JAPAN – COUNTERVAILING DUTIES ON DYNAMIC RANDOM ACCESS MEMORIES FROM KOREA
Document: Report of the Appellate Body
Date: 28 November 2007
Document codes: WT/DS336/AB/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 – COUNTERVAILING DUTIES ON
DYNAMIC RANDOM ACCESS MEMORIES FROM KOREA

AB-2007-3

Report of the Appellate Body

APPELLATE BODY

Japan, Appellant/Appellee
Korea, Other Appellant/Appellee

European Communities, Third Participant
United States, Third Participant

 AB-2007-3

 Present:

 Unterhalter, Presiding Member
 Ganesan, Member
 Sacerdoti, Member

I. Introduction
1. Japan and Korea each appeals certa in issues of law and legal interpretation developed in the
Panel Report, Japan – Countervailing Duty Investigation on Dynamic Random Access Memories from
Korea (the "Panel Report").
1 The Panel was established to consider a complaint by Korea concerning
the imposition of countervailing duties by Japan on imports of dynamic random access memories
("DRAMs") from Korea.
2. The countervailing duty investigation in this case was initiated by Japan on 4 August 2004, in
response to an application submitted by Elpida Memory, Inc. ("Elpida") and Micron Japan, Ltd.
("Micron"). The Korean company investigated wa s Hynix Semiconductor, Inc. ("Hynix"). Japan's
investigating authorities (the "JIA") sent ques tionnaires to a number of parties, including the
Government of Korea (the "GOK"), Hynix, and certain Korean financial institutions.
2 The period of
investigation for determining the existence of s ubsidies was 1 January to 31 December 2003, while
the period of investigation for determining injury was 1 April 2001 to 31 March 2004.
3. On 21 October 2005, the JIA informed the GOK a nd the parties involved in the proceeding of
the essential facts under consideration (the "Essen tial Facts"), pursuant to Article 12.8 of the
Agreement on Subsidies and Countervailing Measures (the " SCM Agreement "). In the Essential
Facts, the JIA found that certain debt-restructur ing programmes entered into by Hynix and its
creditors (the "Restructurings") in October 2001 and December 2002 were c ountervailable subsidies

1WT/DS336/R, 13 July 2007.
2Panel Report, para. 2.1.

and calculated a countervailing duty rate of 27. 2 per cent on imports of DRAMs from Korea,
manufactured by Hynix.
3
4. The JIA provided the GOK and the parties involve d in the proceedings with the opportunity
to submit comments and rebuttals on the Essentia l Facts. In the JIA's final determination
dated 20 January 2006 (the "Final Determination") 4, the JIA confirmed the findings set out in the
Essential Facts. Annexed to the Final Determ ination were these Essential Facts ("JIA's Final
Determination, Annex 1 (Essential Facts)") and the JIA's response to the comments and rebuttals that
had been submitted ("JIA's Final Determination, Annex 3 (Rebuttals and Surrebuttals)").5
5. Japan gave public notice of the Final Dete rmination and announced the imposition of
countervailing duties in Cabinet Order Relating to Countervailing Duty Levied on Dynamic Random
Access Memory, Etc., (Cabinet Order No. 13)6 and Announcement by the Ministry of Finance No. 35 7,
published in Issue No. 4264 and Special Issue No. 17 of the Official Gazette , respectively, both
dated 27 January 2006.
6. Before the Panel, Korea alleged that Japan had 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 under
Articles VI:3 and X:3 of the General Agreement on Tariffs and Trade 1994 (the "GATT 1994").8
7. On 7 May 2007, a confidential version of the Panel Report, containing business confidential
information ("BCI"), was issued to the parties to the dispute. The Panel Report, excluding the BCI,
was circulated to Members of the World Trade Organization (the "WTO") on 13 July 2007. The
Panel concluded that the JIA had im properly found government "entrustme nt or direction" of four of
Hynix's private creditors—Korea Exchange Bank (the "KEB"), Woori Bank, Chohung Bank, and
National Agriculture Cooperative Federation (the " NACF") (collectively, the "Four Creditors")—to
participate in the December 2002 Restructuring, contrary to Article 1.1(a)(1)(iv) of the SCM
Agreement.9 In addition, the Panel found that the JIA had improperly determined that the

4Final determination of the investigation, as provided for in paragraph 6 of Article 7 of the Customs
Tariff Law (Law No. 54 of 1910), with respect to DR AMs originating in the Republic of Korea (Notification
No. 352 of the Ministry of Finance dated 4 August 2004) (Exhibit JPN-1(b) submitted by Japan to the Panel).
5Panel Report, para. 2.3.
6Exhibit KOR-1 submitted by Korea to the Panel; Exhi bit JPN-7 submitted by Japan to the Panel. See
also Panel Report, para. 2.4.
7Exhibit KOR-2 submitted by Korea to the Panel; Exhi bit JPN-7 submitted by Japan to the Panel. See
also Panel Report, para. 2.4.
8Panel Report, para. 3.1.
9Ibid., paras. 7.254 and 8.2(a).

December 2002 Restructuring conferred a "benefit" on Hynix, contrary to Articles 1.1(b) and 14 of
the SCM Agreement.10 With respect to both the October 2001 and December 2002 Restructurings,
the Panel found that the JIA had improperly calcula ted the amount of benefit conferred on Hynix,
contrary to Articles 1.1(b) and 14 of the SCM Agreement.11 The Panel also found that the JIA had
used methods to calculate the amount of benefit that were not provided for in Japan's national
legislation or implementing re gulations, contrary to the chapeau of Article 14 of the SCM
Agreement.12 Finally, the Panel found that Japan had acted inconsistently with Article 19.4 of the
SCM Agreement by levying countervailing duties in 2006 to offset some of the subsidies provided by
the October 2001 Restructuring, even though the JI A had found that the relevant subsidies applied
only from 2001 to 2005.13
8. The Panel rejected Korea's claims that the JIA had 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 Agreement14, and that the JIA had improperly found that
the October 2001 Restructuring conferred a "benefit" on Hynix, contrary to Articles 1.1(b) and 14 of
the SCM Agreement .15 In addition, the Panel disagreed with Korea that the JIA had improperly
treated Hynix's creditors as "interested parties", and improperly applied "facts available" and made
adverse inferences, contrary to Articles 12.7 and 12.9 of the SCM Agreement .16 The Panel also
rejected Korea's claim that the JIA had acted in consistently with Article 1.1(a)(1)(i) of the SCM
Agreement by improperly finding that the October 2001 and December 2002 Restructurings involved
"direct transfer[s] of funds". 17 Finally, the Panel rejected Korea's claim that the JIA had failed to
demonstrate that the subsidized imports were, "through the effects of subsidies", causing injury,
contrary to Articles 15.5 and 19.1 of the SCM Agreement.18

10Panel Report, paras. 7.282 and 8.2(b).
11Ibid., paras. 7.316 and 8.2(c).
12Ibid., paras. 7.334 and 8.2(d).
13Ibid., paras. 7.361 and 8.2(e).
14Ibid., paras. 7.252 and 8.1(a).
15Ibid., paras. 7.298 and 8.1(b).
16Ibid., paras. 7.398 and 8.1(c).
17Ibid., paras. 7.446 and 8.1(d). The Panel also dismissed Korea's claims that the JIA had failed to
properly determine the specificity of the October 2001 and December 2002 Restructurings, contrary to Article 2
of the SCM Agreement , and that the JIA had failed to determine whether a benefit had continued to exist
following changes in the ownership of Hynix, contrary to Articles 10, 14, 19, and 21 of the SCM Agreement.
(Ibid., para. 8.1(e) and 8.1(f)) However, these findings of the Panel are not subjects of this appeal.
18See ibid., paras. 7.425 and 8.1(g).

9. In the light of its findings, the Panel reco mmended that Japan bring its measure into
conformity with its obligations under the SCM Agreement.
19
10. The Panel declined to rule on certain additio nal claims made by Korea under Articles 1, 2,
19.4, and 32.1 of the SCM Agreement and Article VI:3 of the GATT 1994.20 The Panel also declined
a request by Korea, under Article 19.1 of the DSU, that the Panel suggest that the countervailing
duties imposed by Japan on imports of DRAMs from Hynix be immediately rescinded, and that any
countervailing duties collected by Japan on such im ports be refunded. Th e Panel held that the
modalities of implementation of its recommendation are, in the first place, for Japan to determine.21
11. On 30 August 2007, Japan notified the Dispute Settlement Body (the "DSB"), pursuant to
paragraph 4 of Article 16 of the Understanding on Rules and Procedures Governing the Settlement of
Disputes (the "DSU"), of its intention to appeal certa in issues of law covered in the Panel Report and
certain legal interpretation developed by the Panel and filed a Notice of Appeal 22 pursuant to
Rule 20 of the Working Procedures for Appellate Review (the " Working Procedures ").23
On 10 September 2007, Japan filed an appellant's submission. On 11 September 2007, Korea notified
the DSB, pursuant to paragraph 4 of Article 16 of the DSU, of its intention to appeal certain issues of
law covered in the Panel Report a nd certain legal interpretation deve loped by the Panel and filed a
Notice of Other Appeal24 pursuant to Rule 23(1) of the Working Procedures. On 14 September 2007,
Korea filed an other appellant's submission. 25 On 24 September 2007, Korea and Japan each filed an
appellee's submission. 26 On the same day, the European Communities and the United States each
filed a third participant's submission.27
12. By letter dated 12 September 2007, Japan request ed authorization from the Appellate Body
Division hearing the appeal to correct certain "cleri cal errors" in its appellant 's submission, pursuant
to Rule 18(5) of the Working Procedures . On 14 September 2007, the Division invited all
participants and third participants to comment on Ja pan's request. None of th e participants or third

19Panel Report, para. 8.6.
20Ibid., para. 8.3. Although Korea made certain arguments under Article 22 of the SCM Agreement
and Article X:3 of the GATT 1994, the Panel did not make any findings in respect of these provisions.
21Ibid., paras. 8.7 and 8.8.
22WT/DS336/8 (attached as Annex I to this Report).
23WT/AB/WP/5, 4 January 2005.
24WT/DS336/9 (attached as Annex II to this Report).
25Pursuant to Rule 23(3) of the Working Procedures.
26Pursuant to Rules 22 and 23(4) of the Working Procedures.
27Pursuant to Rule 24(1) of the Working Procedures.

participants objected to Japan's request. On 18 September 2007, the Division authorized Japan to
correct the "clerical errors" in its appellant's submission.
13. The oral hearing in this appeal was held on 11 October 2007. The participants and third
participants presented oral arguments and respond ed to questions posed by the Members of the
Appellate Body Division hearing the appeal.
II. Arguments of the Participants and the Third Participants
A. Claims of Error by Japan – Appellant
1. The JIA's Determination of Entrustment or Direction with respect to the
December 2002 Restructuring
14. Japan argues that the Panel committed several errors in its review of the JIA's finding that the
GOK "entrusted or directed" the Four Creditors to participate in the December 2002 Restructuring. In
particular, Japan submits that the Panel acted inc onsistently with Article 11 of the DSU by limiting
the scope of its analysis to only a restructuri ng plan prepared by Deutsche Bank that was made
available to Hynix's creditors at the time they undertook the December 2002 Restructuring (the
"Deutsche Bank Report")28 and by considering that the Deutsche Bank Report played "a central role"
in the JIA's determination of "entrustment or direction".29 In so doing, the Panel disregarded the fact
that the JIA's determination was based on the tota lity of the evidence on r ecord, including various
other pieces of circumstantial evidence and intermed iate findings made by the JIA based on that
evidence. According to Japan, the JIA's assessmen t of the Deutsche Bank Report constituted "only a
part of the JIA's intermediate findings of commercia l reasonableness, which in turn was only a part of
the overall entrustment or direction determination." 30 Japan argues that other intermediate findings
relied upon by the JIA and allegedly accepted by th e Panel include the JIA's findings that the
GOK: (i) had an intent to save Hynix from financia l collapse; (ii) had prev iously provided subsidies
to Hynix through various subsidy programmes, includi ng the October 2001 Restructuring; (iii) had
the ability to influence the Four Creditors through, inter alia, its shareholding power; and (iv) was
directly involved in the December 2002 Restructuring. 31 In Japan's view, the Panel's failure to
consider these other pieces of evidence and findings by the JIA is inconsistent with the standard of
review articulated by the Appellate Body in US – Countervailing Duty Investigation on DRAMS . In
particular, Japan argues that, "if ... an inves tigating authority relies on individual pieces of

28Exhibit KOR-20 submitted by Korea to the Panel. See also Panel Report, paras. 7.158 and 7.159.
30Ibid., para. 45.
31Ibid.

circumstantial evidence viewed together as support for a finding of entrustment or direction, a panel ...
normally should consider that evidence in its tota lity ... in order to assess its probative value with
respect to the investigating authority's determination."
32 Japan further asserts that the Panel's
approach would make it impossible for an investiga ting authority to rely on the totality of evidence,
because "a flaw in its assessment of one of many pieces of evidence would necessarily invalidate the
entire determination."
33
15. In addition, Japan contends that the Panel erred in its examination of certain findings made by
the JIA regarding the Deutsche Bank Report. In pa rticular, the Panel failed to properly analyze a
number of press reports relied upon by the JIA as evidence "to impugn the commercial reliability of
the Deutsche Bank Report."
34 Instead, the Panel "required that an individual piece of evidence, in and
of itself, establish the JIA's intermediate factua l finding of the intervention by the GOK in the
preparation of the Deutsche Bank Report."35 Japan asserts that a part of the context relied upon by the
JIA "consisted of the countervailing duty investig ations that both the European [Communities] and
the United States had commenced at the time."36 For Japan, the Panel's failure to consider this context
is another example of how "the Panel did not review the JIA's determination, but rather made its own
de novo determination of how strong it considered an item of evidence in isolation."37
16. Japan also argues that the Panel reviewed each of the nine press reports relied upon by the JIA
in isolation, and examined whether each report ta ken alone "could establish the GOK's intervention in
the Deutsche Bank Report". 38 Specifically, Japan submits that the fourth and fifth press reports
indicated that "the GOK was pushing creditors to sell Hynix despite a lack of viable buyers and
resistance from the creditors." 39 For Japan, when read together with the preceding reports, as well as
with the eighth and ninth repor ts, these reports demonstrate that the GOK initiated discussions with
Hynix's creditors, "then ventured on to push cred itors into selling Hynix, then, when it became
apparent that such a sale was unlikely, the GOK pushed to keep Hynix as a going-concern." 40 Japan
argues that, in the light of the GOK's "aggressive ma nner in intervening in determining the process of

32Japan's appellant's submission, para. 67 (quoting Appellate Body Report, US — Countervailing Duty
Investigation on DRAMS, para. 150, and referring to paras. 152 and 154).
33Ibid., para. 70.
35Ibid., para. 80.
36Ibid., para. 86.
37Ibid., para. 88. (emphasis omitted)
38Ibid., para. 91.
39Ibid., para. 102.
40Ibid.

restructuring Hynix, it is apparent that the GOK's interventions were linked to the content of [the]
Deutsche Bank Report."41
17. Disagreeing with the Panel's piecemeal approach , Japan asserts that "the question the Panel
had to answer was not whether the individual pieces of evidence directly supported a finding of
government intervention into the Deutsche Bank Report."
42 Rather, "the Panel's task was to consider
whether the JIA came to a reasonable and objectiv e conclusion ... based on all pieces of evidence in
their totality, which was the method by wh ich the JIA consider ed such evidence." 43 In Japan's view,
"[e]ven where a panel reviews individual pieces of evidence it must do so in its capacity as the
reviewer of the investigating authority's determination, not as the initial trier of fact[s]."44
18. Moreover, according to Japan, the Panel failed to make an objective assessment of the JIA's
findings in respect of the substance of the Deutsche Bank Report. Japan argues that the JIA did not
seek to draw an intermediate finding that any one of the discrepancies it had identified in the Deutsche
Bank Report "impugned the commerciality" of that Re port. Nor "did the JIA deny the commercial
nature of the Deutsche Bank Report, as suggested by the Panel." 45 Instead, the JIA found that each of
the Four Creditors should have undertaken a "close examination" of the grounds for Deutsche Bank's
recommendations because the Deutsche Bank Report was not "objective material" and did not
constitute "a sufficient basis for the commercial financing judgment of experienced financial
institutions" when viewed in the light of other evidence on record.
46
19. Japan also faults the Panel for allegedly ex amining the issue of whether the Deutsche Bank
Report favoured Hynix over its creditors. According to Japan, this was not a conclusion that the JIA
sought to draw. In Japan's view, by misstating th e JIA's conclusions, the Panel failed to make an
objective review, in accordance with Article 11 of the DSU.47
20. In addition, Japan claims that the Panel acted inconsistently with Article 11 of the DSU by
making a finding regarding a contract involving Deutsche Bank although Korea did not submit
sufficient "evidence and argument to establish a prima facie case based on" that issue. 48 According

42Ibid., para. 117.
43Ibid.
44Ibid.
45Ibid., para. 150.
46Ibid. (referring to JIA's Final Determination, Annex 1 (Essential Facts), para. 350 (with respect to
KEB); and paras. 355, 358, and 363 (with respect to Woori Bank, Chohung Bank, and NACF)).
47Ibid., para. 124.
48Ibid., para. 138.

to Japan, the Panel collected the ev idence of the relevant "contract ex officio in March 2007 well after
both Panel sessions and the submission of all arguments by the parties"
49 and failed to provide Japan
with any meaningful opportunity to present its vi ews regarding the contract, thereby disregarding
Japan's due process rights. Japan further asserts that the Panel also "disregard[ed] Japan's due process
rights in making a finding on [this] issue".50
21. Moreover, Japan claims that the Panel erre d in treating certain of Japan's arguments—
specifically, arguments relating to the way the Deut sche Bank Report analyzed the rate of return to
Hynix's creditors under a liquidation scenario—as ex post rationalizations. In support of its
contention, Japan points to various passages in the JIA's determination, arguing that, contrary to what
the Panel found, the JIA did in fact make the rele vant findings in its determination. According to
Japan, the Panel failed to make an objective assessment of the matt er before it, as required under
Article 11 of the DSU, by refusing to consider these findings by the JIA.51
22. Finally, Japan argues that the Panel erred in finding that an error in the Deutsche Bank
Report, said to have been admitted by Hynix, did not require correction. 52 Japan claims that
"[n]owhere in its Report did the Panel consider [t he] effect of the correction of the error or the
meaning thereof in accordance w ith what the JIA analyzed." 53 Japan asserts that the Panel failed to
understand the JIA's assessment of the evidence and th e conclusions drawn by the JIA based on that
evidence and, instead, made a de novo review of the evidence to reach its own findings.
23. For all these reasons, Japan submits that the Pane l failed to apply a proper standard of review
and thereby exceeded the bounds of its discretion under Article 11 of the DSU. Japan, therefore,
requests the Appellate Body to reverse the Panel's finding that the JIA "did not have a proper basis for
finding that the Four Creditors were entrusted or directed by the [GOK] to participate in the
December 2002 [R]estructuring", contrary to Article 1.1(a)(1)(iv) of the SCM Agreement.54

50Ibid., para. 139.
51Ibid., paras. 154-158 (referring to JIA's Final Determination, Annex 3 (Rebuttals and Surrebuttals),
53Ibid., para. 162.
54Ibid., para. 32 (referring to Panel Report, paras. 7.252-7.254, and 8.2(a)).

2. The JIA's Determination of Benefi t with respect to the December 2002
Restructuring
24. Japan requests the Appellate Body to reverse the Panel's finding that the JIA improperly
determined the existence of "benefit" with respect to the December 2002 Restructuring. According to
Japan, the Panel conducted no substantive analysis of the JIA's determination of benefit regarding the
December 2002 Restructuring and based its finding on th is issue solely on its finding with respect to
"entrustment or direction". As this finding of th e Panel was erroneous, its finding on the existence of
benefit should also be rejected.55
3. Calculation of the Amount of Benefit
25. Japan requests the Appellate Body to reve rse the Panel's finding that Japan acted
inconsistently with Articles 1.1(b) and 14 of the SCM Agreement by improperly calculating the
amount of benefit conferred on Hynix through the October 2001 and December 2002 Restructurings.
(a) Calculation of the Amount of Bene fit by Reference to an Outside
Investor Standard
26. Japan challenges the Panel's finding that the JIA calculated the benefit of equity infusions and
loans on the basis of an exclusively outside inv estor benchmark. In Japan's view, the Panel
erroneously understood that the i nvestment perspectives of inside investors were fundamentally
different from those of outside investors. Japan al so disagrees with the Panel's finding that there was
no dispute between the parties that the investment perspectives of inside and outside investors differ.56
Instead, Japan submits that the "basic standard" th at the JIA applied to both inside and outside
investors, with respect to both the October 2001 and December 2002 Restructurings, was the same, in
that "they both seek to maximize profits or minimize losses."57 Japan submits that, by overlooking the
fact that the JIA calculated the amount of benef it based on this consideration, the Panel made a
de novo review to reach its own finding that the JI A's methodology was based exclusively on the
outside investor benchmark.58
27. In support of its contention, Japan refers to the Panel's understanding of the term "normal
commercial perspective" as used by the JIA in its determination. 59 Although Japan does not dispute
that this term may refer to the outside creditors' pe rspective in certain contexts, Japan argues that it

58Ibid., para. 188.

had also provided a "fuller explanation" that the Panel disregarded—namely, that the JIA used the
term to refer also to the inside investor's perspective.
60
28. Japan further alleges that the Panel erred in finding that "appraisals by credit rating companies
are an 'exclusive' reference" to outside investors. 61 According to Japan, the input from credit rating
agencies does not determine the creditworthiness of a company for only new, outside investors.
Moreover, the JIA's determination acknowledged that existing creditors also use ratings provided by
credit rating agencies to determine the question of additional financing to existing borrowers.
29. Japan also argues that Article 14 of the SCM Agreement, which contains guidelines for the
calculation of the amount of benefit, does not disti nguish between outside and inside investors, nor
does it set forth a specific methodology for dealing with companies in a specific financial situation.
Japan asserts that the Panel overlooked the "consi derable leeway" accorded to WTO Members to
adopt a reasonable methodology to calculate th e amount of benefit conferred by a subsidy. 62 F o r
Japan, in doing so, the Panel erroneous ly interpreted Article 14 of the SCM Agreement "as imposing
an obligation to adopt a [particular] methodology based on a so-called inside investor standard." 63
Japan further asserts that the JIA adopted its me thodology considering the record evidence that was
available to it through the investigation process, as required by Article 12.2 of the SCM Agreement,
and that, by "finding that the JIA should have cal culated the amount of benefit based on an inside
investor benchmark, the Panel implicitly required th e JIA to have based its Final Determination on
something other than evidence on the record."64
(b) Calculation of the Amount of Bene fit from the Perspective of the
Recipient
30. Japan challenges the Panel's finding that "the JIA should not have treated the value of the
equity that Hynix gave in return for the financi ng as zero, as Hynix had to dilute the ownership of
existing shareholders in return."65 Japan disagrees with the Panel for various reasons.

60Japan appellant's submission, para. 191 (referring to Japan's response to Question 31 posed by the
Panel, paras. 125-131).
62Ibid., para. 205 (referring to Panel Report, EC – Countervailing Measures on DRAM Chips ,
para. 7.213).
63Ibid.
64Ibid., para. 208.

31. Japan submits first that Korea did not asser t that dilution had occurred in this case. 66
Secondly, even if it had occurred, this would have taken place at the level of shareholders, and not at
the level of Hynix.67 Thirdly, no provision in Article 14 of the SCM Agreement sets forth "any rigid
rules that purport to contemplate every conceivable factual circumstance" 68, nor is there a rule that
investigating authorities must cons ider the dilution of ownership in the case of equity infusions.
Japan further argues that, as the JIA has established that Hynix would not be able to provide any value
to the creditors in the debt-to-equity swap, it was c onsistent with Article 1.1( b) and Article 14 of the
SCM Agreement for the investigating authority to have concluded that the value of the shares
provided in return for the financing received is zero in this case. Japan also argues that the JIA did
not disregard "'the value of the equity provided in return' nor did it only look at the amount of credits
exchanged with the equity." 69 Rather, the JIA examined these i ssues and, on the basis of record
evidence, determined that the value of such equity was zero.70
(c) Other Arguments
(i) Whether Korea Made a Prima Facie Case
32. Japan argues that the Panel "had no basis to c onsider" whether the JIA calculated the amount
of benefit from the perspective of outside invest ors, because Korea did not make such an argument. 71
As a result, the Panel should not have made the findi ng that the JIA used an outside investor standard
to reach its conclusion that "the JIA improperly calculated the amount of benefit conferred by the
October 2001 and December 2002 [R]estructurings." 72 Japan suggests that the Panel acted
inconsistently with Article 11 of the DSU by cons idering a claim for which Korea did not establish a
 prima facie case.
(ii) Calculation of the Amount of Benefit on the Basis of "Facts
Available"
33. Japan submits that the Panel erred in finding th at the JIA calculated the amount of benefit
using "facts available". 73 Instead, Japan asserts, the JIA "used information on the record, which was
obtained from independent first- hand sources, such as the Bank of Korea, British Bankers'

67Ibid.
69Ibid., para. 227.
70Ibid.
71Ibid., para. 234.
72Ibid. (quoting Panel Report, para. 7.315).
73Ibid., para. 243.

Association, Standard & Poor[']s, and the Korean National Tax Service."
74 According to Japan, the
JIA was not required to use the information on other debt restructurings in Korea—information which
was not provided to the JIA—because no parties had suggested that such information should be used
to establish the benchmark for the Restructurings. 75 Japan asserts that the Panel acted inconsistently
with Article 11 of the DSU by failing to consider these arguments presented by Japan. In Japan's
view, the Panel's approach amounts to a "denial of Japan's due process right of defense", because it
prevented Japan from responding to an argument that was made by Korea for the first time during the
course of the Panel proceedings.76
4. Benefit Calculation Methods
34. Japan challenges the Panel's findings regarding the benefit calculation methods used by the
JIA, pursuant to Article 14 of the SCM Agreement, on two grounds. First, Japan claims that the Panel
erroneously interpreted the provisions of the chapeau of Article 14 of the SCM Agreement. Secondly,
Japan claims that the Panel failed to examine, in a manner consistent with Article 11 of the DSU,
whether the "method[s] used" by the JIA were properly "provided for" 77 in Japan's Guidelines for
Procedures Relating to Countervailing and Anti-Dumping Duties (the "Guidelines").
35. Japan argues that, although the Panel adopted a broad meaning of "method" to mean "a mode
of procedure; a (defined or systematic) way of doing a thing" 78, the Panel incorrectly applied this
meaning. Japan contends, for instance, that the Panel implied that the chapeau "requires" these
"methods" to be "reduced" to a particular level of detail in a Member's national legislation or
implementing regulations 79, in this case, to the specific mathem atical formulae used by the JIA to
calculate the benefit (that is, Formula 1 and Formul a 2). For Japan, the Panel's interpretation suggests
that detailed aspects of potential applications of the methods must be spelled out in a way that would
leave no room for an investigating authority to adapt "methods" to the particular facts of an
investigation, thereby rendering Article 14 "meaningless".80 In support of its view, Japan refers to the
Panel Report in EC – Countervailing Measures on DRAM Chips and the Appellate Body Report in

74Japan's appellant's submission, para. 243 (referring to JIA's Final Determination, Annex 1 (Essential
Facts), paras. 92 and 99).
75Ibid., paras. 243 and 244.
76Ibid., para. 237.
77Ibid., para. 255.
78Ibid., para. 257 (referring to Panel Report, para. 7.328; and quoting The New Shorter Oxford English
Dictionary, L. Brown (ed.) (Clarendon Press, 1993) Vol. 1, p. 1759).
80Ibid., para. 259.

US – Softwood Lumber IV, which, Japan argues, both recognized th at paragraphs (a)-(d) of Article 14
contain fairly general approaches to the calculation of benefit, and therefore illustrate the inherent
flexibility in the chapeau of Article 14 to adapt to different factual situations of particular
investigations.81
36. Japan argues further that the term "provided for" in the chapeau of Article 14 indicates a fairly
general obligation for Members under th at provision. The dictionary definition of the term "provided
for" includes a reference to "enable or allow (somet hing to be done)", which, in Japan's view, allows
greater latitude than the term "set forth". 82 For Japan, this means that a Member's legislation or
implementing regulations should be considered consistent with the chapeau of Article 14 if they
"enable" or "allow" the investigating authority to adopt a formula as a means of applying the method
to calculate benefit in a specific case.
37. In support of its position, Japan points to th e broadly defined calculation methods—that is,
the "gamma" and "same person" methods—that were at issue in US – Countervailing Measures on
Certain EC Products .83 Japan notes that these "methods" were only "general statements of an
approach", and were not expressed as mathematical or algebraic formulae. 84 Japan further contends
that the Panel's interpretation of "methods" would render the right of Members to impose
countervailing duties inutile, because it would require that Members foresee "each and every possible
form" of financial contributi ons to determine and specify calculation methods in advance. 85 I n
addition, Japan argues that the Panel erroneously attached the transparency obligation in the second
sentence of the chapeau of Article 14 (that is, the requirement that the application of the method be
"transparent" and "adequately explained") to the ob ligation to "provide for" "methods", instead of
linking the transparency obligation to the application of the benefit calculation methodology used in
specific determinations.86 For Japan, the distinction made in the chapeau between the "method" and
its "application" confirms that the method itself need not be spelled out precisely.87

81Japan's appellant's submission, paras. 260-263 (referring to Panel Report, EC – Countervailing
Measures on DRAM Chips, para. 7.213; and Appellate Body Report US – Softwood Lumber IV, para. 92).
82Ibid., para. 265 (quoting Concise Oxford English Dictionary, 10th ed., (Oxford, 2002), p. 1151).
83Ibid., para. 266 (referring to, inter alia, Appellate Body Report, US – Countervailing Measures on
Certain EC Products, para. 129).
84Ibid.
85Ibid., para. 267.
86Ibid., paras. 270 and 271 (referring to Panel Report, para. 7.327).
87Ibid., para. 272.

38. In addition, Japan contends that, even under the Panel's interpretation of the chapeau, the
Panel failed to properly review whether the "method[s] used" were "provided for" in Japan's
Guidelines. Specifically, Japan argues that its Guidelines did "provide for" the "method[s] used" by
the JIA to calculate the benefit conferred by the loan s, equity infusions, and debt forgiveness, in this
case.
88 According to Japan, the Panel reviewed only a part of the relevant provisions of the
Guidelines, and then confused how the Guidelines "provided for" the methods to be used with the
application of those methods. Although Japan's Guidelines may not directly refer to the integers or
variables used in Formula 1 and Formula 2, the Panel overlooked how the Guidelines in fact "provide
for" the methods, in at least "broad terms", in the elements corresponding to these integers. 89
According to Japan, the Panel's review of the mathematical formulae used by the JIA and its disregard
of the JIA's explanation therein, amounts to a de novo review of the evidence, contrary to Article 11
of the DSU.90
5. Allocation of Benefit
39. Japan appeals the Panel's finding that Japan "levied countervailing duties 'in excess of the
amount of the subsidy found to exist', contrary to Article 19.4 of the SCM Agreement ".91 Japan
disagrees with the Panel that "the JIA's decision to allocate the benefit conferred by certain of the non-
recurring subsidies resulting from the October 2001 [R]estructuring" to the years 2001 to 2005 meant
that "Japan imposed countervailing duties in 2006 on imports which the JIA itself had found were not
subsidized at the time of imposition."92
40. Japan submits that "'the amount of the subsidy found to exist' [under Article 19.4] is the
amount found in the final determination." 93 Japan maintains that "Article 19.1 does not require a
prospective analysis [of] the situation after the time of the investigation." 94 Japan disagrees with the
Panel that the use of the present tense in Article 19.1 of the SCM Agreement suggests that
"countervailing duties may be imposed if subsidized imports, i.e., imports that are presently
subsidized, are presently causing injury." For Japan , "[t]he use of the present tense in Article 19.1

88Japan's appellant's submission, paras. 278-280 (ref erring to Article 13(1)(iv), Article 13(1)(iii), and
Article 13(1)(ii) of the Guidelines).
89Ibid., para. 282. Japan further explains how this is the case with respect to the integers used in
Formula 2 (for "the amount of the subsidy") with respect to debt forgiveness and equity infusions ( ibid.,
para. 286) and in Formula 1 (for "calculating benefit") with respect to loan and loan maturity extensions. ( Ibid.,
para. 289).
90Ibid., para. 290.
92Panel Report, para. 7.360.
94Ibid., para. 313.

refers to the concurrent existence of subsidization, injury and the causal link, not to the fact that such
events are presently occurring at the time of imposition." 95 Japan finds support for its position in the
Appellate Body Report in Mexico – Anti-Dumping Measures on Rice , where the Appellate Body
found that, "[i]n order to determine whether injury caused by dumping exists when the investigation
takes place, 'historical data' may be used."96
41. Japan finds further support for its position in "t he lack of explicit language of a prospective
determination [in Article 19.1]". 97 Japan contrasts this with the words "foreseen and imminent" in
Article 15.7 and "likely to lead to continuation or recurrence of subsidization or injury" in
Article 21.3. Japan asserts that the lack of such prospective language in Article 19.1 demonstrates
that no prospective analysis of the situation af ter the time of the investigation is required. 98
Furthermore, Japan submits that the Panel did not explain why "only the amount of non-recurring
subsidies has to be updated while findings of other elements for the imposition of the duty, such as the
amount of recurring subsidies, the amount of produc ts covered by these subsidies, injury, and causal
relationship, may remain as of the period of investigation."99
42. In addition, Japan claims that the Panel failed to make an objective assessment of the matter
as required by Article 11 of the DSU, when it found that the use of a five-year allocation period by the
JIA "is a finding (even if only implicit) that the benefit will expire after a period of five years." 100
Japan explains that "the purpose of the JIA's cal culation was merely to determine the amount of the
subsidies conferred in 2003, the peri od of investigation in this case." 101 According to Japan, "the
Panel erred in equating a division by five of the total amount of the non-recurring subsidies to a
determination that the subsidy woul d cease to exist after five years." 102 Japan maintains that "the JIA
did not make any finding that the subsidy would expire in 2005 or any finding of the amount of
subsidy that Hynix would receive in 2006."
103

95Japan's appellant's submission, para. 322. (original emphasis)
96Ibid., paras. 324 and 325 (quoting Appellate Body Report, Mexico – Anti-Dumping Measures on
Rice, para. 166 (footnotes omitted)).
97Ibid., para. 313.
98Ibid.
99Ibid., para. 327.
101Ibid.
102Ibid., para. 335.
103Ibid., para. 333.

B. Arguments of Korea – Appellee
1. The JIA's Determination of Entrustment or Direction with respect to the
December 2002 Restructuring
43. Korea rejects Japan's allegation that the Panel act ed inconsistently with Article 11 of the DSU
in its review of the JIA's determination of "entrust ment or direction" of the Four Creditors by the
GOK with respect to the December 2002 Restructuring. In Kore a's view, the standard of review
applied by the Panel was entirely consistent with the standard identified by the Appellate Body in
US – Countervailing Duty Investigation on DRAMS and in subsequent cases.104
44. Korea submits that a review of the Panel's d ecision confirms that the Panel "refused to
substitute its judgment for that of the JIA, as long as it found that the JIA's interpretation of the
evidence was reasonable and, as a result, an investig ating authority 'could prope rly' have reached the
conclusion the JIA reached."
105 In addition, the Panel recognized that the JIA had based its finding of
entrustment or direction on a consideration of "the totality of numerous items of evidence
obtained"106, and did not purport to re-weigh the evidence. Nor, in Korea's view, did the Panel require
the JIA to demonstrate that each item of evidence would, when considered individually, support a
finding of entrustment or direction. Rather, the Panel rightly "undertook only to analyze whether the
JIA's factual findings were consistent with the underlying evidence."107
45. Korea argues that, when an investigating author ity "claims that its decision is supported by
the interplay of various enumerated items of eviden ce considered in their 'totality,' then its decision
can only be upheld if its findings concerning all of the enumerated items are found to be sound."108 If,
"instead, the investigating authority's finding on an y single item is shown to be erroneous, then the
investigating authority must be required to rec onsider whether the remaining items, without the
discredited item, would be sufficient to support the original conclusion."109
46. Korea observes that the Panel, in this case, "f ound significant errors in the JIA's evaluation of
certain critical items of evidence." 110 In fact, the "[e]vidence that the JIA specifically identified as

104Korea's appellee's submission, paras. 53-55 (referring to Appellate Body Report, US –
Countervailing Duty Investigation on DRAMS , paras. 186-188; and Appellate Body Report, US – Softwood
Lumber VI (Article 21.5 – Canada), paras. 93 and 99).
105Ibid., para. 56.
106Ibid., para. 78 (referring to Panel Report, paras. 7.51, 7.73, 7.96, 7.102, 7.172, 7.182, and 7.253).
107Ibid., para. 78.
108Ibid., para. 60.
109Ibid.
110Ibid., para. 63.

supporting its conclusions actually did not support its conclusions at all." 111 In such circumstances,
the Panel rightly concluded that the JIA's determinat ion of entrustment or direction was not consistent
with the evidence or with Japan's obligations under the SCM Agreement . Korea adds that, "[f]or
present purposes, the critical point is that the JIA determination that was before the Panel did not
provide a correct analysis that justified the JIA's ultimate conclusions." 112 As a result, "the Panel had
no choice but to rule that the JIA's findings were inconsistent with Japan's obligations under the
relevant agreements." 113 In Korea's view, it would have been improper "for the Panel to try to
construct a correct analysis for the JIA that would justify the imposition of countervailing duties."114
47. Korea also disagrees with Japan's assertion that the Panel committed errors in its review of the
JIA's findings with respect to the Deutsche Bank Report. In Korea's view, the Panel's findings
concerning the reliability of the Deutsche Bank Repor t, the importance of that Report to the JIA's
finding relating to commercial reasonableness, and th e importance of that finding to the JIA's overall
finding of entrustment or direction are all factual findings that are not subject to appellate review
under Article 17.6 of the DSU because "a panel's fi nding concerning the meaning of an investigating
authority's determination is a factual issue."
115
48. In any event, Korea rejects Japan's contention that the Panel failed to properly examine the
nine press reports indicating that the GOK had inte rvened in the preparation of the Deutsche Bank
Report. As Korea sees it, the Panel considered the press reports both individually and collectively and
found that a reasonable and impartial investigating authority could not have reached the conclusion
drawn by the JIA based on that evidence.116
49. In addition, Korea submits that the Panel did not err in considering the relevance of certain
evidence that Japan itself had submitted in support of its initial arguments to the Panel. In Korea's
view, the Panel's consideration of such evidence di d not constitute a denial of Japan's due process
rights.
50. Korea also contests Japan's assertion that the Panel erred by rejecting as ex post
rationalizations certain arguments made by Jap an relating to the way the Deutsche Bank Report
analyzed the rate of return to Hynix's creditors under a scenario of liquidation. Korea observes that

112Ibid., para. 65.
113Ibid.
114Ibid.
115Ibid., para. 77.
116Ibid., paras. 87-92.

the JIA did not address those issues in its determina tion of entrustment or direction. Under such
circumstances, the Panel was correct in rejecting Japan's arguments as ex post rationalizations.
2. The JIA's Determination of Benefi t with respect to the December 2002
Restructuring
51. Korea submits that Japan's challenge of the Panel's finding regarding the JIA's
December 2002 benefit determination is based on a mischaracterization of the Panel's approach. First,
Korea argues that, although Japan states that the Pa nel's findings concerning the existence of benefit
"were wholly dependent on its finding on subsidization"117, what Japan meant was that the Panel's
decision was wholly dependent on its finding that there was no "entrustment or direction", and hence
no "financial contribution". Korea asserts that the premise of Japan's argument is incorrect, because
the Panel actually held that the JIA's finding th at Hynix's creditors had failed to undertake a
"commercially reasonable" analysis was not supporte d by the evidence. In Korea's view, Japan is
hoping that the Appellate Body will apply its argume nts relating to entrustment or direction to the
benefit issue. Korea contends, however, that such an approach is not consistent with the Appellate
Body's Working Procedures , or with the principle of due process. 118 In these circumstances, the
Appellate Body should dismiss Japan's arguments relating to the Panel's finding on benefit for the
December 2002 Restructuring. Assuming that th e Appellate Body were to consider Japan's
arguments, Korea requests the Appellate Body to find that the Panel was correct in concluding that the
JIA did not have a proper basis for rejecting the De utsche Bank Report, and that the Panel was correct
in making the consequential finding on benefit.
3. Calculation of the Amount of Benefit
52. As a general matter, Korea argues that Japan is challenging a number of factual findings of
the Panel relating to the calculation of the amount of benefit that are not subject to appellate review
under Article 17.6 of the DSU. Despite its objec tions to the nature of Japan's claims, Korea
nonetheless addresses Japan's arguments "for the sake of completeness".119
(a) Calculation of the Amount of Bene fit by Reference to an Outside
Investor Standard
53. Korea does not dispute that rational investors seek to maximize profits or minimize losses.
Korea emphasizes, however, that this does not mean that the same result is reached when an

117Korea's appellee's submission, para. 125 (referring to Japan's appellant's submission, paras. 167
and 168). (original emphasis)
118Ibid., paras. 128 and 129.
119Ibid., para. 138.

investment decision is taken from an insider and outsider perspective, or that all investors will analyze
the same investment in the same manner. 120 Korea argues that investors' returns differ depending on
their pre-existing investments, which may give ri se to claims on the insolvent company's future
income so that an investment that would be rejected by an outsider may be accepted by an insider.121
54. Korea contends that the Panel rightly found that the JIA's actual calculation of the amount of
benefit was based solely on the determination that no outside investor would have provided new loans
to, or invested in, Hynix, and that the JIA di d not properly establish the market benchmark for
measuring benefit. For Korea, the Panel's findings that the terms "commercial market" and "normal
commercial perspective" refer to the perspective of an outside investor 122 are factual and beyond the
scope of appellate review. 123 Further, Korea submits that Japan's argument seems to be based on a
"shifting definition of the investor's 'perspective'". 124 Although Japan acknowledged before the Panel
that this reference was intended to refer solely to an outside perspec tive, it now claims on appeal that
the Panel failed to recognize that the JIA used the terms in some c ontexts to refer to an inside
perspective, and that the term "perspective" refers to a principle of profit maximization. 125 In any
event, Korea submits that there is no evidence th at the JIA actually considered whether a rational
creditor would have engaged in restructuring Hynix in the absence of alleged government
interference.126
55. Korea argues that Japan's claims under Article 14 in respect of equity infusions and loans are
fundamentally flawed for two reasons: first, the r estructuring transactions were not equity infusions
or loans, but were transactions involving creditors with existing debts; and, secondly, Article 14
requires a consideration of "usual investment practic es of private investors" (for equity infusions and
comparable commercial loans). Both require th e consideration of the specific terms of the
transactions, and not, as Japan suggests, the use of ri gid rules that compare debt restructurings to
dissimilar transactions (that is, to new equity investments and new loans by outside investors). 127
Korea also submits that Japan's reliance on Article 12.2 is "inapposite", because this provision does
not imply that an investigating authority is exonerated from the requirements of the SCM Agreement
simply because it does not have sufficient evidence. Further, Korea posits that there is no

120Korea's appellee's submission, paras. 140 and 143.
121Ibid.
122Ibid., para. 148 (referring to Japan's appellant's submission, paras. 190-202).
123Ibid., para. 149.
124Ibid., para. 150.
125Ibid.
126Ibid., para. 151.
127Ibid., paras. 156-159.

inconsistency in the Panel's finding that the determin ation of the existence of a benefit did not require
evidence of what (hypothetical) market-based inside investors would have done.
128
56. Korea argues that the Panel properly found the JI A's benefit calculation to be inconsistent
with the JIA's "premise that exis ting creditors would possibly provide additional funding in order to
maximize the recovery of credit". 129 For Korea, the Panel's finding is consistent with the evidence
concerning the accounting treatment of the debts by Hynix's creditors. Korea also argues that neither
Hynix nor its creditors treated the equity that Hyni x provided to creditors in the debt-to-equity swaps
as having a zero value.130
(b) Calculation of the Amount of Bene fit from the Perspective of the
Recipient
57. In Korea's view, the Panel correctly considered the JIA's benefit analysis to be focused on the
net cost to creditors, rather than th e net benefit to Hynix (the recipient) and that the JIA failed to take
account of the fact that the additional shares issued to creditors would dilute the ownership shares of
existing creditors. Korea rejects Japan's assertion that Korea never "pointed out" that dilution actually
occurred as being based on the wrong assumption that the Panel had to base its determination on
Korea's arguments and evidence. In any event, Korea did in fact point this out to the Panel.131
58. Furthermore, characterizing dilution as a cost to shareholders, but not to Hynix, would mean
that debt-to-equity swaps were considered as two se parate transactions involving the company, on the
one hand, and existing shareholders, on the other hand. It would also imply that there could never be
a benefit to the recipient irrespectiv e of the actual terms of the swap. 132 Korea also points out that the
idea that a company bears the cost of equity cap ital is commonplace in financial analysis. Finally,
Korea asserts that, in the end, the equity did not have a zero value in either the accounting records of
Hynix or the banks, or on the Korean stock market.133

128Korea's appellee's submission, paras. 162 and 163.
130Ibid., paras. 166-168.
131Ibid., para. 171 (referring to Korea's first written submission to the Panel, para. 258).
132Ibid., paras. 172 and 173.
133Ibid., para. 176.

(c) Other Arguments
(i) Whether Korea Made a Prima Facie Case
59. Korea argues that Japan's claim is based on a misunderstanding of what is required to
establish a prima facie case. To do so, a complaining party does not need to anticipate every
argument that a panel might choose to consider. Furt her, a panel is not cons trained to consider only
arguments and evidence cited by either party; it mu st examine and consider all the evidence before
it.134 Finally, Korea claims that it did argue before the Panel that the JIA improperly used an outside
investor standard for both the October 2001 and December 2002 Restructurings.135
(ii) Calculation of the Amount of Benefit on the Basis of "Facts
Available"
60. Regarding the use of "facts available" in calcu lating the amount of benefit, Korea argues that
this was not a case where interested parties refuse d to cooperate. There were sound reasons why the
information on the restructuring of other Korean companies was not provided to the JIA, in particular,
that Hynix did not itself have that information. A dditionally, Korea argues that Hynix's creditors that
did participate in other restructurings could not share that information because it was confidential.136
61. Korea also argues that the JIA its elf had never explicitly stated that it had adopted an outside
investor standard based on "facts available" due to the inability of certain financial institutions to
provide information. The Panel was therefore correct in dismissing Japan's argument as ex post
rationalization.137 According to Korea, even if the JIA ha d intended to use "facts available", this
would be inconsistent with Article 12 of the SCM Agreement.
4. Benefit Calculation Methods
62. Korea argues that the calculation methods used by the JIA to calculate the amount of benefit
provided to Hynix (found in paragraphs 90-106 of th e JIA's Final Determination, Annex 1 (Essential
Facts)) do not conform to the requirements of the chapeau of Article 14 of the SCM Agreement .
Korea further notes that Formula 1 and Formula 2, found by the Panel not to have been "provided for"
in Japan's Guidelines, were only part of what Korea had argued was the entire "benefit-calculation

135Ibid., para. 179 (referring to Korea's first written submission to the Panel, para. 125, in turn quoting
JIA's Final Determination, Annex 1 (Essential Facts), paras. 230, 298, and 376; as well as Korea's first written
submission to the Panel, paras. 229-230).
136Ibid., para. 182.
137Ibid., para. 183.

system" used by the JIA.
138 Apart from these mathematical form ulae, Korea also refers to the
"methodological approaches" to the benefit calculation referred to in paragraphs 90-106 of the JIA's
Final Determination, Annex 1 (Essential Facts).
63. Korea agrees with the Panel's characteriza tion of the mathematical formulae and the
methodological approaches contained in paragraphs 90-106 of the JIA's Final Determination, Annex 1
(Essential Facts) as the "methods used" for purposes of the chapeau of Article 14, because, according
to Korea, they meet the definition of "method" proposed by Japan and adopted by the Panel. 139 Korea
notes, however, that certain parts of these math ematical formulae and methodological approaches
were not described anywhere in Japan's legislation or Guidelines.140
64. Korea deems "inapposite" Japan's ar gument that the Panel Report in EC – Countervailing
Measures on DRAM Chips indicates that investigating authorities must have flexibility in defining
benefit calculation methods. Korea argues that th e Panel in that case was actually examining the
consistency of methods adopted by an investig ating authority with the guidelines set forth in
paragraphs (a)-(d) of Article 14, and not the pro cedural requirements under the first sentence of the
chapeau.141 Further, Korea argues that Japan's contenti on that the "methods" must provide flexibility
to adapt to specific cases fails because there was no sp ecific tailoring to the facts in this case. Rather,
the formulae used by the JIA we re largely copied "verbatim" fro m the published regulations of the
United States Department of Commerce.142
65. Korea argues that Japan's equation of the term "provided for" with "enable" or "allow" does
not fit the context of the chapeau and would re nder the first sentence of the chapeau meaningless. 143
Korea contends that both the Fren ch and Spanish versions of the term "provided for" translate into
"shall be previewed", which cannot be shown to have occurred in this case.144 Korea further contends
that, at a minimum, the term "provided for" re quires that the broad "framework" and "general
approach" of the benefit calculation method be set fort h in a Member's legislation or regulations. In

139Ibid., para. 193 (referring to Japan's first written submission to the Panel, para. 528, in turn quoting
New Shorter Oxford Dictionary, p. 1759).
140Ibid., paras. 194-197. In this regard, Korea refers to specific paragraphs in JIA's Final
Determination, Annex 1 (Essential Facts) relating to, inter alia, the treatment of debt-to-equity swaps as "equity
infusions" and extensions of maturities of existing loans as "loans"; the allocation of subsidies over time; and
the interest rates for creditworthy and uncreditworthy companies.
141Ibid., paras. 200 and 204.
142Ibid., para. 205.
143Ibid., para. 209.
144Ibid., para. 210 (referring to the French and Spanish versions of Article 14, which refer to "sera
prévue" and "estaré previsto").

this regard, Korea claims that, even under a broad in terpretation of that term, it could not be said that
the rules described in paragraphs 90-106 of the JI A's Final Determination, Annex 1 (Essential Facts)
were "provided for" by Japan; neither could these ru les be considered as case-specific applications of
the framework provided in Japan's Guidelines, since the JIA never attempted to explain in its
determination why the facts of this case mandated the adoption of these rules. In fact, Korea argues,
several of the rules used by the JIA are not even mentioned in the Guidelines.145
66. For these reasons, Korea requests the Appellate Bo dy to uphold the findi ng of the Panel that
Formula 1 and Formula 2 were "methods" that were not "provided for" in Japan's legislation or
regulations.
5. Allocation of Benefit
67. Korea agrees with the Panel th at Japan "levied countervailing duties 'in excess of the amount
of the subsidy found to exist', contrary to Article 19.4 of the SCM Agreement."146 Korea maintains
that it "never claimed that the JIA was require d to update its decision based on more recent
information." Instead, Korea contended that the JIA's decision, "based on [its] analysis of the
situation in 2003 ..., necessarily indicate[s] that th e benefit of the subsidies received in 2001 did not
extend beyond 2005." 147 In Korea's view, the JIA's determination was based on "an assumption that
the subsidies had a life of five years, and that 2003 was the third year of the allocation for the alleged
benefits from the October 2001 [R]estructuring and the second year of the allocation for the alleged
benefits from the December 2002 [R]estructuring." 148 With respect to the benefit from the
October 2001 Restructuring, Korea submits that, un der the JIA's determination, a subsidy received

145Korea's appellee's submission, paras. 213-215. In this regard, Korea refers to the five rules that it
claims are not "provided for" in the Guidelines. In particular, paragraph 214 of Korea's appellee's submission
reads, in relevant part:
A number of the rules announced by the JIA in its [Final Determination,
Annex 1 (Essential Facts)] simply do not have any corresponding
"framework" in Japan's regulations. For example, the [Essential] Facts
establishes rules that: (1) extensions of loan maturities will be "deemed" to
be new loans, (2) debt-equity swaps will be "deemed" to be equity
infusions, (3) equity infusions and debt forgiveness will be considered to
provide benefits over several years, and will therefore be allocated over
time, (4) the allocation period for such subsidies shall reflect the average
useful life of the recipients assets, as defined in the relevant tax laws, (5) a
different interest rate will be used to discount future cash flows for
creditworthy and uncreditworthy borrowers.
146Ibid., paras. 224-226 (referring to Panel Report, paras. 7.349-7.361).
147Ibid., para. 223.
148Ibid., para. 220.

in 2001 would provide benefits from 2001 through 2005.
149 It would "not provide benefits in 2006,
because 2006 would be outside the five-year life of the subsidy."150
68. Korea finds contextual support for its position in Article 19.1, which provides that a
countervailing duty may be imposed "unless the subs idy or the subsidies are withdrawn". Korea
explains that, "even if a subsidy was found to exis t during the investigation period, no duty may be
imposed if the subsidy is withdrawn, and thus cease s 'to exist,' prior to the final determination." 151 In
Korea's view, this implies that "a countervailing duty may be imposed only where the subsidy—and
its benefit—continues to exist at the tim e the decision to impose the duty is made."152
69. Finally, with respect to Japan's claim under Ar ticle 11 of the DSU, Korea asserts that "the
number of years over which the 'subsidy amount is allo cated' equalled the five-year 'useful life of the
facilities stipulated in Korean law'". 153 Korea argues that "[t]he consequence of that determination
was that the subsidies ceased to have a 'continuous effect,' and could not be 'allocated' once that
period had expired." 154 In Korea's view, this was not a de novo determination; it was a necessary
consequence of the JIA's own determination.155
C. Claims of Error by Korea – Other Appellant
1. The JIA's Determination of Benefit with respect to the October 2001
Restructuring
70. Korea challenges the Panel's conclusion that the JIA could properly find that the
October 2001 Restructuring conferred a "benefit" on Hynix in accordance with Articles 1.1(b) and 14
of the SCM Agreement.
71. First, Korea alleges that the Panel failed to review whether the alleged government action
made Hynix "better off". 156 Korea refers to findings of the Appellate Body in Canada – Aircraft and
argues that the Panel's approach improperly confla ted the two distinct concepts of "financial
contribution" and "benefit" in Article 1.1 of the SCM Agreement.157 Korea contends that, under the

150Ibid.
151Ibid., para. 227.
152Ibid.
153Ibid., para. 243 (referring to JIA's Final Determination, Annex 1 (Essential Facts), para. 99).
154Ibid.
155Ibid.
156Korea's other appellant's submission, para. 29.
157Ibid., para. 41.

Panel's analysis, a finding that there has been "entru stment or direction" was, by itself, a sufficient
basis for a finding that a benefit exists. For Korea, the Panel's approach results in reading the separate
benefit requirement of Article 1.1(b) out of the SCM Agreement.158
72. Secondly, Korea disagrees with the Panel that evidence that Hynix's creditors relied on non-
commercial considerations when deciding to exte nd further credit to Hynix "indicates terms more
favourable than those available from the market (as the market is presumed to operate on the basis of
commercial considerations)."159 Korea alleges that, for the Panel, "the mere fact that Hynix's creditors
failed to undertake a market-consistent analysis befo re entering into the October 2001 [R]estructuring
indicated that the terms of the [R]estructuring they approved must have been more favourable than
the terms of a purely market-driven restructuring." 160 Korea submits that the Panel's focus on the
analysis actually performed by the creditors may be probative of the creditor's subjective intent in
entering into those transactions and that this intent may be relevant to the analysis of "entrustment and
direction". In Korea's view, however, it "does not permit any conclusion as to whether the 'recipient'
actually received a benefit."161 Korea states that footnote 475 of the Panel Report, which was inserted
at the interim review stage, "purported to address" this issue. Yet, in Korea's view, the Panel failed to
explain why a creditor's imperfect analysis, based on incomplete information, cannot lead to the same
result as would have been obtained in the market. A ccording to Korea, "[i]t is always possible to be
right for the wrong reasons."162
73. Thirdly, Korea asserts that the JIA failed to take into account the content of the analyses
prepared by Anjin Accounting and the Monitor Group. According to Korea, those analyses
demonstrated that the alleged Korean governme nt action had not confe rred a benefit on Hynix,
because it was comparable with what Hynix would have been able to obtain from other creditors who
were not subjected to alleged gove rnment entrustment or direction. 163 Korea concedes that those
reports were not finalized until after the October 2001 Restructuring was completed, but they were
available to the JIA at the time it conducted its bene fit examination, and should have been taken into
account by the Panel. Korea asserts that, by disr egarding the content of those two reports, the Panel
improperly shifted the burden of proof from the Me mber seeking to impose countervailing duties to
the Member whose exports are subject to the duty.

158Korea's other appellant's submission, para. 43.
160Korea's other appellant's submission, para. 39. (original emphasis)
161Ibid., para. 44. (original emphasis)
162Ibid., para. 46.
163Ibid., para. 56.

2. Interested Parties

74. Korea argues that, by failing to properly consider that entities designated as "interested
parties" under Article 12.9 of the SCM Agreement must "have an interest in the outcome of an
investigation", the Panel improperly found that the JIA was correct in including certain financial
institutions as "interested parties", and that the JIA did not err in applying "facts available". In this
way, the JIA prejudiced Hynix's interests, thereby acting inconsistently with Article 12.7 of the SCM
Agreement.
75. Korea submits that, by its ordinary meaning, the term "interested parties" relates to persons
who are "affected or involved" in something. 164 Korea argues that the Panel was wrong in rejecting
its argument that this "involvement" must be in the "outcome of the investigation" rather than, more
broadly, in the "matter under investigation". 165 Additionally, according to Korea, the ordinary
meaning of the term "interested" does not include en tities that may have participated in matters giving
rise to the dispute, but no longer have any interest in the dispute.
76. Korea argues that, although Article 12.9 does not set forth a "definition" of "interested
parties", the list of entities in subparagraphs (i) and (ii) nonetheless provides a "strong indication" of
the type of characteristics "interested parties" should have, namely, that they must be "directly
affected" by the outcome of the investigation and therefore must have a "clear interest" in the
proceedings.
166 Korea also refers to Articles 12.3 and 12.8 of the SCM Agreement, which provide
that "interested parties" must be given the op portunity to present their "cases" and "defend their
interests". For Korea, these provisions "make no sen se if the term ... [is] defined to include entities
that had no 'interests' in the proceeding, and thus no 'case' to present".167
77. Korea also contends that the Panel's interpre tation failed to give effect to the object and
purpose of the provisions of the SCM Agreement. According to Korea, the Panel failed to "come to
grips with the fundamental issue" 168 in this case, which is that, wh en an "interested party" is
designated as such, and fails to provide the re quested information, Article 12.7 allows the

164Korea's other appellant's submission, para. 112 (referring to Panel Report, para. 7.387).
165Ibid.
166Ibid., para. 114. At the oral hearing, Korea rejected Japan's arguments that Article 23 indicates that
there may be "interested parties" with no interest in the outcome of the proceedings. According to Korea,
Article 23 provides that an "interested party" who had an interest in the outcome might not be allowed to pursue
judicial review if the administrative agency did not take any action against that party (for instance, if the agency
found that an exporter did not receive subsidies and thus did not impose any countervailing duties). However,
Korea contends, this does not mean that the exporter had no interest in the outcome of the proceedings.
167Ibid., paras. 116 and 119.
168Ibid., para. 120.

investigating authorities to make a decision on the b asis of "facts available". In this case, the JIA
chose to designate all banks participating in Hynix' s Restructurings as "interested parties", regardless
of their interest in the outcome of the investigati on. When some of those banks failed to respond, the
JIA "penalized" Hynix for their noncooperation, through the application of "facts available."169 Korea
further argues that, in failing to properly construe the purpose of Article 12.7, the Panel also ignored
the risk that an "innocent respondent may face when an investigating authority makes a decision
based on the non-responsiveness of some third party that the respondent has no ability to control."170
78. Finally, Korea argues that the analysis by the Panel was inconsistent w ith its duty to conduct
an objective assessment of the matter, pursuant to Article 11 of the DSU. 171 Specifically, Korea
submits that the Panel's statement that the absence of a definition of "interested party" explicitly
requiring an interest in the outcome of the investig ation indicates that "no such requirement exists",
was inconsistent with the interpretativ e analysis that is required under the Vienna Convention on the
Law of Treaties (the "Vienna Convention").172
3. Direct Transfer of Funds
79. Korea appeals the Panel's finding 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 "direct transfer[s] of funds" w ithin the meaning of Article 1.1(a)(1)(i) of the
SCM Agreement.173 For Korea, transactions that merely change the terms of existing claims or the
legal nature of the recipient's obligations, and do not involve the provision of money to the alleged
subsidy recipient, are not "direct transfer[s] of funds" within the ordinary meaning of that term. 174
Korea submits that "a 'transfer' of 'funds' occurs only when money changes hands from the
government (or government-directed private body) to the subsidy recipient." 175 By way of contrast,
Korea argues that, when "a lender agrees to extend th e maturities of existing loans, or to reduce the

169Korea's other appellant's submission, paras. 120 and 121. Korea refers to, inter alia, para. 7.288 of
the Panel Report to rebut the Panel's statement that it could not identify any instances in which the JIA had
penalized Hynix for using "facts available". (Ibid., footnote 77 to para. 121).
170Ibid., para. 125.
171Ibid., paras. 108-110 (referring to Panel Report, para. 7.386).
172Korea's other appellant's submission, para. 108 (quoting Panel Report, para. 7.386). Korea contends
that this error was exacerbated by the Panel's statement that Korea's interp retation would only be accepted by
"necessary implication". (Korea's other appellant's submission, para. 110 (quoting Panel Report, para. 7.386)
(emphasis added by Korea)).
173Panel Report, para. 7.446.
174Korea's other appellant's submission, para. 133.
175Ibid., para. 134.

interest rates on existing loans, or to convert existi ng interest payment obligations into loan principal,
or to write-off loans entirely", existing claims are modified without providing any money to the
borrower.
176 For the same reason, debt-to-equity swaps are not to be considered as transfers of funds.
Korea concedes, however, that these transactions mi ght constitute "revenue ... foregone" in the sense
of subparagraph (ii) of Article 1.1(a)(1).
80. Korea alleges that the Panel incorrectly "collap sed" the distinction between "direct transfer of
funds" in subparagraph (i) and "rev enue ... foregone" in subparagraph (ii) by "expanding the meaning
of the term 'transfer of funds' beyond recognition." 177 If the phrase "direct transfer[s] of funds"
covered transactions that reduced or modified the recipient's liabilities, there would be no need for a
separate provision addressing situations in which "rev enue that is otherwise due is foregone or not
collected".178 In Korea's view, the classification of a "financial contribution" under the different
subparagraphs of Article 1.1(a)(1) does not depend on the nature of the recipient's obligation to the
government (or government-entrusted or -directed entity). Instead, the financial contribution is
defined by the nature of the contribution from the government to the recipient. 179 Under the Panel's
interpretation, "any transaction in which the govern ment agrees to forego revenue can be reconceived
as a new 'grant'." 180 For Korea, this would effectively read subparagraph (ii) out of the SCM
Agreement.
4. Causation of Injury
81. Korea argues that, under the first sentence of Article 15.5 of the SCM Agreement, it is not
sufficient to show that the subsidized imports have caused injury to the domestic industry, there must
also be a demonstration that the injury is caused "through the effects of subsidies." 181 Korea argues
that the Panel erred by effectively reading the phrase "through the effects of subsidy" out of
Article 15.5 of the SCM Agreement , and thereby permitted countervailing duties to be imposed to
offset injury that was not being caused by the subsidies in questi on. Korea asserts that the Panel
expanded the scope of the countervailing measures to situations in which there are no trade distortions
caused by subsidies.182

176Korea's other appellant's submission, para. 137.
177Ibid., para. 153.
178Ibid., para. 136 (referring to subparagraphs (i) and (ii) of Article 1.1(a)(1) of the SCM Agreement).
179Ibid., para. 147.
180Ibid., para. 153.
181Ibid., para. 72.
182Ibid., para. 60.

82. According to Korea, the Panel's interpretati on of the term "through the effects" is not
consistent with the ordinary meaning, context, or negotiating history of the relevant provisions of the
SCM Agreement .183 Korea submits that "it is possible that imports that happened to be subsidized
may cause injury to domestic producers through mechanisms that have nothing to do with
subsidies."
184 For example, the imports might take sales away from the domestic producers because
they are more innovative or of better quality or more attuned to customer desires. For Korea, in such
cases, "there might be a basis for finding that 'imports' (which were the subject of a finding of
subsidies) had caused injury to the domestic pr oducers." However, there would be no basis for
finding that the imports, that happened to be subs idized, had caused injury "through the effects of
subsidies".185 Further, Korea contends that the Panel's in terpretation of the term "through the effects"
cannot be reconciled with the text of Article 19. 1, which repeats this term and sets forth the
substantive conditions for the imposition of a countervailing duty.186
83. In addition, Korea submits that Article 15.5 sh ould be interpreted as requiring the same type
of "but for" causation analysis that h as been developed under Article 6.3 of the SCM Agreement in
relation to "serious prejudice" that has occurred through the "effect of the subsidy". 187 The fact that
Article 6 establishes a different injury standard than Article 15 does not mean that Article 15 permits a
different type of causal nexus between subsidies a nd injury. Korea argues that the Panel erroneously
read the language in Article 11.2 of the SCM Agreement as indicating that the only evidence needed
to establish that "injury to a domestic industry is caused by subsidized imports 'through the effects of
the subsidies'" is evidence concerning the evolution and effects of imports. 188 Korea contends that
there is nothing in the SCM Agreement to indicate that the standard for initiating an investigation
under Article 11.2 is the same as the standard for making an affirmative injury determination under
Article 15. According to Korea, it would hard ly be surprising that Article 11.2 might allow
investigations to be initiated based on evidence th at would not be sufficient to permit the imposition
of duties. Korea also submits that the word "include" in Article 11.2 is usually understood to
introduce a non-exhaustive list of examples, so there may be other information that is required under
that Article.
84. Korea contends that the Panel's interpretation is also inconsistent with the object and purpose
of the SCM Agreement , which seeks to ensure that counter vailing duties are imposed only where

183Korea's other appellant's submission, paras. 70-91.
184Ibid., para. 74.
185Ibid., para. 75.
186Ibid., paras. 76-79.
187Ibid., paras. 80-84 (referring to Panel Report, Korea – Commercial Vessels, paras. 7.612-7.616).
188Ibid., para. 88 (quoting Panel Report, paras. 7.416 and 7.417).

necessary to offset subsidies th at cause injury or threat thereof to the domestic industry.
189 Korea
argues that the Panel's interpretation is also in consistent with the negotiating history of the SCM
Agreement, because Articles 15.5 and 19.1 have their origins in the Tokyo Round Subsidies Code, and
in particular Articles 4.4 and 6.4 of that Code. 190 Finally, Korea takes issue with the Panel's reliance
on the findings of the panel in US – Norwegian Salmon CVD under the Tokyo Round Subsidies
Code191 because "the 'precedential status' of that decision is irrelevant."192 Korea further suggests that,
in US – Hot-Rolled Steel , the Appellate Body rejected the "g eneral approach to causation issues"
adopted by the US – Norwegian Salmon CVD panel.193
85. On the facts of this case, Korea contends that the JIA failed to demonstrate that injury had
been caused by subsidized imports "through the effects of subsidies". Korea alleges, in this regard,
that the JIA disregarded Hynix's arguments that th e alleged subsidies did not affect the prices or
volumes of exports. To the contrary, the JIA found that any harm caused by Hynix's exports were an
effect of the subsidy because Hynix would not have been in operation, or able to export, in the
absence of subsidies. 194 Korea contends that, in so doing, the JIA assumed that defaults on
outstanding debts by Hynix would result in liqui dation and cessation of opera tions. According to
Korea, the JIA's assumption was erroneous, because the bankruptcy of Hynix could simply have
resulted in corporate reorganization, rather than liquidation and cessation of operations.195
86. Korea submits that "contrary to what the JI A appeared to believe, 'bankruptcy' is not a
synonym for piece-meal liquidation." 196 Instead, "bankruptcy" is a legal process, which affords a
debtor protection from its creditors while the debtor 's future is being determined. According to
Korea, as a general matter, "Korean bankruptcy law favors reorganization over liquidation" and,
consequently, there is no reason to believe that, if Hynix had filed for "bankruptcy", it would have
ceased operations.
87. Korea further requests the Appellate Body to comp lete the legal analysis in this regard, and
find that the JIA's finding concerning "the eff ect of the subsidies" is based on "unsupported

189Korea's other appellant's submission, paras. 95-97.
190Ibid., paras. 92-94.
192Ibid., para. 102.
193Ibid., para. 100 (referring to Appellate Body Report, US – Hot Rolled Steel, para. 226).
194Ibid., para. 61.
195Ibid., paras. 61-64.
196Ibid., para. 63.

assumptions regarding the consequences of default by an insolvent debtor", and disregards "the
bankruptcy laws that would actually apply in the case of default".197
D. Arguments of Japan – Appellee
1. The JIA's Determination of Benefit with respect to the October 2001
Restructuring
88. Japan supports the Panel's finding that the JIA had properly determined that the October 2001
Restructuring conferred a benefit on Hynix. Japan s ubmits that, contrary to assertions by Korea, the
Panel did not state that "a finding that there has been 'entrustment or direction' is, by itself, a sufficient
basis for finding that a benefit exists." 198 Japan maintains that "the Panel's finding is based on a
comparison of the particular factual situations in this case". 199 Japan submits that the Panel confirmed
the JIA's finding that, at the time of the October 2001 Restructuring, Hynix could not have obtained
financial resources from the market.
89. Japan disagrees with Korea that the Panel upheld "the JIA's benefit finding solely on the
assumption that a restructuring approved by cred itors who fail to undertake a sufficient economic
analysis must have more favourable terms than a restructuring adopted in a purely market-driven
transaction."
200 For Japan, the Panel's finding regardin g the "non-commercial nature of Hynix's
private creditors' decisions to extend financing to Hynix in the October 2001 Restructuring was not
only based on insufficient economic analysis, but also their consideration of other factors which are
not related to the financ ial conditions of Hynix."201 In that respect, Japan argues that the Panel found
that a number of facts confirmed the JIA's fi nding of the non-commercial nature of Woori Bank's 202
and Chohung Bank's 203 decisions. Japan maintains that these facts demonstrate that the non-
commercial nature of the decisions by Hynix's private creditors was not solely based on their
insufficient analysis of the terms of the Oct ober 2001 Restructuring and the unavailability of the
reports by Anjin Accounting and the Monitor Group.204
90. Finally, with respect to Korea's argument that the Panel "improperly shift[ed] the burden of
proof from the Member seeking to impose counter vailing duties to the Member on whom the duties

197Korea's other appellant's submission, para. 64 and footnote 34 thereto.
198Japan's appellee's submission, para. 35 (quoting Korea's other appellant's submission, para. 43).
199Ibid., para. 36.
201Ibid., paras. 43, 52, and 53.
203Ibid., para. 53 (referring to Panel Report, paras. 7.137 and 7.138).
204Ibid., para. 54.

will be imposed"
205, Japan asserts that Korea as the complaining party should have established a
prima facie case. In Japan's view, Korea failed to estab lish before the Panel that the terms of the
October 2001 Restructuring were c onsistent with market outcomes. As a consequence, the Panel
made no factual finding in this respect, and the Appellate Body therefore "need not consider this
issue".206
2. Interested Parties
91. Japan argues that Korea's other appeal regard ing the Panel's interpretation of the term
"interested parties" should be rejected by the Appellate Body. 207 Japan agrees with the Panel that the
express terms of Article 12.9 of the SCM Agreement provide that the list of entities enumerated in
subparagraphs (i) and (ii) of that provision is not exhaustive; it is merely indicative. 208 Japan argues
that Korea's definition cannot be reconciled with Article 12.9, because the entities listed there do not
necessarily "have an interest in the outcome of the investigation", as suggested by Korea. 209 Japan
also submits that the Panel correctly rejected Korea's argument that the term "allowing" in
Article 12.9 means that there must be a "request" from a party prior to its designation as an "interested
party".210
92. Japan contends that the negotiating history of Article 12.9, and Articles 12.3, 12.8, and 23 of
the SCM Agreement , support the Panel's interpretation of "interested parties" as not necessarily
requiring an "interest in the outcome of the investigation". 211 Contrary to Korea's suggestion that
Articles 12.3 and 12.8 would make no sense if en tities designated as "interested parties" had no
"cases" to present, and no "interests to defend", there is nothing in these provisions that limits interest
in the investigation to a "pecuniary inter est" in the outcome of the investigation.
212 Furthermore,
Japan argues that the Korean financial institutions designated as "interested parties" by the JIA did
have "cases" to present, and that some actually av ailed themselves of the opportunity to "defend their

205Japan's appellee's submission, para. 62 (quoting Korea's other appellant's submission, para. 54).
206Ibid., paras. 65 and 66.
207Ibid., para. 116.
208Ibid., paras. 118-120.
209Ibid., paras. 129-131.
210Ibid., para. 132. Japan also refers to other provisions in the SCM Agreement where the term
"request" is explicitly stated when the drafters intend ed to make this a condition for "allowing" something.
Similarly, Japan refers to provisions where the term "a llow" is used, as the Panel suggests, to indicate that a
Member may "allow" something generally through national legislation or implementing regulations without a
specific request. (Ibid., footnote 203 to para. 132)
211Ibid., paras. 133-140.
212Ibid., para. 139.

interests".213 Japan also refers to Article 23, which pr ovides that only those "interested parties" who
participated in the investigation, and who ar e "directly and individually affected" by the
administrative action, have judicial review rights. For Japan, this signifies that there must be a subset
of "interested parties" not "directly or indirectly affected" by administrative actions relating to final
determinations.214
93. In Japan's view, Korea's argument regarding the use of "facts available" under Article 12.7 is
based on a mischaracterization of the balance between, on the one hand, due process rights of
"interested parties", and, on the other hand, the obliga tion of an investigating authority to complete its
investigation. Japan argues that the due process ri ghts of "interested parties" under Article 12 are not
unlimited, and are subject to the discretion of i nvestigating authorities to use "facts available". 215
Articles 12.7 and 12.9 must be read to allow inve stigating authorities the flexibility to meet their
informational needs in making a determination, whic h may differ from case to case. In this instance,
the specific needs of the investigation required information relating to private bodies that were
allegedly being "entrusted or directed". Japan cont ends that the use of "facts available" was proper in
this case, and that Korea failed to identify any inst ances to substantiate its allegation that it was not,
and that Hynix was "punished" for the actions of entities that "it could not control".216
94. For Japan, it is incorrect to say that ther e was no evidence that the banks designated as
"interested parties" had a continuing interest in Hynix or in the outcome of the investigation. 217 In
fact, the evidence shows that all the financial in stitutions in question are creditors of Hynix and
became shareholders of Hynix.218
95. Regarding Korea's allegation that the Panel's reasoning was inconsistent with Article 11 of the
DSU, Japan contends that no such claim was made by Korea in its Notice of Other Appeal. Even if it
were to be considered by the Appellate Body, it should be rejected, since the Panel's reasoning
demonstrates that it did not treat the lack of an explicit reference in Article 12 of the SCM Agreement
to an "interest in the outcome of an investigation" as dispositive of the issue of whether an "interested
party" must have such an interest.219

214Ibid., paras. 136 and 137.
215Ibid., para. 142.
218Ibid., para. 154.
219Ibid., paras. 121-125.

3. Direct Transfer of Funds

96. Japan asserts that Korea puts fo rward an overly narrow definition of the term "funds". In
Japan's view, the term "funds" is to be understo od as "financial resources" having "monetary or
exchangeable value". 220 This is confirmed by the fact that the SCM Agreement provides an
illustrative list of "direct transfer[s] of funds" in Ar ticle 1.1(a)(1)(i). Japan argues that this provision
refers to grants, loans, and equity infusion as exam ples, rather than as items on an exhaustive list.
This indicates that the SCM Agreement contemplates direct transfers of funds other than "grants,
loans, and equity infusion".221
97. In addition, Japan submits that Korea's interpretation of the term "transfer of funds" is
inconsistent with the object and purpose of the SCM Agreement, which includes "disciplining" the
use of subsidies and countervailing measures while, at the same time, enabling WTO Members whose
domestic industries are harmed by subs idized imports to use such remedies. 222 However, excluding
substantial modification of the terms of existing loans, or an exch ange into equity of monetary value
equivalent to existing debt, from th e definition of "direct transfer of funds", "would open the door to
potential abuse of the subsidies and offer an easy way of circumventing the disciplines of the SCM
Agreement."223 Japan finds support for its view in the Appellate Body Report in US – Softwood
Lumber IV , which it understands to have rejected "a narrow reading of the term 'goods' in
Article 1.1(a)(1)(iii) of the SCM Agreement "224, in order to prevent circumvention of subsidy
disciplines.225
98. With respect to debt-to-equity swaps, Japan makes reference to Article 1.1(a)(1)(i), which
specifically lists "equity infusion" as an example of a "direct transfer of funds". Japan submits that a
debt-to-equity swap is one method of making an e quity infusion and, therefore, a type of direct
transfer of funds. 226 Finally, in response to Korea's alle gation that the Panel "collapsed" the
distinction between "direct transfer of funds" in subparagraph (i) and "revenue ... foregone" in

221Ibid.
222Ibid., para. 169 (referring to, inter alia, Appellate Body Report, US – Softwood Lumber IV, paras. 64
and 95).
223Ibid., para. 170.
224Ibid., para. 169.
225Ibid.
226Ibid., para. 177.

subparagraph (ii) of Article 1.1(a)(1), Japan argues that the mere overlap of the scope of
subparagraphs (i) and (ii) does not render subparagraph (ii) inutile.227
4. Causation of Injury
99. Japan requests the Appellate Body to reject Korea's appeal regarding the Panel's interpretation
of the phrase "through the effects of subsidies" in Articles 15.5 and 19.1 of the SCM Agreement for
the reasons given by the Panel. 228 Specifically, Japan contends that, in challenging the Panel's
interpretation of the phrase "through the effects" in Article 15.5, Korea fails to make reference to
footnote 47 attached to that phrase.229
100. Additionally, Japan argues that the Panel's inte rpretation is supported by the non-attribution
provision in the third sentence of Article 15.5. 230 Japan argues that the A ppellate Body has clarified
with regards to Article 3.5 of the Anti-Dumping Agreement—which has almost identical wording as
Article 15.5 of the SCM Agreement—that, in making a finding on causation, the injurious effects of
any known other factors must be separated and dis tinguished from the injurious effects of the dumped
imports.231 As is the case with dumped imports, there is no separate requirement for investigating
authorities to separate and distinguish the effects of the subsidies from the effects of the subsidized
imports.232
101. Japan further argues that paragraphs 2-4 and 6-7 of Article 15 of the SCM Agreement
provide further context. They "all refer to the effe cts of the subsidized imports, rather than to the
effects of the subsidies." 233 With regard to Korea's arguments concerning Article 11.2, Japan argues
that it is well established that elements that inv estigating authorities must analyze at the time of
initiation of the countervailing duty determinati on do not differ from elements relevant for
preliminary and final determinations.234 Japan submits, further, that th e Panel's reference to the Panel
Report in US – Norwegian Salmon CVD in support of its conclusions was appropriate because, as an
adopted report, it constitutes part of the GATT acquis.235 With regard to Korea's reliance on

228Ibid., paras. 77-112.
229Ibid., paras. 80-82.
230Ibid., para. 83.
231Ibid., para. 84 (referring to Appellate Body Report, US – Hot-Rolled Steel, para. 223).
232Ibid., para. 86.
233Ibid., para. 88.
234Ibid., para. 90.
235Ibid., para. 93 (referring to Appellate Body Report, Japan – Alcoholic Beverages II , p. 14,
DSR 1996:I, 97, at 108).

subsequent Appellate Body reports, Japan contends that the Appellate Body found in US – Hot-Rolled
Steel that the GATT panel in US – Norwegian Salmon CVD had merely adopted an interpretation of
non-attribution that was at odds with the requirements of Article 3.5 of the Anti-Dumping
Agreement.
236
102. With regard to Article 6.3 of the SCM Agreement, Japan believes that Korea ignores the basic
difference between Parts II and III of the SCM Agreement, on the one hand, and Part V of the SCM
Agreement, on the other hand, as recognized by the panel in US – Upland Cotton .237 Japan recalls
that the panel in that case expressly stated that the re ferences in Articles 5(c) and 6.3(c) in Part III to
the "effect of the subsidy" contrast with the language used in Part V of the SCM Agreement where
Article 15.5 is found.238
103. Japan further submits that the duty of a treaty in terpreter to give meaning to each term of the
Agreement does not necessarily imply that each term imposes an additional obligation. 239 Rather, in
this case, the term "through the effects" serves to clarify and confirm that Article VI of the
GATT 1994 and Article 15.5 of the SCM Agreement actually provide for the same obligation.
240
Without this clarification, it could have been argued, for instance, that Article VI requires a link
between the effects of subsidization and injury, and that Article 15.5 required an additional link
between subsidized imports and injury. 241 Japan also considers that the term "through the effects" in
Article 19.1 simply clarifies the elements that an investigating authority must establish before
imposing countervailing duties.242
104. Finally, Japan argues that Korea's argumen ts regarding the "bankruptcy" of Hynix,
misconstrues the JIA's determination, which is, in an y event, not a legal finding but, rather, a factual
determination removed from the scope of appellate review. Japan contends that specific statements
made by the JIA—namely, that "Hynix was in a financ ial situation such that it could not raise funds
from the commercial market", "subsidies provided by the [GOK] to Hynix enabled Hynix to maintain
and continue its production and export of DRAM pr oducts", and "[a]s the result," Hynix "caused the
price of domestic products to fall"—were all fact ual findings by the JIA based on the evidence on

237Ibid., paras. 97-99 (referring to Panel Report, US – Upland Cotton, para. 7.1177).
239Ibid., para. 102.
240Ibid.
241Ibid.
242Ibid., para. 103.

record.243 Further, Japan argues that Korea's arguments on "bankruptcy" stem from a
misunderstanding of the term " hatan" used in the JIA's determination, which refers to bankruptcy in
the general sense (rather than the legal sense), as a co llapse of the financial state of a company or the
inability to continue business. 244 The term in Japanese for legal bankruptcy is " hasan".245 Japan
argues that, as the difference between the meaning of the terms " hasan" and " hatan" shows, the JIA
did not determine that Hynix would proceed with a legal bankruptcy procedure and then be liquidated;
rather, the JIA found that "Hynix escaped failure, or in other words was able to continue business,
because of the subsidies from the GOK."246
E. Arguments of the Third Participants
1. European Communities
105. First, with respect to the standard of review , the European Communiti es argues that the task
of a panel, under Article 11 of the DSU, is to consid er objectively the facts in the light of the law.
According to the European Communities, it is well established that, under the SCM Agreement ,
panels may not conduct a de novo evaluation of the investigating authority's decision. The European
Communities refers to the Panel's finding 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 [R]estructuring was not commercially reasonable".
247 The European Communities is
not able to express a view on whether the Panel in fact conducted such a de novo evaluation in its
finding of entrustment or directi on, thus committing an error in law, because substantial parts of the
confidential Panel Report provided to the parties ha ve been omitted from the public version of the
Panel Report on the grounds that they contain BCI.248
106. Secondly, regarding the use of BCI refere nces in the Panel Report, the European
Communities submits that it is unable to follow the Panel's reasoning because the public version of its
Report, as given to third parties and other Members of the WTO, is "full of blanks stemming from an
alleged need to protect [BCI]", in particular, concerning the question of "entrustment or direction". In

243Japan's appellee's submission, para. 109 (referring to JIA's Final Determination, Annex 1 (Essential
Facts), para. 550).
244Ibid., para. 110.
245Ibid. (referring to JIA's Final Determ ination, Annex 1 (Essential Facts), paras. 110, 159, 189, 231,
267, 281, 299, 326, and 376). In fact, Japan contends , Korea recognizes the differ ence between these Japanese
terms, because it translates the term " hatan" as "failed", "collapse", "liquidation", or "bankruptcy"
interchangeably.
246Ibid.
248Ibid., para. 8.

the European Communities' view, an appropriate balan ce needs to be struck both in legal terms and in
practical terms regarding the protection of BCI. However, the European Communities is concerned
that, in the present case, that balance has not b een struck, and that this procedure may not be
consistent with the DSU and in particular with the procedural requirements of Articles 12.7, 16,
17.10, and 18.2 thereof.
249
107. Thirdly, regarding the Panel's finding on "b enefit", the European Communities submits that
the Panel did not expressly state anywhere in its Report that a benefit was conferred on Hynix because
the GOK entrusted or directed private parties, nor that a benefit was not conferred because the GOK
did not entrust or direct private parties. Accord ing to the European Communities, the conclusions are
more subtle and hinge on the notion of "comme rcial reasonableness" that the Panel uses in its
analyses of both "entrustment and direction" and "benefit".250
108. In addition, regarding the term "interested parties", the European Communities supports the
Panel's finding that it was reasonable for the JIA to designate 16 financial institutions that provided
financing to Hynix as "interested parties" in the investigation. The European Communities agrees
with the Panel's analysis of Article 12 of the SCM Agreement and requests the Appellate Body to
uphold the Panel's interpretation of "interested party".251
109. The European Communities argues, as regards the benefit calculation methods used by the
JIA, that the Panel failed to establish that Formula 1 and Formula 2 used by the JIA were inconsistent
with the methods laid down in Japan's Guidelines so as to justify the conclusion that the "methods
used" were not provided for (or for eseen) in Japan's national legisla tion or implementing regulations.
The Panel findings require, at least in fact, if not in law, that any detailed formula that an investigating
authority intends to use should be laid down in th e national legislation or implementing regulations.
In the European Communities' view, this Panel finding is inconsistent with the chapeau of Article 14
of the SCM Agreement and therefore the Appellate Body should reverse it.252
110. In addition, the European Communities supports Japan's appeal of the Panel's finding on
benefit allocation and submits that, if an alloca tion period for a non-recurring subsidy has expired,
then the benefit of that subsidy has normally ceased to exist and "withdrawal" of the subsidy shall not
normally require the re-payment of any funds. Ho wever, in the European Communities' view, the
Appellate Body does not need to rule on this issu e, because the mere expiry of the allocation period

249European Communities' third participant's submission, paras. 10-29.
250Ibid., paras. 30-31.
251Ibid., paras. 35-37.
252Ibid., paras. 38-44.

does not amount to "withdrawal", which, accordi ng to the European Communities, requires some
positive legal or administrative action by the Member that granted the subsidy.253
111. Finally, regarding causation, the European Communities submits that once a subsidy to a
company has been allocated to a specific product, it may reasonably be determined that the subsidy
has had the effect of lowering the price of that pro duct (that is, "but for" the subsidy, the price would
be higher), so that the effect of the subsidized im ports and the effect of the subsidy in practice amount
to the same thing. For the European Communities, the situation 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 countervailing remedy to be imposed.254
2. United States
112. The United States argues that the JIA's calculation of the benefit from the debt-to-equity
swaps was inconsistent with Article 14(a) of the SCM Agreement.255
113. The United States disagrees with the Panel's finding that the JIA improperly countervailed the
entire amount of the debt-to-equity swaps for two re asons. First, the United States submits that the
Panel's finding "misses the critical point that the commercial market would not have provided an
equity infusion to Hynix ".256 As the commercial market would not have provided an equity infusion
(which, unlike a loan, does not need to be repaid), it is reasonable to treat the entire equity infusion as
conferring a benefit.
114. Secondly, the United States submits that the Panel's "conflation" of Hynix and its
shareholders reveals the type of "internal incons istency" for which the Panel itself "chastised" the
JIA.257 The Panel's rationale was that Hynix woul d have to dilute the ownership of existing
shareholders upon receipt of the equity infusion and, therefore, that Hynix did not receive a benefit in
the entire amount of that infusion. According to th e United States, "the need to dilute the ownership
of existing shareholders, even if true as a fact ual matter, is irrelevant" because "Hynix was the
recipient of the financial contribution, not the sh areholders", and any dilution would affect only the
existing shareholders, not Hynix.258 In the United States' view, a distinction has to be made between a
company and its shareholders. Otherwise, a situ ation in which a government entity holding shares in

253European Communities' third participant's submission, paras. 45-47.
254Ibid., paras. 32-34.
255United States' third participant's submission, paras. 4-5.
256Ibid., para. 3. (original emphasis).
257Ibid., para. 4.
258Ibid. (referring to Panel Report, Korea – Commercial Vessels, paras. 7.419-7.423).

a company makes a further equity infusion into the company might not confer a benefit, under the
theory that the shareholder has only benefited itself.
259 The United States further submits that the
panel in Korea – Commercial Vessels rejected this approach, in the context of a "financial
contribution" analysis.260
III. Issues Raised in This Appeal
115. The following issues are raised in the appeal filed by Japan:
(a) whether, in its review of the JIA's determin ation of "entrustment or direction" of the
Four Creditors with respect to the December 2002 Restructuring, the Panel acted
inconsistently with Article 11 of the DSU by failing to examine the JIA's evidence in
its totality; and, consequently, whether the Panel erred in finding that the JIA's
determination is inconsistent with Article 1.1(a)(1)(iv) of the SCM Agreement;
(b) whether the Panel erred in finding that the JIA acted inconsistently with
Articles 1.1(b) and 14 of the SCM Agreement by determining that the
December 2002 Restructuring conferred a benefit on Hynix;
(c) whether the Panel erred in finding that the JIA improperly calculated the amount of
benefit conferred on Hynix by the Oct ober 2001 and December 2002 Restructurings
in violation of Articles 1.1(b) and 14 of the SCM Agreement; and in failing to make
an objective assessment of the matter before it, as required by Article 11 of the DSU;
(d) whether the Panel erred in finding that the methods used by the JIA to calculate the
benefit conferred on Hynix by the Oct ober 2001 and December 2002 Restructurings
were not provided for in Japan's national le gislation or implementing regulations, as
required by the chapeau of Article 14 of the SCM Agreement; and in failing to make
an objective assessment of the matter before it, as required by Article 11 of the DSU;
and
(e) whether the Panel erred in finding that Japa n acted inconsistently with Article 19.4 of
the SCM Agreement by levying countervailing duties on imports which the JIA itself
had found were not subsidized at the time of imposition of the duty; and in failing to
make an objective assessment of the matter be fore it, as required by Article 11 of the
DSU.

259United States' third participant's submission, para. 4.
260Ibid.

116. The following issues are raised in the other appeal filed by Korea:
(a) whether the Panel erred in finding that th e JIA's determination that the October 2001
Restructuring conferred a benefit on Hynix is not inconsistent with Articles 1.1(b)
and 14 of the SCM Agreement;
(b) whether the Panel erred in finding that the JIA did not act inconsistently with
Articles 12.7 and 12.9 of the SCM Agreement by including certain financial
institutions as "interested parties" and by using "facts available" for those financial
institutions that failed to provide information;
(c) whether the Panel erred in finding that the JIA could properly characterize the
transactions at issue in the October 2001 and December 2002 Restructurings as
transactions involving "direct transfer[s ] of funds" within the meaning of
Article 1.1(a)(1)(i) of the SCM Agreement; and
(d) whether the Panel erred in finding that the JIA did not act inconsistently with
Articles 15.5 and 19.1 of the SCM Agreement, because the JIA had not demonstrated
separately that the alleged subsidized im ports were, "through the effects of the
subsidies", causing injury within the meaning of the SCM Agreement.
IV. The JIA's Determination of Entrustment or Direction with respect to the
December 2002 Restructuring
117. We begin our consideration of the issues raised in this appeal by examining Japan's claim that
the Panel adopted an erroneous approach to its re view of the determination of "entrustment or
direction" by Japan's investigating authorities (t he "JIA") with respect to a debt-restructuring
programme entered into by Hynix Semiconductor, Inc. ("Hynix") and its creditors in December 2002.
118. In its determination, the JI A concluded that four of Hynix's private creditors—Korea
Exchange Bank (the "KEB"), Woori Bank, Chohu ng Bank, and National Agriculture Cooperative
Federation (the "NACF") (the "Four Creditors")—had been entrusted or directed by the Government
of Korea (the "GOK") within the meaning of Article 1.1(a)(1)(iv) of the SCM Agreement to
participate in the debt-restructuring programmes entered into by Hynix and its creditors (the
"Restructurings") in October 2001 and December 2002 261, and that their participation in the
Restructurings amounted to "financial contributio ns" within the meaning of subparagraph (i) of
Article 1.1(a)(1). The JIA made no finding of entrustment or direction in respect of the remaining

261Panel Report, para. 7.50.

creditors that also participated in the Restructurings (the "Other Creditors").
262 The Panel summarized
the reasoning underpinning the JIA's finding of entrustment or direction as follows:
In a nutshell, the JIA found that the decisions of the Four Creditors to
participate in the [R]estructurings were not commercially reasonable,
and could therefore only be explained by some external, non-
commercial factor, namely the involvement in the [R]estructurings of
the [GOK]. To support this explanation various statements by
Government ministers, officials and others, and non-attributed
statements, and various circumstances relating to the
[R]estructurings, were referred to in the JIA's determination as
circumstantial evidence of entrustm ent or direction. It was the
totality of this evidence that was the basis for the JIA's finding.
263
119. Before the Panel, Korea claimed that Japan had acted inconsistently with its obligations under
Article 1.1(a) of the SCM Agreement because the JIA did not have a proper basis for its finding that
the GOK entrusted or directed the Four Cred itors to participate in the October 2001 and
December 2002 Restructurings. 264 In particular, Korea argued that the JIA's determination of
entrustment or direction was based on a so-cal led "syllogism" consis ting of three premises 265: (i) the
GOK's intent to "keep Hynix alive"; (ii) that no rational creditor would have entered into the
restructuring transactions in view of Hynix's poor an d deteriorating financial condition; and (iii) the
lack of evidence establishing that the Four Cred itors had conducted a suffic ient analysis of the
commercial reasonableness of the October 2001 an d December 2002 Restructurings before entering
into them.266 For Korea, "each of the premises of the JIA's syllogism was flawed, because they were
based on presumptions rather than evidence." 267 The Panel noted that Korea did not challenge the
basic methodological approach adopted by the JIA. Rather, it challenged the validity of several
intermediate conclusions reached by the JIA to arrive at its determination of entrustment or
direction.268
120. The Panel identified, at the outset, the standard of review that it intended to apply in its
examination of the JIA's subsidy determination. On the basis of Article 11 of the DSU, and the

262Panel Report, para. 7.50.
263Ibid., para. 7.51.
264Ibid., para. 7.52.
265At the oral hearing, Korea indicated that, alt hough its argument is, strictly speaking, not a
"syllogism", it nevertheless contends that the JIA had relied on these three premises for its finding on
entrustment or direction.
266See Panel Report, para. 7.57.
267Ibid., para. 7.59.
268Ibid., para. 7.61.

guidance provided by the Appellate Body in US – Countervailing Duty Investigation on DRAMS and
US – Softwood Lumber VI (Article 21.5 – Canada), the Panel stated:
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 reached. 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 determin ation. At the same time, we
believe that our examination of the JIA's conclusions must be critical
and searching, and that we would no t be fulfilling our function if we
were to simply defer to the conclusions of the JIA.
269
121. The Panel began its analysis by examining certa in "legal, interpretational and evidentiary"
issues raised by the parties' claims and arguments. 270 First, with respect to the concept of
"entrustment or direction" under Article 1.1(a)(1)(iv) of the SCM Agreement , the Panel noted the
clarification provided by the Appellate Body that a finding of entrustment or direction "requires that
the government give responsibility to a private bod y—or exercise its authority over a private body—
in order to effectuate a financial contribution." 271 Secondly, with respect to the evidentiary standard,
the Appellate Body stated that "neither the SCM Agreement nor the DSU explicitly articulates a
standard for the evidence required to substantiate a finding of entrustment or direction", and that
neither the SCM Agreement nor the DSU imposes upon an investigating authority "[any] particular
standard for the evidence supporting its finding of entrustment or direction." 272 The Panel therefore
held that, in addressing the substantive arguments made by the parties, it will "simply examine
whether or not the JIA's evidence could support its conclusion of entrustment or direction."273
122. Having thus set out the standard of review, the Panel turned to examine the JIA's
determination of entrustment or direction with respect to the October 2001 and December 2002
Restructurings. Based on its review of the evid ence relied upon by the JIA with respect to the

269Panel Report, para. 7.43 (referring to Appellate Body Report, US – Countervailing Duty
Investigation on DRAMS, paras. 186-188; and Appellate Body Report, US – Softwood Lumber VI (Article 21.5 –
Canada), para. 93). (footnote omitted)
270Ibid., para. 7.61.
271Ibid., para. 7.62 (quoting Appellate Body Report, US – Countervailing Duty Investigation on
DRAMS, para. 138).
272Ibid., para. 7.77 (quoting Appellate Body Report, US – Countervailing Duty Investigation on
DRAMS, para. 138).
273Ibid., para. 7.81.

October 2001 Restructuring, the Panel held that such evidence "could properly be interpreted as
indicating that the [GOK] had a preference for the c ontinued existence of Hynix, and that the [GOK]
was prepared to intervene directly in the Hynix restructuring process."
274 The Panel found that certain
reports regarding announcements made by the Econ omic Ministers in July 2001, relied upon by the
JIA, could properly be interpreted by an objective and impartial investigating authority "as evidence
that the [GOK] intended to pursue the restructuring of Hynix beyond the May 2001
[R]estructuring."275 The Panel concluded, referring to certa in statements emanating from one Hynix
creditor and a statement concerning the Korea De velopment Bank (the "KDB") relied upon by the
JIA, that:
... an objective and impartial inves tigating authority might properly
conclude from these statements, read in light of relevant evidence
regarding the October 2001 [R]estructuring, that the [GOK] was
directly involved in the December 2002 [R]estructuring, and that this
was because the [GOK]'s intent was that Hynix should be saved.
276
123. After a review of certain other evidence before the JIA, the Panel further found that "the JIA
could properly have concluded that the balance of the record evidence did indicate that the [GOK]
was prepared to intervene directly in the Hynix restructuring process"277 and that:
[f]aced with evidence of government pressure on Hynix creditors in
the recent past, and evidence that the [GOK] was prepared to
intervene directly in order to preserve Hynix as a going concern at
the time of the October 2001 and December 2002 [R]estructurings, ...
the JIA could properly have concluded that the [GOK] had the
political intent to save Hynix at the time of those [R]estructurings—
through direct intervention if necessar y—even if not all of the record
evidence pointed in this direction.
278
124. Summing up its review of the evidence before it, the Panel found, with respect to the first
premise of Korea's syllogism, that "the JIA could pr operly have concluded that the [GOK] intended to
save Hynix at the time of the October 2001 and December 2002 [R]estructurings."279
125. The Panel then turned to assess Korea's argumen t that the evidence on record did not support
the JIA's conclusion that the decisions of the Four Creditors to partic ipate in the Restructurings were
based on non-commercial considerations. The Panel rejected Korea's argument insofar as it related to

274Panel Report, para. 7.105.
275Ibid., para. 7.107.
276Ibid., para. 7.109.
277Ibid., para. 7.113. (footnote omitted)
278Ibid., para. 7.113.
279Ibid., para. 7.114.

the October 2001 Restructuring. 280 However, with respect to the December 2002 Restructuring, the
Panel found that the JIA had erred in concluding that the Four Creditors' participation in that
Restructuring was based on non-commercial considerati ons. The Panel's review of this issue focused
on the JIA's treatment of a restructuring plan prep ared by Deutsche Bank that was made available to
Hynix's creditors at the time they undertook the December 2002 Restructuring (the "Deutsche Bank
Report").
281 After an analysis of various aspects of the Deutsche Bank Report, the Panel concluded
that "the JIA's determination that the Deutsche Bank Report did not provide the existing creditors with
a proper commercial basis for participating in th e December 2002 [R]estructuring was not reasonable
and objective."282
126. The Panel summed up the results of its analysis of entrustment or direction as follows:
[W]e note that the JIA's determination of entrustment or direction
was based on "the totality of numerous items of evidence obtained".
We also note that the JIA began its summary of its determination of
entrustment or direction regarding the December 2002
[R]estructuring by referring to its finding that the Four Creditors'
decisions to participate in that [R]estructuring "were not based on
commercial consideration[s]". 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 Creditors'
participation in the [R]estructuring 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 [Restructuring] was not commercially
reasonable, revealing a fatal flaw in the JIA's determination of
entrustment or direction. While th e JIA also based its determination
of entrustment or direction on evidence that the [GOK] "was in a
position to be able to exercise sufficient influence on" the Four
Creditors, and that the [GOK] "had the political intent to have Hynix
survive", and "had been ascertaining at all times the progress of
discussion of the December 2002 Program", the JIA declined to find
that such evidence in and of itself (i.e., absent consideration that the
[R]estructuring was not commercially reasonable) demonstrated that
the [GOK] gave responsibility to the Four Creditors, or actually
exercised any authority over the Four Creditors, in order to effectuate
the December 2002 [R]estructuring. Since the JIA made no such
finding, there is no basis for us to conclude whether or not the JIA

280Panel Report, para. 7.252. Korea does not appeal this finding by the Panel.
281Exhibit KOR-20 submitted by Korea to the Panel. See Panel Report, paras. 7.155-7.247.
282Ibid., para. 7.245.

could properly have relied on such evidence (absent consideration
that the [R]estructuring was not commercially reasonable) to make a
determination of government entrustm ent or direction. 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.
283
127. The Panel concluded that, because the JIA coul d not properly have found that the Four
Creditors' participation in the December 2002 Rest ructuring was not commercially reasonable, the
JIA did not have a proper basis for its determination th at the Four Creditors were entrusted or directed
by the GOK to participate in the December 2002 Restruct uring, contrary to Article 1.1(a)(1)(iv) of the
SCM Agreement.284
128. On appeal, Japan alleges several errors in the Panel's review of the JIA's determination of
entrustment or direction with respect to the Decembe r 2002 Restructuring. Japan contends, first, that
the Panel erred by limiting the scope of its review to the Deutsche Bank Report in isolation, without
considering, as did the JIA, whether the eviden ce in its totality supported the JIA's finding of
entrustment or direction. 285 For Japan, the Panel's approach would make it impossible for an
investigating authority to rely on the totality of evidence, because under the Panel's approach "a flaw
in [the investigating authority's] assessment of one of many pieces of evidence would necessarily
invalidate the entire determination."
286 Besides challenging the Panel's review of the JIA's overall
finding of entrustment or direction, Japan also fi nds fault with the Panel's review of the JIA's
intermediate finding on the commercial reasonableness of the Four Creditors' participation in the
December 2002 Restructuring. In particular, Japan contends that the Panel employed an improper
approach to its review of the JIA's findings with respect to the Deutsche Bank Report and did not give
adequate consideration to other circumst antial evidence supporting the JIA's conclusion. 287 I n t h e
light of these alleged errors, Japan claims that th e Panel failed to comply with its obligations under
Article 11 of the DSU and requests us to reverse th e Panel's finding on entrustment or direction with
respect to the December 2002 Restructuring.288
129. Korea disputes Japan's submissions and contends that the Panel's findings with respect to the
commercial reasonableness of the Four Creditors' par ticipation in the restructuring process are factual
findings that are beyond the scope of appellate review . In any event, Korea rejects Japan's allegation
that the Panel acted inconsistently with Article 11 of the DSU in its review of the JIA's determination

283Panel Report, para. 7.253.
284Ibid., para. 7.254.
286Ibid., para. 70.
287Ibid., para. 74.

of entrustment or direction. First, according to Korea, the standard of review applied by the Panel
was consistent with the standard id entified by the Appellate Body in US – Countervailing Duty
Investigation on DRAMS and in subsequent cases. 289 Secondly, Korea submits that a review of the
Panel's decision confirms that the Panel "refused to substitute its judgment for that of the JIA" and
that, viewed as a whole, the Panel did not engage in a de novo review.290 Korea also disagrees with
Japan's assertion that the Panel committed errors in it s review of the JIA's findings with respect to the
Deutsche Bank Report.
130. The participants do not contest the Panel's articulation of the standard of review. 291 Japan
contends, rather, that the Panel erred in its application of the standard of review as prescribed by
Article 11 of the DSU, and as clarified by the Appellate Body in US – Countervailing Duty
Investigation on DRAMS and US – Softwood Lumber VI (Article 21.5 – Canada). We therefore turn to
consider whether the Panel properly applied the sta ndard of review in its assessment of the JIA's
determination of entrustment or direction with respect to the December 2002 Restructuring.292
A. The Panel's Review of the JIA's Determination of Entrustment or Direction
131. The Appellate Body has previously found that "when an investigating authority relies on the
totality of circumstantial evidence, this imposes upon a panel the 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."293 In addition, if an investigating authority explains that the totality of the evidence
supports the conclusion reached, a panel must undertake a critical examination of whether, in the light
of the evidence on record, the investigating au thority's conclusion was reasoned and adequate.294 The
Appellate Body has also said that errors in an investigating authority's examination of individual
pieces of evidence "undoubtedly would affect an examination of the totality of the evidence, as these
pieces would constitute the evidence the Panel would consider as a whole in assessing the evidentiary

289Korea's appellee's submission, paras. 53-55 (referring to Appellate Body Report, US –
Countervailing Duty Investigation on DRAMS , paras. 186-188; and Appellate Body Report, US – Softwood
290Ibid., paras. 56 and 57.
291Japan's and Korea's responses to questioning at the oral hearing.
292We note that Korea has not appealed the Panel's finding that the JIA had a proper basis for finding
that the GOK entrusted or di rected the Four Creditors to participate in the October 2001 Restructuring. (See
Panel Report, para. 7.252) The Panel's finding of entrustment or direction, as it relates to the October 2001
Restructuring, therefore stands.
293Appellate Body Report, US – Countervailing Duty Investigation on DRAMS , para. 157. (original
emphasis).
294Appellate Body Report, US – Softwood Lumber VI (Article 21.5 – Canada), para. 93.

support of [an investigating authority's] finding of entrustment or direction."
295 Finally, we recall the
Appellate Body's statement that, "in order to exam ine the evidence in the light of the investigating
authority's methodology, a panel's analysis usually sh ould 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 considering whether the evidence could sustain that inference."296
132. The Panel in this case recognized that the JIA based its determination of entrustment or
direction on "the totality of numerous items of evidence obtained". 297 In particular, the Panel
acknowledged that the JIA relied on evidence that the GOK "'was in a position to be able to exercise
sufficient influence on' the Four Creditors, and that the [GOK] 'had the political intent to have Hynix
survive', and 'had been ascertaining at all tim es the progress of discussion of the December 2002
[Restructuring]'."298 However, the Panel found that it had "no basis" to assess whether the JIA could
have sustained its finding on entrustm ent or direction by recourse to evidence other than the evidence
concerning commercial reasonableness. The Panel r easoned that since the JIA had not undertaken
such an exercise, the Panel could not do so, as this would amount to a de novo review.299
133. We disagree with the approach adopted by th e Panel. The JIA came to its finding on
entrustment or direction based upon a consideration of the totality of evidence before it. It is not
evident to us that the JIA accorded such decisive weight to the i ssue of commercial reasonableness as
to render insignificant other evidence relating to th e GOK's intent to save Hynix and its intervention
in the restructuring process. The JIA made a holis tic assessment of the evidence before it. While
commercial reasonableness, in particular the Deut sche Bank Report, may have been an important
factor in its considerations, it is unreasonable to e xpect the JIA to have engaged upon an enquiry as to
whether other evidence would, by itself, have su stained its finding on entrustment or direction. 300
This is because the JIA cannot be expected to proceed on the basis that certain aspects of its reasoning
would later be found to be faulty.

295Appellate Body Report, US – Countervailing Duty Investigation on DRAMS , para. 154. (original
emphasis).
296Ibid., para. 151. (original emphasis).
297Panel Report, paras. 7.51, 7.73, and 7.253 (referring to JIA's Final Determination, Annex 1
(Essential Facts), paras. 285 and 288; and JIA's Final Determination, Annex 3 (Rebuttals and Surrebuttals),
para. 20).
298Ibid., para. 7.253 (referring to JIA's Final Determination, Annex 1 (Essential Facts), para. 370).
299Ibid., para. 7.253. In its appellant's submission, Japan disputes the Panel's assertion that the JIA
"declined" to find that such other evidence was sufficient to support the JIA's conclusion of entrustment or
direction. (Japan's appellant's submission, para. 71)
300See footnote 304 of this Report.

134. The Panel should have considered whether the remaining evidence before the JIA provided an
objective basis for finding entrustment or direction, notwithstanding the Panel's conclusion that the
JIA's assessment of the Deutsche Bank Report was flawed. That could only have been done by
considering the totality of the evidence, including, in particular, the evidence relating to the intent and
involvement of the GOK in the Restructurings. Th is is particularly so given the Panel's earlier
findings that "the JIA could properly have concluded that the balance of the record evidence did
indicate that the [GOK] was prepar ed to intervene directly in the Hynix restructuring process" 301 and
that, "[f]aced with evidence of government pressu re on Hynix creditors in the recent past, and
evidence that the [GOK] was prepar ed to intervene directly in order to preserve Hynix as a going
concern at the time of the October 2001 and December 2002 [R]estructurings, ... the JIA could
properly have concluded that the [GOK] had the politi cal intent to save Hynix at the time of those
[R]estructurings—through direct intervention if n ecessary—even if not all of the record evidence
pointed in this direction".
302 The Panel did not undertake such an examination, and thereby failed
properly to apply the required standard of review.
135. We recognize that there may be cases in wh ich certain intermediate findings may be so
central to the ultimate conclusion of an investigating au thority that an error at an intermediate stage of
reasoning may invalidate the final conclusion. In deed, an evaluation of the significance of the
different factors considered by an investigating authority is at the heart of the assessment a panel must
make. What a panel should not do is to have recourse to an a priori "syllogism" that accords
presumptive weight to certain propositions. This is al l the more so when this was not the approach to
the evaluation of the evidence adopted by the investigating authority.
136. In this case, the Panel's finding on the GOK's in tent and involvement in the restructuring
process—that the JIA could properly have conclude d that the GOK intended to save Hynix and that
the GOK was prepared to intervene directly in the Hynix restruct uring process—is common to both
the October 2001 and December 2002 Restructurings. 303 The Panel found that the October 2001
Restructuring involved entrustment or direction on the basis of its upholding the JIA's determination
that the participation of the Four Creditors in th at Restructuring was not commercially reasonable.
The Panel found that the December 2002 Restructur ing did not involve entrustment or direction

301Panel Report, para. 7.113.
302Ibid. See also ibid., paras. 7.109 and 7.114.
303Ibid., paras. 7.113 and 7.114.

because it concluded that the JIA had not properly established that the participation of the Four
Creditors in that Restructuring was not commercially reasonable. Thus, it seems to us that the sole
basis on which the Panel came to different conc lusions on entrustment or direction in the two
Restructurings was its findings on the commercial reasonableness of the Four Creditors' participation
in those Restructurings.
137. The Panel did not adequately explain why a fi nding of commercial reasonableness, by itself,
was indispensable for the ultimate finding of entrustm ent or direction. We are unable to discern from
the JIA's determination that the JIA considered co mmercial reasonableness to be indispensable for its
ultimate finding of entrustment or direction. Even if the Panel were correct that the JIA's finding on
commercial unreasonableness lacked evidentiary suppor t, that alone would not necessarily invalidate
the JIA's determination of entrustmen t or direction. As we have st ated above, the Panel should have
considered whether, in the light of the remaini ng evidence, the JIA could nevertheless have reached
its finding on entrustment or direction.
304
138. We recognize that the commercial unreasonableness of the financial transactions is a relevant
factor in determining government entrustment or direction under Article 1.1(a)(1)(iv) of the SCM
Agreement, particularly where an investigating author ity seeks to establish government intervention
based on circumstantial evidence. However, this does not mean that a finding of entrustment or
direction can never be made unless it is establis hed that the financial transactions were on non-
commercial terms. A finding that creditors acted on the basis of commercial reasonableness, while
relevant, is not conclusive of the issue of entrus tment or direction. A government could entrust or
direct a creditor to make a loan, which that credito r then does on commercial terms. In other words,

304We note, in this regard, that the JIA's determination refers to, inter alia , certain other evidence
suggesting that the GOK was in a position to control or influence the decisi ons of the Four Creditors: the
GOK's shareholding power in the Four Creditors; a Memorandum of Understanding entered into between
certain of the Four Creditors and a government body (the Korea Deposit Insurance Corporation); and bank debt
guarantees provided by the GOK. (See JIA's Final Determination, Annex 1 (Essential Facts), paras. 58, 60-63,
79-81, 351, 356, and 359) The Panel did not examine this evidence. See also supra, para. 134.

as a conceptual matter, there could be entrustmen t or direction by the government, even where the
financial contribution is made on commercially reasonable terms.305
139. In the light of the above, we find that the Panel did not conduct an objective assessment of
the matter before it, as required by Article 11 of the DSU, because it failed to examine whether the
JIA's evidence in its totality supported the JIA's finding of entrustment or direction.
B. The Panel's Conclusion under Article 1.1(a)(1)(iv) of the SCM Agreement
140. Following its examination of the evidence a nd intermediate findings underlying the JIA's
determination of entrustment or di rection, the Panel concluded that "the JIA did not have a proper
basis for finding that the Four Creditors were entrusted or directed by the [GOK] to participate in the
December 2002 [R]estructuring, contrary to Article 1.1(a)(1)(iv) of the SCM Agreement."306
141. We have found that the Panel applied an errone ous approach to its analysis of the JIA's
finding of entrustment or direction and, thereby, failed to apply the proper standard of review in
accordance with Article 11 of the DSU. In our view, this inva lidates the basis for the Panel's
conclusion, quoted above, that the JIA could not have properly found entrustment or direction. 307
Because this conclusion is the sole basis for the Panel's finding of inconsistency with

305At the oral hearing, Korea acknowledged that the issues of entrustment or direction and of benefit
are two separate legal requirements and that the commercia lity of the financial contributions is more relevant to
determine the issue of benefit. We also note that, in response to Question 64 posed by the Panel, Korea asserted
that:
[a]s 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, there might be
entrustment or direction, but there would also be no benefit to the recipient
—and, as a result, there would be no subsidy.
(Panel Report, para. 7.66)
The Panel understood Korea to accept that:
... as a legal matter, ... an investigati ng 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.
(Ibid., para. 7.67)
306Ibid., para. 7.254.
307We note that Korea agrees that a finding of error under Article 11 of the DSU, with respect to the
Panel's standard of review, would require a reversal of the Panel's finding that the JIA's determination is
inconsistent with Article 1.1(a)(1)(iv) of the SCM Agreement . (Korea's response to questioning at the oral
hearing)

Article 1.1(a)(1)(iv) of the SCM Agreement , we reverse the Panel's finding, in paragraphs 7.254
and 8.2(a) of the Panel Report, that the JIA's dete rmination of entrustment or direction of the Four
Creditors by the GOK with resp ect to the December 2002 Restructuring is inconsistent with
Article 1.1(a)(1)(iv) of the SCM Agreement . In these circumstances, for purposes of assessing the
Panel's review of the JIA's entrustment or direc tion determination, we find it unnecessary to examine
Japan's arguments regarding the issue of commercial reasonableness.
308
142. We note that neither participant has requested, in its written submission, that we complete the
legal analysis by undertaking our own review of th e JIA's finding of entrustment or direction if we
were to reverse the Panel's fi nding of inconsistency with Article 1.1(a)(1)(iv) of the SCM Agreement.
At the oral hearing, Korea tentatively suggested that we complete the analysis but recognized the
difficulty of such a task. We do not consider that the participants have addressed sufficiently, in their
submissions, those issues we might need to examine in order to complete the analysis in this case,
including the probative value of certain evidence not considered by the Panel. In these circumstances,
we are not in a position to, and therefore do not, complete the analysis to reach our own conclusion on
the consistency of the JIA's determination of entrustm ent or direction with Article 1.1(a)(1)(iv) of the
SCM Agreement.
V. The JIA's Determination of Benefit with respect to the December 2002 Restructuring
143. The Panel found that "the JIA's erroneous analys is (in form and substance) of the Deutsche
Bank Report invalidated the JIA's finding that the Fo ur Creditors' participation in the December 2002
[Restructuring] was not commercially reasonable." 309 As the Panel also found that "the JIA
determined benefit by reference to the market, and commercial reasonableness" 310, the Panel
concluded that the JIA's determination of "b enefit" for the December 2002 Restructuring was
inconsistent with Articles 1.1(b) and 14 of the SCM Agreement.311
144. Japan requests that we reverse the Panel's fi nding that the JIA improperly determined the
existence of benefit for the December 2002 Restruct uring. According to Japan, the Panel conducted

308In response to questioning at the oral hearing, Japan agreed that we would not be required to
examine Japan's arguments regarding commercial reasonableness to the extent that we agree with Japan that the
Panel erred in its review of the finding of entrustment or direction by the JIA under Article 1.1(a)(1)(iv) of the
SCM Agreement with respect to the December 2002 Restructuring. However, we address these arguments in
Section V of this Report in the context of our examinati on of the JIA's determination of benefit with respect to
the December 2002 Restructuring.
309Panel Report, para. 7.282.
310Ibid. In the light of its finding, the Panel did not consider it necessary to examine other issues raised
by Korea relating to the JIA's determ ination of benefit with respect to the December 2002 Restructuring. ( Ibid.,
para. 7.285)
311Ibid., para. 8.2(b).

no substantive or independent analysis of the JIA's determination of benefit and based its finding on
this issue solely on its earlier finding on government entrustment or direction. As the finding of the
Panel on entrustment or direction was, according to Japan, erroneous, the Panel's finding on the
benefit issue should also be rejected.312
145. Korea contends that Japan's appellant's su bmission does not satisfy the requirements of
Rule 21(2) of the Working Procedures and the requirements of due process. Korea asserts, in
particular, that it had "not been given adequate notice of the nature of Japan's arguments or an
adequate opportunity to refute them".313
146. Japan provides extensive arguments, in its appella nt's submission, to support its assertion that
the Panel's review of the JIA's determinati on of entrustment or direction is erroneous. 314 As we see it,
a careful reading of Japan's appellant's submis sion should have indicated to Korea that these
arguments are also relevant with respect to the Pa nel's review of the JIA's benefit determination.
Therefore, in our view, Japan's appellant's submis sion satisfies the requirements of Rule 21(2) of the
Working Procedures and of due process.
147. We proceed to examine the Panel's review of the JIA's analysis of the commercial
reasonableness of the Four Creditors' participati on in the December 2002 Restructuring in order to
assess whether the Panel erred in its finding on the JI A's benefit determination. In doing so, we note
that the Panel's finding concerning the JIA's bene fit determination was premised on the Panel's
previous finding that the JIA failed to properly establis h that the participation of the Four Creditors in
the December 2002 Restructuring "was based on non-commercial considerations".315
A. The Panel's Review of the JIA's Analysis of Commercial Reasonableness
148. In its determination, the JIA rejected the Deutsche Bank Report as proof of the commercial
reasonableness of the Four Creditors' participa tion in the December 2002 Restructuring "for both
formal and substantive reasons".316 As to form, the JIA questioned the independence of the Deutsche
Bank Report on, inter alia, the basis that the GOK had intervened in the preparation of that Report. 317
As to substance, the JIA found that the Deutsch e Bank Report contained discrepancies, which "should

314Japan's appellant's submission, Section II.
315Panel Report, para. 7.282.
316Ibid., para. 7.159.
317JIA's Final Determination, Annex 1 (Essential Facts), para. 341.

have been easy for a person who engages in the corporate financing business to identify"
318, and
concluded therefore that "the Deutsche Bank Report, reviewed from the aspect of its content as well,
is not a sufficient basis for the commercial fi nancing judgment of experienced financial
institutions."319
149. Japan argues that the Panel committed several erro rs in its examination of the Deutsche Bank
Report. First, although the Panel examined th e evidence regarding nine press reports allegedly
showing the GOK's intervention in the preparation of the Deutsche Bank Report, it failed to consider
these press reports in their totality and in the contex t in which the JIA made its finding. Secondly, the
Panel committed errors in its review of the JIA's analysis of the relevance of certain evidence,
including misstating some of the JIA's findings, and examining an issue for which Korea did not even
present relevant evidence or arguments. Thirdly, the Panel erred by rejecting certain arguments by
Japan as ex post rationalizations. According to Japan, the Panel's approach was inconsistent with its
obligations under Article 11 of the DSU.
150. Korea disagrees with Japan's asser tion that the Panel committed errors in its review of the
JIA's findings with respect to the Deutsche Bank Report. 320 Korea also rejects Japan's contention that
the Panel failed to properly exam ine the press reports relied upon by the JIA to indicate that the GOK
had intervened in the preparation of the Deutsche Bank Report.
151. We begin by examining Japan's arguments rela ting to the "formal" reasons underlying the
JIA's rejection of the Deutsche Bank Report.
1. The Independence of the Deutsche Bank Report
152. Japan submits that the JIA reli ed upon certain press reports in their totality as evidence "in
order to impugn the commercial reliability of the De utsche Bank Report, and to therefore find that the
decisions made by the Four Creditors to enter into the December 2002 [R]estructuring were not
commercially based."321 According to Japan, the Panel failed to follow the same approach. Instead,
the Panel "required that an individual piece of evidence, in and of itself, establish the JIA's
intermediate factual finding of the intervention by the GOK in the preparation of the Deutsche Bank
Report."322

318JIA's Final Determination, Annex 1 (Essential Facts), para. 345.
319Ibid.
322Ibid., para. 80.

153. We disagree with Japan's characterization of the Panel's reasoning. The Panel stated:
Although we necessarily begin by reviewing the reports individually,
we also consider them collectively, in case aspects of different [press
reports relied on by the JIA] toge ther might support a finding of
government intervention even wher e reports taken individually do
not.323 (footnote omitted)
154. Thus, contrary to what Japan suggests, the Pa nel did not fail to consider the press reports
collectively. Rather, it found that "the reports re lied on by the JIA—whether read in isolation or as a
whole—provide precious little support for a finding that the [GOK] intervened in the preparation of
the Deutsche Bank Report."324
155. Japan also faults the Panel's examination of the issue of whether the Deutsche Bank Report
favoured the interests of Hynix over those of the creditors. 325 As we see it, Japan mischaracterizes the
Panel's reasoning on this issue; the Panel merely examined the question of whether the JIA could
properly have called into question the independe nce of the Deutsche Bank Report on the basis of
certain evidence on record.
156. Japan further submits that the Panel erred by making a finding on the relevance of a
consultancy contract, although "Korea did not subm it necessary evidence and argument to establish a
prima facie case" in this regard.326 Moreover, according to Japan, the Panel collected the evidence of
the relevant "contract ex officio in March 2007 well after both Pa nel sessions and the submission of
all arguments by the parties" 327 and failed to provide the parties with an opportunity to present their
views on the relevance of the contract for the purpose of its analysis.

323Panel Report, para. 7.172.
324Ibid., para. 7.182. In particular, the Panel reported that its analysis of the press reports as a whole
had found that:
... 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. ...
Furthermore, there is nothing in the other reports which might add weight to
a finding 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 [GOK] intervened in the
preparation of the Deutsche Bank Report.
(Ibid.) (footnotes omitted)
325See Japan's appellant's submission, paras. 120-124 (referring to Panel Report, paras. 7.166
and 7.167). See also ibid., subheading II.4.(b)(ii), p. 40.
326Ibid., para. 138.
327Ibid., para. 135.

157. Contrary to what Japan appears to suggest, the relevant consultancy contract was not
submitted to the Panel for the first time at the end of the Panel proceedings.
328 Instead, Japan had
included it as an exhibit to its fi rst written submission to the Panel. 329 We agree with Korea in this
respect that "[t]he Panel's consideration of a contract that Japan itself submitted in support of its initial
arguments obviously does not constitute a denial of Japan's due process rights." 330 Japan's reference
to Korea's failure to establish a prima facie case is also misguided. In this case, the Panel rightly
conducted its own assessment of the relevance of the consultancy contract.
2. The Substance of the Deutsche Bank Report
(a) Whether the Panel Properly Rejected Certain of Japan's Arguments
as Ex Post Rationalizations
158. Japan claims that the Panel erred in treating as ex post rationalizations certain of Japan's
arguments relating to the way in which the Deutsche Bank Report analyzed the rate of return to
creditors under the liquidation scenario. 331 In Japan's view, the Panel acted inconsistently with its
obligations under Article 11 of the DSU by refusing to consider Japan's arguments.332 Korea contests
Japan's assertion and points out that the JIA did not address those issues in its determination of
"entrustment or direction". The Panel was therefore correct in rejecting them as ex post
rationalizations.
159. In our view, it follows from the requirement that the investigating authority provide a
reasoned and adequate explanati on for its conclusions, that the underlying rationale behind those
conclusions be set out in the investigating authority's determination. It is on the basis of the rationale
or explanation provided by the investigating author ity that a panel must examine the consistency of
the determination with a covered agreement, in cluding whether the investigating authority has
adequately explained how the facts support the determ ination it has made. Just as a panel must focus
in its review on the rationale or explanation provided by the investigating authority in its report, so,
too, is the respondent Member precluded during th e panel proceedings from offering a new rationale
or explanation ex post to justify the investigating authority's determination.333

328Japan acknowledged this in response to questioning at the oral hearing.
329Exhibit JPN-02-368 submitted by Japan to the Panel.
331Japan's appellant's submission, paras. 155 and 158 (referring to Panel Report, paras. 7.216 and 7.220,
respectively).
332Ibid., para. 158.
333See Appellate Body Report, US – Countervailing Duty Investigation on DRAMS , para. 159 and
footnote 293 thereto.

160. Based on our review of the Panel's analysis, we find that the Panel was correct in concluding
that Japan's arguments in this respect were ex post facto rationalizations and thus fell outside the
scope of the Panel's review. We therefore dismiss this ground of Japan's appeal.
(b) Admission of Error by Hynix
161. The Panel observed that the final alleged "discrepancy" in the Deutsche Bank Report
identified by the JIA was an error, allegedly adm itted by Hynix, which when corrected would have
had the effect of reducing each of the recovery rates under the going concern scenarios by a certain
amount.334
162. Japan argues that "[n]owhere in its Report did th e Panel consider the effect of the correction
of the error or the meaning thereof in accordance with what [the] JIA analyzed." 335 In this way,
according to Japan, the Panel acted inconsistently with Article 11 of the DSU by making a de novo
review of the evidence to reach its own findings. We disagree with Japan. As we see it, the Panel
properly examined the evidence befo re it and found that the alleged error was "nothing more than a
typographical error" that did not require correction. 336 This finding appears to be reasonable and
within the discretion of the Panel. Therefore, we see no reason to disturb the Panel's finding that
"Hynix had not identified any analytical error that required correction."337
B. Conclusion
163. We are not persuaded by Japan's argument that the Panel failed to comply with its obligations
under Article 11 of the DSU in its review of the JIA' s analysis of commercial reasonableness. To the
contrary, it seems to us that the Panel conducted an objective appraisal of the JIA's determination of
commercial reasonableness. Based on its analysis, the Panel found that "the JIA's rejection of the
Deutsche Bank Report played a central role in its conclusion that the participation of the Four
Creditors in the December 2002 [R]estructuring was not commercially reasonable to the extent that it
coloured the JIA's assessment of the Four Cred itors' internal analyses of the [R]estructuring." 338
Recalling its finding that an objective and impartial investigating authority could not have rejected the
Deutsche Bank Report on the grounds selected by the JI A, the Panel determined that "the JIA could
not properly have relied on the Deutsche Bank Report as a basis for concluding that the participation

334Panel Report, para. 7.239 (referring to JIA's Fi nal Determination, Annex 3 (Rebuttals and
Surrebuttals), para. 502).
336Panel Report, para. 7.244.
337Ibid.
338Ibid., para. 7.247.

of the Four Creditors in the December 2002 [R]estructuring was not commercially reasonable."
339 We
see no reason to disturb this finding by the Panel.
164. Accordingly, we uphold the Panel's finding, in paragraphs 7.282 and 8.2(b) of the Panel
Report, that the JIA acted inconsistently with Article 1.1(b) and Article 14 of the SCM Agreement by
improperly determining that the December 2002 Restructuring conferred a benefit on Hynix.
VI. Calculation of the Amount of Benefit
165. Before the Panel, Korea claimed that the JI A erred in calculating the amount of benefit
conferred by the financial transactions that constituted the October 2001 and December 2002
Restructurings, because the JIA did not assign any valu e to what Hynix provided in return and did not
take into account the creditors' existing claims. According to Korea, "a proper analysis of these
transactions requires consideration of all parts of the exchanges—not only th e value of whatever the
recipient received, but also the value of whatever the recipient gave in return." 340 In the light of
"Korea's extensive argumentation regarding the di fferences between the investment perspectives of
inside and outside investors in respect of insolvent companies" 341, the Panel considered that Korea
was "essentially arguing that the JIA calculated the amount of benefit [exclusively] from the
perspective of outside investors".342
166. With respect to the JIA's calculation of the amount of benefit resulting from debt-to-equity
swaps, the Panel observed that "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." 343 Noting Korea's argument 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" 344, the Panel agreed with the panel in EC – Countervailing Measures
on DRAM Chips that "[f]or 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." The Panel also

339Panel Report, para. 7.247.
340Ibid., para. 7.299.
341Ibid., para. 7.305.
342Ibid.
343Ibid., para. 7.311.
344Ibid.

stated that, "in a benefit analysis, it is the perspective of the recipient that is important, not that of the
provider of the financial contribution."345
167. The Panel summed up its analysis of the benef it conferred by the debt-to-equity swaps as
follows:
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." In doing so, the JIA addressed the issue from the
perspective of Hynix's creditors, rather than from the position of
Hynix itself. ... [W]e consider that such an approach erroneously
overstates the amount of benefit conferred on the recipient, for it
overlooks the perspective of the recipient, i.e., Hynix, which must
dilute the ownership of existing shar eholders in return. We therefore
find this to have been a further fl aw in the JIA's calculation of the
amount of benefit.
346 (footnote omitted)
168. On the basis of the above analysis, the Panel c oncluded that the JIA calculated the amount of
benefit conferred by the Oct ober 2001 and December 2002 Restructur ings inconsistently with
Articles 1.1(b) and 14 of the SCM Agreement.347
169. On appeal, Japan requests that we reverse this finding of the Panel. According to Japan, the
Panel acted inconsistently with Article 11 of the DSU in reaching this conclusion. As we see it,
Japan's challenge is based on three main arguments. 348 First, Japan disputes the Panel's assertion that
the JIA calculated the benefit conferred by the fina ncial transactions at issue on the basis of an
exclusively outside investor benchmark. 349 Secondly, Japan contests the Panel's conclusion that the
JIA should not have treated the value of the equity that Hynix gave in return for the debt-to-equity
swaps as zero.350 Thirdly, Japan argues that dilution is irre levant in this case, given that it would have
taken place at the level of shareholders, and not at the level of Hynix.351
170. By contrast, Korea submits that the Panel ri ghtly considered the JIA's amount of benefit
analysis to be focused on the net cost to credito rs, rather than on the net benefit to Hynix, the

345Panel Report, para. 7.312 (quoting Panel Report, EC – Countervailing Measures on DRAM Chips ,
para. 7.212).
346Ibid., para. 7.313.
347Ibid., paras. 7.316 and 8.2(c).
349Ibid., para. 188.
350Ibid., para. 219.
351Ibid., para. 220.

recipient; and, further, rightly found that the JIA fa iled to take account of the fact that the additional
shares issued to creditors would dilute the ownership interest of existing shareholders.
171. We begin by examining Japan's contention that the Panel erred in finding that the JIA had
calculated the amount of benefit by reference to an "exclusively outside investor benchmark".
352
According to Japan, the "basic standa rd" that the JIA applied to both inside and outside investors was
the same: "they both seek to maximize profits or minimize losses." 353 Japan submits that the JIA
calculated the amount of benefit based on this sta ndard, and not by reference to an "exclusively
outside investor benchmark". 354 At the oral hearing, Japan refe rred to this standard as a "rational
investor" standard.355 Japan also disputes that it admitted be fore the Panel that an "inside investor"
standard was the appropriate benchmark for this case.356
172. We do not consider the distinction between inside and outside investors to be helpful in order
to determine the appropriate benchmark for calcula ting the amount of benefit under Articles 1.1(b)
and 14 of the SCM Agreement.357 The terms of a financial transaction must be assessed against the
terms that would result from unconstrained exchange in the relevant market. The relevant market
may be more or less developed; it may be made up of many or few participants. By way of example,
there are now well-established markets in many economies for distressed debt, and a variety of
financial instruments are traded on these markets. In some instances, the market may be more
rudimentary. In other instances, it may be difficult to establish the relevant market and its results.
But these informational constraints do not alter th e basic framework from which the analysis should
proceed. We also do not consider that there are diffe rent standards applicable to inside and to outside
investors. There is but one standard—the market standard—according to which rational investors act.
173. Article 14 of the SCM Agreement, entitled "Calculation of the Amount of a Subsidy in Terms
of the Benefit to the Recipient", provides guidance as to how the relevant market shall be identified.
Specifically, with respect to "government provision of equity capital", Article 14(a) stipulates that
such equity infusions "shall not be considered as conferring a benefit, unless the investment decision
can be regarded as inconsistent with the usual invest ment practice of private investors in the territory
of that Member". In respect of loans, Article 14(b) provides that "a loan by a government shall not be

353Ibid., para. 187.
354Ibid., para. 190.
355Japan's response to questioning at the oral hearing.
356Ibid.
357Japan and Korea agreed with this view at the oral hearing. The European Communities argued that
there is no distinction between an inside and an outside investor standard and that there are no two separate
standards. (European Communities' response to questioning at the oral hearing)

considered as conferring a benefit, unless there is a difference between the amount that the firm
receiving the loan pays on the government loan and the amount the firm would pay on a comparable
commercial loan which the firm could actually obtain on the market." In the latter case, "the benefit
shall be the difference between these two amounts." Thus, under Article 14(a), the benchmark is "the
usual investment practice of private investors", and under Article 14(b), the benchmark is "the amount
the firm would pay on a comparable commercial loan which the firm could actually obtain on the
market." Neither of these benchmarks makes a distin ction between "outside" or "inside" investors.
Rather, they suggest that the investigating author ity calculate the amount of benefit conferred on the
recipient by comparing the terms of the financial c ontribution to the terms that the relevant market—
consisting of rational investors, be they inside or outside investors or both—would have offered. As
the Appellate Body has previously said:
Article 14, which ... is relevant cont ext in interpreting Article 1.1(b),
supports our view that the marketpl ace is an appropriate basis for
comparison. The guidelines set forth in Article 14 relate to equity
investments, loans, loan guarantees, the provision of goods or
services by a government, and the purchase of goods by a
government. A "benefit" arises under each of the guidelines if the
recipient has received a "financial contribution" on terms more
favourable than those available to the recipient in the market.
358
174. We therefore disagree with the Panel's appr oach in this case, wh ich consiste d only of
examining "whether or not the JIA applied [the insi de investor] standard in an appropriate manner."359
As we see it, the Panel should have identified the appropriate benchmark to apply for the purpose of
assessing whether the JIA calculated the amount of benefit for the October 2001 and December 2002
Restructurings consistently with Articles 1.1(b) and 14 of the SCM Agreement . Instead, the Panel
held that, since the parties had agr eed that the inside investor standard constituted a valid benchmark,
"there [was] no need for [the Panel] to make an y findings on whether or not the inside investor
perspective constituted [the] valid market benchmark"360 for purposes of its analysis.
175. We turn next to consider Japan's contention th at the Panel erred by concluding that the JIA
should not have treated the value of the equity that Hynix gave in return for the debt-to-equity swaps
as zero.361 Japan asserts that the JIA did not disregar d the value of the equity provided in return. 362

359Panel Report, footnote 512 to para. 7.310.
360Ibid.
362Ibid., para. 227.

Rather, according to Japan, the JIA examined the issue on its merit and determined, based on
"uncontested facts on the record, that the value of such equity was zero."
363
176. In response, Korea alleges that neither Hynix no r its creditors treated the equity provided to
the creditors in the debt-to-equity swaps as ha ving zero value, and that even when the banks
recognized that the book value was le ss than the face value, they still assigned a "substantial value to
equity".364 Moreover, Korea submits that the "accoun ting treatment" relied on by Japan does not
support the JIA's calculations, which valued the debts that the creditors forgav e at the face value of
the debts, but valued the equity that Hynix gave the creditors in return as having no value.365
177. As noted above366, with respect to this issue, the Panel stated:
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." In doing so, the JIA addressed the issue from the
perspective of Hynix's creditors, rather than from the position of
Hynix itself. ... [W]e consider that such an approach erroneously
overstates the amount of benefit conferred on the recipient, for it
overlooks the perspective of the recipient, i.e., Hynix, which must
dilute the ownership interest of existing shareholders in return.
367
(footnote omitted)
178. We see no error in this reasoning by the Panel. The JIA did not sufficiently explain, in its
determination, how it reached the conclusion th at the value of the shares was zero from the
perspective of Hynix, the recipient.368
179. We turn next to the Panel's statement regarding dilution of the ownership of existing
shareholders. Japan submits that "dilution is irrelevant to this case", given that the Panel did not
indicate any evidence showing that dilution had in fact occurred, and that, even if dilution had
occurred, it would have taken place at the level of shareholders, not at the level of Hynix.369

365Ibid.
366Supra, para. 167.
367Panel Report, para. 7.313. (footnote omitted)
368Japan does not contest the Panel's observation that "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." (Ibid., footnote 513 to para. 7.310) (original emphasis)
369Japan's appellant's submission, para. 220. In paragraph 7.312 of the Panel Report, the Panel recalled
that another non-appealed panel had discussed this issue.

180. By contrast, Korea submits that the Panel rightly found that the JIA failed to take account of
the fact that the additional shares issued to credito rs would dilute the ownership interest of existing
shareholders. Further, Korea submits that character izing dilution as a cost to shareholders but not to
Hynix would mean that debt-to-equity swaps would be considered as two sepa rate transactions: one
involving the company, and the other involving existing shareholders.370
181. Based on our reading of the Panel Report, we understand the Panel to have referred to the
issue of dilution merely to support its finding that the JIA did not calculate the amount of benefit from
the perspective of the recipient. The Panel's finding was not based on whether or not dilution
occurred in the circumstances of this case. Instead, the Panel found that the JIA did not calculate the
amount of benefit from the perspective of either Hynix or its shareholders, and, thereby, addressed the
issue solely from the perspective of Hynix's creditors . As we see it, dilution of the rights of existing
shareholders does not appear to be a relevant issue on the facts of this case. Having said this, we do
not wish to exclude the possibility that there ma y be circumstances in other cases in which the
relationship between a company and its shareholders might be relevant for calculating the amount of
benefit to the recipient.371
182. In the light of the above, we see no error in the Panel's finding that the JIA's approach
"erroneously overstates th e amount of benefit conferred on the recipient" 372 with respect to the
October 2001 and December 2002 Restructurings.
183. We note that Japan advances certain additional arguments in support of its position that the
Panel erred in finding that the JIA calculated the amount of benefit conferred by the October 2001 and
December 2002 Restructurings inconsistently with Articles 1.1(b) and 14 of the SCM Agreement.373
We observe that these arguments are based on the distinction between an inside and an outside
investor standard, a distinction we have found to be unsustainable under Article 14. Japan agreed at
the oral hearing that the distinction between an in side and an outside investor perspective is not
pertinent for the determination of the amount of benefit under the SCM Agreement.374 Under these

370Korea's appellee's submission, paras. 172-173.
371See Appellate Body Report, US – Countervailing Measures on Certain EC Products , paras. 116
and 118.
372Panel Report, para. 7.313.
373Japan alleges that the Panel erroneously considered a claim for which Korea had not established a
 prima facie case. Japan further alleges that the Panel erred in finding that the JIA calculated the amount of
benefit using "facts available". (Japan's appellant's submission, paras. 234 and 237)
374Japan's response to questioning at the oral hearing. At the oral hear ing, Japan stated that the amount
of benefit is, rather, to be determined by comparing the terms of the financial contribution at issue with the
terms that would have been available in a market consisting of rational creditors.

circumstances, we refrain from considering these arguments by Japan on, inter alia, whether Korea
had made a prima facie case regarding the outside investor standard.
184. We have found that the Panel erred in its inte rpretation and application of Articles 1.1(b)
and 14 of the SCM Agreement because it did not identify properly the appropriate market benchmark
to be applied under those provisions. At the same time, we have found that the Panel did not err in
finding that the JIA's determinati on "erroneously overstate[d] the am ount of benefit conferred on the
recipient".
375 Moreover, based on our review of the Panel's reasoning and the Panel record, we find
that the Panel did not act inconsistently with its obligations under Article 11 of the DSU in concluding
that Japan improperly calculated the amount of benefit conferred by the October 2001 and
December 2002 Restructurings. As the Appellate Body has previously found: "not every error of law
or incorrect legal interpretation attributed to a pane l constitutes a failure on the part of the panel to
make an objective assessment of the matter before it."376
185. Therefore, we uphold, albeit for different reasons, the Pa nel's finding, in paragraphs 7.316
and 8.2(c) of the Panel Report, that the JIA calcu lated the amount of benef it conferred on Hynix by
the October 2001 and December 2002 Restructurings inc onsistently with Articles 1.1(b) and 14 of the
SCM Agreement.
VII. Benefit Calculation Methods
186. The Panel found that the JIA had acted contrary to the chapeau of Article 14 of the SCM
Agreement by using methods that were not provide d for in Japan's national legislation or
implementing regulations to calculate the amount of benefit conferred on Hynix by the October 2001
and December 2002 Restructurings.377
187. On appeal, Japan argues that the Panel erred in finding that the two mathematical formulae
used by the JIA in its benefit calculation, referre d to as Formula 1 and Formula 2, were "method[s]
used" under the chapeau of Article 14. According to Japan, the two mathematical formulae were only
an application of the methods provided for in Japan's na tional regulations. Japan further argues that,
even if the Panel were correct in designating these mathematical formulae as the "method[s] used" by
the JIA, the Panel failed to properly examine, in a manner consistent with Article 11 of the DSU,
whether they were "provided for" in Japan's national legislation or implementing regulations.

375Panel Report, para. 7.313.
376Appellate Body Report, US – Steel Safeguards, para. 497.
377See Panel Report, paras. 7.334 and 8.2(d).

188. With respect to the meaning of the term "m ethod used", Japan argues that the Panel's
interpretation of the chapeau of Article 14 would imply that the applications of the methods be spelled
out in the national legislation or implementing regula tions in such detail so as to leave no room for an
investigating authority to adapt them to the particular facts of an investigation. Japan further contends
that the Panel's interpretation of "method" would require Members to foresee "each and every possible
form" of financial contribution and to specify in detail the appropriate calculation methods in their
national legislation or implementing regulations.
189. Korea contends that, while Formula 1 and Formula 2 in and of themselves constitute
"methods", there were also other "methodologies" used by the JIA in calculating the amount of benefit
in this case, which also fell under the concep t of "method" for purposes of the chapeau of
Article 14.378
190. The chapeau of Article 14 sets out three requirements. The first is that "any method used" by
an investigating authority to calculate the amount of a subsidy in terms of benefit to the recipient shall
be provided for in the national legislation or implementing regulations of the Member concerned. The
second requirement is that the "application" of that method in each particular case shall be transparent
and adequately explained. The third requirement is that "any such method" shall be consistent with
the guidelines contained in paragraphs (a)-(d) of Article 14.
191. The chapeau of Article 14 provides a WTO Memb er with some latitude as to the method it
chooses to calculate the amount of benefit. Paragraphs (a)-(d) of Article 14 contain general guidelines
for the calculation of benefit that allow for the me thod provided for in the national legislation or
regulations to be adapted to different factual situations. As the Appellate Body said in US – Softwood
Lumber IV:
The chapeau of Article 14 requires that " any" method used by
investigating authorities to calculate the benefit to the recipient shall
be provided for in a WTO Member's legislation or regulations ... The
reference to "any" method in the chapeau clearly implies that more
than one method consistent with Article 14 is available to
investigating authorities for purposes of calculating the benefit to the
recipient.

378Korea's appellee's submission, paras. 198-199. Korea refers to paragraphs 90-106 of JIA's Final
Determination, Annex 1 (Essential Facts), where it alleges that these other "methods" can be found.

... We agree with the Panel that the term "shall" in the last sentence
of the chapeau of Article 14 suggests that calculating benefit
consistently with the guidelines is mandatory. We also agree that the
term "guidelines" suggests that Article 14 provides the "framework
within which this calculation is to performed", although the "precise
detailed method of calculation is not determined" . Taken together,
these terms establish mandatory parameters within which the benefit
must be calculated, but they do not require using only one
methodology for determining the adequacy of remuneration for the
provision of goods by a government.
379 (emphasis added)
192. We observe that the first requirement of the chap eau of Article 14 is that the method used be
provided for in a WTO Member's national legisl ation or implementing regulations. Although the
chapeau of Article 14 states that the calculation of benefit must be consistent with the guidelines in
paragraphs (a)-(d) of that provision, it does not, in ou r view, contemplate that the method be set out in
detail. The requirement of the chapeau would be me t if the method used in a particular case can be
derived from, or is discernable from, the national legislation or implementing regulations. We believe
that this view strikes an appropriate balance betw een the flexibility that is needed for adapting the
benefit calculation (consistent, however, with the guidelines of paragraphs (a)-(d) of Article 14) to the
particular factual situation of an investigation, and the need to ensure that other Members and
interested parties are made aware of the method th at will be used by the Member concerned, under
Article 14 of the SCM Agreement.
193. The Panel noted, in this case, that the provisions of Japanese law relating to the calculation of
benefit are found in Japan's Guidelines for Procedures Relating to Countervailing and Anti-dumping
Duties (the " Guidelines").380 The Panel observed that the JIA ha d made calculations regarding three
main types of transactions entered into by Hynix wi th its creditors, namely, debt forgiveness, equity
infusions, and loans. The Panel considered that th e JIA was entitled to treat debt-to-equity swaps as

379Appellate Body Report, US – Softwood Lumber IV, paras. 91 and 92. In addition, the panel in EC –
Countervailing Measures on DRAM Chips explained that:
In light of these problems dealing with the prescribed methodology for
calculating benefit in Article 14 of the SCM Agreement, we consider that an
investigating authority is entitled to considerable leeway in adopting a
reasonable methodology.
(Panel Report, EC – Countervailing Measures on DRAM Chips, para. 7.213)
380These procedures were notified to the WT O pursuant to Article 32.6 of the SCM Agreement , in
document G/ADP/N/1/JPN/2/Suppl.4.

comprising new equity infusions and loan maturity extensions as comprising new loans. 381 The Panel
then found that, in calculating the amount of bene fit with respect to these financial transactions, the
JIA utilized two mathematical formulae: "Formula 2" for calculation of the amount of benefit to be
allocated to the year in which the subsidy was allegedly received for tran sactions involving debt
forgiveness and equity infusions 382; and "Formula 1" for the calculation of the benchmark interest
rate for uncreditworthy companies for transactions involving loans.383
194. At the outset, we wish to point out that neither before the Panel, nor before us, did the parties
question the substantive content of Formula 1 and Formula 2 and their consistency with the guidelines
of Article 14 of the SCM Agreement . Rather, the issue raised by Korea was only whether the
"method[s] used" by the JIA complied with the pro cedural requirements of the chapeau of Article 14
of the SCM Agreement. The Panel first examined whether Formula 1 and Formula 2 were "methods"
within the meaning of the chapeau. In construing the ordinary meaning of the word "method", the
Panel accepted the definition suggested by Japan and not contested by Korea, that "method" means "a
mode of procedure; a (defined or systematic) way of doing a thing". 384 The Panel found that

381Panel Report, footnote 524 to para. 7.329.
382Formula 2 provides:
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
(See Panel Report, para. 7.329)
383Formula 1 provides:
ib = (1+if)[(1-qn)/(1-pn)]1/n - 1
[where]
n: the repayment term of the loan
ib: 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
(See ibid., para. 7.332)
384Ibid., para. 7.328 (quoting Japan's first written submission to the Panel, para. 528, in turn quoting
The New Shorter Oxford Dictionary, L. Brown (ed.) (Clarendon Press, 1993), Vol. 1, p. 1759).

Formula 1 and Formula 2 were "methods" within the meaning of the chapeau. The Panel then
examined whether Formula 1 and Formula 2 were "provided for" in Japan's Guidelines.
385
195. We are unable to agree with the Panel that Fo rmula 1 and Formula 2, in and of themselves,
constitute the "method[s] used" by the JIA to calculate the amount of s ubsidy in terms of benefit to
the recipient within the meaning of Article 14. Formula 1 was used to calculate a benchmark
interest rate ; and Formula 2 was used to allocate benefit over time . In our view, Formula 1 and
Formula 2 constitute components or elements of the methods used by the JIA to calculate the amount
of benefit conferred on Hynix. Neither, in isola tion, was the complete "method used" in calculating
the amount of subsidy in the transaction involved.
196. In identifying the applicable method for calculati ng benefit with respect to equity infusions,
the JIA set out the three consecutive steps that it would follow. First, it would determine the
appropriate market benchmark against which it w ould compare and from which it would subtract the
amount of equity infusion actually received by Hyni x. This would enable it to determine the actual
amount of benefit received. For this purpose, the JIA would use as the appropriate benchmark the
amount of equity infusion provided by private inv estors under equivalent conditions; or, if no such
private investors existed, it would determine an "adequate amount of subsid y ... after examining the
circumstances whereby the government may make a reasonable return on the investment". 386
Secondly, the JIA would determine the time of receipt of the subsidy. Thirdly, the JIA would allocate
the subsidy over a relevant period of time.387

385With respect to Formula 2, the Panel found that the Guidelines did not "provide for" the method
used, because the provisions in the Guidelines relating to debt forgiveness and equity infusions did not contain
any reference to the integers actually used in that formul a, either in specific or ge neral terms. (Panel Report,
paras. 7.330 and 7.331) The Panel similarly concluded that Formula 1 was "quite different to the simplistic
explanation in the Guidelines" relating to loans. (Ibid., para. 7.333) (emphasis added)
386As the Panel itself noted, the JIA calculated the amount of benefit resulting from the October 2001
and December 2002 debt-to-equity swaps (treated by the JIA as "equity infusions") as follows:
As described above, the Investigating Authorities 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 commercial perspective,
and thus, there were no normal investments by private investors that can be
reasonably compared to th e equity infusions granted by the creditor banks.
An investment under such a situation is not consistent with the usual
investment practice of the private inve stors in Korea at that time. Because
the situation at the 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.
(Panel Report, para. 7.308 (quoting JIA's Final Determination, Annex 1 (Essential Facts), para. 310) The Panel
also referred to paras. 379 and 381 of Annex 1, wher e the JIA used the same approach in respect of the
December 2002 debt-to-equity swap. (See ibid., footnote 509 to para. 7.308)
387JIA's Final Determination, Annex 1 (Essential Facts), paras. 96-100.

197. In our view, Formula 2 applies to the third step of the above process. It relates to allocation
of benefit over time once the amount of benefit has actually been determined under the first step of
the JIA's calculation methodology. Formula 2, standing alone, does not constitute the "method used"
by the JIA to calculate the amount of benefit. Rather, taken together, all three steps identified by the
JIA for treating equity infusions constitute the "method used" by the JIA for calculating the amount of
benefit in respect of the equity infusions. This applies equally to the JIA's use of Formula 2 for
transactions involving debt forgiveness.388
198. With respect to loans al so, the JIA set out a three-step pr ocess. First, it would identify the
appropriate market benchmark for calculating the amount of subsidy. Secondly, it would determine
the time of receipt of the subsidy. Thirdly, it would determine the manner in which the subsidy would
be allocated.389 Formula 1 is a mathematical rule that relate d to only the first step of this process: it
was used by the JIA to calculate the benchmark in terest rate for uncreditworthy companies, where
comparative commercial loans did not exist on the commercial market. As in the case of Formula 2,
however, it was only a part, albeit an important part, of the "method used" by the JIA to calculate the
amount of benefit for loans and loan extensions, b ecause, after identifying the benchmark interest rate
in accordance with Formula 1, the JIA then had to determine the difference between the amount so
calculated and the actual interest amount paid by Hynix for the new loan.390
199. We agree with the Panel that, in accordance w ith the definition of "method" accepted by the
Panel, Formula 1 and Formula 2 can be considered "methods" in the sense of a "mode of procedure".
But it does not follow from this that they are the "method[s] used" for calculating the amount of
benefit in this case. Rather, they are methods for allocating benefit once the amount of the benefit
has been determined, and for calculating interest rates for loans to uncreditworthy companies where

388In calculating the amount of benefit for debt forgiveness, the JIA first determined the amount of the
subsidy, which it treated as the total amount of debt forg iveness granted, and then allocated it over a five-year
period using Formula 2. (See JIA's Final Determination, Annex 1 (Essential Facts), paras. 313 and 314)
389Ibid., paras. 91-95.
390As the Panel itself noted, the JIA "calculated the amount of benefit resulting from the October 2001
[R]estructuring in Section 2.8.5 of [the] JIA's Final Determination, Annex 1 (Essential Facts). The JIA adopted
the same approach for both new loans and extensions of loan maturities, finding that:
at the time of the October 2001 Progra m, there were no normal commercial
loans that would be comparable to the loans granted by the creditor banks.
Moreover, as examined above, the Inve stigating Authorities find that there
were no investors who would additionally invest in or make loans to Hynix
from a normal commercial perspectiv e. Therefore, the Investigating
Authorities 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."
(Panel Report, para. 7.306 (quoting JIA's Final Determination, Annex 1 (Essential Facts), para. 302, and
referring to paras. 103 and 306)

no comparable loans exist on th e commercial market. The Panel should have gone further to
determine the entire methodology used by the JIA in calculating the amount of benefit for each type
of transaction. If it had done so, the Panel could then have properly proceeded to consider whether
those methodologies, in their entirety, were "provided for" under Japan's Guidelines. The Panel,
however, treated Formula 1 and Formula 2 as if they were, by themselves, the "method[s] used" to
calculate the amount of benefit. They were not.
200. We therefore find that the Panel erred in finding in paragraphs 7.330, 7.331, and 7.333 of the
Panel Report, that Formula 1 and Formula 2 were the "method[s] used" to calculate the amount of
benefit conferred on Hynix, within the meaning of the chapeau of Article 14.
201. Japan claims that, even if th e mathematical formulae could be considered the "method[s]
used" in this case, the Panel erred in finding that Formula 1 and Formula 2 were not "provided for"
under Japan's Guidelines, and thereby violated Article 11 of the DSU. This conditional claim would
arise only if we upheld the Panel's finding on the "met hod[s] used". As we have found that the Panel
erred in treating Formula 1 and Formula 2 as the "method[s] used", we do not proceed to consider
whether the Panel properly found that Formula 1 and Formula 2 were not "provided for" in Japan's
Guidelines. We also see no need to determine whet her the Panel's findings were based on an
objective assessment of the matter, as required under Article 11 of the DSU.
202. We therefore reverse the Panel's finding, in paragraphs 7.334 and 8.2(d) of the Panel Report,
that the methods used by Japan to calculate th e amount of benefit conferred on Hynix were not
provided for in Japan's national legislation or implementing regulations, as required under the chapeau
of Article 14 of the SCM Agreement.
VIII. Allocation of Benefit
203. The Panel found that "Japan imposed counterva iling duties in 2006 on imports which the JIA
itself had found were not subsidized at the time of imposition."
391 Accordingly, with respect to those
subsidies, the Panel concluded that Japan acted inconsistently with Article 19.4 of the SCM
Agreement by levying countervailing duties "in excess of the amount of the subsidy found to
exist".392

391Panel Report, para. 7.361.
392Ibid.

204. Japan appeals the Panel's finding on two grounds. First, Japan alleges that the Panel erred in
its interpretation of Article 19.4 of the SCM Agreement. Secondly, Japan claims that the Panel acted
inconsistently with Article 11 of the DSU by concluding that the JIA's "use of a five-year allocation
period" for a non-recurring subsidy relating to th e October 2001 Restructuring "is a finding (even if
only implicit) that the benefit [of that subsid y] will expire after a period of five years" 393, in other
words, by the end of 2005. We address Japan's arguments in turn below.
1. Article 19.4 of the SCM Agreement
205. Japan asserts that the Panel's interpretation of Article 19.4 effectively requires that an
investigating authority update its finding of subsid ization at the time of imposition of the duty. In
Japan's view, a finding of subsidization in respect of a past period of investigation suffices for the
imposition of countervailing duties.394
206. Korea insists that it "never claimed that the JIA was required to update its decision based on
more recent information."395 Instead, Korea argues that, by allocating benefit conferred by the October
2001 Restructuring to the years 2001 through 2005, the JIA itself had found that no benefit would be
conferred in 2006, because that year "would be outside the five-year life of the subsidy".
396 Korea
suggests that duties could not be imposed after that time since, by the JIA's own logic, there would no
longer be any subsidy left to countervail.
207. As we see it, this issue relates to the qu estion of whether countervailing duties can be
imposed, in the case of non-recurring subsidies, when the determination made by the investigating
authority indicates that the subsidy will no longer exist at the time of imposition.
397

393Panel Report, para. 7.360. We note that non-recurring subsidies are usually allocated over a certain
period of time. This practice is not in dispute by the parties in this case.
394Japan's appellant's submission, para. 327 (referring to Panel Report, footnote 551 to para. 7.357).
396Ibid., para. 221.
397As the Panel noted, the present case concerns non-recurring subsidies provided through the
October 2001 Restructuring. We agree with the Panel that recurring subsidies would lend themselves to a
different type of analysis. (See Panel Report, footnote 551 to para. 7.357)

208. We begin our analysis by considering the text of Article 19.4 of the SCM Agreement:
No countervailing duty shall be le vied* 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.
*[Original footnote 51] As used in th is Agreement "levy" shall mean the
definitive or final legal assessment or collection of a duty or tax.

209. In our view, Japan misreads the Panel Report when it alleges that the Panel interpreted
Article 19.4 to require that an investigating author ity update its finding of subsidization and show that
there is subsidization at the time of imposition of the countervailing duty. On the contrary, the Panel
explicitly said that it was "not suggesting that an investigating authority [was] somehow required to
conduct a new investigation at the time of imposition, in order to confirm the continued existence of
the subsidization found to exist during the period of investigation. That will defeat the very purpose
of using periods of investigation in the first place."398
210. By its terms, Article 19.4 refers to a subsid y "found to exist". We see no requirement in
Article 19.4 for an investigating authority to conduct a new investigation or to "update" the
determination at the time of imposition of a count ervailing duty in order to confirm the continued
existence of the subsidy. However, in the case of a non-recurring subsidy, a countervailing duty
cannot be imposed if the investigating authority h as made a finding in the course of its investigation
as to the duration of the subsidy and, according to th at finding, the subsidy is no longer in existence at
the time that the Member makes a final determination to impose a countervailing duty. This is
because, in such a situation, the countervailing duty, if imposed, would be in excess of the amount of
subsidy found to exist, contrary to the provisions of Article 19.4.
211. In the light of the above, we do not find fault w ith the Panel's interpretation of Article 19.4 of
the SCM Agreement.
2. Article 11 of the DSU
212. Japan claims that the Panel acted inconsistently with Article 11 of the DSU when it found that
the use of a five-year allocation period by the JIA "is a finding (even if only implicit) that the benefit
will expire after a period of five years."
399 For Japan, "the purpose of the JIA's calculation was merely
to determine the amount of the subsidies conferred in 2003, the period of investigation in this case"

398Panel Report, para. 7.356.

for determining the existence of a subsidy. 400 In Japan's view, "the Panel erred in equating a division
by five of the total amount of the non-recurring subsidies to a determination that the subsidy would
cease to exist after five years." 401 Japan maintains that "the JIA did not make any finding that the
subsidy would expire in 2005 or any finding of the amount of subsidy that Hynix would receive
in 2006."402
213. Korea rejects Japan's contention that the Panel acted inconsistently with Article 11 of the
DSU. Korea observes that "the number of years over which the 'subsidy amount is allocated' equalled
the five-year 'useful life of the facilities stipulated in Korean law'". 403 Korea argues that "[t]he
consequence of that determination was that the subsidies ceased to have a 'continuous effect,' and
could not be 'allocated' once that period had expired." 404 For Korea, this was not a de novo review
by the Panel; it was a necessary consequence of the JIA's own determination.405
214. The Panel held that the JIA's determination contained an implicit finding that the
subsidization in question would expire in 2005 at the end of the five-year period. We are not
convinced by Japan's argument that, "[b]y stating 'even if only implicit,' the Panel admit[ted] that the
JIA made no finding on the amount of subsidies in 2006" and, in effect, "second-guessed the JIA's
finding".406 Put differently, we are not persuaded that the Panel overstepped the bounds of its review
when it concluded that the JIA's use of a five-year period for the allocation is a determination by the
JIA that the non-recurring subsidies granted in th e October 2001 Restructuring would expire at the
end of 2005.
215. We therefore reject Japan's claim that the Panel failed to discharge its duty under Article 11 of
the DSU to conduct an objective assessment of the matter before it.

401Ibid., para. 335.
403Korea's appellee's submission, para. 243 (referring to JIA's Final Determination, Annex 1 (Essential
Facts), para. 99).
404Ibid.
405Ibid.

IX. The JIA's Determination of Benefit with respect to the October 2001 Restructuring
216. Korea appeals the Panel's finding relating to th e JIA's determination that the October 2001
Restructuring conferred a benefit on Hynix within the meaning of Articles 1.1(b) and 14 of the SCM
Agreement.
407
217. The Panel observed that a "benefit" within th e meaning of Article 1.1(b) exists when a
financial contribution "is made available on terms th at are more favourable than the recipient could
have obtained on the market." 408 Regarding the nature of the evidence that is required to support a
finding as to existence of benefit, the Panel took the view that:
[i]n certain circumstances, an i nvestigating authority might examine
the existence of benefit by gather ing available evidence of the terms
that the market would have offered, and by comparing those terms
with those of the financial contributi on at issue. This is the approach
advocated by Korea in the present cas e. In other circumstances, an
investigating authority might rely on evidence of whether or not the
financial contribution was provide d on the basis 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, because 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). Depending on
the particular circumstances of a case, an investigating authority
might also rely on other types of evidence that could be equally
relevant.
409 (footnote omitted)
218. Based on an analysis of the evidence relied up on by the JIA, the Panel upheld the JIA's
determination that:
... the Four Creditors had failed to participate in the October 2001
[R]estructuring on the basis of commercial considerations. We have
rejected Korea's arguments challenging that conclusion.410

407Panel Report, para. 7.316.
408Ibid., para. 7.275.
409Ibid., para. 7.276.
410Ibid., para. 7.281.

219. The Panel no doubt conducted this analysis while dealing with the issue of "entrustment or
direction". When it addressed the issue of "benefit", the Panel recalled its previous finding on
entrustment or direction and observed:
Since we uphold the JIA's finding that the October 2001
[R]estructuring was not commercially reasonable, it follows that we
also uphold the JIA's determination that the October 2001
[R]estructuring conferred a benefit on Hynix.
411 (footnote omitted)

220. Finally, having reviewed the evidence relating to the Other Creditors' participation in the
October 2001 Restructuring, the Panel concluded th at "the JIA properly determined, on the basis of
the available evidence, that the mere partic ipation of Other Creditors in the October 2001
[R]estructuring should not outwe igh the evidence directly concer ning the Four Creditors that
indicated that they participated in the [R ]estructuring on the basis of non-commercial
considerations."412 The Panel therefore rejected Korea's cl aim that the JIA's benefit finding with
respect to the October 2001 Restructuring was inc onsistent with Articles 1.1(b) and 14 of the SCM
Agreement.
221. Korea challenges the Panel's finding on appeal . Korea's appeal is based on three main
arguments. First, Korea submits that the Panel im properly conflated the two distinct concepts of
"financial contribution" and "benefit" in Article 1.1 of the SCM Agreement.413 Korea submits that,
under the Panel's analysis, a finding that there has been "entrustment or direction" is, by itself, a
sufficient basis for a finding that benefit exists.
222. Secondly, with respect to the Panel's conclusi on that the JIA's determination of benefit was
based on relevant economic evidence 414, Korea alleges that, for the Panel, "the mere fact that Hynix's
creditors failed to undertake a market-consistent analysis before entering into the October 2001
[R]estructuring indicated that the terms of the restructuring they approved must have been more
favourable than the terms of a purely market-driven restructuring." 415 Korea agrees that the analysis
actually performed by creditors may be probative of th e creditor's subjective intent in entering into
the underlying transactions and that intent may be relevant to an analysis of "entrustment and
direction". In Korea's view, however, the creditors' failure to undertake an analysis "does not permit

411Panel Report, para. 7.281.
412Ibid., para. 7.298.
413Korea's other appellant's submission, para. 41.
414Panel Report, para. 7.277.
415Korea's other appellant's submission, para. 39 (refe rring to Panel Report, para. 7.276). (original
emphasis)

any conclusion as to wh ether the 'recipient' actually received a benefit".
416 In addition, Korea refers
to footnote 475 of the Panel Report and critici zes the Panel for not explaining why a creditor's
imperfect analysis based on incomplete information cannot lead to the same result as would have been
obtained in the market.417 In Korea's view, it is "always possible to be right for the wrong reasons".418
223. Thirdly, Korea refers to the analyses by An jin Accounting and the Monitor Group, which it
had submitted to the Panel, to demonstrate that the alleged government ac tion had not conferred a
benefit on Hynix, because the terms obtained from the Four Creditors were comparable with what
Hynix would have been able to obtain from other creditors who were not subjected to the alleged
government "entrustment or direction". Korea submit s that these reports were available to the JIA at
the time it conducted its benefit examination and should therefore have been taken into account by the
JIA.
224. Japan submits that, contrary to assertions by Korea, the Panel did not hold that "a finding that
there has been 'entrustment or direction' is, by itself, a sufficient basis for finding that a benefit
exists."419 Japan maintains that "the Panel's finding is based on a comparison of the particular factual
situations in this case." 420 Japan argues that the non-commercial nature of the decisions by Hynix's
private creditors was not based solely on their insu fficient analysis of the terms of the October 2001
Restructuring and the unavailability of the reports by Anjin Accounting and the Monitor Group.421
225. In our analysis concerning the calculation of the amount of benefit in Section VI of this
Report, we referred to the Appe llate Body's interpretation, in Canada – Aircraft , of the benefit
requirement of Article 1.1(b) of the SCM Agreement .422 The Appellate Body held that "the
marketplace provides an appropriate basis for compar ison in determining whether a 'benefit' has been
'conferred', because the trade-distorting potential of a 'financial contribution' can be identified by
determining whether the recipient has received a 'financial contribution' on terms more favourable
than those available to th e recipient in the market."
423 We follow this approach in our assessment of
the Panel's review of the JIA's determination of whether the October 2001 Restructuring conferred a
benefit on Hynix.

416Korea's other appellant's submission, para. 44. (original emphasis)
417Ibid., para. 51.
418Ibid., para. 46.
419Japan's appellee's submission, para. 35 (quoting Korea's other appellant's submission, para. 43).
420Ibid., para. 36.
421Ibid., para. 54.
422See supra, para. 173.

226. Korea suggests that the Panel's finding that the October 2001 Restructuring conferred a
benefit on Hynix was merely consequential to its re pudiation of Korea's claim that the JIA erred in
concluding that the Four Creditors were entrusted or directed by the GOK. 424 We disagree. Based on
our review of the Panel's reasoning, we are not convi nced that the benefit finding did not involve any
additional analysis by the Panel. 425 Instead, the Panel relied on evidence of "non-commercial
considerations" as a criterion in its analysis of th e JIA's review of whether private banks had been
entrusted or directed by the GOK to ma ke a financial contribution to Hynix. 426 The Panel also relied
on evidence of "non-commercial considerations" in its consideration of the JIA's analysis of whether
the financial contribution conferre d a benefit. Relying on the sam e or similar evidence for assessing
distinct legal requirements does not, in our view, amount to a conflation of the benefit requirement
with the financial contribution requirement. We are sa tisfied that the Panel in this case used evidence
of non-commercial considerations first to assess the JI A's review of whether entrustment or direction
had occurred under Article 1.1(a)(1)(iv), and then to determine the distinct legal question of whether
the JIA properly established that the Octobe r 2001 Restructuring conferred a benefit under
Article 1.1(b).
227. The Panel also recognized that an investigating authority might be confronted with different
types of evidence, and that one type of evidence might not support the conclusion suggested by the
other. In the specific circumstances of this case, the JIA had undertaken to investigate whether
"'creditors acting in accordance w ith the "usual practice" in the relevant market' would have
restructured Hynix on the same terms as the Four Creditors did". 427 That inquiry, however, did not
reveal any such evidence to the JIA. The JIA was not therefor e confronted with evidence indicating
that non-entrusted or non-directed creditors would ha ve restructured Hynix on similar terms as the
Four Creditors did.

424See Korea's other appellant's submission, para. 45 (referring to Panel Report, para. 7.281).
425The Panel explained that an "investigating authority might rely on evidence of whether or not the
financial contribution was provided on the basis of comm ercial considerations ... because evidence of reliance
on non-commercial considerations indicates terms more fa vourable than those available from the market (as the
market is presumed to operate on the basis of commercial considerations)." (Panel Report, para. 7.276) The
Panel also recognized that, in certain cases, "there might be evidence that, although the financial contribution
was not provided on the basis of commercial considerations, it would in fact have been provided by 'creditors
acting in accordance with the "usual practice" in the rele vant market'." The Panel stated that, "[i]n such cases,
the investigating authority would need to weigh the probative value of one type of evidence against the
probative value of the other." (Ibid., footnote 475 to para. 7.276)
426See Sections IV and V of this Report.
427Panel Report, footnote 475 to para. 7.276 (quoting JIA's Final Determination, Annex 3 (Rebuttals
and Surrebuttals), para. 136).

228. We also see no error in the Panel's review of the JIA's analysis of the Other Creditors' role in
the October 2001 Restructuring.
428 The Panel noted that "the JIA's finding regarding the commercial
reasonableness of the decision of Hynix's Other Creditors to participate in the October 2001
[R]estructuring was based on facts available, as those Other Creditors contacted by the JIA (other than
Kookmin) had failed to res pond to its questionnaire." 429 The Panel further stated that 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) had participated in the October 2001 [R]estructuring." 430 In these circumstances, the Panel
correctly found that "the mere participation of Other Creditors in the October 2001 [R]estructuring
(absent evidence establishing that their participa tion was based on commercial considerations) should
not have precluded a finding by the JIA that the participation of the Four Creditors in that
[R]estructuring conferred a benefit on Hynix."431
229. For these reasons, we find that the Panel did not err in finding that the JIA's determination of
the existence of benefit with respect to the Oc tober 2001 Restructuring was not inconsistent with
Articles 1.1(b) and 14 of the SCM Agreement.
X. Interested Parties
230. The Panel rejected Korea's claim that the JIA acted inconsistently with Articles 12.7 and 12.9
of the SCM Agreement by including certain financial institutions as "interested parties", and by using
"facts available" for those financial institutions that had failed to provide information.
231. On appeal, Korea claims that the Panel imprope rly rejected its argument that entities included
as "interested parties" under Article 12.9 of the SCM Agreement must "have an interest in the
outcome of the proceeding".432 Korea submits that the JIA's designation of certain creditors of Hynix
as interested parties, when they did not "have an interest in the outcome of the proceeding", resulted
in the JIA applying "facts available", under Article 12.7 of the SCM Agreement , in a manner
prejudicial to Hynix.

428We understand the Panel's cross-reference in footnote 475 ("for the reasons set forth above") to refer
to paragraphs 7.283-7.298 of its Report.
429Panel Report, para. 7.288.
430Ibid., para. 7.289. (footnote omitted)
431Ibid., para. 7.291.
432See Korea's other appellant's submission, paras. 106 and 107.

232. Japan argues that Korea's appeal regarding the Panel's interpretation of the term "interested
parties" should be rejected by the Appellate Body . According to Japan, Korea's definition cannot be
reconciled with Article 12.9, as the entities listed th ere do not necessarily "have an interest in the
outcome of the proceeding". 433 In Japan's view, Korea's interpretation of "facts available" under
Article 12.7 would distort the balance between the due process rights of interested parties, on the one
hand, and the obligation of an investigating author ity to carry out an objective investigation, on the
other hand. Japan also contends that the due process rights of interested parties under Article 12 are
not unlimited, and are subject to the discretion of investigating authorities to use "facts available".434
233. On 7 September 2004, the JIA sent questionnaires concerning subsidies to GOK, Hynix,
and 16 financial institutions that had provided financing to Hynix. 435 The JIA considered that it was
reasonable to include these 16 financial institutions as interested parties in the investigation. 436 The
GOK, Hynix, and ten of the 16 fina ncial institutions filed responses. 437 Among these ten financial
institutions were the Four Creditors for which th e JIA ultimately made a final determination of
entrustment or direction. For the institutions that failed to respond to the JIA's questionnaires or to
provide the information requested, the JIA made certa in findings in its determination on the basis of
"facts available", pursuant to Article 12.7 of the SCM Agreement.438
234. Article 12.7 of the SCM Agreement governs the use of "facts available" in countervailing
duty proceedings. It reads:
In cases in which any interested Me mber or interested party refuses
access to, or otherwise does not provide, necessary information
within a reasonable period or significantly impedes the investigation,
preliminary and final determinations, affirmative or negative, may be
made on the basis of the facts available.
235. Thus, the circumstances under which an inves tigating authority may make its determination
on the basis of "facts available" are limited, pursuan t to Article 12.7, to cases in which an interested
Member or an interested party "refuses access to, or otherwise does not provide, necessary
information within a reasonable period or significantly impedes the investigation".

433Japan's appellee's submission, paras. 129-131.
434Ibid., para. 142.
435JIA's Final Determination, para. 8.
436Panel Report, para. 7.381 (referring to JIA's Fi nal Determination, Annex 3 (Rebuttals and
Surrebuttals), paras. 29 and 39).
437JIA's Final Determination, para. 10.
438Panel Report, para. 7.381.

236. 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 business 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 me ntioned above to be included as
interested parties.
237. As noted above, Korea's contention is that th e JIA erred by designating certain financial
institutions as interested parties although they had no "interest in the outcome of the proceeding". We
observe that Article 12.9 of the SCM Agreement does not, by its explicit terms, require that an
investigating authority must establish that a party ha s "an interest in the outcome of [a] proceeding".
Nor do we see any provision of the SCM Agreement that defines the nature of the interest required
for an entity to be included as an interested party.
238. Korea argues that the parties listed in subparagr aphs (i) and (ii) of Article 12.9, which are
required to be included by an investigating auth ority as interested parties—that is, exporters,
importers, foreign producers, domestic producers, a nd their associations—all have a clear and direct
interest in the outcome of a countervailing duty investigation. For Korea, the types of entities
included in the list provide a "strong indication" that an entity cannot be an interested party if it does
not have such an interest.
439 We agree that the entities specified in subparagraphs (i) and (ii)—which
are all involved in the production, export, or import of the product under investigation, or in the
production of the like product in the importing countr y—are likely to "have an interest in the outcome
of the proceeding", but we find nothing in Article 12.9 to suggest that interested parties are restricted
to entities of this kind under the residual clause of Article 12.9. 440 Although the term "interested
party" by definition suggests that the party must have an interest related to the investigation, the mere
fact that the lists in subparagraphs (i) and (ii) co mprise entities that may be directly interested in the

439Korea's other appellant's submission, para. 114.
440The residual clause of Article 12.9 states: "This list shall not preclude Members from allowing
domestic or foreign parties other than those mentioned above to be included as interested parties." We note that,
even if the outcome of the investigation is no longer of interest to any of the entities required to be included as
interested parties under subparagraphs (i) and (ii), these par ties still do not lose their status as interested parties.
This supports the view that interested parties are not conf ined to those that "have an interest in the outcome of
the proceeding".

outcome of the investigation does not imply that parties that may have other forms of interest
pertinent to the investigation are excluded.
239. The last sentence of Article 12.9 provides that Members are not precluded from allowing
domestic or foreign parties other than those listed in subparagraphs (i) and (ii) to be included as
interested parties. Korea takes issue with the Pa nel's interpretation of the term "allowing" in that
sentence. Korea claimed before the Panel that the term "allowing" had the meaning of "granting
permission".441 The Panel found that, while the term could refer to an investigating authority allowing
an entity to be designated as an interested party following a request, it could also refer to a Member
"allowing, through national legislation or implementi ng regulations, certain parties to participate in
investigations as interested parties." 442 The Panel further explained that, since there are a number of
provisions of the SCM Agreement , for instance Article 21.2, that provide specifically for the term
"upon request" where such a requirement is contem plated, the absence of this phrase in Article 12.9
supports the interpretation that the inclusion of a pa rty as an interested party is not predicated on a
request.443
240. We agree with the Panel's interpretation of th e term "allowing" in Article 12.9. While a
response to a request is certainly one way by which an investigating authority may allow an entity to
be recognized as an interested party, we do not believe this is the only way for a party to be included.
In our view, the term "allowing" in the residua l clause connotes the power or authority given to a
Member to include other parties as interested parti es, rather than a restriction on such power of
inclusion to those parties that make a request.
241. Korea further argues that Articles 12.3 and 12.8 of the SCM Agreement indicate that
interested parties must have a case to present and an interest to defend. 444 We recognize that

441Korea's other appellant's submission, footnote 72 to para. 115.
442Panel Report, para. 7.390.
443Ibid., para. 7.390. Japan makes similar arguments. (See Japan's appellee's submission, footnote 203
to para. 132)
444Article 12.3 provides:
The authorities shall 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.
Article 12.8 provides:
The authorities shall, before a final determination is made, inform all
interested Members and interested pa rties of the essential facts under
consideration which form the basis for the decision whether to apply
definitive measures. Such disclosure should take place in sufficient time
for the parties to defend their interests.

Articles 12.3 and 12.8 refer to rights that inte rested parties have in presenting their cases and
defending their interests in investigations. Howeve r, we see differentiations in the nature of the
interest that parties may have in participating in an investigation. As the Panel correctly noted,
Articles 12.1 and 12.2 presuppose the existence of two gr oups of interested parties, that is, those that
may be initially involved because they received ques tionnaires, but subsequently cease to participate;
and those that decide to participate actively, a nd choose to present cases and defend interests, as
provided for in Articles 12.3 and 12.8. We are therefore unable to accept Korea's argument that
Articles 12.3 and 12.8—which relate to parties participating in an investigation—imply that entities
must "have an interest in the outcome of a proceeding" to be designated as "interested parties".
242. We do not suggest that investigating authoriti es enjoy an unfettered discretion in designating
entities as interested parties regardless of the rele vance of such entities to the conduct of an objective
investigation. As we have observed, the term "int erested party" by definition suggests that the party
must have some "interest" related to the investigation.
445 Although that interest may b e i n t h e
outcome of the investigation, a consideration of the interest should also take account of the
perspective of the investigating authority. An investigating authority needs to have some discretion to
include as interested parties entities that are releva nt for carrying out an objective investigation and
for obtaining information or evidence relevant to the investigation at hand. 446 Nonetheless, in
designating entities as interested parties, an investiga ting authority must be mindful of the burden that
such designation may entail for other interested parties.
243. In this case, we do not believe that the JIA erred in designating the 16 financial creditor
institutions of Hynix as interested parties. As th e JIA was investigating an allegation of entrustment
or direction with respect to the Restructurings, we consider that it was reasonable for the JIA to seek
information from Hynix's creditor institutions. The Panel noted that "the JIA had information
indicating 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 [R]estructurings at
issue."447 In these circumstances, we see no error in the Panel's statement that "at the very least the
JIA was entitled to treat these Other Creditors as inte rested parties for the purpose of distributing its
questionnaire. The Other Creditors might then, in their responses, have provided the JIA with
information indicating that they no longer had an interest in the outcome of the investigation."448

445See also Panel Report, para. 7.387.
446See also ibid., para. 7.392 (referring to Appellate Body Report, Mexico – Anti-Dumping Measures on
Rice, para. 293). We recognize that, in conducting its investigation, an investigating authority may also seek
information from entities not designated as interested parties.
447Ibid., footnote 582 to para. 7.394.
448Ibid.

244. Korea also argues that the JIA applied "facts available" under Article 12.7, in a manner that
was prejudicial to Hynix. 449 However, as we see it, this claim by Korea was premised on our
acceptance of Korea's argument that an interested part y must "have an interest in the outcome of [a]
proceeding" and that, therefore, the JIA improperly included certain financial institutions as interested
parties. Since we have rejected that argument by Korea, we do not need to consider Korea's claim
regarding the use of "facts available" under Article 12.7. In any event, the Panel found that Korea had
failed to substantiate its claim regarding the JIA' s alleged improper use of "facts available", and we
see no reason to disturb the Panel's finding.450
245. For the reasons above, we uphold the Panel's finding, in paragraphs 7.398 and 8.1(c) of the
Panel Report, that Korea has failed to establish th at the JIA acted inconsistently with Articles 12.7
and 12.9 of the SCM Agreement by including certain financial institutions as "interested parties" and
by using "facts available" for those financial institutions that failed to provide information.451
XI. Direct Transfer of Funds
246. We next examine the question of whether th e financial transactions undertaken in the
October 2001 and December 2002 Restructurings cons tituted "direct transfer[s] of funds" within the
meaning of Article 1.1(a)(1)(i) of the SCM Agreement.452
247. Before the Panel, Korea claimed that the JIA ha d acted inconsistently with Article 1.1(a)(1)(i)
of the SCM Agreement by finding that the October 2001 and December 2002 Restructurings—in
particular, the modification of the terms of pre-ex isting loans (including extensions of the maturities
of existing loans, reductions of the interest rates on existing loans, and conversion of interest to
principal) and debt-to-equity swaps—involved di rect transfers of funds. Korea submitted that

449However, contrary to Korea's imp lication that the use of "facts ava ilable" under Article 12.7 of the
SCM Agreement necessarily has a prejudicial effect on parties th at are subject to the countervailing duty, we do
not believe that the use of "facts available" necessar ily entails a negative inference by the investigating
authority. (See Korea's other appellant's submission, paras. 124 and 125)
450See Panel Report, para. 7.397.
451We do not consider it necessary to address Korea' s claim under Article 11 of the DSU, given that
Korea explained at the oral hearing that it was not seeking a separate substantive finding under that provision.
452Article 1.1(a)(1)(i) of the SCM Agreement states: "[A] government practice involves a direct
transfer of funds (e.g. grants, loans, and equity infusion), potential di rect transfers of funds or liabilities
(e.g. loan guarantees)".

"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)."
453 The Panel rejected Korea's claim,
finding instead that the JIA:
... could properly characterize the modification of loan repayment
terms (including extensions of the maturities of existing loans,
reductions of the interest rates on existing loans, and conversion of
interest to principal) and debt-to-equity swaps as transactions
involving a "direct transfer of funds" within the meaning of
Article 1.1(a)(1)(i).
454 (footnote omitted)
248. On appeal, Korea suggests that a direct tran sfer of funds arises only where there is an
incremental flow of funds to the recipient that enha nces the net worth of the recipient. According to
Korea, the initial issuance of a financial instrument may constitute a direct transfer of funds; but
subsequent modifications of its te rms do not. When a creditor agrees to modify the terms of existing
loans, or to write off loans entirely, existing clai ms are modified without providing any money to the
borrower and there is no direct transfer of funds. Fo r Korea, "a 'transfer' of 'funds' occurs only when
money changes hands from the government (or government-directed private body) to the subsidy
recipient."455 Korea contends that, for the same reason, debt-to-equity swaps are not to be considered
as transfers of funds. In Korea's view, however, m odifications of the terms of existing loans might
constitute "revenue ... foregone" in the sense of Article 1.1(a)(1)(ii).456
249. Japan asserts that Korea puts forward an overl y narrow definition of the term "funds". Japan
argues that Article 1.1(a)(1)(i) refers to "grants, loans, and equity infusion" as examples, rather than as
items on an exhaustive list. According to Japan, this indicates that the SCM Agreement contemplates
direct transfers of funds other than grants, loans, and equity infusion. 457 Excluding modification of
the terms of existing loans, or an exchange into e quity of monetary value equivalent to existing debt,

453Panel Report, para. 7.426.
454Ibid., para. 7.446.
455Korea's other appellant's submission, para. 134.
456Ibid., para. 139.

from the definition of the phrase "direct transfer of funds", "would open the door to potential abuse of
the subsidies and offer an easy way of circumventing the disciplines of the SCM Agreement."458
250. In our view, the term "funds" encompasses not only "money" but also financial resources and
other financial claims more generally. The concep t of "transfer of funds" adopted by Korea is too
literal and mechanistic because it fails to encapsulate how financial transactions give rise to an
alteration of obligations from which an accrual of fi nancial resources results. We are unable to agree
that direct transfers of funds, as contemplated in Ar ticle 1.1(a)(1)(i), are confined to situations where
there is an incremental flow of funds to the recipi ent that enhances the net worth of the recipient.
Therefore, the Panel did not err in finding that th e JIA properly characterized the modification of the
terms of pre-existing loans in the present case as a direct transfer of funds.
251. We observe that the words "grants, loans, and equity infusion" are preceded by the
abbreviation "e.g.", which indicates that grants, lo ans, and equity infusion are cited examples of
transactions falling within the scope of Article 1.1( a)(1)(i). This shows that transactions that are
similar to those expressly listed are also covere d by the provision. Debt forgiveness, which
extinguishes the claims of a creditor, is a form of performance by which the borrower is taken to have
repaid the loan to the lender. The extension of a loan maturity enables the borrower to enjoy the
benefit of the loan for an extended period of time. An interest rate reduction lowers the debt servicing
burden of the borrower. In all of these cases, the financial position of the borrower is improved and
therefore there is a direct transfer of funds within the meaning of Article 1.1(a)(1)(i).
252. With respect to Korea's argument that debt-to- equity swaps cannot be considered as direct
transfers of funds given that no money is transferre d thereby to the recipient, the Panel reasoned that
"the relinquishment and modification of claims inhere nt in such transactions similarly result[] in new
rights, or claims, being transferred to the former debtor." 459 Again, we see no error in the Panel's
analysis. Debt-to-equity swaps replace debt with equity, and in a case such as this, when the debt-to-
equity swap is intended to address the deteriorati ng financial condition of the recipient company, the
cancellation of the debt amounts to a direct transfer of funds to the company.
253. Korea further alleges that the financial contribut ions at issue in this case can, at most, fall
under "revenue ... foregone" within the meaning of Article 1.1(a)(1)(ii).

459Panel Report, para. 7.442.

254. In that respect, the Panel found:
[W]e do not exclude that certain of the relevant transactions might
be covered simultaneously by different sub-paragraphs of
Article 1.1(a)(1). The issue before us, though, is not whether the
modification of loan repayment terms and debt-to-equity 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".
460 (footnote omitted)

255. We agree with the Panel that the issue before it was whether the JIA erred in treating the
October 2001 and December 2002 Restructurings as dir ect transfers of funds. The legal question was
not whether one or several transactions at issue could additionally be treated as revenue foregone
under Article 1.1(a)(1)(ii) of the SCM Agreement.
256. For these reasons, we uphold the Panel's finding, in paragraphs 7.446 and 8.1(d) of the Panel
Report, that the JIA could properly characterize the modifications 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-t o-equity swaps as transactions involving "direct
transfer[s] of funds" within the meaning of Article 1.1(a)(1)(i) of the SCM Agreement.
XII. Causation of Injury
257. We turn now to the issue of causation. Ko rea argued that Articles 15.5 and 19.1 of the SCM
Agreement require more than a demonstration that "the subsidized imports are causing injury": they
require an additional demonstration that the injury is caused "through the effects of subsidies".461
258. The Panel found that Articles 15.5 and 19.1 do not impose an additional requirement on an
investigating authority to demonstrate that the volum e and price effects of the subsidized imports and
the consequent impact of these imports on domestic industry, as set forth in Articles 15.2 and 15.4 of
the SCM Agreement, are the effects of subsidies.
462 In the light of this interpretation of Articles 15.5
and 19.1, the Panel found that it was unnecessary to rule on whether the JIA properly demonstrated
that the volume and price effects of the subsidized imports and the consequent impact of these imports
on the domestic industry were the "effects of subsidies" allegedly received by Hynix. 463 The Panel,

460Panel Report, para. 7.439.
461Korea's other appellant's submission, para. 72.
462Panel Report, para. 7.424.
463Ibid.

therefore, concluded that Korea had failed to de monstrate that, in making its determination of
causation, the JIA had acted inconsistently with Articles 15.5 and 19.1 of the SCM Agreement.464
259. Korea asks us to reverse the Panel's finding on the grounds that the Panel erred in its
interpretation of Articles 15.5 and 19.1 of the SCM Agreement . According to Korea, the Panel
effectively read the "through the effects of subsidy" language out of those provisions. For Korea, the
Panel's interpretation of the phrase "through the effects" is not consistent with the ordinary meaning,
context, or negotiating history of the relevant provisions of the SCM Agreement.465 Further, Korea
contends that the Panel's reading of the phrase "thr ough the effects" cannot be reconciled with the text
of Article 19.1, which repeats this phrase and sets forth the substantive conditions for the imposition
of a countervailing duty.466
260. Japan requests us to uphold the Panel's interp retation of Articles 15.5 and 19.1 of the SCM
Agreement for the reasons given by the Panel.467 Specifically, Japan contends that, in challenging the
Panel's interpretation of the phrase "through the effects" in Article 15.5, Korea fails to make reference
to footnote 47 attached to that phrase.468 In Japan's view, the Panel's interpretation is borne out by the
non-attribution rules in the subsequent sentences of Article 15.5 and the other paragraphs of
Article 15.469 Korea's interpretation of the phrase, however , requires an additional demonstration of a
causal relationship between the effects of the subsidy and injury.470

464Panel Report, para. 7.425. In addition, with respect to the "effects of subsidies", the Panel noted that
the JIA had found 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 maintain and
continue its production and export of DRAM products. As the result, the
Investigating Authorities find that Hynix significantly increased its volume
of the exports to Japan of the subject products, sold large volumes of
products at low prices in Japan's do mestic market, and thereby caused the
price of domestic products to fall.
(See ibid., para. 7.405 (quoting JIA's Final Determination, Annex 1 (Essential Facts), para. 550)
465Korea's other appellant's submission, paras. 70-94.
466Ibid., paras. 76-79.
467Japan's appellee's submission, paras. 77-112.
468Ibid., paras. 80-82.
469The European Communities and the United States also agree with the Panel's interpretation of
Articles 15.5 and 19.1. (European Communities' and United States' response to questioning at the oral hearing)
470Korea's other appellant's submission, para. 72.

261. We begin our consideration of this issue with the text of Article 15.5 of the SCM Agreement,
which provides that:
[i]t 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. The authorities shall also examine any known factors
other than the subsidized imports wh ich 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 pr oduct in question, contraction in
demand or changes in the patterns of consumption, trade restrictive
practices of and competition between the foreign and domestic
producers, developments in technology and the export performance
and productivity of the domestic industry.
*[Original footnote 47] As set forth in paragraphs 2 and 4.
262. Article 15.5 as a whole deals with the causal relationship between s ubsidized imports and
injury to the domestic industry. The first sentenc e of Article 15.5 requires that an investigating
authority demonstrate that "the subsidized imports are, through the effects of subsidies, causing
injury" to the domestic industry. The second sen tence emphasizes that the demonstration of the
causal relationship between the subsidized imports and the injury shall be based on all relevant
evidence before the investigating authority. In both sentences, the subject to which the phrase "are
causing injury" applies, or in respect of which "a causal relationship" is to be established, is "the
subsidized imports".
263. By virtue of footnote 47 to Article 15.5, which forms an integral part of the first sentence, the
demonstration of the causal relationship envisaged in the first two sentences of Article 15.5 is to be
carried out by following the analysis set forth in Articles 15.2 and 15.4 for examining the "effects" of
the subsidized imports. According to these pa ragraphs, such an examination will comprise
of: (i) whether there has been a significant increase in subsidized imports; (ii) the effect of the
subsidized imports on prices; and (iii) the cons equent impact of the subsidized imports on the
domestic industry.
264. It is clear from the architecture of Articles 15.2, 15.4, and 15.5 that, for determining whether
the "subsidized imports are, through the effects of subsidies, causing injury" to the domestic industry,
what is required is the examination of the effects of the subsidized imports as set forth in Articles 15.2
and 15.4. These paragraphs neither envisage nor re quire the two distinct types of examinations
suggested by Korea, namely, an examination of the effects of the subsidized imports as per

Articles 15.2 and 15.4; and, a second examination of the effects of the subs idies as distinguished
from the effects of the subsidized imports on a case-by-case basis.
265. Korea's argument that the effects of subsidies must be distinguished from the effects of the
subsidized imports is based on the premise that the increase in the volume of subsidized imports or the
price at which they are sold on the importing Me mber's market may not ha ve been caused by the
subsidies received by the exporting company. To illustrate its point, Korea has suggested that the
increased volumes of sales of the product may be due to better quality, design, innovation, or
customer preference, rather than the subsidy.471
266. We are not persuaded by these arguments of Korea. In our view, they would imply additional
inquiry by an investigating authority into two matters : first, the use to which the subsidies were put
by the exporting company 472; and, secondly, whether, absent the subsidies, the product would have
been exported in the same volumes or at the same prices. Such additional examinations are not
contemplated by Articles 15.2 and 15.4.
267. Furthermore, the "non-attribution" provisions c ontained in the third sentence of Article 15.5
already address adequately the concern that the injurious effects of any known factors other than
subsidized imports are not attributed to the subsidized imports. 473 This ensures that injuries that may
have been caused by other known factors are not a ttributed to the subsidized imports. The third
sentence of Article 15.5 does not envisage the ki nd of additional enquiry implied in Korea's
arguments.
268. We are therefore of the view that, if an i nvestigating authority carries out the examination
required under Articles 15.2, 15.4, and 15.5, su ch examination suffices to demonstrate that
"subsidized imports are, through the effects of subs idies, causing injury" within the meaning of the
SCM Agreement.

471Korea, however, recognizes that there may be cases where the nature of the subsidy itself would be
sufficient to show that the injurious effects are due to the subsidy, such as a subsidy given specifically for
export. In the case of such subsid ies, Korea acknowledges that no additional examination is warranted beyond
the examination of the effects of the subsidized imports, as set forth in Articles 15.2 and 15.4. (See Korea's other
appellant's submission, para. 91)
472In respect of the quality of an imported product, Korea has stated that, "unless the subsidy were in
fact the impetus behind the superior quality", the injury to the domestic industry cannot be attributed to the
subsidy. (Ibid., para. 74) In our view, this would imply an examination of the purpose to which the subsidy has
been put.
473The factors relevant to this examination "include, inter alia , the volumes and prices of
non-subsidized imports of the product in question, contraction in demand or changes in the patterns of
consumption, trade restrictive practices of and competition between the foreign and domestic producers,
developments in technology and the export performance and productivity of the domestic industry."
(Article 15.5 of the SCM Agreement)

269. Article 11.2 of the SCM Agreement provides contextual support for our reading of the first
sentence of Article 15.5. Article 11.2 sets fort h guidance as to what may constitute "sufficient
evidence" for purposes of an application for the in itiation of a countervailing duty investigation
474 and
further describes the type of evidence that should be included in the application. Article 11.2
provides, in relevant part, that:
… 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)
270. We agree with the Panel that Article 11.2 th us indicates that information relating to the
volume effects, the price effects, and the consequent impact of the subsidized imports on the domestic
industry serves as evidence to demonstrate that in jury is caused by the "subsidized imports through
the effects of subsidies".
475 By its terms, Article 11.2 does not require an applicant to provide specific
evidence regarding the effects that the subsidies may have on import volumes and prices so as to
cause injury.
271. Korea argues that there is nothing in the SCM Agreement "that indicates that the standard for
initiating an investigation under Article 11.2 is the same as the standard for making an affirmative
injury determinati on under Article 15." 476 Korea further argues that Article 11.2 does not prohibit
investigating authorities from requiring additional info rmation "to satisfy the 'through the effects of
subsidies' requirement" in the context of making an affirmative injury determination. 477 We are not
persuaded by this argument. If a demonstration of an additional causal link between the effect of the
subsidy and injury is to be established as a prere quisite for an injury de termination, as Korea
contends, there is no reason why Article 11.2 would not have prescribed submission of evidence for
that purpose.

474An application "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." (Article 11.2 of the SCM Agreement)
475Panel Report, para. 7.417.
476Korea's other appellant's submission, para. 89.
477Ibid., para. 90.

272. Korea further argues that the "through the effe cts of subsidies" la nguage in Article 15.5
should be interpreted as requiring the same type of causation analysis that has been developed in
dispute settlement practice for the "effect of th e subsidy" language in Article 6.3 of the
SCM Agreement.478 However, in our view, the Panel rightly rejected Korea's argument in this regard.
Like the Panel, we do not see how the terms of Artic le 6.3 or prior panel re ports interpreting this
provision that relate to the different concepts of " serious prejudice" and "adverse effects" in Part III of
the SCM Agreement support Korea's interpretation of Ar ticle 15.5 in Part V on countervailing
measures. In view of the difference between the te xt, context, rationale, and object of the provisions
in Part III and Part V of the SCM Agreement, we see no basis for importing the specific obligations of
Part III into the provisions of Part V of the SCM Agreement.479 Although both Articles 6.3 and 15.5
refer to effects of the subsidies, the meaning of this phrase must be interpreted in the light of the
substantive obligations within which the phrase is lo cated. Articles 6.3 and 15.5 deal with different
subject matters and therefore it is not appropriate to accord an identical meaning to the common
phrase in these Articles.
273. We turn next to address Korea's argument that the Panel's understanding of the context
provided by Article VI:6(a) of the GATT 1994 effectively repeals the obligations under that Article.480
According to Korea, that Article allows a Member to levy a countervailing duty only if it determines

478Article 6.3 of the SCM Agreement 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;
(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 compared w ith 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)
479See also Panel Report, US – Upland Cotton, para. 7.1177.
480Korea's other appellant's submission, para. 73.

that the effect of the subsidized imports is to cau se injury to the domestic industry. As we have
observed above, if an investigating authorit y carries out an examination as required under
Articles 15.2, 15.4, and 15.5 of the SCM Agreement , this suffices to demonstrate that subsidized
imports are, through the effects of subsidies, causing injury. We do not see any inconsistency
between our interpretation of the first sentence of Ar ticle 15.5 and the provisions of Article VI:6. We
therefore do not consider that the Panel's reading of the first sentence of Article 15.5 repeals the
obligations provided for in Article VI:6 of the GATT 1994.
481
274. In addition, Korea argues that the fact that Article 19.1 of the SCM Agreement refers to "the
effects of the subsidy", "confirms that this language was intended to impose a substantive requirement
that must be met in order for countervailing duties to be imposed." According to Korea, "[t]he Panel's
assertion that this language was intended to indicat e, instead, that there was no such requirement
cannot be reconciled with the provisions of Article 19.1."482
275. On appeal, Korea does not purport to claim that the phrase "through the effects of subsidies"
in Article 19.1 should be assigned a meaning that is different from that of the same phrase in
Article 15.5.483 Nor does Korea submit any further argumen ts in support of its interpretation other
than those we have rejected above.
276. Korea submits, "more generally", that the Panel' s interpretation of the "through the effects of
subsidies" language of Articles 15.5 and 19.1 is also inconsistent with the object and purpose of the
SCM Agreement . According to Korea, "the object and purpose of that Agreement is 'to offset
government subsidies that distort trade, thereby causing injury to competing industries in other
countries.'"484 Therefore, for Korea, Article 15.5 does "not permit countervailing duties to be imposed
unless the effect of the subsidies is to distort trade, by altering the volume or prices of the imports in
a manner that causes injury."485 We see our interpretation of the fi rst sentence of Article 15.5 to be in
harmony with the object and purpose of the SCM Agreement.
277. As we have found above, if an investigati ng authority carries out the examination required
under Articles 15.2, 15.4, and 15.5 of the SCM Agreement, such examination suffices to demonstrate
that "subsidized imports are, through the effects of subsidies, causing injury" within the meaning of
that Agreement. We have also found that there is no additional requirement to examine the effects of

481Korea's other appellant's submission, para. 73.
482Ibid., para. 79.
483Ibid., para. 76.
484Ibid., para. 95 (referring to Appellate Body Report, US – Lead and Bismuth II, para. 17 (summarizing
the United States' argument); and Appellate Body Report, Canada – Aircraft, para. 157).
485Ibid., para. 96. (original emphasis)

the subsidies as distinguished from the effects of th e subsidized imports on a case-by-case basis. In
the light of our analysis, we uphold the Panel's finding, in paragra phs 7.425 and 8.1(g) of the Panel
Report, that the JIA did not act inconsistently with Articles 15.5 and 19.1 of the SCM Agreement by
not demonstrating separately that the allegedly subsidized imports were, "through the effects of
subsidies", causing injury within the meaning of the SCM Agreement.
278. In the light of our finding, we do not consider it necessary to address the question of whether
the JIA properly demonstrated that the volumes and price effects of the subsidized imports and the
consequent impact on these imports on the domestic industry were the "effects of subsidies" allegedly
received by Hynix.486
XIII. Business Confidential Information
279. We note that several passages have been omitte d from the public version of the Panel Report
on the basis that Japan and Korea indicated th at those passages contained business confidential
information ("BCI"). The European Communities has complained that, while BCI must be respected,
the Panel has dealt with it in such a sweeping manne r that the Panel Report has become unintelligible
for third parties, and as a result its rights as a third party have been affected. 487 While a panel must
not disclose information which is by its nature confidential 488, a panel, in deciding to redact such
information from its report at the re quest of one or both of the parties, should bear in mind the rights
of third parties and other WTO Members under various provisions of the DSU, such as Articles 12.7
and 16. Accordingly, a panel must make efforts to ensure that the public version of its report
circulated to all Members of the WTO is unders tandable. On appeal, Japan and Korea have
designated certain information contained in thei r written submissions as BCI. We have found it
possible to render our Report without disclosing any BCI, designated as such.

486Korea's other appellant's submission, para. 64 and footnote 34 thereto.
487See European Communities' third participant's submission, para. 10 (quoting Panel Report,
paras. 7.205 and 7.206).
488See, for example, Article 12.4 of the SCM Agreement.

XIV. Findings and Conclusions
280. For the reasons set out in this Report, the Appellate Body:
(a) as regards the Panel's review of the JIA's fi nding of "entrustment or direction" of the
Four Creditors with respect to the December 2002 Restructuring:
(i) finds
 that the Panel erred, in paragraphs 7.250-7.254 of the Panel Report, in
failing to examine the JIA's evidence in its totality, and that the Panel thereby
failed to apply the proper standard of re view in a manner consistent with its
obligations under Article 11 of the DSU; and, consequently,
(ii) reverses the Panel's finding, in paragra phs 7.254 and 8.2(a) of the Panel
Report, that the JIA's determination of "e ntrustment or direction" of the Four
Creditors is inconsistent with Article 1.1(a)(1)(iv) of the SCM Agreement.
(b) upholds the Panel's findings, in paragraphs 7.28 2 and 8.2(b) of the Panel Report, that
the JIA acted inconsistently with Article 1.1(b) and Article 14 of the SCM Agreement
by determining that the December 2002 Restructuring conferred a benefit on Hynix;
(c) upholds, albeit for different reasons, the Pa nel's findings, in paragraphs 7.316
and 8.2(c) of the Panel Report, that the JIA calculated the amount of benefit conferred
on Hynix by the October 2001 and December 2002 Restructurings inconsistently with
Articles 1.1(b) and 14 of the SCM Agreement; and finds that the Panel did not fail to
conduct an objective assessment of the matte r before it, as required by Article 11 of
the DSU;
(d) reverses the Panel's finding, in paragraphs 7.3 34 and 8.2(d) of the Panel Report, that
the methods used by Japan to calculate the amount of benefit conferred on Hynix
were not provided for in Japan's national le gislation or implementing regulations as
required under the chapeau of Article 14 of the SCM Agreement;
(e) upholds the Panel's finding, in paragraphs 7.36 1 and 8.2(e) of the Panel Report, that
Japan acted inconsistently with Article 19.4 of the SCM Agreement by levying
countervailing duties on imports which the JI A itself had found were not subsidized
at the time of duty imposition; and finds that the Panel did not fail to conduct an
objective assessment of the matter before it, as required by Article 11 of the DSU;

(f) upholds the Panel's findings, in paragraphs 7.31 6 and 8.1(b) of the Panel Report, that
the JIA's determination of the existence of benefit with respect to the October 2001
Restructuring was not inconsistent with Articles 1.1(b) and 14 of the SCM
Agreement;
(g) upholds the Panel's finding, in paragraphs 7.39 8 and 8.1(c) of the Panel Report, that
the JIA did not act inconsistently with Article 12.7 and 12.9 of the SCM Agreement
by including certain financial institutions as "interested parties" and by using "facts
available" for those financial institutions that failed to provide information;
(h) upholds the Panel's finding, in paragraphs 7.446 and 8.1(d) of the Panel Report, that
the JIA could properly characterize the tran sactions at issue in the October 2001 and
December 2002 Restructurings as "direct tran sfer[s] of funds" within the meaning of
Article 1.1(a)(1)(i) of the SCM Agreement; and
(i) upholds the Panel's finding, in paragraphs 7.425 and 8.1(g) of the Panel Report, that
the JIA did not act inconsistently with Articles 15.5 and 19.1 of the SCM Agreement
by not demonstrating separately that the a llegedly subsidized imports were, "through
the effects of subsidies", causing injury within the meaning of the SCM Agreement.
281. The Appellate Body recommends that the DSB request Japan to bring its measure, found in
this Report, and in the Panel Report as modified by this Report, to be inconsistent with the SCM
Agreement, into conformity with its obligations under that Agreement.

Signed in the original in Geneva this 9th day of November 2007 by:

David Unterhalter
Presiding Member

 _________________________ _________________________
 A.V. Ganesan Giorgio Sacerdoti
 Member Member

ANNEX I

30 August 2007
 (07-0000)
 Original: English

Notification of an Appeal by Japan

under Article 16.4 and Article 17 of the Understanding on Rules
and Procedures Governing the Settlement of Disputes (DSU),
and under Rule 20(1) of the Working Procedures for Appellate Review

 The following notification, dated 30 August 200 7, from the Delegation of Japan, is being
circulated to Members.

 Pursuant to Articles 16.4 and 17 of the Understanding on Rules and Procedures Governing
the Settlement of Disputes ("DSU") and Rule 20 of the Working Procedures for Appellate Review ,
Japan hereby notifies its decision to appeal to the A ppellate Body certain issues of law covered in the
Panel Report on
(WT/DS336/R) ("Panel Report"), and certain legal in terpretations developed by the Panel in this
dispute. Japan seeks review by the Appellate B ody of the Panel's conclu sions and related findings
and legal interpretations that:
1. Japan improperly found government "entrustment or direction" of four of the private creditors
of Hynix Semiconductor, Inc. ("Hynix") to particip ate in the December 2002 Restructuring of Hynix,
contrary to Article 1.1(a)(1)(iv) of the Agreement on Subsidies and Countervailing Measures ("SCM
Agreement").
1 This conclusion was based on an erroneous interpretation and application of this
provision. In particular, the Panel erred in law by:
(i) failing to conduct the objective assessment of the matter required by
Article 11 of the DSU by limiting the scope of its analysis of the findings by
the investigating authorities of Japan (the "JIA") regarding the
December 2002 Restructuring to only the Deutsche Bank Report without any
assessment of other evidence on the record and the JIA's findings thereon,
denying the "totality of evidence approach" actually adopted by the JIA, and
conducting thereby a de novo review of the evidence, the JIA's findings and
its determination
2; and
(ii) failing to conduct the objective assessment of the matter required by
Article 11 of the DSU with respect to th e intervention into the preparation of

1See Panel Report, paras. 7.245-47, 7.253-54 and 8.2 a.
2See, e.g., Panel Report, para. 7.157 in conjunction with paras. 7.155-56; para. 7.162 in
conjunction with paras. 7.158-60, 7.246-47, 7.253-54.

the Deutsche Bank Report by the Government of Korea, the lack of
independent third party characteristics of the Deutsche Bank Report and the
content of the Deutsche Bank Report, by making a de novo review of the
evidence, the JIA's findings and its determination, by making findings on the
characteristics of the Deutsche Bank Report which Korea neither presented
the relevant evidence or arguments nor sought any findings by the Panel and
failing to accord the due process right of defence to Japan, and by improperly
rejecting as ex post rationalization arguments presented by Japan.
3
2. 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.4 This conclusion is in error because it was
not based on any analysis of these provisions and w as wholly dependent on its conclusions relating to
"entrustment or direction" in the cont ext of the December 2002 Restructuring under
Article 1.1(a)(1)(iv) of the SCM Agreement.5 It is based solely on the Panel's erroneous conclusion,
described in paragraph 1 above, which was made inconsistently with Article 11 of the DSU.
3. Japan improperly calculated the amount of benefit conferred by the October 2001 and
December 2002 Restructurings of Hynix, contrary to Articles 1.1(b) and 14 of the SCM Agreement.6
This conclusion was based on an erroneous interpretation and app lication of these provisions. In
particular, the Panel erred in law by:
(i) failing to conduct the objective assessment of the matter required by
Article 11 of the DSU by finding that the JIA applied exclusively an outside
investor benchmark giving rise to an internal inconsistency in the JIA's
calculation of benefit, based on an inaccurate understanding of the JIA's
actual findings and a de novo review of the evidence, the JIA's findings and
its determination
7;
(ii) finding that the JIA failed to adopt an insider investor benchmark, even
though neither Article 1.1(b) nor 14 of the SCM Agreement requires the
application of a particular methodolog y, and the benchmark alleged by the
Panel lacked necessary support in the evidence on the record required under
Article 12.2 of the SCM Agreement8;
(iii) erroneously interpreting the provisions of Articles 1.1(b) and 14 of the SCM
Agreement and failing to conduct the objective assessment of the matter
required by Article 11 of the DSU in finding that the JIA made its calculation
of the benefit amount from the creditor's perspective9;

3See, e.g. , Panel Report, para. 7.168 in conjunction with paras. 7.163-67; para 7.188 in conjunction
and 7.244 in conjunction with paras. 7.191-243; and para. 7.245.
4See Panel Report, paras. 7.282 and 8.2 b.
5See Panel Report, para. 7.282.
6See, e.g., Panel Report, paras. 7.315, 7.316 and 8.2 c.
7See, e.g., Panel Report, para. 7.315 in conjunction with paras. 7.304-14.
8See, e.g., Panel Report, para. 7.315 in conjunction with paras. 7.304-14.

(iv) failing to conduct the objective assessment of the matter required by
Article 11 of the DSU by reaching conclusions on the JIA's benefit
calculation formulae, for which Korea failed to establish a prima facie case of
inconsistency with Articles 1.1(b) and 14 of the SCM Agreement
10; and
(v) failing to conduct the objective assessment of the matter required by
Article 11 of the DSU without according the due process right of defence to
Japan and erroneously interpreting the requirements under Article 22.5 of the
SCM Agreement as informed by Articles 12.2 and 12.8 thereof and the
meaning of facts available under Article 12.7 thereof in rejecting rebuttal
arguments presented by Japan
11;
4. Japan improperly used methods to calculate th e amount of benefit to the recipient that were
not provided for in Japan's national legislation or implementing regulations, contrary to the chapeau
of Article 14 of the SCM Agreement.12 This conclusion was based on an erroneous interpretation and
application of this provision. In particular, the Panel erred in law by:
(i) erroneously interpreting the requirement to provide for the methods in the
national legislation or implementing re gulations to calculate the amount of
benefit under the chapeau of Article 14 of the SCM Agreement13; and
(ii) failing to conduct the objective assessment of the matter required by
Article 11 of the DSU in considering whether the methods provided for in
Japan's implementing regulations were used and actually applied in the
investigation to calculate the benefit amount.
14
5. Japan improperly levied countervailing duti es in 2006 to offset some of the subsidies
provided by the October 2001 Restructuring, contrary to Article 19.4 of the SCM Agreement.15 This
conclusion was based on an erroneous interpretation and application of this provision as well as other
relevant provisions under the SCM Agreement. In particular, the Panel erred in law by:
(i) erroneously interpreting the provisions of Articles 19.1 and 19.4 of the SCM
Agreement16;
(ii) failing to conduct the objective assessment of the matter required by
Article 11 of the DSU by finding that the JIA levied the countervailing duty
despite its determination that the non -recurring subsidies in the October 2001
Restructuring would expire in 2005, b ased on an inaccurate understanding of
the actual determination by the JIA and a de novo review of evidence on the
record and findings and determination by the JIA.
17

10See, e.g., Panel Report, para. 7.315 in conjunction with paras. 7.305-14.
11See, e.g., Panel Report, para. 7.315 in conjunction with paras. 7.304 and 7.314.
12See Panel Report, paras. 7.334 and 8.2 d.
13See, e.g. , Panel Report, paras. 7.327, 7.330, 7.331, 7.333 and 7.334 in conjunction with
paras. 7.326-33.
14See, e.g., Panel Report, paras. 7.330, 7.331, 7.333 and 7.334 in conjunction with paras. 7.326-33.
15See Panel Report, paras. 7.361 and 8.2 e.
16See, e.g., Panel Report, para. 7.361 in conjunction with paras. 7.351-57.
17See, e.g., Panel Report, paras. 7.360 and 7.361 in conjunction with paras. 7.358-59.

 In sum, Japan considers that the Panel erred in law in the interpretation and application of
Articles 1.1(a)(1)(iv), 1.1(b), 12.2, 12.7, 12.8, 14, 19.1, 19.4 and 22.5 of the SCM Agreement and
failed to meet the requirements of Article 11 of the DSU. Japan requests that the Appellate Body
reverse the Panel's erroneous findings and conclusions identified above.

ANNEX II

11 September 2007
 (07-0000)
 Original: English

Notification of an Other Appeal by Korea

under Article 16.4 and Article 17 of the Understanding on Rules
and Procedures Governing the Settlement of Disputes (DSU),
and under Rule 23(1) of the Working Procedures for Appellate Review

 The following notification, dated 11 September 2007, from the Delegation of Korea, is being
circulated to Members.

 Pursuant to Article 16 of the Understanding on Rules and Procedures Governing the
Settlement of Disputes ("DSU") and Rule 23 of the Working Procedures for Appellate Review, the
Republic of Korea ("Korea") hereby notifies its d ecision to appeal to the Appellate Body certain
issues of law and legal interpretations contained in the report of the panel Japan – Countervailing
Duties on Imports of Certain Dynamic R andom Access Memories (DRAMS) from Korea (WT/DS336)
(the "Panel Report"). Korea seeks review by th e Appellate Body of the following legal conclusions
and related findings and legal interpretations in the Report of the Panel:

(a) The Panel's finding that Japan acted consisten tly with its obligations under Articles 1.1(b)
and 14 of the Agreement on Subsidi es and Countervailing Measures (the "SCM
Agreement"), when the Japanese investigating authorities ("JIA") determined that Hynix
Semiconductor, Inc. ("Hynix") received a "benefit" from a transaction restructuring
Hynix's debts in October 2001.
1 The Panel incorrectly interpreted Articles 1.1(b) and 14
of the SCM Agreement to permit an investig ating authority to assume that a "benefit"
exists based solely on a finding that allegedly entrusted or directed private creditors failed
to undertake a satisfactory analysis of the transaction before approving it, in the absence
of evidence or a finding by the investigating authority that the alleged entrustment or
direction actually made the recipient "better o ff." The Panel's analysis is inconsistent
with the provisions of Article 1.1 of th e SCM Agreement, which requires a separate
analysis of (i) whether the government acti on constituted a "financial contribution" as a
result, inter alia , of government entrustment or dir ection of non-governmental entities;
and (ii) whether the government action has conferred a "benefit" on the recipient. In
addition, the Panel's analysis is inconsiste nt with the requirement of Articles 1.1(b)
and 14 of the SCM Agreement that a "benef it" exists when the recipient of the
government financial contribution has been ma de "better off", because the terms of the

1These findings include paragraphs 7.271 to 7.277, 7.280 to 7.281, and 7.316 to 7.317 of the Panel
Report.

transaction provided through the government fi nancial contribution are more favourable
than the terms that would have been available in the absence of government action.
(b) The Panel's finding that Japan acted consiste ntly with its obligations under Articles 15.5
and 19.1 of the SCM Agreement, when the JIA made a determination of injury and
imposed countervailing duties, without making a reasonable determination that the
allegedly subsidized imports were causi ng injury to a competing domestic industry
through the effects of subsidies.
2 Article 15.5 requires a demonstration "that the
subsidized imports are, through the effects of subsidies, causing injury within the meaning
of this Agreement." 3 Article 19.1 permits the imposition of countervailing duties only if
"a Member makes a final determination ... that, through the effects of the subsidy , the
subsidized imports are causing injury ... ." 4 The Panel adopted an interpretation of these
provisions that rendered inutile the language of the provisions referring to "the effects of
the subsidy." As a result, the Panel incorrec tly allowed an affirma tive determination of
injury to be made, and countervailing duties to be imposed, when the evidence did not
support the conclusion that the volume or pri ce of the imports, or the injury to the
domestic industry, would have been any different in the absence of subsidies.
(c) The Panel's finding that Japan acted consiste ntly with its obligations under Articles 12.7
and 12.9 of the SCM Agreement, when the JIA designated as "interested parties" entities
that were not demonstrated to have any inter est in the proceeding, and then applied "facts
available" when some of those entities failed to provide information requested by the JIA
within the time limits established by the JI A. The Panel's interpretation of the term
"interested party" was not consistent with the ordinary meaning of that term or with the
context and purpose of the relevant provisions of the SCM Agreement. As a result, the
Panel approved a determination that was not consistent with the due process obligations
that the SCM Agreement imposes on investiga ting authorities, and authorized Japan to
subject an exporter to punitive duties b ased on the non-responsiveness of entities over
which the exporter had no influence or control.5
(d) The Panel's finding that Japan acted c onsistently with its obligations under
Article 1.1(a)(1) of the SCM Agreement, when (i) the JIA classified transactions that did
not involve a transfer of funds from the government (or government-entrusted or -directed
private entities) to Hynix as "direct transfers of funds" within the meaning of
sub-paragraph (i) of Article 1.1(a)(1); and (ii) the JIA failed to demonstrate that the
transactions met the requirements for clas sification as foregone revenue within the
meaning of sub-paragraph (ii) of Article 1.1(a )(1). The Panel's analysis is inconsistent
with the ordinary meaning of the relevant terms of the SCM Agreement and with the
context of the relevant provisions of the SCM Agreement. As a result, the Panel
disregarded the SCM Agreement's scheme for classifying financial contributions, and the
different analyses that investigating aut horities are required to apply when making
findings under sub-paragraphs (i) and (ii) of Article 1.1(a)(1).
6

2These findings include paragraphs 7.405 to 7.425 of the Panel Report.
3(Emphasis added, footnote deleted.)
4(Emphasis added.)
5These findings include paragraphs 7-381 to 7.398 of the Panel Report.
6These findings include paragraphs 7.439 to 7.446 of the Panel Report.