there may be circ umstances in which the market is distorted
to such an extent that the pricing in that ma rket may not be used for the purpose of establishing
benefit. Thus, the Appellate Body found in US – Softwood Lumber IV that "in certain situations
where government involvement in the market is subs tantial, the prices of private suppliers may be
artificially suppressed because of the prices charged for the same goods by the government". 490 This
is "because the government's role in providing the financial contribution is so predominant that it
effectively determines the price at which private su ppliers sell the same or similar goods, so that the
comparison contemplated by Article 14 would become circular". 491 Furthermore, several panels have
recognised that private participation in restructur ing programmes might be influenced by government
/ public participation in those pr ogrammes. Thus, the panel in EC – Countervailing Measures on
DRAM Chips found that "the behaviour of (...) market players [could be] so distorted by the
government's intervention that they can no longer se rve as the benchmark against which to measure

488 In response to Question 29 from the Panel, Japan asserted that "there was no 'non-distorted' market,
i.e., Hynix's financial situation without the distortion of subsidies".
489 In response to Question 29 from the Panel, Japan asserted that "[t]he scale of the subsidies provided
by the government may have an impact on the nature and extent of the distortion, as well as on the evidence
required to demonstrate such distortion. In some cases, su ch as this one, the scale and timing of the subsidies is
such that it is not just a question of impacting on the terms of the financing for example, but actually allowing
the existence of such financing itself. In such cases, th e evidence of distortion is clearly shown." Thus, Japan
does not argue that the prior subsidies merely affected the terms of the restructurings. Rather, Japan asserts that
there would not have been any restructurings but for the prior subsidies.

the alleged government distortion".
492 Similarly, the panel in Korea – Commercial Vessels found
(with express reference to the Appellate Body's findings in US – Softwood Lumber IV ) that "there
could be circumstances in which a government influences the market to such an extent that it becomes
distorted, so that private entities no longer operate pursuant to purely commercial principles".493
7.296 Japan has referred to the US – Softwood Lumber IV case in support of the JIA's reliance on
prior subsidization. However, none of the Appe llate Body or panel fi ndings referred to above
concerned the role of prior subsidization in distor ting markets. Instead, they were concerned with
distortion caused by present, or contemporaneous, 494 government involvement and intervention in
markets. These cases therefore do not provide support for the JIA's determination.
7.297 In our view, prior subsidization of an object does not necessarily mean that the market price
for that object is distorted. A buyer may be said to have paid a market price even though the object
only exists because of prior subsidies. Indeed, this is the basic premise of consistent WTO rulings to
the effect that the payment of fair market value for privatized entities does not confer a benefit. In US
– Countervailing Measures on Certain EC Products, the Appellate Body confirmed that "[p]rivatization
at arm's length and for fair market valu e may result in extinguishing the benefit." 495 Implicit in this
finding is the notion that a privatization might take place "for fair market value". The fact that a state-
owned entity, which only exists becau se of prior subsidization, may be privatized, or sold, "for fair
market value" undermines Japan's argument that ther e can be no (fair) market price for an entity that
existed, in the JIA's view, only because of prior subsidization.496
(c) Conclusion
7.298 While we have found that the JIA improperly relied on prior subsidization as a basis for
discounting the participation of Other Creditors in th e October 2001 restructuring, we have found that
the JIA properly discounted the participation of Othe r Creditors on another basis. In particular, we
have found that the JIA properly determined, on the basis of the available ev idence, that the mere
participation of Other Creditors in the October 2001 restructuring should not outweigh the evidence
directly concerning the Four Creditors that indicated that they participated in the restructuring on the
basis of non-commercial considerations. For these reasons, we uphold the JIA's determination that

492 EC – Countervailing Measures on DRAM Chips, note 171.
493 Korea – Commercial Vessels, para. 7.434.
494 We note that Japan's arguments refer to both "prior" and "contemporaneous" subsidization.
However, we have not been able to locate, and Japan has not identified, any finding by the JIA regarding the
role of "contemporaneous" subsidies. Japan's argumen ts on contemporaneous subsidization therefore constitute
ex post rationalization which we decline to consider. Japan explicitly acknowledged that it had not made the
type of analysis envisaged in the abovementioned Appellate Body and panel reports in response to
Question 104, in which the Panel asked whether the JIA' s reasoning was based in any way on the theory that
Hynix's non-entrusted "financiers may have only joined in because of the predominant position of the primary
financiers". Japan replied that "[t]he IA ... did not make [any] finding that par ticipation by Hynix's other
creditors in the October 2001 Prog ram and the December 2002 Program was precondition[ed] on the financial
contributions from four entrusted or directed banks in these Programs". Japan has not argued, for example, that
Hynix's private creditors only particip ated in the restructurings because the participation of public bodies
signalled to them that the Government of Korea was prepared to save Hynix at all costs.
495 US – Countervailing Measures on Certain EC Products, para. 126.
496 Furthermore, the JIA's acceptance of the inside inve stor standard implies that the JIA accepted that
Hynix's existing creditors might behave in a commercia lly rational way, irrespective of the reasons why they
were "inside" Hynix in the first place. Thus, the JIA a ppears to have accepted that Hynix's creditors may have
acted in a commercially rational way, and forgiven debt or restructured loans, even though (according to the
JIA) they had only previously lent money to Hynix in the form of subsidies. If this were not the case, there
would have been no point in the JIA conducting a detailed examination of the commercial reasonableness of the
Four Creditors' decisions to participate in the restructuri ngs (by reference to their inte rnal analyses and external
reports). Accordingly, the JIA's reliance on prior subsidies to impugn the commercial rationale of the decisions
of Other Creditors is inconsistent with the JIA's acceptance of the inside investor standard.

the participation of the Four Creditors in the October 2001 restructuring could confer a benefit on
Hynix notwithstanding the participation of Other Creditors in the restructuring.
7. Calculation of the Amount of Benefit
(a) Main Arguments of Korea
7.299 Korea claims that the JIA erroneously calculated the benefit conferred by the financial
contributions without assigning any value to what H ynix exchanged in return and without taking into
account the creditors' existing claims. According to Korea, a proper analysis of these transactions
requires consideration of all parts of the exchang es — not only the value of whatever the recipient
received, but also the value of whatever the recipien t gave in return. Korea suggests that the panel in
EC – Countervailing Measures on DRAM Chips found that an investigating authority's analysis of a
debt-to-equity swap cannot look only at the forgiveness of debt, and ignore the value of the equity
provided in return.
7.300 Furthermore, Korea asserts that the JIA's bene fit calculation in this case was flawed because
the JIA analyzed the benefit from "deemed" tran sactions. Korea asserts that the JIA thereby
overlooked Hynix's inability to repay at least part of its debts, and instead assumed that the
restructuring involved transactions in which Hynix w as able to, and actually did, repay its debts in
full. Korea submits that the JIA then used the pr actices of investors considering transactions that did
not and could not have occurred — i.e., transactions in which the investors received full repayment of
outstanding debts — as the benchmark for its be nefit analysis. According to Korea, the JIA
determined the value of the debt that the creditors exchanged in the debt equity swaps by multiplying
the number of shares received by each creditor by the unit value assigned to each share in the debt-to-
equity swaps. Korea asserts that the JIA took a different approach when it came to calculating the
benefit of the equity infusions. In particular, it did not use the unit value assigned to each share in the
debt-to-equity swaps in order to determine the valu e of the shares that Hynix issued to the banks.
Korea asserts that, instead, the JIA took the posi tion that those shares were worthless, because
"Hynix's equity value was zero." 497 Korea submits that the JIA's approach was contradictory.
According to Korea, if the JIA assumed that the shares had value for purposes of calculating the value
of the loans given up by the creditors in the debt-to-equity swaps, then it had to assume that the shares
had the same value for purposes of calculating the bene fit of the debt-to-equity swap. Alternatively,
Korea asserts that if the shares had zero value for purposes of the benefit calculation, and the value of
the loans was determined from the value of the shares, then the valu e of the loans before they were
swapped also had to be zero.
(b) Main Arguments of Japan
7.301 As a preliminary matter, Japan asserts that Kore a's argument that Hynix's debts were at least
in part worthless falls outside the terms of reference of the Panel because it was not an argument made
before the JIA.
498
7.302 Further, Japan asserts that none of the evidence on the JIA's record showed that the value of
any loans was devalued at the time of the Oct ober 2001 and December 2002 restructurings. Japan
asserts that Korea's arguments are therefore w ithout supporting evidence. Regarding Korea's
argument that the JIA incorrectly calculated the amount of benefit by reference to "deemed"
transactions that, in reality, did not occur, Japan asserts that Korea fails to distinguish between the fact
itself, i.e., the nature of transactions, and the JIA's assessment of facts, i.e., how to measure the benefit
based on that fact.

497 See Japan's Response to Second Panel Questions, para. 74.
498 See Japan's oral statement at the Second Substantive Meeting, para. 83.

7.303 Regarding Korea's argument that the JIA calculated the amount of benefit without regard to
the "usual practices"' of market participants, Japan asserts that the Government of Korea and
interested parties refused to provide relevant information of financial restructuring of other companies
similarly situated with Hynix, namely companies subject to the CRPA. Japan relies in this regard on a
finding by the Appellate Body that, "when assessing an investigating author ity's determination, a
panel may not fault the agency for failing to take into account facts that it could not reasonably have
known."
499 Japan also relies on Article 12.2 of the SCM Agreement to argue that an investigating
authority's determination "can onl y be based on…. information and arguments" on its record. Japan
asserts that Korea's complaint that the JIA should have made factual conclu sions regarding benefit
based on a potential "usual practice" in the absence of the necessary information is tantamount to a
request to speculate in finding a "usual or norma l practice" without any evidence on the record, and
inconsistent with the provisions of Article 12.2 of the SCM Agreement.
(c) Evaluation by the Panel500
7.304 Regarding Japan's claim that Korea's argument that the relevant debts were worthless falls
outside the Panel's terms of reference, we reca ll that a complaining party is not precluded from
making arguments in WTO dispute settlement pr oceedings that it did not make before the
investigating authority in the underlying investigation.501 502
7.305 On substance, we note that Korea argues that the JIA failed to properly take account of the
fact that Hynix was unable to repay all of its debt. 503 Korea also challenges the JIA's finding that the
value of Hynix's equity was zero. In light of Korea's extensive argumentation regarding the
differences between the investment perspectives of inside and outside investors in respect of insolvent

499 Appellate Body Report, US – Countervailing Duty Investigation on DRAMS, para. 175.
500 In light of our finding regarding the JIA's determin ation of the existence of benefit in respect of the
December 2002 restructuring, it is not strictly necessary for us to consider the JIA's calculation of the amount of
benefit conferred by that restructuring. We shall do so, though, for the sake of completeness.
501 See Appellate Body Report, US – Lamb, para. 113.
502 Japan cited Egypt – Steel Rebar in its submissions and answers given to the Panel as authority for
the contrary proposition. In that report the Panel stated (at para. 7.105):
It is not within our mandate to reverse through the dispute settlement process the
consequences of those respondent's decisions made during the course of the investigation as to
which arguments they would present.
However the context in which that statement was made is quite different to th e context in which Japan
sought to use it in these proceedings. In Egypt – Steel Rebar, Turkey argued before the Panel that the Egyptian
investigating authority was obliged to undertake further fact-finding than the fact-finding it had actually
undertaken in its investigation in order to meet the "positive evidence" standard in its determination of injury.
The other factual evidence that Turkey argued the investigating authority should have taken into account had not
been submitted by Turkey to the investigating authority, and was not on the investigating authority's record.
Turkey did not seek to place that ot her factual evidence before the Panel, and would have been precluded from
doing so. Instead Turkey argued that the investigating authority should have found that evidence itself, and that
the failure to find that evidence meant that the positive standard had not been met. However the Panel found
that the investigating authority had met the positive standard on the basis of the evidence on its record; that the
evidence was properly directed toward s the matters identified as being relevant to such a decision under the
Anti-Dumping Agreement; and that the other factual evidence was not necessar ily required to be considered in
applying the relevant tests of injury under the Anti-Dumping Agreement. It was in those circumstances that the
Panel declined to allow Turkey to argue against the merits of the investigating authority's decision on the basis
submitted by Turkey.
503 Korea's argument that the JI A calculated the amount of bene fit on the basis of "deemed"
transactions is related to its claim that the JIA impr operly treated the October 2001 and December 2002 loan
maturity extensions and debt-to-equity swaps as "d irect transfers of funds" within the meaning of
Article 1.1(a)(1)(i) of the SCM Agreement. We rejected that claim for th e reasons set forth at section K infra.
However, our upholding of the JIA's treatment of these transactions as "direct tran sfers of funds" does not
necessarily mean that we accept the JIA's calculation of the benefit resulting from those transactions.

companies (especially Korea's argument that outside investors would only invest if they expect to get
all of their money back, whereas inside investors in insolvent companies already know that their debts
will not be paid in full), we understand that Kor ea is essentially arguing that the JIA calculated the
amount of benefit from the perspective of outside investors.
7.306 We note that the JIA calculated the amount of benefit resulting from the October 2001
restructuring in Section 2.8.5 of Annex 1 (Essential Facts). The JIA adopted the same approach for
both new loans and extensions of loan maturities,504 finding that:
at the time of the October 2001 Program, there were no normal commercial loans that
would be comparable to the loans gran ted by the creditor banks. Moreover, as
examined above, the Investigating Authorities find that there were no investors who
would additionally invest in or make loans to Hynix from a normal commercial
perspective. Therefore, the Investigating Au thorities calculate the benchmark interest
rate in accordance with Formula 1 in 2.3. 2.2.1 hereof, and obtain the difference
between this amount and the actual interest amount paid for the new loan.505
7.307 On the basis of Japan's reply to Question 31 from the Panel, we understand that the JIA's
reference to the "normal commercial perspective" relates to the perspective of new, outside
investors.506 Furthermore, Section 2.3.2.2.1 of Annex 1 (Essential Facts) describes the interest rate
calculated using Formula 1 as the rate for "uncred itworthy companies". The creditworthiness of a
company is established by reference to new, outside investors, on the basis of input from credit rating
agencies.507 Thus, having found that there were no new, outside investors who would invest in or
make loans to Hynix, the JIA applied Formula 1, wh ich is a market benchmark for outside investors.
The JIA adopted the same approach in respect of the December 2002 extensions of loan maturities.508
7.308 The JIA similarly calculated the amount of benefit resulting from the October 2001 and
December 2002 debt to equity swaps by reference to an outside investor standard:
As described above, the Investigating Au thorities find that at the time of the
October 2001 Program, there were no investors who would additionally invest in or
make loans to Hynix from a normal commercia l perspective, and thus, there were no
normal investments by private investors that can be reasonably compared to the
equity infusions granted by the creditor banks . An investment under such a situation
is not consistent with the usual investment practice of the private investors in Korea
at that time. Because the situation at th e time was such that a return on such
investment could not be expected within a reasonable period of time, the amount of
the subsidy is the full amount of the investment.
509
7.309 Again, therefore, the JIA approached the i ssue from the "normal commercial perspective",
i.e., the perspective of the outside investor.

504 See Annex 1 (Essential Facts), paras. 103 and 306.
506 We note Japan's assertion that the phrase "normal commercial perspective" has the same meaning as
the equivalent phrase ("normal commercial point of view") discussed in Question 31 from the Panel.
507 For example, the JIA referred to Hynix's "questionable" creditworthiness at para. 265 of Annex 1
(Essential Facts). On the basis of this, and other, considerations, the JIA found that there were no investors from
"a normal commercial perspective", i.e., from the outside investor perspective. This demonstrates that the
concept of creditworthiness relates to the perspective of outside, rather than inside, investors.
508 See para. 382 of Annex 1 (Essential Facts).
509 See Annex 1 (Essential Facts), para. 310. See Annex 1 (Essential Facts), paras. 379 and 381, for the
same approach in respect of the December 2002 debt-to-equity swaps.

7.310 We recall that the JIA explicitly accepted "the premise that existing creditors would possibly
provide additional funding in order to maximize the recovery of credit".
510 In response to Question 98
from the Panel, Japan confirmed th at, in accepting this premise, the JIA accepted "the notion that
existing creditors might engage in restructuring meas ures that potential, outside investors would not".
The JIA accepted that debt forgiv eness by creditors might be "commercial" "[i]f such action is
reasonably found to be unavoidable in or der to maximize the debt recovery". 511 There is therefore no
dispute between the parties that the inside investor standard constitutes a valid market benchmark in
the context of the present case. 512 Nor is there any dispute between the parties that the investment
perspectives of inside and outside investors di ffer. We find that an objective and impartial
investigating authority, which itself has accepted that existing creditors might engage in restructuring
measures that new, outside investors would not, could not properly calculate the amount of benefit
conferred by restructurings undertaken by inside creditors on the basis of an exclusively outside
investor benchmark.513 Such an approach is premised on an internal inconsistency that undermines
the validity and credibility of the JIA's benefit determination.514
7.311 Korea has also argued, and Japan has not denied, that the formula used by the JIA to calculate
the amount of benefit of the debt-to-equity swaps is the formula used in other jurisdictions to calculate
the subsidy benefits from outright grants. 515 Korea asserts that the panel in EC – Countervailing
Measures on DRAM Chips found that an investigating authority's analysis of a debt-to-equity swap
cannot look only at the forgiveness of debt, and ignore the value of the equity provided in return.
7.312 At para. 7.212 of the EC – Countervailing Measures on DRAM Chips report, the panel found
that:
there is a basic problem with the EC's grant methodology, and that is, simply put that
a loan, a loan guarantee, a debt-to-equity sw ap that requires the recipient to repay the
money or to surrender an ownership share in the company is not the same as a grant

510 See para. 141, Annex 3 (Rebuttals and Surrebuttals).
511 See Annex 3 (Rebuttals and Surrebuttals), para. 429.
512 Accordingly, there is no need for us to make any findings on whether or not the inside investor
perspective constitutes a valid market benchmark for the purpose of Articles 1.1(b) and 14 of the
SCM Agreement. We shall instead consider whether or not the JIA applied that standard in an appropriate
manner.
513 Regarding the equity infusions, the JIA explained th at it found that the situation at the time did not
allow a return on investment within a reasonable period because of the finding "t hat the major issue in the
October 2001 Program and December 2002 Program was not to recover the equity infusion, but to maximize the
recovery of the credit remaining afte r the reduction and forgiveness" (Annex 3 (Rebuttals and Surrebuttals),
para. 170). We have already noted the JIA's explicit acceptance of "the premise that existing creditors would
possibly provide additional funding in order to maximize the recovery of credit". Having accepted that premise,
we fail to see how the JIA could properly have assigned a value of zero to equity infused by Hynix's existing
creditors on the basis that "the major issue in the October 2001 Program and D ecember 2002 Program was not
to recover the equity infusion, but to maximize the recovery of the credit." Indeed, the JIA itself acknowledged,
and Japan confirmed, that an investment of zero value to outside investors might not necessarily have zero value
to inside investors (see section E.7.(c) infra.).
514 Japan submits that Korea's arguments overlook the discretion accorded to each WTO Member in
having "considerable leeway in adopting a reasonable methodology" (EC – Countervailing Measures on DRAM
Chips, para. 7.213). While we agree with the panel in EC – Countervailing Measures on DRAM Chips that
investigating authorities do have considerable leeway in adopting methodologies for calculating benefit, the
present issue does not concern the choice of methodologie s. The JIA itself chose to determine benefit on the
basis of an inside investor standard. The present issue concerns the consistency of the JIA's application of that
standard. There is nothing in the report of the EC – Countervailing Measures on DRAM Chips panel to suggest
that an investigating authority, having applied a particular benchmark when establishing the existence of benefit,
may overlook that benchmark when calculating the amount of benefit (with the result that the amount of benefit
is inflated).
515 See Korea's First Written Submission, para. 132.

and can not reasonably be considered to have conferred the same benefit as the
provision of funds without any such obligation. For the recipient, a loan clearly has a
different value than a grant as it involves a debt that is owed to someone and will
appear as such in a company's balance sheet. It is thus obviously less beneficial for a
company to be given a loan than it is to be given a grant. Similarly, the issuance of
new equity, directly or through a debt-to-equi ty swap dilutes the ownership claims of
existing shareholders. We note that, in a benefit analysis, it is the perspective of the
recipient that is important, not that of the provider of the financial contribution. In
that sense, we find erroneous the starting point of the EC's calculation of the amount
of benefit, which focuses on the expectation of the provider of the funds to see his
money back. The question of benefit is not about the cost to the provider of the
financial contribution, it is about the benefit to the recipient. (emphasis supplied)
7.313 We agree with this reasoning of the EC – Countervailing Measures on DRAM Chips panel.
We note that the JIA did not explicitly treat the debt -to-equity swaps as grants. Nevertheless, the JIA
did conclude that the value of the equity was zero . We recall that the JIA did so because "the major
issue in the October 2001 Program and December 2002 Program was not to recover the equity
infusion, but to maximize the recovery of the credit."
516 In doing so, the JIA addressed the issue from
the perspective of Hynix's creditors, rather than from the position of Hynix itself. (It was Hynix's
creditors that sought to maximize the recovery of their credit, not Hynix). Guided by the panel in EC
– Countervailing Measures on DRAM Chips , we consider that such an approach erroneously
overstates the amount of benefit conferred on the r ecipient, for it overlooks the perspective of the
recipient, i.e., Hynix, which must dilute the ownership of existing shareholders in return. We
therefore find this to have been a further flaw in the JIA's calculation of the amount of benefit.
7.314 Before concluding, we note Japan's argument that the JIA did not have the information
needed to apply an inside investor standard b ecause the Government of Korea and other financial
institutions failed to provide information regardin g the financial restructuring of other companies
under the CRPA. Given the calculation formula applied by the JIA, which (as shown above) focused
entirely on the perspective of the outside investor, we are not persuaded that the JIA was forced to
calculate the amount of benefit in the way it did because of a lack of information regarding the actions
of inside investors in other restructurings. In pa rticular, Japan has failed to identify any reference in
the Final Determination to any need by the JIA to calculate the amount of benefit on the basis of facts
available, i.e., using an outside investor standard, because of a failure by interested parties to provide
information regarding other restructurings under the CRPA.
7.315 For the above reasons, we uphold Korea's argum ent that the JIA improperly calculated the
amount of benefit conferred by the October 2001 and December 2002 restructurings.
8. Conclusion
7.316 To conclude, we reject Korea's claim that the JIA's determination of the existence of benefit
conferred by the October 2001 restructuring was inc onsistent with Articles 1.1(b) and 14 of the
SCM Agreement. However, we uphold Korea's claim that th e JIA's determination of the existence of
benefit conferred by the December 2002 restructuring was inconsistent with Articles 1.1(b) and 14 of
the SCM Agreement. We also uphold Korea's claim that the JIA's calculation of the amount of benefit
conferred by the October 2001 and December 2002 restructurings was inconsistent with
Articles 1.1(b) and 14 of the SCM Agreement.
7.317 We note that Korea also made a claim under Article 19.4 of the SCM Agreement and
Article VI:3 of the GATT 1994. That claim is dependent on its clai ms under Articles 1.1(b) and 14 of
the SCM Agreement. To the extent that we reject those cl aims, there is no basis to find that Japan

516 See Annex 3 (Rebuttals and Surrebuttals), para. 170.

violated SCM Article 19.4 and GATT 1994 Article VI.3. To the extent that we uphold those claims,
we do not consider it necessary to make a finding under those provisions.
F. A
RTICLE 14 CHAPEAU / BENEFIT CALCULATION METHOD
7.318 Korea claims that Japan acted inconsistently with the chapeau of Article 14 of the
SCM Agreement, which provides that:
For the purpose of Part V, any method used by the investigating authority to calculate
the benefit to the recipient conferred pursu ant to paragraph 1 of Article 1 shall be
provided for in the national legislation or implementing regulations of the Member
concerned and its application to each pa rticular case shall be transparent and
adequately explained.
7.319 Japan asks the Panel to reject Korea's claim.
1. Main Arguments of the Parties
7.320 Korea submits that the JIA calculated the amount of benefit conferred by the October 2001
and December 2002 restructurings using "methods" that were not properly "provided for" in Japan's
national legislation or implementing regulations, i.e., Japan's Guidelines for Procedures Relating to
Countervailing and Anti-dumping Duties (the "Guidelines").
7.321 Japan argues that any complaint under the firs t of the three requirements set out in the
chapeau of Article 14 is, by definition, an "as such" challenge to Japanese law. Japan submits that
Korea has failed to meet the standards for an "as such" challenge set by the Appellate Body.517
7.322 Japan argues that Korea's claim is base d on an erroneous interpretation of the chapeau of
Article 14. According to Japan, the drafters of the SCM Agreement were careful not to be overly
prescriptive about the methods by which Members can make a subsidy calculation. Japan argues that:
(i) Korea's claim confounds the "method", which is set forth in the Guidelines, with the "application"
of that method in this particular case; (ii) the methods provided for in the Guidelines are actually
more detailed than the requirements of the SCM Agreement; (iii) the dictionary definition of the term
"method" is broad, i.e. "a mode of procedure; a (defined or systematic) way of doing a thing", and the
term "method" thus refers to "a ge neral, systematic way of doing things rather than a specific detailed
calculation program"; (iv) if the "guidelines" set forth in paragraphs (a) through (d) of Article 14
should not be interpreted as "rigid rules that purport to contemplate every conceivable factual
circumstance,"518 then it logically follows that the me thods adopted by Members under Article 14
similarly cannot be "rigid rules"; (v) as the panel in EC – Countervailing Measures on DRAM Chips
stated, an investigating authority "is entitled to considerable leeway" in adopting a reasonable
methodology under Article 14;519 and (vi) if the SCM Agreement did not provide for any flexibility in
the methods to be provided in national legislati on or implementing regulati ons, any novel subsidies

517 Japan refers to Appellate Body Report, United States –Oil Country Tubular Goods Sunset Reviews,
paras. 172-73 ("In our view, 'as such' challenges against a Member's measures in WTO dispute settlement
proceedings are serious challenges. [...] We would therefore urge complaining parties to be especially diligent
in setting out 'as such' claims in their panel requests as clearly as possible. In particular, we would expect that 'as
such' claims state unambiguously the specific measures of municipal law challenged by the complaining party
and the legal basis for the allegation that those measures are not consistent with particular provisions of the
covered agreements. Through such straightforward presentations of 'as such' claims, panel requests should leave
respondent parties in little doubt that , notwithstanding their own considered views on the WTO-consistency of
their measures, another Member intends to challenge those measures, as such, in WTO dispute settlement
proceedings." (emphasis original))
518 Japan refers to Appellate Body Report, US – Softwood Lumber IV, para. 92.
519 Japan refers to Panel Report, EC – Countervailing Measures on DRAM Chips, para. 7.213.

for which no authorities have any experience w ould not be subject to the disciplines of the
SCM Agreement.
2. Is This an "As Such" Claim?
7.323 Japan asserts that Korea's claim under the chapeau to Article 14 is inadmissible, since it is an
"as such" claim that was not included in Korea's Request for Establishment.
7.324 We agree with Japan that any claim against Japan's Guidelines "as such" would fall outside
the Panel's terms of reference, since the Guidelines were not identified as a measure to be challenged
in Korea's Request for Establishment. In our view, however, Korea's claim is not against the
Guidelines "as such". Although Japan appears to have interpreted Korea's argument that "Japan's
legislation and implementing regulations utterly fail to meet th[e] requirement" 520 (set forth in the
chapeau to Article 14 of the SCM Agreement) as a claim against the legislation and implementing
regulations per se , Korea has confirmed that the claim concerns the JIA's alleged use – in the
investigation at issue - of a method not provided for in Japan's Guidelines. Thus, Korea stated at
para. 40 of its Second Written Submission that "[t]he issue (...) is whether the methods actually 'used
by' the JIA to calculate the alleged subsidy benefits in this case were provided for in Japan's 'national
legislation or implementing regulations'." This is consistent with the description of this claim in
Korea's Request for Establishment, which referred to the JIA "utiliz[ing] methods for calculating the
benefit to the alleged recipient of the alleged financ ial contributions that were not specified in Japan's
national legislation or implementing regulations."521
7.325 In light of the above, we reject Japan's argum ent that Korea has made an inadmissible claim
against Japan's national legislation and implementi ng regulations "as such", because an "as such"
claim has not been made.
3. Were the Methods Used by the JIA Provided For in Japan's Guidelines?
7.326 As a preliminary matter, we wish to address Jap an's argument that the provisions of the
Guidelines constitute "methods", and that th e methods provided for in the Guidelines are actually
more detailed than the requirements of the SCM Agreement. We do not consider that this argument
resolves the issue presently before us, since Korea's claim is focused on the methods actually used by
the JIA. Korea asserts th at certain of the methods actually used by the JIA were provided for in the
Final Determination, but not the Guidelines. If Korea were correct, then the use of those methods
would be inconsistent with the preamble of Article 14, irrespective of whether or not the JIA also used
other methods that were, or might have been, provided for in the Guidelines.
7.327 We recall that the panel in EC – Countervailing Measures on DRAM Chips found that "an
investigating authority is entitled to considerable leeway in adopting a reasonable methodology" for
calculating the amount of benefit. 522 In order to maintain the discretion that investigating authorities
should properly enjoy when calculating benefit, the chapeau of Article 14 should not be
misinterpreted to be overly stringent. In other words, investigating authorities should not be required
to spell out all possible approaches to calculating be nefit to the recipient in excessive detail. If they
were, they might be prevented from adjusting their calculation methods to nove l situations of alleged
subsidization that had not been foreseen at the time they prepared their national legislation or
implementing regulations. On the other hand, the chapeau of Article 14 provides for transparency and
predictability. The level of detail required in setti ng forth "methods" must, therefore, be sufficient to
satisfy the interests of transparency and predictability.

520 See Korea's First Written Submission, para. 138.
521 See document WT/DS336/5 (attached as Annex A-1), page 2, indent 8.
522 EC – Countervailing Measures on DRAM Chips, para. 7.213.

7.328 We note that Japan has proposed a dictionary definition indicating that the word "method"
means "a mode of procedure; a (defined or systematic) way of doing a thing".
523 Korea has not
opposed the dictionary definition of the term "method" proposed by Japan. Since the parties agree on
the definition proposed by Japan, we shall consider this definition in addressing Korea's claim.
7.329 We recall that the JIA calculated benefit am ounts in respect of debt forgiveness, equity
infusions and loans. 524 According to the JIA's Final Determination, 525 debt forgiveness is a non-
recurring subsidy, the amount of which is allocated over several years, with interest. In the Final
Determination, the JIA states that the total amount of benefit allocated to a given year was calculated
using "Formula 2", whereby:
Ak = y/n + [y-(y/n)(k-1)]d
 1+d
[where]
A
k: the amount of subsidy allocated to year k
y: the amount of subsidy
n: the useful life (year)
d: the discount interest rate
k: the year the subsidy is allocated to. The year of receipt=1, and 1<k<n
7.330 In applying a "formula", the JIA essentially app lied a mathematical rule. In doing so, we
consider that the JIA applied "a mode of procedure; a (defined or systematic) way of doing a thing".
Accordingly, we find that the JIA calculated the amount of subsidy resulting from debt forgiveness
using a "method" in the meaning of the chapeau of Article 14.
526 That method was not provided for in
Japan's Guidelines, which merely provide that "[i]n the case of forgiveness of a company's debt
obligation, the amount of subsidy is the amount of the principal and/or interest that the government has
forgiven." 527 The Guidelines contain no reference to the integers used in that Formula either in specific
or broad terms. The JIA therefore used a method of calculating the amount of benefit that was not

523 See Japan's First Written Submission, para. 528, citing the New Shorter Oxford Dictionary,
page 1759.
524 We recall our earlier finding that the JIA was en titled to treat debt-to-equity swaps as comprising
new infusions of equity and loan maturity extensions as comprising new loans.
525 See Annex 1 to the Final Determination, para. 102.
 526 We find support for this approach in the Report of the Appellate Body on US – Countervailing
Measures on Certain EC Products. In that case, the Appellate Body considered the gamma and 'same person'
methods to be "methods" within the meaning of the first sentence of the chapeau of Article 14:
"... The Members of the WTO have anticipated in Article 14 of the SCM Agreement that the
investigating authorities of WTO Members will use di fferent "method[s]" to "calculate the benefit to
the recipient" when determining the amount of countervailing duties that are imposed on an imported
product to offset a subsidy. One such method used by the USDOC for the purpose of determining
whether a "benefit" continues to exist following a change in ownership—the gamma method—was the
subject of a previous dispute and a previous appeal. Another method is the "same person" method,
which gives rise to this dispute and this appeal." (para. 128, underline emphasis supplied)
527 See Article 13(1)(ii)A of the Guidelines.

provided for in its national legisl ation or implementing regulations, contrary to the chapeau of
Article 14.
7.331 The JIA also applied Formula 2 to calculat e the amount of benefit resulting from equity
infusions.528 We recall that Formula 2 is not provided for in the Guidelines.529 Thus, for the reasons
set forth above, we find that the JIA calculated the amount of benefit caused by equity infusions using
a method not provided for in its national legislation or implementing regulations.
7.332 Regarding loans and loan maturity extensions, the JIA calculated the amount of benefit using
a benchmark interest rate for non-creditworthy companies. The JIA did so on the basis of
"Formula 1", whereby:
ib = (1+if)[(1-qn)/(1-pn)]1/n - 1
[where]
n: the repayment term of the loan
i
b: the interest rate for uncreditworthy companies (the benchmark
interest rate)
if: the interest rate for creditworthy companies
pn: the default rate of uncreditworthy companies within n years
qn: the default rate of creditworthy companies within n years
7.333 Consistent with the analysis above in respect Formula 2, we find that Formula 1 is a "method"
for the calculation of the amount of subsidy. This method was not provided for in Japan's
Guidelines.530 All that the Guidelines say, in relation to loans, is that if no actual comparable loan is
available (to calculate the amount of the benefit) an "a dequate amount of subsidy will be determined"
after examining reasonably comparable commercial loans which are available in the market.
However, as can be seen from Formula 1 (as set out above), the method used was quite different to the
simplistic explanation in the Guidelines. Thus, we find that the JIA calculated the amount of benefit
from loans and loan maturity extensions using a method that was not provided for in its national
legislation or implementing regulations.

528 See, for example, para. 312 of Annex 1 (Essential Facts).
529 Regarding equity infusions, Article 13(1)(iii)A provides that:
(a) In the case of a government-provided equi ty infusion, where a benefit is considered
to have existed to the extent that the investment decision is inconsistent with the usual
investment practice of private investors (e.g. private investors would not be able to invest
under such investment conditions), including the practice for the provision of risk capital, the
amount of subsidy is the amount of the balance of the government's investment over and
above that of private investors under the similar investment conditions.
(b) If actual investment by private investors which is comparable to government
investment is not available, an adequate amount of subsidy will be determined after examining
circumstances whereby the government may make a reasonable return on the investment
within a reasonable period, etc.
530 Article 13(iv)A(b) of the Guidelines provides that "[i]f an actual commercial loan to the company
which is comparable to a government-provided loan is not available, an adequate amount of subsidy will be
determined after examining reasonably comparable commercial loans available in the domestic market".

7.334 For the above reasons, we uphold Korea's claim th at, in calculating the amount of benefit, the
JIA used methods that had not been provided for in Japan's national legislation or implementing
regulations, contrary to the chapeau to Article 14 of the SCM Agreement.
G. A
LLOCATION / CONTINUED EXISTENCE OF BENEFIT
7.335 Korea submits that Japan improperly levied a countervailing duty on imports entering in 2006
because, by Japan's own calculations, the allege d subsidies from the October 2001 restructuring had
ceased to provide any benefit after 2005. Korea co ntends that Japan's im position of countervailing
duties was, therefore, inconsistent with the requirements of Articles 19.4 and 21.1 of the
SCM Agreement. 531
7.336 Article 19.4 of the SCM Agreement provides that:
No countervailing duty shall be levied on any imported product in excess of
the amount of the subsidy found to exist , calculated in terms of
subsidization per unit of the subsidized and exported product. 532
7.337 Article 21.1 of the SCM Agreement provides that:
A countervailing duty shall remain in force only as long as and to the extent
necessary to counteract subsidization which is causing injury.
1. Main Arguments of Korea
7.338 Korea asserts that the subsidies allegedly receive d by Hynix in 2001 were all allocated by the
JIA to the five-year period from 2001 to 2005. Ko rea states that the benefit from the October 2001
restructuring had therefore already expired at the time that countervailing duties were imposed in
2006.
7.339 Korea asserts that Article 19.4 of the SCM Agreement limits the duties to the subsidies that
are found "to exist" — it does not permit duties to be imposed based on past subsidies that no longer
"exist." Thus, a finding that subsidies existed at some time in the past (for example, during the
investigation period) does not justify the impositi on of countervailing duties, where those subsidies
(or their benefits) no longer exist in the present.
7.340 Korea asserts that this conclusion is reinfor ced by the provisions of Article 19.1, which
provides that an investigating authority "may impose a countervailing duty in accordance with the
provisions of this Article unless the subsidy or subsidies are withdrawn." In other words, even if a
subsidy was found to exist during the investigation period, no duty may be imposed if the subsidy is
withdrawn, and thus ceases "to exist," prior to the final determination. According to Korea, the clear
implication is that a countervailing duty may be im posed only where the subsidy — and its benefit —
continues to exist at the time the decision to impo se the duty is made. Korea argues that Article 21.1
of the SCM Agreement makes this requirement explicit, since it provides that "[a] countervailing duty
shall remain in force only as long as and to the exte nt necessary to counteract subsidization which is
causing injury." Korea asserts that once the benefit of the subsidy has ceased, the duty is no longer
"necessary to counteract subsidization," and may therefore not remain in force.

531 While Korea's Request for Establishment, First Written Submission and Second Written Submission
refer to violations of Articles 19 and 21 of the SCM Agreement generally, para. 92 of its oral statement at the
first substantive meeting explicitly states that Korea is a lleging violations of Article 19.4 and 21.1 specifically.
Korea confirmed the more restrictive scope of its claim in response to Question 127 from the Panel.
532 Footnote omitted, emphasis added.

7.341 Korea denies that it has claimed that the imposition of countervailing duties requires a
separate and distinct calculation of subsidies, apar t from the determination of subsidization made by
the investigating authority in its investigation. Korea submits that, instead, it contends only that the
imposition of the duties must be consistent with th e previous calculation that resulted in the subsidy
determination.
2. Main Arguments of Japan
7.342 According to Japan, Korea's argument on th e imposition period of c ountervailing duties does
not follow from the SCM Agreement and should be rejected. Japan argues that the JIA found and
calculated the amount of subsidies that existed at th e time of the period of investigation, as required
under Articles 19.1 and 19.4. Japan argues that there is no provision in the SCM Agreement that
requires a determination of the imposition period in advance, or provides that an "allocation period" of
a subsidy defines such imposition period. Accord ing to Japan the provision of Article 19.2 — "all
requirements for imposition have be en fulfilled" — clarifies that the imposition of countervailing
duties under Article 19 is a separate and distinct phase that occurs after the determination of
subsidization. Japan argues that an investig ating authority may impose a countervailing duty only
after it determines that the countervailable subsidy "was bestowed" during the period of investigation,
from the information gathered with respect to a peri od of investigation, and that there is no additional
obligation, as Korea insists, to determine that th e subsidy "is being bestowed" at the time of the
imposition of the duties.
7.343 Japan submits that Article VI:3 of the GATT 1994, which authorizes the imposition of duties
on a "subsidy determined to have been granted," further clarifies that an imposition of countervailing
duties shall be based on a determination which necessarily precedes the imposition of the duty.
Articles 10 and 11.1 of the SCM Agreement recognize that investigating authorities must conduct an
investigation following multiple steps to determine th e subsidization and injury; as a corollary of the
time that is necessary to comply with these re quirements, the imposition of countervailing duties
concern the amount of subsidy found to exist in the period of investigation. According to Japan, the
Appellate Body has confirmed 533 that the investigating authority's determination of the conditions for
the imposition of a trade remedy may be based on a past period, i.e., the period of investigation.534
7.344 Japan submits that Korea's alleged determinati on method is practically impossible to apply,
and would, therefore, render inutile the right of importing Members to have recourse to Part V of the
SCM Agreement.
7.345 Japan notes that Article 10 of the SCM Agreement provides that countervailing duties may
only be imposed pursuant to investigations. Japan contends that, recognizing the inherent period of
time necessary to conduct a countervailing inves tigation in accordance with the terms of the
SCM Agreement, the SCM Agreement provides the investigating authorities up to eighteen months
after initiation of the investigation to confirm the existence of a countervailable subsidy and injury
caused by it. 535 Japan asserts that the SCM Agreement also recognizes the need to confirm the
accuracy of the information collected by the investigating authorities, 536 including through
investigations in the territory of the Member under investigation. 537 Japan asserts that investigating
authorities must comply with multiple procedural formalities to ensure th e transparency of the

533 Japan refers to Appellate Body Report, Mexico-Anti-Dumping Measures on Rice.
534 Japan also refers to Panel Report, EC – Tube or Pipe Fittings, para. 7.102, "[w]e are of the view that
a finding that dumping exists during a recent past IP is a finding of 'present' dumping for the purposes of the
Agreement."
535 Japan refers in this regard to SCM Agreement, Article 11.11.
536 Japan refers in this regard to SCM Agreement , Article 12.5 ("[T]he authorities shall during the
course of an investigation satisfy themselves as to the accuracy of the information supplied by the interested
Members or interested parties upon which their findings are based.").
537 Japan refers in this regard to SCM Agreement, Article 12.6.

investigation and to ensure that parties are affo rded due process through the provision of a summary
of the "essential facts which form the basis for the decision whether to apply definitive measures,"
538
the provision of opportunities for the presentation of evidence considered relevant by interested
Members and all interested parties 539, and the provision of formal public notice and written reports
explaining the investigating authorities' decision. 540 Japan states that investigating authorities must
also provide multiple opportunities for consultations with the Member being investigated.541
7.346 According to Japan, it is a corollary of the ti me that is necessary to comply with these
requirements, that the imposition of countervailing duties under Article 19.4 of the SCM Agreement
would concern the amount of subsid y found to exist during the period of investigation. Japan asserts
that if Korea's interpretation of Article 19 were a ccepted, investigating authorities would not be able
to conduct investigations and issue determinations as required under the SCM Agreement. Japan
argues that if the investigating authorities had to determine the existence and degree of the subsidies
as of the date of the final determination, the author ities technically would not be able to issue the final
determination in compliance with these procedural requirements.
7.347 Japan also asserts that, to determine the exis tence of the countervailable subsidy, including
the consideration of de minimis subsidization levels, for example, the investigating authorities must
measure the degree of the subsidy per unit of the im port. Japan asserts that, in order to do so, the
investigating authority must collect the information of the total value of products to which the subsidy
was conferred (to calculate the denominator), and th e amount of subsidy (to calculate the numerator).
Japan submits that to collect such information and make the necessary calculation as of the date of the
final determination would be virtually impossible.
7.348 Japan asserts that Article 21.1 of the SCM Agreement is not applicable in the present case, as
it applies only to reviews of existing count ervailing measures, not the imposition of new
countervailing measures.
3. Evaluation by the Panel
7.349 Korea's claim concerns the imposition of counter vailing duties to offset the injurious effects
of non-recurring 542 subsidies resulting from the October 2001 restructuring. In order to evaluate
Korea's claim, we must determine whether the JI A was precluded by Articles 19.4 and 21.1 of the
SCM Agreement from relying on its determination that the October 2001 subsidies conferred a benefit
during the 2003 period of investigation as a justification for imposing 543 countervailing duties on
imports in 2006.
7.350 At the outset, we reject Korea's claim insofar as it is based on Article 21.1 of the
SCM Agreement. In our view, this provision applies once countervailing duties have been imposed.

538 Japan refers in this regard to SCM Agreement, Article 12.8.
539 Japan refers in this regard to SCM Agreement, Article 12.1. Japan also refers to SCM Agreement,
Article 12.10 ("The authorities shall provide opportunities for industrial users of the product under investigation
. . . to provide information which is relevant to the investigation . . . .").
540 Japan refers in this regard to SCM Agreement, Article 22.
541 Japan refers in this regard to SCM Agreement, Articles 13 and 19.1.
542 Japan acknowledges that the October 2001 restructuring provided non-recurring subsidies at
para. 154 of its Second Written Submission. The JIA itself referred to eq uity infusions and debt forgiveness as
non-recurring subsidies ( see Annex 1 (Essential Facts), paras. 98 and 102). Although Japan argued that
subsidies resulting from loan maturity extensions an d new loans are recurring subsidies (in response to
Question 96 from the Panel), in our view one-off loans are more properly treated as non-recurring subsidies.
543 We note that Article 19.4 of the SCM Agreement refers to the levy of countervailing duties, rather
than the imposition thereof. In a prospective countervailin g duty system, such as that applied by Japan, we see
no need to distinguish between the levy and imposition of co untervailing duties. Furthermore, Japan has not
denied that it levied countervailing duties in 2006.

It does not govern duty imposition per se . Consistent with the title of Article 21, which reads
"Duration and Review of Countervailing Duties and Undertakings ", Article 21.1 concerns the
duration of countervailing measures, ensuring that th ey "remain in force" only as long as, and to the
extent, necessary. The focus, therefore, is on the amount of time that a duty may remain in force,
rather than the circumstances under which that duty initially entered into force. We therefore agree
with the Appellate Body's analysis of this provi sion as imposing disciplines regarding the "continued
application" of countervailing duties, which apply "after the imposition" thereof.544
7.351 Regarding Article 19.4 of the SCM Agreement, there is no disagreement between the parties
that an investigating authority must establish th e existence of subsidization before levying any
countervailing duties. This is because Article 19.4 refers explicitly to a subsidy having been "found to
exist". The question is whether subsidization must be "found to exist" at the time of imposition, or
whether a determination that a subsidy was "found to exist" during some prior period suffices. In our
view, the ordinary meaning of the phrase "found to ex ist" does not resolve this issue. We therefore
turn to relevant context for guidance.
7.352 We consider that Article 19.1 provides relevant context for resolving this issue, since it
provides that countervailing duties may be imposed on ce it is established that "subsidized imports are
causing injury". In light of the present tense used in this provision, we understand this to mean that
countervailing duties may be imposed if subsidized imports, i.e., imports that are presently subsidized,
are presently causing injury. This interpretation is entirely consistent with the purpose of
countervailing duties, which is to "offset[] any su bsidy bestowed directly or indirectly upon the
manufacture, production or export of any merchandise". 545 There would be no subsidy to offset, and
therefore no basis for imposing countervailing duti es, if the imports at the time of duty imposition
were not found to be subsidized.
7.353 Japan asserts that a finding of subsidization in respect of a past period of investigation
suffices for the imposition of countervailing duties. Japan refers in this regard to Article VI:3 of the
GATT 1994, which refers to the subsidy " determined to have been granted , directly or indirectly, on
the manufacture, production or export of [the impor ted] product" (emphasis supplied). Japan also
refers to a statement by the panel in US – Lead and Bismuth II that "a countervailing duty may only be
imposed on an imported product if it is demons trated that a (countervailable) subsidy was bestowed
directly or indirectly on the manufacture, produc tion or export of that merchandise" (emphasis
supplied). While Japan relies on these sources because of their use of the past tense, we do not
consider that the use of the past tense is necessarily at odds with a finding that countervailing duties
are imposed to offset the injurious effects of present subsidization. This is because the fact that a non-
recurring subsidy was formally bestowed in the past does not necessarily mean that that subsidy does
not continue to confer a benefit in the present.546

544 At para. 70 of its Report in United States – Carbon Steel, the Appellate Body found:
Turning to the immediate context of Article 21.3, we observe the title to Article 21 of the
SCM Agreement reads "Duration and Review of Countervailing Duties and Undertakings".
The first paragraph of Article 21 stipulates that a countervailing duty "shall remain in force
only as long as and to the extent necessary to counteract subsidization which is causing
injury". We see this as a general rule that, after the imposition of a countervailing duty, the
continued application of that duty is subject to certain disciplines. These disciplines relate to
the duration of the countervailing duty ("only as long as … necessary"), its magnitude ("only
… to the extent necessary"), and its purpose ("to counteract subsidization which is causing
injury"). Thus, the general rule of Article 21.1 underlines the requirement for periodic review
of countervailing duties and highlights the factors that must inform such reviews. (emphasis
supplied)
545 SCM Agreement, note 36.
546 We note that the term "countervailing duty" is similarly defined using the past tense, in the sense
that note 36 to the SCM Agreement refers to "a special duty levied for the purpose of offsetting any subsidy

7.354 We note that Article VI of the GATT 1994 was referred to by the panel in EC – Tube or Pipe
Fittings when it found, in the context of anti-dumping, that "the point [of anti-dumping duties]
is to
offset present dumping." 547 Likewise, the Appellate Body found in Mexico – Anti-Dumping
Measures on Rice that "the conditions to impose [an anti-dumping duty] are to be assessed with
respect to the current situation". 548 In light of the Declaration On Dispute Settlement Pursuant to
the Agreement On Implementation of Article VI of the General Agreement on Tariffs and Trade 1994
or Part V of the Agreement on Subsidies and Countervailing Measures , which provides for "the
consistent resolution of disputes arising from anti-dumping and countervailing duty measures", it is
entirely reasonable and appropriate to interpret Article VI:3 of the GATT 1994, and the provisions of
the SCM Agreement, in a way that recognizes that the point of countervailing duties is to offset
present subsidization.
7.355 In light of these contextual considerations , we conclude that Article 19.4 of the
SCM Agreement provides that countervailing duties may only be imposed if there is present
subsidization at the time of duty imposition.
7.356 The obligation to establish present subsidization does not mean that investigating authorities
are prevented from establishing the existence of subsidization (and injury and causing) by reference to
data taken from a past period of investigation. To the contrary, given the need for investigating
authorities to issue questionnaires, collect reliable and verifiable data, process and verify that
data, and safeguard the due process rights of intere sted parties, investigating authorities have no
choice but to establish the existence of subsidization (and injury) on the basis of past periods of
investigation. Thus, countervailing duties may be imposed on the basis of the investigating
authority's review of a past period of investigati on. We are not suggesting that an investigating
authority is somehow required to conduct a new inv estigation at the time of imposition, in order to
confirm the continued existence of the subsidization found to exist during the period of investigation.
That would defeat the very purpose of using periods of investigation in the first place.
7.357 However, the use of a past period of inv estigation does not negate the need for an
investigating authority to be satisfied that there is present subsidization. Rather, the historical data
from the period of investigation "is being used to draw conclusions about the current situation," 549
"[b]ecause the conditions to impose [a duty] ar e to be assessed with respect to the current
situation".550 In this sense, the situation during the period of investigation is used as a proxy for the
situation pertaining "current[ly]", at the time of imposition. In the case of non-recurring 551 subsidies,
if the review of the period of investigation indicates th at the subsidy will no longer exist at the time of
imposition, the existence of subsidization during the period of investigation will not suffice to
demonstrate "current" subsidization at the time of imposition.
7.358 In the present case, the JIA used a past period of investigation to establish the existence of
subsidization. That period of investigation c overed the year 2003. The JIA's determination of
subsidization in 2003 was made ba sed on an allocation of the benef it conferred by certain of the non-
recurring subsidies provided by the October 2001 restructuring from 2001 to 2005. If the JIA had
imposed countervailing duties in 2004, or 2005, its determination in respect of the period of

bestowed directly or indirectly upon the manufacture, production or export of any merchandise". Again,
though, the fact that the fo rmal bestowal of a subsidy occurred in th e past does not necessarily preclude the
possibility that imports continue to benefit from this subsidy in the present.
547 EC – Tube or Pipe Fittings, para. 7.102.
548 Mexico – Anti-Dumping Measures on Rice, Report of the Appellate Body, para. 165.
549 Mexico – Anti-Dumping Measures on Rice, Report of the Panel, para. 7.58.
550 Mexico – Anti-Dumping Measures on Rice, Report of the Appellate Body, para. 165.
551 We recall that the present case concerns non-recurring subsidies provided through the October 2001
restructuring. Our findings would not necessarily apply to investigations of recurring subsidies, which by nature
lend themselves to a different type of analysis.

investigation would have established that there was "c urrent[ly]" subsidization in either of those two
years, as benefit from those subsidies was still being c onferred in those years. This is because, in
investigating the period of investigation, the JIA had allocated the benefit of 2001 subsidies over the
period 2001 to 2005. Once the JIA sought to impose countervailing duties in 2006, however, its
finding of subsidization in respect of those subs idies for the period of investigation no longer
demonstrated that there was "current[ly]" subsidiza tion. This is because one important element of the
JIA's determination in respect of the period of i nvestigation was that certain of the 2001 subsidies
needed to be allocated, and would no longer confer any benefit in 2006.
7.359 Japan denies that, in analyzing the period of investigation, the JIA made any finding
regarding the existence of subsidi zation in 2006. In particular, Japan denies that the JIA had fully
allocated the benefit from certain non-recurring subs idies over the period 2001 to 2005. Japan asserts
that the JIA determined that the amount of the Oct ober 2001 subsidy to be allocated to the period of
investigation was one-fifth of the originally gran ted amount of the non-recurring subsidy, and nothing
more.
7.360 On our review of the JIA's determination, we do not think that it is correct to say that the JIA
did not find that the subsidy would be of a certain amount, each year, for five years. We note that the
JIA allocated the benefit conferred by certain of the non-recurring subsidies provided by the October
2001 restructuring using the formula set forth in sec tion 2.3.2.2.2 of Annex 1 (Essential Facts). One
of the integers in that formula is "n", which co rresponds to "the useful life" of the subsidized
production facilities. The JIA had determined that the duration of "n" should be five years, in
accordance with certain provisions of Korean tax law. 552 In our view, the use of a five-year allocation
period is a finding (even if only implicit) that th e benefit will expire after a period of five years. 553
The JIA's determination does not suggest that there might continue to be a subsidy after the period
over which the benefit conferred by that (non-recurring) subsidy has expired.554
4. Conclusion
7.361 In light of the above considerations, and having regard to the JIA's decision to allocate the
benefit conferred by certain of the non-recu rring subsidies resulting from the October 2001
restructuring from 2001 to 2005, we find that Japan imposed countervailing duties in 2006 on imports
which the JIA itself had found were not subsidized at the time of imposition. Accordingly, in respect
of those non-recurring subsidies whose benefit was allocated using the abovementioned Formula 2,
we conclude that Japan levied countervailing duti es "in excess of the amount of the subsidy found to
exist", contrary to Article 19.4 of the SCM Agreement.

552 See Annex 1 (Essential Facts), para. 99 and footnote 96.
553 For this reason, we are not persuaded by Japa n's arguments regarding the practical difficulties
resulting from an obligation on investigating authorities to determine the existence of subsidization at the time
of imposition. We have already noted that investigating authorities may use past periods of investigation, and
that their findings in respect of such periods of investigation may be used for a proxy the situation at the time of
imposition. The point, though, is that an investigatin g authority's determination in respect of subsidization
during the period of investigation may indicate that there will not be (or is not) subsidization at the time of
imposition. If that is the case, countervailing duties may not be imposed on the basis of the investigating
authority's determination of subsidization during the period of investigation.
554 We note Japan's argument that the useful life of production facilities may change over time, such
that the allocation factor ("n") might also change, thereby affecting the calculation of the residual amount of
benefit. While we do not exclude the possibility that the allocation factor might change, Japan has not presented
any evidence to suggest that the five-year allocation period initially applied by the JIA had changed by the time
that Japan imposed countervailing duties in 2006. In the absence of any such evidence, the JIA's finding that the
benefit conferred by the October 2001 restructuring would expire at the end of 2005 remained valid.

H. S
PECIFICITY
7.362 Korea claims that Japan acted inc onsistently with Article 2 of the SCM Agreement because
the JIA improperly failed to consider whether th e October 2001 and December 2002 restructurings
were made using the same procedures and on the same terms that were generally available to other
companies in a similar condition.
7.363 Article 1.2 of the SCM Agreement provides that a subsidy is only countervailable if "such a
subsidy is specific in accordance with the provisions of Article 2". Although Korea does not specify
the paragraph(s) or sub-paragraph( s) of Article 2 forming the basis of its claim, Japan confirmed in
response to Question 48 from the Panel that the JIA had made a finding of de jure specificity within
the meaning of Article 2.1(a) of the SCM Agreement. Article 2.1(a) provides:
2.1 In order to determine whether a s ubsidy, as defined in paragraph 1 of
Article 1, is specific to an enterprise or industry or group of enterprises or industries
(referred to in this Agreement as "certain en terprises") within the jurisdiction of the
granting authority, the following principles shall apply:

(a) Where the granting authority, or the legislation pursuant to
which the granting authority opera tes, explicitly limits access to a
subsidy to certain enterprises, such subsidy shall be specific.

1. Main Arguments of Korea
7.364 Korea asserts that the JIA failed to consider whether the restructuring transactions "were
made using the same procedures and on the same terms that were genera lly available to other
companies in a similar condition".
555 According to Korea: (i) th e same basic rules that governed
Hynix's restructurings — as embodied in the Workout Agreement and later in the Corporate
Restructuring Promotion Act — were the same as th e rules that governed the restructuring of other
Korean companies; (ii) the type of reports by financial experts that were relied upon in the Hynix
restructurings were also relied upon in the restructur ings of other Korean companies; (iii) there is no
evidence that the terms of the Hynix restructuri ng transactions were any more favourable to Hynix
than the terms of other restructurings involving simi larly situated companies in Korea; and (iv) there
is no evidence that the role of the government and the government-directed banks in the Hynix
restructuring was any different from their role in the thousands of similar situations occurring in
Korea at the same time. Korea contends that, by focusing microscopically on Hynix, the JIA missed
the broader picture. Korea submits that, in the ab sence of evidence that the role of the government
and the government-directed banks in the Hynix rest ructuring was any different from their role in the
thousands of similar situations occurring in Korea at the same time, the JIA' s determination cannot be
upheld.
7.365 According to Korea, the JIA's determination is not saved by the fact that the JIA considered
the restructurings, and not the CRPA, to be the relevant programme for purposes of the specificity
analysis. Neither Japan nor the JIA presente d "positive evidence" demonstrating why the
restructurings, and not the CRPA, constituted th e relevant programme. If the restructuring
programmes reflected only the normal operation of the CRPA, then the JIA should have considered
the CRPA, and not the restructurings, as the rele vant programme. By focusing on the specific
restructurings to find specificity, the JIA assu med what it was supposed to "substantiate" with
"positive evidence".
7.366 Furthermore, Korea asserts that the approach taken by the JIA in this case would effectively
read the specificity requirement out of the SCM Agreement. Korea states that investigating authorities

555 See Korea's First Written Submission, para. 283, sixth indent.

would, for example, no longer need to show that government-provided loan programmes were limited
to specific enterprises in law or in fact, as Article 2 of the SCM Agreement might appear to require.
According to Korea, the investigating authorities c ould simply state that their focus was on "specific
transactions with a specific corporation," and avoid any discussion of the overall programme under
which the loans were made.
2. Main Arguments of Japan
7.367 Japan relies on the finding of the panel in EC – Countervailing Measures on DRAM Chips
that the May 2001 and October 2001 Programs conferred subsidies specific to Hynix. According to
Japan, that panel's findings on this issue are pers uasive and apply with equal force in the present
dispute, and that panel's analysis appli es equally to the December 2002 restructuring.
556 With respect
to Korea's argument that the "legal framework" that governed Hynix's restructurings was the same as
the rules that governed the restructuring of other Korean companies, Japan notes that the JIA did not
find that the CRPA was itself a government subsidy programme, and argues that whether or not other
companies might have availed themselves of the CRPA is therefore irrelevant. Japan also disputes the
relevance of Korea's argument that Hynix was not tr eated any more favourably than any other Korean
companies going through restructuring. Accordin g to Japan, whether or not Hynix received more
favourable treatment than other companies going th rough restructuring may be relevant to the
question of whether the measures conferred a benef it, but not to whether the measures were specific
under Article 2. Japan considers that statements made by certain interested pa rties in their responses
to the JIA's subsidy questionnaire demonstrate that the October 2001 and December 2002 Programs
were specific to Hynix. Japan also alleges that during the investigation, the Government of Korea and
other interested parties refused to submit information on other companies subject to CRPA.
3. Findings of the JIA
7.368 The JIA made the following finding of specificity in respect of the October 2001
restructuring:
The Investigating Authorities find that the October 2001 Program is specific within
the meaning of Article 2 of the SCM Agreement because the October 2001 Program
was a bailout measure for a specific company, i.e., Hynix.
557
7.369 The JIA made an identical finding in r espect of the December 2002 restructuring. 558 I n
response to comments by KEB, JIA made the followi ng additional statement on the specificity of the
October 2001 restructuring:
The October 2001 Program was a specific me asure by the government for the support
of Hynix, and clearly has specificity as provided in Article 2 of the SCM Agreement.
Additionally, the rebuttal by KEB cannot be accepted unless the CRPA itself is
considered as a government subsidy system . Because the Investigating Authorities
have not found that the CRPA itself qualifi es as a governmental subsidy system, the
rebuttal cannot be accepted.
559
4. Evaluation by the Panel
7.370 The main issue raised by Korea is whether or not the JIA properly assessed specificity at the
level of the individual restructurings, rather than at the level of the CRPA. Korea argues that "[i]f the

 556 Japan refers to Panel Report, EC – Countervailing Measures on DRAM Chips, para. 7.231.
559 See Annex 3 (Rebuttals and Surrebuttals), para. 444.

restructuring programs reflected only the normal operation of the CRPA, then the JIA should have
considered the CRPA, and not the restructurings, as the relevant program".
560
7.371 Faced with a very similar argument, the EC – Countervailing Measures on DRAM Chips
panel made the following finding in respect of the finding by the European Communities that inter
alia the October 2001 restructuring was specific:
With respect to the May and October 2001 R estructuring Programmes, we fail to see
the relevance of Korea's arguments, as the EC determination did not relate to the
CRA or the CRPA as such, but rather to the specific restructuring operations
undertaken under this general framework. The EC never made any findings with
respect to the CRA or the CRPA as such, but its determination related to the unique
bail-out operation for Hynix. These restructuring operations were not simply the
application of a generally available su pport programme. Rather, the CRA and the
CRPA provide merely a procedural framework for restructuring and do not
themselves involve any financial contributions. What is relevant is that the EC found
that, under the May and October 2001 Restructuring Programmes, and taking into
account our earlier findings concerning financ ial contribution and benefit, a specific
restructuring exercise was undertaken for Hynix . Hynix received financial
contributions which were specifically given to Hynix as the banks granted new loans
or rolled-over debt and swapped debt-to-equity of Hynix. In our view, and given the
arguments made by Korea, the EC determina tions of specificity with regard to the
specific contributions to Hynix in the May and October 2001 Restructuring
Programmes are consistent with the Articles 1.2 and 2 of the SCM Agreement.
561
(emphasis in original)
7.372 We agree with this finding. In our view, th ere was sufficient evidence on the JIA's record
indicating that the CRPA merely provided the pro cedural framework within which the October 2001
and December 2002 restructurings took place, rather than actually determining the terms of those
restructurings. In other words, the restructuri ngs did not "reflect only the normal operation of the
CRPA", as alleged by Korea. Thus, at note 303 to Annex 1 (Essential Facts), the JIA observed that,
according to Article 1 of the CRPA, the purpose of the CRPA is "to facilitate the ordinary corporate
restructuring under the market functions by (1) e nhancing the accounting transparency of enterprises
and setting the systems for efficiently managing cred it risks by the financial institutions, while (2)
prescribing matters necessary to make the corporat e restructuring facilitated swiftly and smoothly."
While Article 1 refers to procedural matters such as enhanced transparency and facilitation,
562 there is
no indication that the purpose of the CRPA was to determine the substantive terms under which
companies are to be restructured. Instead, evidence on the JIA's record indicated that the substantive
terms of restructurings were the prerogative of the Councils for Creditor Financial Institutions, which
were set up for each restructured company separately.563 Korea has not identified any record evidence
indicating that the terms of the restructurings were determined by the provisions of the CRPA
per se.564 For this reason, we are not persuaded by Korea's argument that the October 2001 and
December 2002 restructurings "reflected only the normal operation of the CRPA".

560 See Korea's Second Written Submission, para. 250.
561 See EC – Countervailing Measures on DRAM Chips, Panel Report, para. 7.231.
562 Accordingly, the JIA referred to the CRPA as providing the "institutional framework" for the
restructurings. See, for example, para. 271 of Annex 1 (Essential Facts).
563 We refer in this regard to the record evidence set forth at paras. 446 and 447 of Japan's First Written
Submission.
564 To the contrary, Korea emphasises the company-specific nature of th e restructuring process. Thus,
Korea notes the complex nature of the analysis of whether or not the going concern value of the relevant
company exceeds its liquidation value, necessitating recourse to outside consultants ( see, for example, Korea's
First Written Submission, paras. 99 and 100), and requ iring creditors to assess the company's operational

7.373 Furthermore, we recall that we have upheld the JIA's determination of entrustment or
direction in respect of the October 2001 restructuri ng. The JIA's determination was based, in part, on
an intermediate factual conclusion that the Govern ment of Korea had the political intent to save a
single company, Hynix, from insolvency. In general, subsidies which are provided pursuant to
government entrustment or direction motivated by an intent to save a single company from insolvency
might reasonably be found to be specific to that company.
7.374 In reviewing Korea's claim, we have given caref ul consideration to Korea's argument that the
JIA's approach to specificity would mean that inv estigating authorities would no longer need to show
that programmes were specific, but could focu s instead on specific transactions under those
programmes. As a general matter, though, if an investigating authority were to focus on an individual
transaction, and that transaction flowed from a ge nerally available support programme whose normal
operation would generally result in financial contributions on pre-determined terms (that are therefore
not tailored to the recipient company), that individual transaction would not, in our view, become
"specific" in the meaning of Article 2.1 simply because it was provided to a specific company. An
individual transaction would be "specific", though, if it resulted from a framework programme whose
normal operation (1) does not generally result in financial contributions, and (2) does not pre-
determine the terms on which any resultant financia l contributions might be provided, but rather
requires (a) conscious decisions as to whether or not to provide the financial contribution (to one
applicant or another), and (b) conscious decisions as to how the terms of the financial contribution
should be tailored to the needs of the recipient company.
7.375 For the above reasons, we conclude that the JIA properly found that the October 2001 and
December 2002 restructurings were tail ored for, and therefore specific to, Hynix. We therefore reject
Korea's claim accordingly.
I. I
NTERESTED PARTIES
1. Arguments
(a) Korea
7.376 Korea claims that the JIA acted inconsistently with Article 12 of the SCM Agreement by
treating a number of financial institutions that prov ided financing to Hynix as "interested parties" and
then making findings on the basis of facts available, rather than creditor-specific information for the
individual financial institutions, when some of those institutions failed to provide information
requested by the JIA. Korea argues that, by its terms, Article 12.7 of the SCM Agreement applies only
when an "interested party" fails to provide necessar y information, and does not permit the use of facts
available when parties who are not "interested parties" fail to provide requested information.
According to Korea, only parties with an interest in the outcome of an investigation can be treated as
"interested parties".
7.377 According to Korea, an "interested party" must by definition have an "interest" in something.
The fact that an investigating authority is "inter ested" in a particular entity might make the entity a
"party of interest", but does not make that entity an "interested party" in ordinary English usage.
Korea notes that the SCM Agreement does not explicitly define the types of "interests" that would be
sufficient to treat an entity as an "interested pa rty." Nevertheless, Korea argues, the scope of

strengths and weaknesses ( see Korea's First Written Submissi on, para. 93). Korea also explains that, once the
decision to restructure debt is made, the creditors must decide how the loss will be distributed ( see Korea's First
Written Submission, para. 22). Thereafter, Korea note s that "further complications" arise when shareholder
and management interests enter the equation (see Korea's First Written Submission, para. 40). In the absence of
any evidence from Korea, it is simply untenable that all of these variables are governed by the "normal
operation" of the CRPA.

cognizable "interests" is readily apparent from the SCM Agreement. Korea submits that all of the
entities that are specifically identified as "interested parties" in Article 12.9 of the SCM Agreement are
directly affected by the outcome of investigations , and therefore have a clear "interest" in the conduct
of the proceedings. Korea argues that the langua ge of the second sentence of Article 12.9 permitting
investigating authorities to "allow" certain entities to participate in investigations as interested parties
makes sense only where the entities have requested to participate in the proceeding. Korea contends
that Articles 12.3 of the SCM Agreement, which presupposes that "interested parties" must have a
"case" to present to the investigati ng authorities, and Article 12.8 of the SCM Agreement, which
requires that investigating authorities provide "inter ested parties" with an adequate opportunity to
"defend their interests", would make no sense if the te rm "interested parties" were defined to include
entities that had no "interests" in the proceeding, a nd thus no "case" to present. Finally, Korea argues
that the provisions of the SCM Agreement regarding "facts available" would be patently unfair and
violate procedural due process if the parties who do have an interest in the outcome of the case could
have their interests prejudiced by the non-respons iveness of entities that have no interest in the
outcome of the case.
7.378 Korea contends that while the financial ins titutions that were creditors of Hynix had a
financial interest in Hynix at one point, it is not cl ear that any of those institutions had a continuing
financial interest in Hynix at the time of the JIA's investigation, and it is also not clear that whatever
interest they may have had in Hynix translated into an interest in the outcome of the JIA's
investigation. In these circumst ances, Korea argues, the JIA failed to establish a factual foundation
for concluding that any of the financial institutions to which it sent questionnaires had an interest in
the outcome of the investigation.
(b) Japan
7.379 Japan claims that Kor ea has failed to present a prima facie case that the inclusion of Hynix's
creditors was inconsistent with any provision of the SCM Agreement or the GATT 1994 , and that
Korea's claim should be rejected.
7.380 According to Japan, "interested parties" in clude any parties "having an interest or
involvement in matters which are subject to the investigation".
565 Japan contends that Korea's
argument that a party must have an interest in the outcome of the investigation in order to be
designated as an "interested party" cannot be sustaine d in light of the provisions of Article 12.9 of the
SCM Agreement and the context of the entire SCM Agreement. Japan agues that the ordinary meaning
of "interested parties" is broad enough to encompass any party "having an interest or involvement;
not impartial."566 Japan submits that the definition of "interest ed parties" in Article 12.9(i) and (ii) is
indicative and not exhaustive, and the last sentence of Article 12.9 clarifies that the investigating
authorities in a countervailing duty investigation re tain the discretion to include domestic or foreign
parties as interested parties. According to Japan, Korea's interpretation would actually exclude
entities specifically listed in Article 12.9 from being included as "interested parties" in certain
circumstances. Japan claims that Article 23 of the SCM Agreement implies that there may be
interested parties that are not "directly and indivi dually affected by the administrative actions". Japan
argues that Korea's interpretation would lead to investigating authorities facing unreasonable
difficulty in collecting information and finding facts.
2. Evaluation by the Panel
7.381 The JIA considered that it was reasonable to include sixteen financial institutions that
provided financing to Hynix as "interested parties" in the investigation. 567 The JIA sent

565 See Japan's First Written Submission, para. 551.
566 Japan refers in this regard to the Concise Oxford Dictionary, p. 737.
567 See Annex 3 (Rebuttals and Surrebuttals), paras. 29 and 39.

questionnaires to these financial institutions. 568 When some of those institutions failed to respond to
the questionnaires or otherwise did not provide the information requested, the JIA made certain
findings in the Final Determination on the basis of facts available.569
7.382 The use of facts available in countervailing duty investigations is governed by Article 12.7 of
the SCM Agreement, which provides that:
In cases in which any interested Member or interested party refuses access to, or
otherwise does not provide, necessary info rmation within a reasonable period or
significantly impedes the investigation, preliminary and final determinations,
affirmative or negative, may be made on th e basis of the facts available. (emphasis
supplied)
7.383 The circumstances under which an investigating authority may make its determination on the
basis of facts available are limited, by the terms of Article 12.7, to cases in which an interested
Member or "interested party" refuses access to, or otherwise does not provide, necessary information
within a reasonable period or significantly impedes the investigation.
7.384 Article 12.9 of the SCM Agreement provides that:
For the purposes of this Agreement, "interested parties" shall include:
(i) an exporter or foreign producer or the importer of a product subject
to investigation, or a trade or busin ess association a majority of the members
of which are producers, exporters or importers of such product; and
(ii) a producer of the like product in the importing Member or a trade and
business association a majority of the members of which produce the like
product in the territory of the importing Member.
This list shall not preclude Members from allowing domestic or foreign parties other
than those mentioned above to be included as interested parties.
7.385 This claim raises two issues. First, must an investigating authority establish that a party has
an interest in the outcome of an investigation in or der to include that party as an "interested party" in
the investigation? If so, did the JIA properly estab lish that the financial institutions it included as
"interested parties" had an interest, or may have had an interest, in the outcome of the investigation?
We will address these issues in turn.
7.386 We note at the outset that neither Article 12.9 nor any other provision of the SCM Agreement
states that an investigating authority must establish th at a party has an interest in the outcome of an
investigation in order to include that party as an "i nterested party". The lack of any such requirement
in the text of the SCM Agreement serves, in our view, as an indication that no such requirement exists.
However, we recognize that such silence does not exclude the possibility that such a requirement
might exist by necessary implication, and it is s till necessary for us to give meaning to the term
"interested party". 570 Korea argues such a requirement arises by implication from the ordinary
meaning of the term "interested party", from the typ es of parties specifically listed in Article 12.9(i)
and (ii), from the use of the term "allowing" in the second sentence of Article 12.9, from the nature of

568 See Annex 1 (Essential Facts), para. 12. The JIA onl y treated the 16 creditors to which it sent its
questionnaire as "interested parties".
569 The JIA did not apply facts available in respect of any creditors that it had not defined as "interested
parties".
570 Appellate Body Report, US – Carbon Steel, para. 65.

the rights provided for in Articles 12.3 and 12.8, and from Article 12.7. We will examine these
contentions in turn.
7.387 According to Korea, an "interested party" must by definition have an "interest" in something.
Korea also submits that the fact that an investiga ting authority is "interested" in a particular entity
might make the entity a "party of interest", but does not make that entity an "interested party" in
ordinary English usage. We note that the term "interested" means, among other things, "having an
interest or involvement".
571 We agree that an interested party mu st by definition have an "interest" or
"involvement" in something in order to be an "int erested party". However, we do not believe that
"something" must, by definition, be the outcome of th e investigation. We consider that a party may
be an interested party when it was engaged, or in volved, in the matter under investigation to such an
extent that it has an interest in that matter. It is entirely plausible, therefore, that the "something"
might instead be the alleged subsidies at issue in a countervailing duty investigation, in the sense that
a party was involved in the provision of such subsidies.572
7.388 Korea argues that all of the entities that are spec ifically identified as "interested parties" in
Article 12.9(i) and (ii) are directly affected by the outcome of investigations, and therefore have a
clear interest in the conduct of the proceedings. As suming that Article 12.9(i) and (ii) identify certain
categories or classes of parties that would be directly affected by the outcome of investigations, there
is nothing in Article 12.9 to suggest that the meaning of "interested parties" should be restricted to the
types of parties identified in Article 12.9(i) and ( ii). The first sentence of Article 12.9 provides that
"interested parties" "shall include" those parties referred to in Article 12. 9(i) and (ii), and thus
establishes certain minimum requirements. The second sentence of Article 12.9 then immediately
clarifies that "[t]his list shall not preclude Member s from allowing domestic or foreign parties other
than those mentioned above to be included as interested parties." We do not think that Articles 12.9(i)
and (ii) are an exclusive list of parties who can be taken to be "interested parties". In our view, the
fact that sub-paragraphs (i) and (ii) identify the most obvious instances where parties will be
"interested" does not mean that other forms of interest should be excluded from the category of
"interested parties". One cannot derive from a selec tion (in sub-paragraphs (i) and (ii)) of the most
obvious examples of "interested party" that less obvious examples should not also be treated as
"interested parties". We are therefore unable to accept Korea's argument that Article 12.9(i) and (ii)
give rise to the necessary implication that "interested parties" must by definition have an interest in
the outcome of an investigation.
7.389 Furthermore, we note that the interest of any particular party in the outcome of an
investigation can be specific to it, and that parti es have diverse "interests". Nor do we appreciate how
Korea's formulation of the test, viz that a party must have an interest in the outcome of the
investigation to be an "interested party", is capab le of differentiating between parties with different
interests. One might try to overcome this by applyi ng adjectives such as "direct" or "significant" to
the word "interest", however that only underlines th e proposition that one party's interest can be
different to that of another party.
7.390 In response to a question from the Panel, Korea suggested that the use of the word "allowing"
in the second sentence of Article 12.9 implies that th ere must be a request from a party before it can
be included as an "interested party". We disagr ee. The term "allowing" in the second sentence of
Article 12.9 could be understood as referring to a Me mber allowing, through national legislation or
implementing regulations, certain parties to participat e in investigations as interested parties. The

571 Concise Oxford Dictionary, p. 737.
572 In this connection we note that footnote 9 of the Tokyo Round Subsidies Code defined the term
"interested party" as follows: "Any 'interested signatory' or 'interested party' shall refer to a signatory or a party
economically affected by the subsidy in question ." (emphasis added) The fact that the drafters of the
SCM Agreement decided not to include this definition may reflect an intent of the drafters to define the term
"interested parties" more broadly for the purposes of the SCM Agreement.

term "allowing" could equally be understood as refe rring to an investigating authority allowing such
entities to be included as interested parties following a request or suggestion to that effect from an
applicant. In addition, as Japan noted in response to the same question from the Panel, there are a
variety of provisions in the SCM Agreement which include the phrase "upon request," 573 and given
that the drafters of the SCM Agreement explicitly used the phrase "upon request" where a request is
required or contemplated, the lack of the use of th is phrase in Article 12.9 supports the interpretation
that the inclusion of a party as an interested party is not predicated on a request.574
7.391 Korea argues that Articles 12.3 575 and 12.8 576 of the SCM Agreement presuppose that
"interested parties" must have a "case" to present and "interests to defend", which would make no
sense if the term "interested parties" were defined to include entities that had no "interests" in the
proceeding. In our view, Articles 12.3 and 12.8 relate to interested parties participating in an
investigation. Interested parties participating in an investigation will generally have a "case" to
present and "interests to defend". However, Articles 12.1.2
577 and 12.2 578 of the SCM Agreement
presuppose that there are interested parties that do not participate in an investigation. Following the
logic of Korea's argument, such interested partie s would not be "interested parties". This is
inconsistent with the terms of Articles 12.1.2 a nd 12.2. We are therefore unable to accept Korea's
argument that Articles 12.3 and 12.8, which relate to interested parties participating in an
investigation, give rise to the implication that "int erested parties" must by definition have an interest
in the outcome of an investigation.
7.392 Moreover, we believe that prior Appellate Body and panel reports relating to Article 12.7, the
provision of the SCM Agreement governing the use of facts available, undermine rather than support
Korea's contention that only parties with an inte rest in the outcome of the investigation may be
included as "interested parties". In Mexico – Anti-Dumping Measures on Rice , the Appellate Body

 573 For example, Article 21.2 of the SCM Agreement, first sentence, provides that: "The authorities
shall review the need for the continued imposition of the duty, where warranted, on their own initiative or,
provided that a reasonable period of time has elapsed since the imposition of the definitive countervailing duty,
upon request by any interested party which submits positive information substantiating the need for a review."
(emphasis added)
574 As regards Article 12.9, we would further note that, if only parties with an interest in the outcome of
an investigation may be included as "interested parties", the second sentence of Article 12.9 would instead read:
This list shall not preclude Members from allowing domestic or foreign
parties known to the investigating authorities to have an interest in the
investigation other than those mentioned above to be included as interested
parties.
This is not how Article 12.9 was drafted.
575 Article 12.3 provides that: "The authorities sh all whenever practicable provide timely opportunities
for all interested Members and interested parties to see all information that is relevant to the presentation of their
cases, that is not confidential as defined in paragraph 4, and that is used by the authorities in a countervailing
duty investigation, and to prepare presentations on the basis of this information."
576 Article 12.8 provides that: "The authorities shall, before a final determination is made, inform all
interested Members and interested parties of the essentia l facts under consideration which form the basis for the
decision whether to apply definitive measures. Such disclosure should ta ke place in sufficient time for the
parties to defend their interests."
577 Article 12.1.2 provides that: "Subject to the requirement to protect confidential information,
evidence presented in writing by one interested Member or interested party shall be made available promptly to
other interested Members or interested parties participating in the investigation." (emphasis added)
578 Article 12.2 provides that: "I nterested Members and interested parties also shall have the right,
upon justification, to present information orally. Wher e such information is provided orally, the interested
Members and interested parties subsequently shall be required to reduce such submissions to writing. Any
decision of the investigating authorities can only be based on such information and arguments as were on the
written record of this authority and which were available to interested Members and interested parties
participating in the investigation , due account having been given to the need to protect confidential
information." (emphasis added)

explained that Article 12.7 "is intended to ensure that the failure of an interested party to provide
necessary information does not hinder an agency's investigation."
579 I n EC – Countervailing
Measures on DRAM Chips , the panel observed that "Article 12.7 of the SCM Agreement is an
essential part of the limited investigative powers of an investigating authority in obtaining the
necessary information to make proper determinations ."580 Thus, previous Appellate Body and panel
reports have underscored the importa nt role that Article 12.7 serves in ensuring that investigating
authorities are able to obtain the information necessa ry to make proper determinations. Requiring an
investigating authority to establish that a party has an interest in the outcome of an investigation as a
precondition for treating that party as an "interested party" could preclude investigating authorities
from making proper determinations. In our view, the scope of the right of investigating authorities
to include parties as "interested parties" in investigat ions must be interpreted with a view to ensuring
that investigating authorities are able to obtain the "necessary information" needed to arrive at a
determination.581 Therefore, we do not believe that Article 12.7 gives rise to the necessary
implication that an investigating authority must estab lish that a party has an interest in the outcome of
an investigation in order to include that party as an "interested party" in the investigation.
7.393 Korea argues that the provisions of the SCM Agreement governing the use of facts available
would be patently unfair and violate procedural due process if the parties who do have an interest in
the outcome of the case could have their interests prejudiced by the non-responsiveness of entities that
have no interest in the outcome of the case. We do not see how this argument supports Korea's
contention that only those parties with an interest in the outcome of the investigation can be included
as "interested parties". Rather, we see this argum ent as relating to the circumstances under which an
investigating authority may use facts available to make findings in respect of one interested party
based on the failure of a third party to provide necessary information. In certain cases, an
investigating authority might be required to seek information from third parties that are not designated
as "interested parties". In the event that such third parties do not respond to the investigating
authority's enquiries, the investigating authority wo uld still need to reach its conclusions on the basis
of the evidence on the record. The use of facts on the record in such cases is not punitive. It is simply
reflective of the investigating authority's need to complete its investigation.
7.394 For the foregoing reasons, we are not persuaded that only those parties with an interest in the
outcome of an investigation can be included as "interested parties" in an investigation. 582
Accordingly, we do not consider it necessary or a ppropriate to rule on whether the JIA properly

579 Appellate Body Report in Mexico – Anti-Dumping Measures on Rice, para. 293.
580 Panel Report in EC – Countervailing Measures on DRAM Chip, para. 7.61.
581 In our view, this consideration carries considerable weight in cases involving entrustment or
direction, where the relevant information may be held only by the third parties who have been allegedly been
entrusted or directed.
582 Even if the phrase "interested party" were interpreted to mean parties with an interest in the outcome
of the investigation, we recall that the JIA had identified the relevant Other Creditors as interested parties at the
very beginning of its investigation, for the purpose of identifying entities to which it should send its
questionnaire. At that time, the JIA had information in dicating that the relevant Other Creditors were, or had
been, creditors of Hynix, and could possibly have become shareholders in Hynix through the debt-to-equity
swaps in the two restructurings at issue. As Korea itself argues, the exact status of the Other Creditors was "not
clear" (see para. 161 of Korea's First Written Submission). In these circumstances, at the very least the JIA was
entitled to treat these Other Creditors as interested partie s for the purpose of distributing its questionnaire. The
Other Creditors might then, in their responses, have prov ided the JIA with information indicating that they no
longer had an interest in the outcome of the investiga tion. They did not do so. In these circumstances, we
consider that the JIA could properly have continued to treat these Other Creditors as interested parties for the
remainder of the investigation. Furthermore, the Other Creditors may be said to be interested in the outcome of
the investigation in less direct ways, in the sense that the matters under investigation, which included the
commercial reasonableness of their investment decisions, could potentially impugn their commercial
reputations.

established that the financial institutions it included as "interested parties" had an interest, or may
have had an interest, in the outcome of the investigation.
7.395 Korea has not challenged the JIA's inclusion of the financial institutions as "interested parties"
on any other grounds. Nor has Korea made a claim in respect of the JIA's choice of the 16 creditors
selected to receive the questionnaire (and subsequently treated as "interested parties").583
7.396 Korea has argued that the JIA improperly a pplied facts available, and improperly made
adverse inferences due to inadequate cooperation by in terested parties. Regarding adverse inferences,
the Panel asked Korea to "indicate precisely, with citations, which 'adverse inferences' Korea is
referring to in this claim." 584 In response, Korea submitted a list identifying the JIA's use of "facts
available."585 The phrase "adverse inference" is not used in Part V of the SCM Agreement. In using
that term, we understand Korea to be referring to a situation where an investigating authority applies
facts available in a way that is deliberately detrimen tal to the interests of the party at issue. Making
an adverse inference is therefore not the same as applying facts available. Thus, citing instances of
the application of facts available is not the same as referring to adverse inferences. Since Korea made
no attempt to explain how the JIA allegedly derived adverse inferences from the use of facts available
identified by Korea, we consider that Korea has fa iled to substantiate any claim regarding the JIA's
alleged use of adverse inferences.586
7.397 Regarding the JIA's allegedly improper use of facts available, Korea has not substantiated any
arguments as to why the use of facts available in an y given instance was improper. We presume that
Korea therefore relies on a general argument that the use of facts available was improper because the
entities in respect of which facts available were appl ied did not constitute "interested parties". This
argument fails, for we have already rejected Korea' s argument that the relevant Other Creditors did
not constitute "interested parties".
7.398 Accordingly, we find that Korea has failed to est ablish that the JIA acted inconsistently with
Article 12 of the SCM Agreement by including certain financial institutions as "interested parties", and
using facts available for those financial institutions that failed to provide information.
J. C
AUSATION OF INJURY
1. Arguments
(a) Korea
7.399 Korea claims that the JIA acted inconsis tently with Articles 15.5 and 19.1 of the
SCM Agreement by failing to demonstrate that the allege dly subsidized imports were, "through the
effects of subsidies", causing inju ry within the meaning of the SCM Agreement. Korea argues that it
is not sufficient for an investigating authority to demonstrate that the volume of subsidized imports
has increased, or that the subsidized imports ha ve caused prices to decrease, or even that the
subsidized imports have caused material harm to the domestic industry. According to Korea,
Article 15.5, read together with footnote 47, requir es a demonstration that the volume or price of the

583 Although Korea did make a number of references to the manner in which the 16 creditors were
selected during the course of these proceedings, there is no separate claim (under Article 12.1, for example)
regarding this matter in our terms of reference.
584 See Question 56 from the Panel.
585 See Attachment 2 to Korea's Second Written Submission.
586 Korea referred to other alleged adverse inferences at note 144 of its First Written Submission. For
the most part, those references concern measures other than the two restructurings at issue in these proceedings.
Furthermore, where those references do concern the Octo ber 2001 or December 2002 restructurings, they are
simple references to instances where the JIA applied facts available. As noted above, applying facts available is
not the same as drawing adverse inferences.

subsidized imports, and the resulting impact on the domestic industry, was affected by the alleged
subsidies in a manner sufficient to cause injury. If an investigating authority cannot demonstrate on
the basis of positive evidence that the alleged subsid ies alter the volume or price of the imports, then
there is no basis for finding that the injury caused by the imports occurred "through the effects of the
subsidy."
7.400 Korea argues that since footnote 47 appears after the word "effects", and not after the phrase
"of the subsidies", footnote 47 cannot be used to defi ne the entire phrase "the effect of the subsidies".
Korea submits that the "through the effects of subsidies" language in Article 15.5 should be
interpreted as requiring the same type of causation analysis that has been developed under the "effect
of the subsidy" language in Article 6.3 of the SCM Agreement. According to Korea, an interpretation
of Article 15.5 that does not require a causal link be tween the subsidies and the volume or price of the
subsidized imports would improperly render the "thr ough the effects of subsidies" language in that
provision inutile. Korea argues that the Panel should not follow the approach taken in the US –
Norwegian Salmon (CVD) case, in which a GATT panel rejected a similar argument based on similar
text of the Agreement on Interpretation and Application of Articles VI, XVI and XXIII of the General
Agreement on Tariffs and Trade (hereinafter the "Tokyo Round Subsidies Code").
7.401 Korea notes that the JIA did not dispute Ko rea's interpretation of the requirements of
Article 15.5 during the course of the JIA investigatio n. Korea argues that the JIA failed, however, to
demonstrate that the effect of the imports woul d have been any different in the absence of the
subsidies. Korea recalls the JIA's conclusion that any harm caused by Hynix's exports was necessarily
a result of the subsidy, because Hynix would not have been in operation, and thus would not have
been able to export, in the absence of subsidies. Korea argues that the JIA's conclusion was, however,
based on a "fundamental legal error".
587 According to Korea, there is no reason to believe that, if
Hynix had filed for bankruptcy, it would have ceased operations. Korea argues that in all likelihood,
the bankruptcy of Hynix would simply have resulte d in corporate reorganization proceedings before
the Korean courts.
(b) Japan
7.402 Japan claims that the JIA dem onstrated that the allegedly s ubsidized imports were, "through
the effects of subsidies", causing in jury within the meaning of the SCM Agreement, and that Korea's
claims under Articles 15.5 and 19.1 should be rejected.
7.403 Japan argues that footnote 47 defines the m eaning of the term "through the effects of
subsidies" by reference to the analyses of subsid ized imports conducted unde r Articles 15.2 and 15.4
of the SCM Agreement. Japan argues that the second and third sentences of Article 15.5 equate the
terms "effects of subsidies" with "effects of the subsidized imports". Japan submits that Korea's
interpretation of Article 15.5 is contradicted by A ppellate Body and panel reports clarifying that there
are no specific methodologies for investigating author ities to determine effects of subsidized imports
under Articles 15.2 and 15.5. Japan argues that this interpretation does not render Article 15.5
redundant. According to Japan, there are funda mental differences between Article 6.3 and
Article 15.5 that preclude the "through the effects of subsidies" language in Article 15.5 from being
interpreted as requiring the same type of causation analysis that has been developed under the "effect
of the subsidy" language in Article 6.3 of the SCM Agreement. Japan submits that Korea's
interpretation is contradicted by Article 11.2 of the SCM Agreement, which also refers to the "effects
of the subsidies".
7.404 Japan further argues that, in an y event, the JIA concluded that any harm caused by Hynix's
exports was necessarily a result of the subsidy, becau se Hynix would not have been in operation, and
thus would not have been able to export, in the absence of subsidies.

587 See Korea's First Written Submission, para. 279.

2. Evaluation by the Panel
7.405 The JIA found that there was material injury as provided in Article 15.1 of the
SCM Agreement and that the subsidized imports had caused such material injury to the domestic
industry "through the effects of subsidies" as provided in Article 15.5 of the SCM Agreement.588 With
respect to the issue of the "effects of subsidies", the JIA found, under the heading "The Effects of the
Subsidies on Imports of the Subject Products", as follows:
As examined in Chapter 2, Hynix was in a financial situation such that it could not
raise funds from the commercial market. The subsidies provided by the Government
of Korea to Hynix enabled Hynix to main tain and continue its production and export
of DRAM products. As the result, the Investigating Authorities find that Hynix
significantly increased its volume of the expor ts to Japan of the subject products, sold
large volumes of products at low prices in Japan's domestic market, and thereby
caused the price of domestic products to fall.
589
7.406 The assessment of causation of injury in count ervailing duty investigations is governed by
Article 15.5 of the SCM Agreement, which provides that:
It must be demonstrated that the subs idized imports are, through the effects 47 of
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.
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.
If, after reasonable efforts have been made to complete consultations, a Member
makes a final determination of the existe nce and amount of the subsidy and that,
through the effects of the subsidy, the s ubsidized imports are causing injury, it may
impose a countervailing duty in accordance w ith the provisions of this Article unless
the subsidy or subsidies are withdrawn.
7.408 This claim raises two issues. First, do Artic les 15.5 and 19.1 require that an investigating
authority demonstrate that the volume and price eff ects of the subsidized imports and the consequent
impact on these imports on the domestic industry, as set forth in Articles 15.2 and 15.4, are "the
effects of subsidies"? If so, did the JIA properly de monstrate that the volume and price effects of the

588 Annex 1 (Essential Facts), para. 609.
589 Annex 1 (Essential Facts), para. 550. In respons e to comments, the JIA reiterated its finding:
"Hynix had been saved from bankruptcy because of subsidies. Thus, the subsidies enabled Hynix to continue
production and continue exporting. … the importation of subject products itself was due to the effect of
subsidies." (Annex 3 (Rebuttals and Surrebuttals), para. 740)

subsidized imports were the effects of the subsidies received by Hynix? We will address these issues
in turn.
7.409 The issue of whether an assessment of causation of injury should relate to injury caused by
"subsidization" or to injury caused by "subsidized imports" is a methodological issue with significant
implications.
590 We will begin by examining the ordinary meaning of the first sentence of
Article 15.5 and footnote 47. Next, we consider the context of that provision, which includes the
second and third sentences of Article 15.5, the othe r provisions of Article 15, as well as Articles 11.2
and Article 6.3 of the SCM Agreement. After having considered the ordinary meaning and context of
the first sentence of Article 15.5, we proceed to address Korea's argument that an interpretation of
Article 15.5 that does not require a causal link between the subsidies and the volume or price of the
subsidized imports would improperly render the "thr ough the effects of subsidies" language in that
provision inutile.
7.410 We begin with the ordinary meaning of th e terms at issue. The first sentence and
accompanying footnote of Article 15.5 state that:
It must be demonstrated that the subs idized imports are, through the effects 47 of
subsidies, causing injury within the meaning of this Agreement.
Article 15.4592 of the SCM Agreement requires an examination of the impact of the subsidized imports
on the domestic industry. In our view, the ordinary meaning of the first sen tence of Article 15.5 and
its accompanying footnote is to define the phrase "through the effects of subsidies" to mean the effects
of subsidized imports ("[a]s set forth in Articles 15.2 and 15.4"). Korea argues that the term "through
the effects of subsidies" in Article 15.5 read in conjunction with the accompanying footnote requires a
demonstration that the volume and price effects of th e subsidized imports (as set forth in Article 15.2)
and the consequent impact on these imports on the dom estic industry (as set forth in Article 15.4), are
"the effects of subsidies". Thus, Korea argues that it must be demonstrated that the subsidies have
caused the increased volume and/or price effects of th e subsidized imports (Article 15.2) that have in
turn had an impact on the domestic industry. In other words, Korea contends that it must be
demonstrated that the subsidies are causing injury through the effects of subsidized imports . In our

590 Panel Report, Brazil –Desiccated Coconut, para. 251.
591 Article 15.2 provides that: "With regard to the volume of the subsidized imports, the investigating
authorities shall consider whether there has been a significa nt increase in subsidized imports, either in absolute
terms or relative to production or consumption in the importing Member. With regard to the effect of the
subsidized imports on prices, the investigating authorities shall consider whether there has been a significant
price undercutting by the subsidized imports as compar ed with the price of a like product of the importing
Member, or whether the effect of such imports is otherwise to depress prices to a significant degree or to prevent
price increases, which otherwise would have occurred, to a significant degree. No one or several of these
factors can necessarily give decisive guidance."
592 Article 15.4 provides that: "The examination of the impact of the subsidized imports on the
domestic industry shall include an evaluation of all relevant economic factors and indices having a bearing on
the state of the industry, including actual and potential decline in output, sales, market share, profits,
productivity, return on investments, or utilization of ca pacity; factors affecting domestic prices; actual and
potential negative effects on cash flow, inventories, employment, wages, growth, ability to raise capital or
investments and, in the case of agriculture, whether there has been an increased burden on government support
programmes. This list is not exhaustive, nor can one or several of these factors necessarily give decisive
guidance."

view, Article 15.5 cannot be read in this way, as paragraphs 2 and 4 of Article 15 drive the reader
towards a consideration of the effects of the subsidized imports, and not the effect of the subsidy.593
7.412 We note that the GATT panel in US – Norwegian Salmon CVD594 examined the first sentence
and accompanying footnote of Article 6:4 of the Tokyo Round Subsidies Code, which were virtually
identical to the first sentence and accompanying footnote of Article 15.5. 595 In that case, Norway
argued that the "through the effects of the subsidy" language in Article 6:4 required a demonstration
that the volume and price effects of the subsid ized imports and the consequent impact on these
imports on the domestic industry, as set forth in Articles 6:2 and 6:3 of the Tokyo Round Subsidies
Code, were "the effects of the subsidy". The panel re jected Norway's argument. The panel found that
the virtually identical terms of the Tokyo Round Subsidies Code "made it clear that 'the subsidized
imports' were at the centre of the causation analysis required under this provision." 596 Korea claims
that in US – Hot-Rolled Steel , the Appellate Body rejected the "gen eral approach to causation issues"
adopted by the US – Norwegian Salmon CVD panel.597 We find nothing in the Appellate Body Report
in US – Hot-Rolled Steel rejecting the US – Norwegian Salmon CVD panel's findings with respect to
the "through the effects of the subsidy" language.
7.413 The context of the first sentence of Article 15.5 confirms that the focus of the causation
analysis under Article 15.5 is on "the effects of the subsidized imports", and not the "subsidies". The
second sentence of Article 15.5 requires that "[t]he 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 supplied) The third sentence of Article 15.5,
which concerns non-attribution, pr ovides that "[t]he authorities shall also examine 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 ." (emphasis
supplied)
7.414 We find further contextual support for our read ing of the first sentence of Article 15.5 in
Article 15.1 of the SCM Agreement. Article 15.1 contains the "overarching provision that sets forth a
Member's fundamental, substantive obligation" in resp ect of injury determinations that "informs the
more detailed obligations in succeeding paragraphs".598 Article 15.1 provides that:
A determination of injury for purposes of Article VI of GATT 1994 shall be based on
positive evidence and involve an objective examination of both (a) the volume of the
subsidized imports and the effect of the subsidized imports on prices in the domestic
market for like products and (b) the consequent impact of these imports on the
domestic producers of such products." (emphasis added, footnote omitted).

593 On one view, Korea's interpretation would eff ectively reverse the sequence of the terms "the
subsidized imports" and "subsidies" in this provision, so as to read:
It must be demonstrated that subsidies are, through the effects47 of the subsidized imports,
causing injury within the meaning of this Agreement.
Round Subsidies Code, the accompanying footnotes are identical.
596 GATT Panel Report, US – Norwegian Salmon CVD, para. 335.
597 Korea refers to US –Hot-Rolled Steel, para. 226
598 Appellate Body Report, Thailand – H-Beams, para. 106; Panel Report, US – Softwood Lumber VI,
para. 7.27; Panel Report, US – Countervailing Duty Investigation on DRAMS , para. 7.217; Appellate Body
Report, US – Softwood Lumber VI (Article 21.5 – Canada), para. 96.

7.415 As noted, Article 15.2 refers to "the effect of the subsidized imports on prices".
Article 15.3,
599 which concerns cumulation, refers again to "the effects of the imports" . A s n o t e d ,
Article 15.4 requires an examination "of the impact of the subsidized imports on the domestic
industry". Article 15.6 600 addresses the issue of how "[t]he effect of the subsidized imports " is to be
assessed. With respect to Article 15.7, the Appellate Body considers that "Article 3.7 of the Anti-
Dumping Agreement and Article 15.7 of the SCM Agreement combine positive requirements—that
such a determination 'be based on facts' and show how a 'clearly foreseen and imminent' change in
circumstances would lead to further dumped/ subsidized imports causing injury in the near future—
with an express prohibition of a determination b ased 'merely on allegation, conjecture or remote
possibility'."601
7.416 Article 11.2 of the SCM Agreement provides further contextual support for our interpretation
of the "through the effects of subsidies" language in Article 15.5. Article 11.2 provides that an
application for the initiation of a countervailing dut y investigation "shall include sufficient evidence
of the existence of (a) a subsidy and, if possible, its amount, (b) injury within the meaning of
Article VI of GATT 1994 as interpreted by this Agreement, and (c) a causal link between the
subsidized imports and the alleged injury ." (emphasis added) Article 11.2 then provides that the
application shall contain such information as is reasonably available to the applicant on the following:
(iv) evidence that alleged injury to a domestic industry is caused by subsidized
imports through the effects of the subsidies ; this evidence includes
information on the evolution of the volume of the allegedly subsidized
imports, the effect of these imports on prices of the like product in the
domestic market and the consequent impact of the imports on the domestic
industry, as demonstrated by relevant factors and indices having a bearing on
the state of the domestic industry, such as those listed in paragraphs 2 and 4
of Article 15. (emphasis added)

7.417 Thus, according to Article 11.2, information relating to the volume effects, the price effects,
and the consequent impact of the subsidized imports serves as evidence that in jury is caused by the
subsidized imports through the effects of subsidies.
7.418 Korea submits that the "through the effects of s ubsidies" language in Article 15.5 should be
interpreted as requiring the same type of causation analysis that has been developed under the "effect
of the subsidy" language in Article 6.3 602 of the SCM Agreement. We do not see how the terms of

599 Article 15.3 states: "Where imports of a pro duct from more than one co untry are simultaneously
subject to countervailing duty investigations, the investigating authorities may cumulatively assess the effects of
such imports only if they determine that (a) the amount of subsidization established in relation to the imports
from each country is more than de minimis as defined in paragraph 9 of Article 11 and the volume of imports
from each country is not negligible an d (b) a cumulative assessment of the e ffects of the imports is appropriate
in light of the conditions of competition between the imported products and the conditions of competition
between the imported products and the like domestic product."
600 Article 15.6 states: "The effect of the subsid ized imports shall be assessed in relation to the
domestic production of the like product when available data permit the separate identification of that production
on the basis of such criteria as the production process, producers' sales and profits. If such separate
identification of that production is not possible, the eff ects of the subsidized imports shall be assessed by the
examination of the production of the narrowest group or range of products, which includes the like product, for
which the necessary information can be provided."
601 Appellate Body Report, US – Softwood Lumber VI (Article 21.5 – Canada), para. 96.
602 Article 6.3 provides that:
Serious prejudice in the sense of paragr aph (c) of Article 5 may arise in any
case where one or several of the following apply:
(a) the effect of the subsidy is to displace or impede the imports of a
like product of another Member into the market of the subsidizing Member;

Article 6.3 or prior panel reports interpreting this provision support Korea's interpretation of
Article 15.5. As the Panel in US – Upland Cotton stated:
In view of the contrast in the text, context, legal nature and rationale of the provisions
in Part III of the SCM Agreement relating to a multilateral assessment as to whether a
Member is causing, through the use of any subsidy, "adverse effects" in the form of
"serious prejudice to the interests of another Member" and Part V of the Agreement
relating to obligations of a Member in conducting a unilateral countervailing duty
investigations, we decline to transpose directly the quantitative focus and more
detailed methodological obligations of Part V into the provisions of Part III of the
SCM Agreement.603
7.419 That panel further found, on the basis of an analysis similar to our own, that "[t]hese
references in Articles 5(c) and 6.3(c) to the "effect of the subsidy" contrast with the language used in
the countervailing duty provisions in Part V of the Agreement."604

(b) the effect of the subsidy is to displace or impede the exports of a
like product of another Member from a third country market;
(c) the effect of the subsidy is a significant price undercutting by the
subsidized product as comp ared with the price of a like product of another
Member in the same market or significant price suppression, price
depression or lost sales in the same market;
(d) the effect of the subsidy is an increase in the world market share of
the subsidizing Member in a particul ar subsidized primary product or
commodity as compared to the average share it had during the previous
period of three years and this increas e follows a consistent trend over a
period when subsidies have been granted. (emphasis added)
603 Panel Report, US – Upland Cotton, para. 7.1177.
604 Panel Report, US – Upland Cotton, para. 7.1227. The Panel in US – Upland Cotton noted:
"For example, Article 15 of the SCM Agreement deals with the
determination of injury in a countervailing duty investigation. Article 15.1
requires a determination of injury to be based "on positive evidence and
involve an objective examination of both (a) the volume of the subsidized
imports and the effect of the subsidized imports on prices in the domestic
market for like products and (b) the consequent impact of these imports on
the domestic producers of such products." (emphasis added, footnotes
omitted). Article 15.2 states, in part: "... With regard to the effect of the
subsidized imports on prices, the investigating authorities shall consider
whether there has been a significant price undercutting by the subsidized
imports as compared with the pri ce of a like product of the importing
Member, or whether the effect of such imports is otherwise to depress prices
to a significant degree or to preven t price increases, which otherwise would
have occurred, to a significant degree." (emphasis added) Similar additional
references to the "effects of the im ports"; "impact of the subsidized
imports", "the effect of the subsidized imports" also exist in Article 15.
Article 15.5 stipulates:
"It must be demonstrated that the subsidized imports are, through the effects
of subsidies , causing injury within the meaning of this Agreement. The
demonstration of a causal relationship between the subsidized imports and
the injury to the domestic industry shall be based on an examination of all
relevant evidence before the authorities." (emphasis added, footnotes
omitted).
Other provisions in Part V of the SCM Agreement contain similar references to
"through the effects of the subsidy, subsidized imports are causing injury..." e.g. Article 19.1."
(Panel Report, US – Upland Cotton, footnote 1346)

7.420 Finally, we disagree with Korea's contention that our interpretation of Article 15.5 renders the
"effects of subsidies " language in Article 15.5 inutile. Article VI:6(a) of the GATT 1994 provides
that:
No Member shall levy any anti-dumping or countervailing duty on the importation of
any product of the territory of another Member unless it determines that the effect of
the dumping or subsidization , as the case may be, is such as to cause or threaten
material injury to an established domestic indus try, or is such as to retard materially
the establishment of a domestic industry. (emphasis added)
7.421 We first note that one of the purposes of the SCM Agreement is to interpret and clarify
concepts in Article VI of the GATT 1994.
605 As the Panel in Brazil – Desiccated Coconut explained:
It is significant, however, that Article 32.1 refers to the SCM Agreement as
interpreting Article VI of GATT 1994. Article VI of GATT 1994 sets forth a series of
core concepts central to WTO regulation of countervailing measures (e.g., subsidy,
material injury, domestic industry). These concepts are, however, expressed in only
the most general terms, and are thus susceptib le of a wide range of interpretations. In
our view, the Tokyo Round SCM Code and its successor the SCM Agreement were
developed in part to lend greater preci sion and predictability to the rights and
obligations under Article VI.606 (emphasis original)
7.422 We also note that Article VI of the GATT 1994 (including but not limited to Article VI:6(a)
thereof) and the SCM Agreement establish cumulative obligations. Article 10 of the SCM Agreement
requires that Members take all necessary steps to ensure that the imposition of a countervailing duty
on any product of the territory of any Member import ed into the territory of another Member is in
accordance "with the provisions of Article VI of GATT 1994 and the terms of this Agreement." As the
Appellate Body explained in Brazil – Desiccated Coconut:
From reading Article 10, it is clear that countervailing duties may only be imposed in
accordance with Articl e VI of the GATT 1994 and the SCM Agreement. A
countervailing duty being a specific action against a subsidy of another WTO Member,
pursuant to Article 32.1, it can only be impo sed "in accordance with the provisions of
GATT 1994, as interpreted by this Agreem ent". The ordinary meaning of these
provisions taken in their context leads us to the conclusion that the negotiators of the
SCM Agreement clearly intended that, under the integrated WTO Agreement ,
countervailing duties may only be imposed in accordance with the provisions of Part V
of the SCM Agreement and Article VI of the GATT 1994, taken together.607

605 We note that the full title of the Tokyo Round Subsidies Code was the "Agreement on Interpretation
and Application of Articles VI, XVI and XXIII of the General Agreement on Tariffs and Trade ". The preamble
to the Code clarified that the parties to the Code had agreed to its terms desiring, inter alia, "to apply fully and
to interpret the provisions of Articles VI, XVI and XX III" of the GATT, and to "elaborate rules for their
application in order to provide greater uniformity and ce rtainty in their implementation". The full title of the
SCM Agreement was shortened from the " Agreement on Interpretation and Application of Articles VI, XVI
and XXIII of the General Agreement on Tariffs and Trade " to the " Agreement on Subsidies and Countervailing
Measures". As the Appellate Body explained in Brazil – Desiccated Coconut , the reason for the change was
that the SCM Agreement "contains a set of rights and obligations that go well beyond merely applying and
interpreting Articles VI, XVI and XXIII of the GATT 1947" (Appellate Body Report, Brazil – Desiccated
Coconut, page 17). We note that Article 11.2 of the SCM Agreement refers to injury "within the meaning of
Article VI of GATT 1994 as interpreted by this Agreement ", (emphasis supplied) and that Article 32.1 of the
SCM Agreement refers to the provisions of GATT 1994 "as interpreted by this Agreement". (emphasis supplied)
606 Panel Report, Brazil – Desiccated Coconut, para. 238.
607 Appellate Body Report, Brazil – Desiccated Coconut, p. 16.

7.423 With all of the foregoing in mind, we believe that the "through the effects of subsidies"
language in Article 15.5 serves the function of clarifying that " the effect of … subsidization " language
in Article VI:6(a) of the GATT 1994 means the effect of subsidized imports (as set forth in
Articles 15.2 and 15.4 of the SCM Agreement). We believe that, in the absence of such clarification,
i.e., if the words "through the effects of subsidies" were not included in Article 15.5 and defined in
footnote 47, the cumulative application of Article VI:6(a) and Article 15.5 of the SCM Agreement
may have led to a certain degree of uncertainty as to whether or not a separate "through the effect of
subsidization" analysis was required by virtue of Article VI:6(a) of the GATT 1994.608
7.424 For these reasons, we find that Article 15.5 does not require that an i nvestigating authority
demonstrate that the volume and price effects of the subsidized imports and the consequent impact on
these imports on the domestic industry, as set forth in Articles 15.2 and 15.4, are "the effects of
subsidies". Neither party has made any separate argum ents in respect of Article 19.1. Neither party
has suggested that the phrase "through the effects of the subsidy" in Article 19.1 could be interpreted
differently from the phrase "through the effects of subs idies" in Article 15.5, and we see no basis for
doing so. We therefore find that Article 19.1 does not require that an investigating authority
demonstrate that the volume and price effects of the subsidized imports and the consequent impact on
these imports on the domestic industry, as set forth in Articles 15.2 and 15.4, are "the effects of
subsidies". It is therefore unnecessary for us to rule on the issue of whether the JIA properly
demonstrated that the volume and price effects of the subsidized imports a nd the consequent impact
on these imports on the domestic industry were the "effects of subsidies" allegedly received by Hynix.
7.425 We therefore find that Korea has failed to estab lish that the JIA acted inconsistently with
Articles 15.5 and 19.1 of the SCM Agreement by failing to demonstrate that the allegedly subsidized
imports were, "through the effects of subsidi es", causing injury within the meaning of the
SCM Agreement.
K. DIRECT TRANSFER OF FUNDS
1. Arguments
(a) Korea
7.426 Korea claims that the JIA acted incons istently with Article 1.1(a) of the SCM Agreement by
improperly finding that the October 2001 and Dece mber 2002 restructuring transactions involved a
"direct transfer of funds". Kor ea recalls that the JIA treated the modification of the terms of pre-
existing loans (including extensions of the maturities of existing loans, reductions of the interest rates
on existing loans, and conversion of interest to pr incipal) and debt-to-equity swaps as transactions
involving a "direct transfers of funds". Korea argues that transactions that merely change the terms of
existing claims, and do not involve the provision of money to the alleged subsidy recipient, cannot be
characterized as transactions involving a "direct transfer of funds" within the meaning of
Article 1.1(a)(1)(i).
7.427 Korea argues that a "direct tr ansfer of funds" under Article 1.1(a)(1)(i) requires, at a
minimum, that there be a "transfer" of "funds". In this regard, Korea relies on dictionary definitions
of the term "transfer" as meaning a "conveyance from one person to another of property" and of the
term "funds" as meaning "money." Korea argues that in order for there to be a "transfer" of "funds,"

608 As the Panel in Brazil – Desiccated Coconut observed, "it is evident to the Panel that Article VI of
GATT 1994 in isolation could be interpreted differently from Article VI in conjunc tion with either the Tokyo
Round SCM Code or the SCM Agreemen t. Further, the application of Article VI of GATT 1994 in isolation
with respect to this issue could result in obligations on an investigating country which are more stringent than
those imposed by Article VI in conjunction with eith er the Tokyo Round SCM Code or the SCM Agreement."
(Panel Report, Brazil – Desiccated Coconut, para. 251).

money must therefore change hands, and that if m oney does not change hands, there is not "a direct
transfer of funds". According to Korea, this conc lusion is reinforced by an analysis of the language
of the French and Spanish texts of Article 1.1(a)(1)(i).
7.428 Korea argues that the examples of direct transf ers of funds included in sub-paragraph (i) of
Article 1.1(a)(1) do not imply that any and all tran sactions that involve debt or equity constitute
"direct transfers of funds" in the absence of an actua l "transfer of funds." Rather, the reference to
"grants, loans, and equity infusion" in Article 1.1(a)(1)(i) serves only to clarify that all "direct
transfers of funds" by a government constitute "fin ancial contributions," regardless of what the
recipient gives back to the government in return.
7.429 Korea argues that there is no "transfer" of "funds" when a creditor agrees only to modify
terms of existing loans or to exchange existing loan s for equity in the borrowe r. Korea argues that
there is "no conveyance of money" when a lender ag rees to extend the maturities of existing loans, or
to reduce the interest rates on existing loans. A ccording to Korea, in t hose transactions, a creditor
holding existing claims against the borrower agrees to modify the nature of those claims, without
providing any money to the borrower. Korea submits that the same logic applies to debt-to-equity
swaps: in such transactions, the lender exchanges one set of claims on the company (as embodied in
the loan agreement) for a different set of claims (as embodied in share-ownership).
7.430 Korea rejects Japan's argument that a broad de finition of the term "transfer of funds" is
needed to prevent circumvention of the SCM Agreement's disciplines on subsidies. According to
Korea, that argument is based on the false assumpti on that extensions of loan maturities and debt-to-
equity swaps could never be considered "financial contributions" if they are not classified as "direct
transfers of funds." Korea argues that the modifi cation of the terms of existing loans and debt-to-
equity swaps that provide a "financial contribution" to the recipient might be classified as "foregone
revenue" within the meaning of paragraph (ii) of Arti cle 1.1(a)(1). In response to a question from the
Panel, Korea submits that although sub-paragraph (ii) concerns "government revenue", a decision by a
private creditor to forego revenue as a result of gove rnment entrustment or direction would fall under
paragraph (iv), because the private creditors' acti on would be a "type of function illustrated in
paragraph (ii)" of Article 1.1(a)(1). In other wo rds, if the private creditors had been government
bodies, the extensions of loan maturities and debt-t o-equity swaps undertaken by the private creditors
would have fallen in the category of "government re venue that is otherwise due is foregone or not
collected". Korea submits that in this case, however, the JIA did not make the factual findings
required to support a determination that the transact ions resulted in any reve nue being "foregone" by
the creditors.
7.431 Korea further argues that no revenue otherwise due was in fact "foregone" in the restructuring
transactions at issue in the investigation for two r easons. First, the creditors' decision to allow Hynix
to delay payment, as long as Hynix agreed to pay additional interest on the outstanding amounts for
the additional period, did not constitute revenue "for egone". Second, the modification of the terms of
existing loans and debt-to-equity sw aps, and debt forgiveness agreed to by Hynix's creditors in the
restructurings, did not result in the creditors receivi ng a lesser amount than they would have if Hynix
had been liquidated, and there was therefore no revenue "foregone".
7.432 Korea recalls that for the purpose of calculati ng the amount of the subsidy when the maturity
of a loan is extended, the JIA deemed that the exis ting liability is repaid and a new loan is granted at
the time the extension is made, and that for the pu rpose of calculating the amount of the subsidy when
a debt is swapped for equity, the JIA deemed that the existing liability is repaid and a new equity
infusion is provided at the time of the debt-to-e quity swap. According to Korea, the JIA's entire
analysis was premised on its finding that Hynix was insolvent and could not repay its existing debts,
and given that premise, it was plainly inconsistent for the JIA also to assume that Hynix had, in each
transaction, repaid all of its existing debts in full, before receiving new "tra nsfers of funds" from its
creditors.

(b) Japan
7.433 According to Japan, Korea's rest rictive interpretation of the term "transfer of funds" in
Article 1.1(a)(1)(i) is inconsistent with the ordinary meaning of the term "funds", is at odds with the
meaning to be given to that term in its contex t, and would frustrate the object and purpose of the
SCM Agreement. Japan recalls that the panel in Korea – Commercial Vessels rejected a very similar
argument by Korea in that case.609
7.434 Japan submits that dictionary definitions 610 of the word "funds" support the conclusion that
the ordinary meaning of the term "funds" encompasses more than just "money". Japan adds that even
the term "money" itself is not limited to "real cash", but includes as well "property, possessions,
resources, etc., viewed as having exchangeable va lue or a value expressible in terms of monetary
units" or more directly, "financial gains." Thus, according to Japan, the ordinary meaning of "funds"
includes not only money, but all financial resources, which have monetary or exchangeable value or
provide financial gains.
7.435 Japan argues that the broader reading of the term "funds" to include "financial resources"
having "monetary or exchangeable value" is confir med by the illustrative list of direct transfers of
funds included in Article 1.1(a)(1)(i), which includes "grants, loans, and equity infusion." Japan relies
upon the statement by the panel in Korea-Commercial Vessels that "[t]he fact that the listed kinds of
direct transfers of funds (grants, loans and equi ty infusions) are identified as only examples clearly
indicates that there may well be other types of instruments that would equally constitute direct
transfers of funds in the sense of Article 1.1(a)(1)(i)".
611 As context, Japan also relies on the
Appellate Body's conclusion that "the concep t of subsidy defined in Article 1 of the SCM Agreement
captures situations in which something of economi c value is transferred by a government to the
advantage of a recipient".612
7.436 Japan argues that an overly restrictive reading of the terms of Article 1.1(a)(1)(i) would
frustrate the object and purpose of the SCM Agreement. Japan argues that an interpretation which
would restrict the terms "transfer of funds" to acts of "conveying money", excluding extension of
credit through the substantial modification of terms of existing loans or an exchange into equity of the
monetary value equivalent to the existing debt, would open the door to abuse and offer an easy way of
circumventing the disciplines of the SCM Agreement.
7.437 Japan submits that transactions modifying the te rms of existing loans fall squarely within the
scope of "direct transfers of funds" contemplated under Article 1.1(a)(1)(i). Japan submits that as a
practical matter, such changes to the terms of loans amount to a re-issuance of the loan as the terms of
the original loan are extinguished and replaced with new terms. Japans submits that a debt-to-equity
swap also clearly involves a "transfer of funds", since Article 1.1(a)(1)(i) specifically provides for
"equity infusion" as an example of a direct transfer of funds, and a debt-to-equity swap is one method
of making an equity infusion.
7.438 In the light of foregoing, Japan considers Ko rea's arguments regardi ng "government revenue
foregone" irrelevant.

609 Japan refers to Panel Report, Korea-Commercial Vessels, para. 7.413.
610 Japan refers to definitions taken from the Concise Oxford English Dictionary (10th ed. 2002) and the
Oxford English Dictionary (2nd ed. 1989).
611 Japan refers to Panel Report, Korea-Commercial Vessels, para. 7.412.
612 Appellate Body Report, US – Softwood Lumber IV, para. 51.

2. Evaluation by the Panel
7.439 This claim raises the issue of whether the modi fication of loan repayment terms (including
extensions of the maturities of existing loans, reduc tions of the interest rates on existing loans, and
conversion of interest to principal) and debt-to- equity swaps can be characterized as transactions
involving a "direct transfers of funds" within the meaning of Article 1.1(a)(1)(i). In addressing this
claim, we do not exclude that certain of the rele vant transactions might be covered simultaneously by
different sub-paragraphs of Article 1.1(a)(1).
613 The issue before us, though, is not whether the
modification of loan repayment terms and debt-to-equi ty swaps might also be treated, for example, as
government revenue foregone. The issue is whether the JIA erred in treating such transactions as
"direct transfers of funds".
7.440 The parties have presented a number of dictionary definitions regarding the ordinary meaning
of the terms "transfer" and "funds". On the ba sis of Korea's Final Comments to the Panel, we
consider that there is ultimately no dispute betw een the parties regarding the basic meaning of the
word "funds". In particular, we understand Korea to accept that the term "funds" might be defined
more broadly than it initially suggested in its Fi rst Written Submission, to mean the "money or other
financial assets that might be counted in a person's 'capital'". 614 This is very similar to the definition
proposed by Japan. We do not disagree that this is the ordinary meaning of the term "funds".615
7.441 Korea acknowledges the basic agreement between the parties on the meaning of the term
"funds", and argues that "the critical question is whether the transaction in question involves a
'transfer' of money or other monetary assets from the government or government-directed entity to the
recipient."
616 According to Korea, "in debt forgiveness, de bt-to-equity swaps, or extensions of loan
maturities, there is no transfer of money or other monetary resources from the government or
government-directed entity to the recipient. Instead , there is only a relinquishment or modification of
the claims that were held by the government or government-directed entity by virtue of a prior
loan."617
7.442 We do not accept that the relinquishment or modification of claims may not, in certain
circumstances, be treated as the transfer of new claims, giving rise to new rights and obligations. For
example, once one analyses what ac tually occurs in the transaction, the modification of an existing
loan may properly be treated as the transfer of new rights to the recipient of the modified loan. The
borrower's old rights no longer exist. They have been replaced by new rights. In this sense, the
modified loan may properly be treated as a new loan. Thus, the modification of a loan through debt
forgiveness involves the transfer of new rights to th e borrower, who is now liberated of the obligation
to repay the debt, and instead has the right to use th e money for free. Similarly, the modification of a
loan through an extension of the loan maturity i nvolves the transfer of new rights to the borrower,
who is now entitled to borrow the money for a longer period of time. Since the new rights that are
transferred in such transactions have monetary valu e, and may be counted in a (legal or natural)
person's capital, we consider that such transactions may properly be treated as "direct transfers of

613 In this regard, we note that the Appellate Body stated at para. 113 of its Report in US –
Countervailing Measures on Certain EC Products that: "[A] transfer of funds could be provided directly from
the government to the legal person that is the producer of the subsidized product, or it could be provided
indirectly, say, through an income tax concession to the natural persons that own the firm (inasmuch as they
invest in the legal person's productive activities). In both cases, the cost of raising capital for the legal person
that is the producer would be reduced." This would app ear to suggest that an income tax concession could, in
certain circumstances, be treated both as a direct transfer of funds and as revenue foregone.
614 See Korea's Final Comments, para. 22.
615 We note that the Appellate Body has similarly found that subsidies generally involve transactions
where "something of economic value" is transferred. See, for example, Appellate Body Report, US – Softwood
Lumber IV, para. 51.
616 See Korea's Final Comments, para. 23.
617 See Korea's Final Comments, para. 23.

funds" in the meaning of Article 1.1(a)(1)(i) of the SCM Agreement. We apply the same analysis to
debt-to-equity swaps, for the relinquishment and modi fication of claims inherent in such transactions
similarly results in new rights, or claims, being transferred to the former debtor.
7.443 Furthermore, we note that in Korea-Commercial Vessels , Korea advanced essentially the
same argument that it advances here. In that case, Korea argued that the debt-to-equity swaps, interest
rate reductions, interest forgiveness and interest deferral at issue did not constitute "financial
contributions" because there was "no transfer of pecuniary value" to the companies under workout or
corporate reorganization.
618 The panel rejected Korea's argu ment, and found that all of those
transactions involved a "direct transfer of funds" within the meaning of Article 1.1(a)(1)(i):
7.411 We are not persuaded by Korea's arguments that debt-for-equity swaps and
interest reductions and deferrals are not fina ncial contributions. In the first place, we
recall that there is a financial contribution in the sense of Article 1.1(a)(1)(i) of the
SCM Agreement if there is a "direct transfer of funds", and that grants, loans and
equity infusions are listed only as three possi ble examples of such transfers. Thus, we
view Article 1.1(a)(1) as identifying in its respective subparagraphs the kinds of
instruments or transactions that could be c onsidered to be "financial contributions".
Of course these instruments would only be covered by the Agreement if they were
made "by a government or public body", and they would only be subsidies covered
by the Agreement if they both conferred a benefit and were specific. Thus, the
concept of financial contribution is but one in a set of cumulative, and independent,
elements all of which must be present for a measure to be regulated by the
SCM Agreement.
7.412 We find the examples listed in Ar ticle 1.1(a)(1)(i) to be illuminating in
respect of the scope of the term "direct transfer of funds". Most importantly,
considering the "medium of exchange" in th e listed examples, we note that all of the
examples involve transfers of money ("funds"), as opposed to in-kind transfers (of
goods or services, in the sense of Article 1.1(a)(1)(iii)). The fact that the listed kinds
of direct transfers of funds (grants, loans and equity infusions) are identified as only
examples clearly indicates that there may well be other types of instruments that
would equally constitute direct transfers of funds in the sense of Article 1.1(a)(1)(i).

7.413 Turning to the particular cases of the transactions involved in the
restructuring, we find that all of them are of the same nature as those explicitly listed
in Article 1.1(a)(1)(i). First we note that in terest reductions and deferrals are similar
to new loans, as they involve a renegotiation / extension of the terms of the original
loan. We see no reason why loans would co nstitute financial c ontributions while
interest reductions and deferrals would not. Further, we cons ider that interest / debt
forgiveness is comparable to a cash grant, as funds that were previously provided as a
loan, against interest, are now provided for free, given the removal of the repayment
obligation. All of these transactions therefore constitute direct transfers of funds in
the sense of Article 1.1(a)(1)(i) of the SCM Agreement. Regarding debt-for-equity
swaps, we note that equity infusions are exp licitly listed as a type of direct transfer of
funds in Article 1.1(a)(1)(i). Since we have also found that debt forgiveness
constitutes a direct transfer of funds, we see no reason why a combination of equity
infusion and debt forgiveness should fall outsi de the scope of that provision. The
reason why creditors agree to such transactions ( i.e., whether or not it is in order to
preserve going concern value) is not releva nt to the issue of whether or not the
transactions constitute financial contributions. Rather, it relates to the issue of benefit

618 Korea-Commercial Vessels, para. 7.408.

(in the sense of whether or not creditors operating on market principles would have
undertaken such transactions on the same terms).

….

7.420 ... Equity infusions and debt-for-equity swaps have the same effect, in the
sense that equity changes hands against consideration in both cases (and subsidization
arises if the amount of consideration is less than the market would have provided).
Also, a debt/equity swap comprises an element of equity infusion.
7.444 We agree with this analysis by the panel in Korea – Commercial Vessels . We agree in
particular that it is appropriate to look beyond the simple form of a transaction, and analyze its effects,
in determining whether or not a transaction constitutes a "direct transfer of funds".
619
7.445 Finally, we note that a central element in Ko rea's claim is its argument that the JIA's finding
of "direct transfers of funds" was based on a "legal fiction" 620 that did not exist. 621 Korea asserts that

619 We note that the Appellate Body would appear to agree that, in establishing the existence of a
financial contribution, investigating authorities may pr operly consider the consequences of the relevant
transactions: [W]e disagree with Canada's submission that the granting of an intangible right to harvest standing
timber cannot be equated with the act of providing that standing timber. By granting a right to harvest, the
provincial governments put particular stands of timber at the disposal of timber harvesters and allow those
enterprises, exclusively, to make use of those resources. Canada asserts that governments do not supply felled
trees, logs, or lumber through stumpage transactions.
 In our view, this assertion misses the point, because felled
trees, logs and lumber are all distinct from the "standing timber" on which the Panel based its conclusions.
Moreover, what matters, for purposes of determining whether a government "provides goods" in the sense of
Article 1.1(a)(1)(iii), is the consequence of the transaction ." ( US – Softwood Lumber IV , para. 75, emphasis
supplied, footnote omitted.)
620 See Korea's Second Written Submission, para. 55.
 621 We note that the "legal fiction" alleged by Kor ea actually reflected the way that Hynix itself viewed
the transactions:
 [Hynix] With regard to the debt-to-equity sw ap in the December 2002 Program, upon reasonable
interpretation of the accounting standards of the country subject to the investigation, the
SCM Agreement, Guidelines, etc., e ither the timing of receipt of the subsidy should be considered as
having been in 2002, or it should be found that a subsidy does not exist. In the unlikely event that the
December 2002 Program is found to be subsidy, it would be appropriat e that the Government of Japan
treated the benefit from the debt-to-equity swap resulting from the programme, as having been received
in 2002. Micron's opinion is in appropriate because it lacks underst anding of the fact that the debt-to-
equity swap encompasses the concept of disappearance of debt , not the issuance of stocks itself; it is
an incorrect assertion for the sole purpose of extending the effective period of the subsidy and is not
based on either the SCM Agreement or Japanese dom estic law. I n ot her w or ds, i n this case, Hyni x
would not be receiving any benefit from the issuance of stocks, bu t conversely, it would have to bear
the obligation of paying dividends to shareholders in conjunction with the issuance of stocks.
According to the Guidelines 13(1)(iii), in this case, it can be said that the investment is being provided
by transferring, so to speak, existing claims to debtor, and the transfer of claims itself was established
in the resolution that was made by the Council for Creditor Financia l Institutions in December 2002.
As the transfer was reflected in the FY 2002 financial statements of Hynix, the Government of Japan
should maintain its finding of fact in the Essential Facts that the debt-to-equity swap pertaining to the
December 2002 Program was received in 2002.
• On 30 December 2002, the creditor financial institutions made a reso lution on a debt restructuring
proposal that included converting 50 per cent of unsecured claims to equity. As it was enforceable by
the law, CRPA, the resolution took immediate eff ect. After that resolution was made, the creditor
financial institutions could do no more than simply choose the method of the debt-to-equity swap.
With adoption of the plan set forth in the resolution, the obligations borne by Hynix in connection with
the subject claims disappeared , and even the creditor financial institutions could no longer exercise
their rights as creditors against Hynix. Particularly, as section 2. (e) (2) in 30 December 2002 proposal
by the Council for Creditor Financial Institutions states that "interest on claims subject to the debt-to-

the JIA simply "deemed" the relevant transactions to constitute (1) repayments followed by (2) new
transfers to the borrower, thereby ignoring the fact that, in reality, Hynix was insolvent and could not
repay its debts. This argument suggests that the real problem underlying Korea's Article 1.1(a)(1)(i)
claim is the fact that the JIA failed to consider the substance of the transactions from the perspective
of the inside investor, i.e., the investor who could not expect full repayment of its debt. This issue is
properly addressed elsewhere, in the context of our evaluation of the JIA's calculation of the amount
of benefit.622
7.446 For the above reasons, we find that the JIA c ould properly characterize the modification of
loan repayment terms (including extensions of th e maturities of existing loans, reductions of the
interest rates on existing loans, and conversion of in terest to principal) and debt-to-equity swaps as
transactions involving a "direct transfers of funds" within the meaning of Article 1.1(a)(1)(i).623
L. CHANGE IN OWNERSHIP
1. Claim
7.447 Korea claims that Japan acted inconsistently with Articles 10, 14, 19, and 21 of the
SCM Agreement, on the basis that Japan imposed and maintained countervailing duties without
determining whether a benefit continued to exist following the changes in the ownership of Hynix that
resulted from the October 2001 and December 2002 restructurings.
7.448 Japan submits that the Panel should reject Korea's claim and argument.
2. Arguments
(a) Korea
7.449 Korea claims that the debt-to-equity swaps undertaken in the October 2001 and
December 2002 restructurings worked a fundamental change in the ownership of Hynix.

equity swap generated after the date of this re solution shall be exempted," the creditor financial
institutions that agreed to the debt-to-equity swap could no longer exercise any rights whatsoever in
connection with their claims after the date of the resolution.
• The fact that debt disappeared after the debt-to-equity swap is also shown from the fact that debt
decreased by a total of approximately KRW 2.2 trillion as a result of the posting of the amount of the
debt-to-equity swap based on the December 2002 Program into a capital adjustment item on its
balance sheet as of 2002 , and also as a result of a reduction of short-term loans, long-term loans,
corporate bonds, and other loans on the 2002 balance sheet . After the resolution on the
December 2002 Program, there existe d absolutely no appende d conditions that coul d modify the debt-
to-equity swap. The series of procedures that were taken after the date of the resolution as referred to
in the Micron opinion all relates to the stock issuance format, which has no effect to the debt-to-equity
swap effective as of December 2002. The reso lution by the creditor financial institutions in
December 2002 itself is an agreement by the creditor financial institutions to convert 50 per cent of the
value of unsecured claims to Hynix stocks. Because of this agreement, Hynix was able to eliminate the
debt from its 2002 audited financial statements and simultaneously post the corresponding amount as a
capital adjustment item. Then, the existing debt of the creditor financial institutions was posted as
repaid as of 30 December 2002, an d posted in a capital adjustment item in the acc ounting treatment.
(Annex 3 (Rebuttals and Surrebuttals), para. 555, emphasis supplied).
We further note that the parties' replies to Question 128 from the Panel indicate that both Hynix and the
creditors recorded the debt-to-equity swaps as debt repayments and equity infusions, consistent with the
JIA's treatment of these transactions.
622 See section VII.E.7(c) supra.
623 Whether a benefit was thereby conferred, and measuring the amount of that benefit, are separate
issues subject to separate disciplines in the SCM Agreement.

7.450 Korea recalls the Appellate Body's finding, in US – Countervailing Measures On Certain EC
Products, that where there is a change in the ownershi p of a company at fair market value, the
investigating authorities must consider whether the subsidies received before the change in ownership
continued to provide a benefit after the ownership change. Korea recalls that the Appellate Body also
held that a change in ownership in a transac tion at "fair market value" creates a rebuttable
presumption that the benefits of the subsidy have been extinguished. Korea recalls the Appellate
Body's finding that the failure of the investigating authorities in that case to consider whether the
subsidies received before the cha nge in ownership continued to provi de a benefit after the ownership
change was inconsistent with Articles 10, 14, 19, and 21.
7.451 Korea argues that the JIA failed to consider whether the subsidies allegedly provided to
Hynix continued to provide benefits "following the change in ownership wrought by the debt-to-
equity swaps", and that the JIA's determination wa s therefore inconsistent with Articles 10, 14, 19,
and 21.
(b) Japan
7.452 Japan argues that Korea's change in ownership argument is presented without any analysis or
explanation on how Articles 10, 14, 19, and 21 suppor t its conclusion, and that Korea has thus failed
to establish a prima facie case.
7.453 Japan disputes the relevance of the Appellate Body's findings in US – Countervailing
Measures On Certain EC Products , arguing that the present case is completely different from the
specific situation in which a subsidy was presumed to extinguish through a change in ownership from
another perspective. Japan argues that the debt-to-equity swaps under the October 2001 and
December 2002 debt restructurings do not meet a ny of the conditions established by the Appellate
Body. Japan argues that Korea has presented no argument or evidence regarding a change in
ownership after the findings of benefit under each Program. According to Japan, the issue of a change
in ownership is whether a subsidy continues to provide a benefit after a transfer of all or substantially
all the property of the recipient of the subsidy ( i.e., through privatization) through an arm's length
transaction at fair market value.
7.454 Japan further submits that Korea is repeating an argument which has already been rejected by
the panel in Korea – Commercial Vessels.
624
7.455 Japan also argues that the provisions of Articles 1.1(a)(1)(i) and 14(a) of the SCM Agreement
clearly contradict an interpretation that an equi ty infusion that amounts to a subsidy simultaneously
extinguishes the benefit therein.
3. Evaluation by the Panel
7.456 We consider that the application of WT O case law regarding the pass-through of
pre-privatization subsidies would be inapposite in the present case. Ko rea argues that "where there is
a change in the ownership of a company at fair market value, the investigating authorities must
consider whether the subsidies received before the change in ownership continued to provide a benefit
after the ownership change." 625 Since the change in ownership alluded to by Korea took place as a
result of the October 2001 and December 2002 restructurings respectively, Korea's argument would
therefore concern benefit conferre d by subsidies allegedly received before the changes in ownership.
The present case, though, concerns the countervailabil ity of subsidies that were allegedly provided by

624 Japan refers to Panel Report, Korea – Commercial Vessels, para. 7.419.
625 See Korea's First Written Submission, para. 261, emphasis supplied.

the changes of ownership themselves. This issue was not addressed by the WTO case law on pass-
through of pre-privatization subsidies.626
7.457 The only possible significance of the WTO case law regarding pass-through during
privatization concerns the principle that th e presumption against pass-through arises when a market
price is paid for the privatized entity. 627 In other words, this case law indicates that benefit is to be
assessed by reference to the market, and that no benef it is conferred when a market price is paid. If
the October 2001 and December 2002 restructurings we re made on market terms, those restructurings
would not have conferred a benef it (and there would be no need for Korea to rely on the WTO case
law on change in ownership). If the restructurings were not made on market terms, they would have
conferred a benefit (and the WTO case law on change in ownership would not change that result, for
the presumption against pass-through of benef it from prior subsidies only applies when the
privatization takes place on market terms).
7.458 For the above reasons, we reject Korea's cl aim that Japan acted inconsistently with
Articles 10, 14, 19, and 21 of the SCM Agreement, on the basis that Japan imposed and maintained
countervailing duties without determining whether a benefit continued to exist following the changes
in the ownership of Hynix that resulted from the October 2001 and December 2002 restructurings.
M. ARTICLE 32.1
1. Claim
7.459 Korea claims that, as a consequence of Japan 's violation of other provisions of the
SCM Agreement, Japan's imposition of countervailing duties on imports of DRAMS from Korea was
not consistent with the requirements of Article 32.1 of the SCM Agreement.
7.460 Japan submits that the Panel should reject Korea's claim and argument.
2. Applicable provision
7.461 Article 32.1 provides that:
"No specific action against a subsidy of another Member can be taken except in
accordance with the provisions of GATT 1994, as interpreted by this Agreement."
(footnote omitted)
3. Arguments
(a) Korea
7.462 Korea does not present any independent arguments in respect of its claim under Article 32.1.

626 We agree with the treatment of a similar argument by the panel in Korea – Commercial Vessels
("Korea relies on WTO case-law concerning the changes in ownership in the context of privatizations to argue
that a financial contribution, like benefit, must be co nferred on a legal or natural person, rather than on
productive operations / assets. We are not persuaded that such case-law is relevant, however, since this is not a
case involving privatization. In those privatization cases, the alleged subsidy took place prior to privatization,
and the question was whether the benefit from those earlier subsidies was extinguished upon the change in-
ownership. The change in ownership in those cases was undertaken at arm's length, and for fair market value. In
the present case, however, the change in ownership is the alleged subsidy." (para. 7.419))
627 The Appellate Body has confirmed that "[p]rivatization at arm's length and for fair market value may
result in extinguishing the benefit. Indeed, we find that there is a rebuttable presumption that a benefit ceases to
exist after such a privatization." ( US – Countervailing Measures on Certain EC Products, para. 127 (emphasis in
original)).

(b) Japan
7.463 Japan notes that Korea did not present an i ndependent argument on the inconsistency with
Article 32.1. Japan finds support in several Appellate Body reports for the proposition that a violation
of Article 32.1 is necessarily dependent on a finding that the Member otherwise acted inconsistently
with its obligations under the SCM Agreement. Japan submits that, as the alleged inconsistency under
Article 32.1 is entirely consequential to the other e rrors alleged but not substa ntiated by Korea, this
allegation should also be dismissed.
4. Evaluation by the Panel
7.464 This claim is dependent on other claims made by Korea. Given our finding regarding the
inconsistency of the JIA's determin ation of government entrustment or direction and the existence of
benefit in respect of the December 2002 restructur ing, and the JIA's calculation of the amount of
benefit in respect of both the October 2001 and December 2002 restructurings, and in the absence of
any independent argumentation by Korea in this r espect, we do not find it necessary for the resolution
of the dispute to address this Korean claim con cerning the inconsistency with Article 32.1 of the
SCM Agreement.
VIII. CONCLUSIONS AND RECOMMENDATION
8.1 In light of the above findings, we reject Korea's claims that:
a. Japan improperly found government "entrustment or direction" of the Four Creditors
to participate in the October 2001 restructuring, contrary to Article 1.1(a)(1)(iv) of
the SCM Agreement;
b. Japan improperly found that the October 2001 restructuring conferred a benefit on
Hynix, contrary to Articles 1.1(b) and 14 of the SCM Agreement;
c. Japan improperly treated certain Hynix creditors as "interested parties", and
improperly applied facts available and ma de adverse inferences, contrary to
Articles 12.7 and 12.9 of the SCM Agreement;
d. Japan improperly found that the October 2001 and December 2002 restructurings
constituted "direct transfer[s] of funds", contrary to Article 1.1(a)(1)(i) of the
SCM Agreement;
e. Japan improperly determined that the October 2001 and December 2002
restructurings were specific, contrary to Article 2 of the SCM Agreement;
f. Japan improperly failed to determine whethe r or not a benefit continued to exist
following changes in the ownership of Hynix as a result of the October 2001 and
December 2002 restructurings; and
g. Japan's determination imprope rly failed to demonstrate that the subsidized imports
were, through the effects of subsidies, causi ng injury, contrary to Article 15.5 of the
SCM Agreement;
8.2 In light of the above findings, we uphold
 Korea's claims that:
a. Japan improperly found government "entrustment or direction" of the Four Creditors
to participate in the December 2002 restructur ing, contrary to Article 1.1(a)(1)(iv) of
the SCM Agreement;

b. Japan improperly found that the December 2002 restructuring conferred a benefit on
Hynix, contrary to Articles 1.1(b) and 14 of the SCM Agreement;

c. Japan improperly calculated the amount of benefit conferred by the October 2001 and
December 2002 restructurings, contrary to Articles 1.1(b) and 14 of the
SCM Agreement;

d. Japan improperly used methods to calculate the amount of benefit to the recipient that
were not provided for in its national legisl ation or implementing regulations, contrary
to the chapeau of Article 14 of the SCM Agreement; and

e. Japan improperly levied countervailing duties in 2006 to offset some of the subsidies
provided by the October 2001 restructuring, even though the JIA only found that
some of those subsidies applied from 2001 through to 2005, contrary to Article 19.4
of the SCM Agreement;

8.3 In light of the above findings, we decline to rule separately on Korea's claims that:
a. Japan acted inconsistently with Articles 1 and 2 of the SCM Agreement by reversing
the burden of proof and basing its findings of "financial contribution" and "benefit"
on the absence of evidence;
b. Japan improperly imposed countervailing duties on the basis of a flawed analysis of
benefit, contrary to Article 19.4 of the SCM Agreement and Article VI:3 of the
GATT 1994; and
c. Japan improperly imposed countervailing du ties contrary to Article 32.1 of the
SCM Agreement.
8.4 Under Article 3.8 of the DSU, in cases where there is infringement of the obligations assumed
under a covered agreement, the action is considered prima facie to constitute a case of nullification or
impairment of benefits under that agreement. Accordingly, we concl ude that to the extent Japan has
acted inconsistently with the provisions of the SCM Agreement, it has nullified or impaired benefits
accruing to Korea under that Agreement.
8.5 Article 19.1 of the DSU is explicit concerning the recommenda tion a panel is to make in the
event it determines that a measure is inconsistent with a covered agreement:
[i]t shall recommend that the Member concerned bring the measure into conformity
with that agreement. (footnotes omitted)
8.6 We therefore recommend that the Dispute Settlement Body request Japan to bring its measure
into conformity with its obligations under the SCM Agreement.
 628

628 Korea initially submitted (at para. 48 of its Second Written Submission, and in response to
Question 54 from the Panel) that, since the JIA did not use methods that are consistent with the first sentence of
Article 14 to calculate the benefit to Hynix, the requir ements of Article 1.1 were not met and no countervailing
duties should have been imposed. Korea stated that the Panel should therefore recommend that Japan
immediately rescind the countervailing duties it has imposed. At the Second Substantive Meeting, and in
response to Question 119 from the Panel, Korea clarifie d that it was only asking the Panel to recommend that
Japan bring its measures into conformity. Accordingly, th ere is no need for us to address Korea's initial request
that we recommend that Japan immediately rescind the countervailing duties it has imposed.

8.7 Korea has asked the Panel to suggest that th e countervailing duty measures imposed by Japan
on imports of DRAMS from Korea be immediatel y rescinded, and that any countervailing duties
collected by Japan on such imports be refunded fort hwith. In this regard, we note that Article 19.1
goes on to provide that:
[i]n addition to its recommendations, the pa nel or Appellate Body may suggest ways
in which the Member concerned could implement the recommendations.
8.8 We thus consider that Article 19.1 would a llow us to make the suggestion requested by
Korea. However, we have found various vi olations of Japan's obligations under the SCM Agreement,
which may necessitate differing responses in order to bring the measure concerned into conformity
with Japan's obligations under the SCM Agreement. In our view, the modalities of the implementation
of our recommendation are, in the first place, for Japan to determine. We therefore decline to make
the suggestion requested by Korea.

ANNEX A

REQUEST FOR THE ESTABLISHMENT
OF A PANEL BY KOREA

19 May 2006
 (06-2460)
 Original: English

JAPAN – COUNTERVAILING DUTIES ON
DYNAMIC RANDOM ACCESS MEMORIES FROM KOREA

Request for the Establishment of a Panel by Korea

 The following communication, dated 18 May 2 006, from the delegation of Korea to the
Chairman of the Dispute Settlement Body, is circulated pursuant to Article 6.2 of the DSU.

On 27 January 2006, the Government of Japan ("Japan") imposed countervailing duties on
imports of Dynamic Random Access Memories ("DR AMS") from Korea, as announced in Cabinet
Order No. 13 and Ministry of Finance Notice No. 35, published respectively in Issue No. 4264 and
Special Issue No. 17 of the Official Gazette dated 27 January 2006.

The Government of Korea ("Ko rea") considers the countervailing duties imposed by Japan
against DRAMS from Korea to be inconsistent with Japan’s obligations under the relevant provisions
of the GATT 1994, and the Agreement on S ubsidies and Countervailing Measures ("SCM
Agreement"). As a result, Korea requested c onsultations with Japan regarding these measures
pursuant to Article 4 of the Understanding on Ru les and Procedures Governing the Settlement of
Disputes ("DSU"), Article 30 of the SCM Agre ement, and Article XXII of the GATT 1994.
Consultations were requested on 14 March 2006 concerning the c ountervailing measures of Japan.
The consultations were held with Japan in Geneva on 25 April 2006. These consultations failed to
resolve the dispute between the parties.

As a result of the failure to resolve the dis pute, Korea requests the establishment of a panel
pursuant to Article 6 of the DSU, Article XX III of the GATT 1994, and Article 30 of the SCM
Agreement regarding Japan’s countervailing measures against DRAMS from Korea. Korea requests
that the panel make findings that Japan has acted inconsistently with its obligations under Articles 1,
2, 10, 11, 12, 14, 15, 19, 21, 22 and 32 of the SCM Agreement, as well as Articles VI:3 and X:3 of the
GATT 1994. Specifically, Korea makes claims under the following:

1. Article 1.1 of the SCM Agreement because, inter alia, Japan failed to demonstrate the
existence of a financial contribution by Kor ea with respect to each distinct financial
transaction at issue in its anti-subsidy investigation.
2. Article 1.1 of the SCM Agreement because, inter alia, Japan failed to demonstrate that
every private financial institution involved in its subsidy investigation was under the
direction or entrustment of Korea.
3. Articles 1.1 and 14 of the SCM Agreement because, inter alia, Japan failed to demonstrate
that a benefit was conferred upon the responde nt Hynix Semiconductor, Inc., ("Hynix"),
given available market benchmarks and the circumstances of financial restructuring.
4. Articles 1.1 and 14 of the SCM Agreement because, inter alia , the analyses of the
"commercial rationality" of loans and other i nvestments in Hynix, and the other analyses
related to the determination of the financial contribution and benefit to Hynix, that were
undertaken by Japan are inconsistent with Japan’s obligations under the SCM Agreement.
5. Article 2 of the SCM Agreement because, inter alia, Japan did not properly establish that all
of the alleged subsidies were specific to Hynix on the basis of positive evidence.
6. Articles 1 and 2 of the SCM Agreement because, inter alia , Japan imposed an improper
burden of proof on Hynix and Korea; reached conclusions without adequate evidentiary
basis, and thereby failed to base its decisions on affirmative, objective, and verifiable
evidence.
7. Article 12 of the SCM Agreement because, inter alia, Japan improperly treated entities that
had no interest in the investigation as "int erested parties," improperly applied "facts
available" instead of considering the info rmation on the record, and improperly made
adverse inferences against the interests of Hy nix due to allegedly inadequate cooperation
by other interested parties or by other entities that were not under Hynix’s control and that
were not obligated to participate in the investigation.
8. Article 14 of the SCM Agreement because, inter alia, Japan utilized methods for calculating
the benefit to the alleged recipient of the a lleged financial contribu tions that were not
specified in Japan’s national legislation or implementing regulations and that were not
applied in a manner that was transparent and adequately explained.
9. Articles 14 and 19.4 of the SCM Agreement and Article VI:3 of the GATT 1994 because,
inter alia, Japan failed to properly measure the benefit in accordance with the principles of
the SCM Agreement, which resulted in countervailing duties levied in excess of the
amount allowed under the SCM Agreement and the GATT 1994.
10. Article 15 of the SCM Agreement because, inter alia , Japan improperly found material
injury caused by the allegedly subsidized imports without proper evidentiary or legal
foundations.
11. Article 15.5 and 19.1 of the SCM Agreement because, inter alia , Japan’s determination
failed to demonstrate that the allegedly subsid ized imports were, through the effect of the

alleged subsidies, causing injury within the meaning of the SCM Agreement.
12. Articles 10 and 32.1 of the SCM Agreement because, inter alia, the countervailing duties
imposed by Japan against DRAMS originating in Korea were not in accordance with the
relevant provisions of the SCM Agreement or the relevant provisions of GATT 1994.

13. Articles 10, 14, 19, and 21 of the SCM Agreement because, inter alia, Japan imposed and
maintained countervailing duties without determ ining whether a benefit continued to exist
following changes in the ownership of Hynix.
14. Articles 19 and 21 of the SCM Agreement because, inter alia, Japan improperly levied a
countervailing duty on imports when there was no longer a benefit from the alleged
subsidies, and the duty was not necessary to counteract subsidization.
15. Articles 10, 11, 12, 14, 15, 22, and 32.1 of the SCM Agreement and Articles VI:3 and X:3
of the GATT 1994 because Japan, inter alia, failed to conduct a thorough and complete
investigation, and failed to conduct its i nvestigation and make determinations in
accordance with fundamental substantive and procedural requirements.
The Government of Korea requests that the pane l be established with the standard terms of
reference set forth in Article 7 of the DSU.

The Government of Korea further requests that this request be placed on the agenda for the
special meeting of the Dispute Settlement Body on 30 May 2006.