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

ANNEX D

ORAL STATEMENTS OF PARTIES AT THE
SECOND SUBSTANTIVE MEETING

Contents Page
Annex D-1 Executive Summary of the Opening Statement of Korea D-2
Annex D-2 Closing Statement of Korea D-4
Annex D-3 Comments of Korea on the US Opening Statement D-8
Annex D-4 Executive Summary of the Openi ng Statement of the United States D-10
Annex D-5 Executive Summary of the Closing Statement of the United States D-14

ANNEX D-1

EXECUTIVE SUMMARY OF THE SECOND ORAL STATEMENT
BY THE GOVERNMENT OF KOREA

I. INJURY ISSUES

A. Volume Effects The limited market share, the small cha nge in market share, and the unique
circumstances of a US based factory shutting down a ll demonstrate that the volume of subject imports
was not “significant”.

B. Price Effects The United States continues to cite figures concerning frequency of
underselling in a vacuum. Even if non-subject im port were underselling only 61 per cent of the time
rather than 70 per cent, non-subject imports were 5 to 6 times larger in terms of market share. The
ITC focused on relatively small changes in th e frequency of underselling, while ignoring the
dramatically different volumes of non-subject imports , about 80 per cent of which the United States
now concedes was fully interchangeable.

C. Causal Link Hynix subject imports increased about 2 percentage points of market share
(because of the shutdown in Oregon), but Hynix brand sales actually decreased
 about 4 percentage
points. In the meantime, non-subject imports increased almost 7 percentage points of market share.
Hynix subject import underselling increased slightly from 2000 to 2001. If the Hynix brand is losing
market share, and if non-subject imports are able to gain market share at more than three times the
rate of subject imports, it simply defies logic to find a causal nexus to subject imports.

D. Non-Attribution

 Non-subject imports The US producers and importers reported that non-subject and
domestic DRAMs products were ge nerally used interchangeably and 22 out of 24 reported no
important difference in product characteristics or sal es conditions between them. In addition, the ITC
never reconciled the frequency of underselling analysis with the vastly different volumes
 of subject
and non-subject imports. In 2001 the portion of s ubject imports underselling was about 5 per cent of
the market, but the portion of non-subject imports un derselling was about 27 per cent of the market.
The ITC determination provides no satisfactory explan ation of how it separated and distinguished the
effect of this 27 per cent, and did not improperly attr ibute this effect to the 5 per cent represented by
subject imports.

 Collapse in demand To the extent the ITC felt supplier competition was somehow a factor,
the ITC does not explain why it attributed the eff ect to the small change in subject import market
share rather than the much larger market share a nd change in market share by non-subject imports.
The modest difference in the frequency of underselli ng is dwarfed by the huge difference in market
share, and the fact that non-subject imports were ga ining market share at more than three times the
rate of subject imports.

 Increased capacity There is no discussion in the ITC determination that links detailed
information about which
 suppliers were increasing their capacity, and the more general discussion of

general capacity as part of the business cycle. To look at capacity in the aggregate simply does not
allow the necessary analysis.

II. SUBSIDY ISSUES

A. Financial Contribution

 The Legal Standard To have any meaning, the text of Article 1.1(a)(1)(iv) must impose
some threshold that must be met. To focus on who
 is being entrusted to do what is a textually sound
way to ensure this legal threshold is being met. This interpretation may make it more difficult for
authorities to make sweeping, broad-brush conclusions about debt restructuring programmes. But that
is the unavoidable consequence of giving this prov ision some substantive legal content. Also, a
careful review of the treaty text in context confir ms this interpretative appr oach as encapsulated in
US - Export Restraints.

 The Evidence Once the evidence of entrustment or direction cited by the United States is
held up against the proper legal standard, the defi ciencies become quite apparent. The deficiencies
are most egregious for the October 2001 and May 2001 restructurings. As for the May restructuring,
the United States describes the r estructuring without even acknowledging the $1.25 billion in new
equity capital that was raised. As for the October restructuring, the United States largely ignores the
critical feature of the October restructuring: many banks, including some 100 per cent owned by the
GOK, declined to provide any new money. The Un ited States also misstates both the function of the
CRPA and the actual facts of the October restructuri ng. Contrary to the US allegations, each creditor
under the CRPA had a chance to see whether the rest ructuring options were more attractive than
appraisal rights. With respect to the Kookmin prospectus, the US now argues that the GOK could and
did influence {Kookmin’s} lending decisions. Ye t the actual behavior of Kookmin clearly
demonstrates that Kookmin was exercising its own judgment with respect to the different phases of
the Hynix restructuring. In the end, this evidence simply does not support the sweeping DOC
conclusion that every single Korean bank was entrusted or directed to engage in every single
transaction with respect to the Hynix restructuring.

B. Benefit

 The DOC approach to “benefit” is utterly at odds with the textual requirement of Article 14(b)
in that the DOC crafted onto Article 14 the requirement of finding the perfect benchmark, and
rejecting anything less. The DOC si mply did not have the legal or f actual basis to reject all possible
benchmarks. This rush to reject all benchmarks is particularly egregious for Citibank. The DOC
simply has not explained satisfactorily why Citiba nk was not “comparable” within the meaning of
Article 14(b) for loans, and why Citibank was not indicative of the “usual investment practice under
Article 14(a) for debt equity swaps. In addition, the US argument that becau se Citibank’s initial loan
to Hynix was small relative to total Hynix debt is just absurd in that nothing in Article 14(b) requires a
loan to be both “comparable” and
 large relative to total debt.

C. Specificity

 The United States has defined the subsidy in an overbroad way so as to render the specificity
requirement irrelevant. Of course there is only one Hynix “bailout”. But hundreds of Korean
companies obtained loans, and hundreds of indebted Korean companies went through restructuring.
By failing to analyze the constituent elements of th e Hynix restructuring, the United States failed to
comply with the requirements of Article 2.

ANNEX D-2

CLOSING STATEMENT OF THE GOVERNMENT OF KOREA
AT THE SECOND SUBSTANTIVE MEETING

21 July 2004

 We would like to thank the Panel and the secretariat for another productive two days of
meetings and tough questioning. We believe this process has furthe r focused the enquiries in this
case. We use these closing comments respond to the Chairman’s request to offer our thoughts for
how the Panel should go about its task in this case.

Injury Issues

 We start with the injury issues. Both parties have stressed different aspects of the standard of
review. In our view, both parties are correc t: the Panel must undertake an objective assessment
without reweighing the evidence. In a sense, the standard of review is not really the issue.

 But make an “objective assessment” of what? There are a number of key issues. Under
Article 15.2, the Panel must make an objective assessment of whether the subject import volume is
“significant”. In our view, the ITC cited a number of facts and trends, but never really explained why

the volume of imports was “significant”. The United States has argued extensively about the overall
context of the import volume. But the United States never adequately addressed the two most
important aspects of this overall context: the role of the shutdown of the Hynix Oregon facility in
explaining the modest increase in Hynix subject impo rt market share; and the significance of modest
levels of subject imports in light of the much, much larger volume of non-subject imports.

 It is against this context that the Panel must evaluate the sufficiency of the US argument that
subject imports were highly substitutable. So were Hynix DRAMs made in Oregon, and the
substitution between 2000 and 2001 was largely Hynix customers switching from Hynix DRAMs
made in Oregon to Hynix DRAMs ma de in Korea. Since Hynix brand lost market share over this
period, Hynix subject imports were not even replaci ng the market share lost when Oregon shutdown.
But in addition, the non-subject DRAMs were also completely substitutable. The United States
acknowledges that 80 per cent of these DRAMs are fully interchangeable, and this fact alone
substantially undermines the credibility of the ITC cl aim that the modest additional volume of subject
DRAMs could have “significant” volume effects as required by Article 15.2.

 With regard to price effects, it is hard to say anymore. The US refusal to provide key data –
even data for which it is difficult to see the rationa le for continued confidential treatment – makes the
Panel’s task more difficult. Unlike the volume arguments, where Hynix data alone provides a
reasonable proxy, the pricing arguments are by necessity more abstract. But in our view, there are at
least two core issues that the United States has not addressed adequately.

 First, does it make any sense to focus on Hynix subject imports only relative to each
 other
supply source, or should the ITC have also addressed – as Hynix argued – the combined effect of the
other sources? Put differently, can the findings on pr ice effects be considered sufficient without at
least addressing this issue, and explaining why in spit e of the combined effects of all the other lowest
price supply source, there are still significant price effects.

 During our meeting yesterday, the United States stressed the facts of changing frequency of
underselling. We acknowledge those facts. But does it make any sense to rely on those facts in
isolation, when the other
 facts show that the other non-subject import sources were much bigger, were
growing in market share much faster, and were un derselling with almost the same frequency? We
believe this conclusion does not make sense, and the ITC finding of “significant” price effects is
inconsistent with Article 15.2.

 Which brings us to causation. We do not be lieve the ITC has shown the requisite causal link,
but really have nothing to add to our prior arguments on this issue. On the issue of non-attribution,
however, we would like to offer a few additional thoughts.

 First, the Appellate Body guidance in this ar ea has not been very concrete. But the two
general principles are clear: the authorities must “separate and distinguish” and they must provide a
“satisfactory explanation” based on positive evidence. This need to determine whether the authority
has provided a “satisfactory explanation” requires th e Panel to consider the facts, consider the
explanation offered, consider th e alternative explanations of the facts, and decide whether the
authority’s explanation is detailed enough, comple te enough, and logical enough to be considered
“satisfactory.” From this perspective, the ITC findings are simply insufficient.

 On non-subject imports, the ITC is trapped by its own logic. If the substitutability of a
commodity product enhances the volume effects, then the much, much larger volume of non-subject
imports must have been having an overwhelming effect on the market. Non-subject imports were five
times larger, gaining market share three times as fast , and underselling domestic prices with almost
the same frequency. None of the ITC explanations satisfactorily separate and distinguish the role of
this other factor in the market. The ITC ackno wledges the magnitude and trends of non-subject
imports, but never explains its conclusion that s ubject imports themselves were still the cause of
material injury.

 Note that we are not
 saying that the existence of other factors means that subject imports
cannot also be the cause of material injury. That is a false characterization of Korea’s position. Our
argument is that in this case, the ITC explanation is so deficient that we really do not know whether or
how the ITC separated and distinguished this other factor. We know the ITC conclusion, but we do
not have a satisfactory explanation of how it reached that conclusion. Put differently, we have no idea
how the ITC controlled for the effect of non-subject imports, and did not mistakenly attribute these
effects to subject imports. Both explanations o ffered – the limited volume of specialized products,
and the different frequency of underselling – fail under more careful scrutiny.

 The same problems infect the ITC discussion of other alternative causes. We need not repeat
those arguments now.

 The United States yesterday made a plea that domestic industries are entitled to protection
from subsidized imports. This may be true, but under WTO standards the domestic industry is
entitled to such protection only when very specific standards have been met. In this case, they have
not been met. This Panel is charged with applyi ng these standards, and ensuring that protection is
given only when these international standards have been met.

Subsidy Issues

 With respect to subsidy issues, we offer just a few thoughts on the issue of entrustment or
direction.

 First, we continue to believe it is critical to decide on the legal standard. The United States
has tried to side-step this issue. We disagree. We think this treaty language has a very specific
meaning, and the Panel’s probing has helped us focus our own interpretation.

 The United States has argued in its opening statem ent that Korea is reading “entrusts” out of
the agreement, but that argument is wrong. That word remains in the agreement; but our argument is
that the “entrusts” portion of the standard is not properly part of this case. “Entrusts” must have some
meaning different than “directs,” otherwise the word would be unnecessary. When read in light of the
phrase “normally vested in”, we believe this word conveys the idea of something concrete that can be
entrusted. Since the word “vested” conveys the core meaning of giving someone a legally fixed right,
it seems quite natural to read “entrusts” as focusing on those situations when the government has
transferred responsibility for some programme to a private body. A party can have some legally fixed
right pursuant to a formal programme. A party cannot have any legally fixed rights with regard to a
general “bailout”. After all, the word “directs” re mains to cover other situations not involving such
formal programmes. The US interpretation simply does not give any separate meaning to “entrusts”
and blurs the distinction between these two important terms.

 Second, with respect to this legal standa rd, the key requirement remains: has the
United States provided sufficient evidence to meet th e legal standard. During this dispute, we have
often used the phrasing "who” was directed to do “what”, or called for a bank-by- bank or transaction-
by-transaction analysis. But underlying both of th ese analytic frameworks is the simple idea that
there must be evidence to support all
 aspects of any finding of entrustment or direction. Having
entrusted or directed part of an alleged bail out does not automatically establish entrustment or
direction of the entire alleged bailout. Certain ev idence might support some, but not all, of such a
finding.

 Third, although we believe the US evidence fa ils with respect to all aspects of the Hynix
restructuring, these failures are most apparent with respect to the October 2001 restructuring and with
respect to the private Korean banks. The United States had only limited evidence with respect to
October. We agree with the United States that general pronouncements are not enough. So the US
argument for the October restructuring is based entirely on the role of the Creditors’ Council.

 We have discussed at length the US flawed interpretation of the statutory framework of the
CRPA. But more fundamentally, the US theory ca nnot explain what else the United States expected
the creditors to do in the October restructuring. Unless the United States is arguing for a per se rule
that companies must declare bankruptcy and not restru cture, what else were the creditors to do? The
option 3 banks simply took the liquidation value, a nd walked away from any further involvement.
The statute sets forth a series of procedural rights, including the right to mediation. The Hynix
financial statement clearly shows these banks invoke d their right to mediation, and Hynix recorded
their claims as a current liability. The option 2 ba nks took a chance on a debt for equity swap to
recover a larger portion of the outstanding debt, but refused new loans. The option 1 banks – those
with the largest amounts of debt at stake – made so me new loans so as to be allowed to swap more
debt for equity, and thus limit the size of the write-offs they had to take at the time. None of this is
sinister or suspicious. These are the typical choices in a debt restructuring, and individual banks made
those choices that made the most sense for them. This is hardly entrustment or direction.

 Similarly, the evidence with respect to private banks is simply insufficient. We urge this
Panel to consider not just the evidence cited by the United States, but the other evidence left out of the
DOC determination. The outside e xperts were quite consistent in st ating that the private banks were
different, and acted independently. The informat ion before the DOC about substantial foreign
ownership of these private banks is also fundamental ly at odds with the DOC finding of entrustment
or direction. The evidence of private bank independ ence, such as the refusal of KFB to participate in
many parts of the Hynix restructuring provides fu rther evidence. In the final analysis, the US
evidence with regard to private banks is simply insufficient to meet the legal standard.

 We believe the Panel can usefully focus its an alysis on the private banks. If the Panel finds
that the private banks were not entrusted or directed, either for all or for parts of the Hynix

restructuring, then the remainder of the DOC anal ysis fails. The DOC cannot countervail those loans
or investments by those private banks not entrusted or directed. Moreover, those banks then can serve
as benchmarks for any other banks.

 Indeed, this interplay between “entrusts or di rects” and “benefit” explains why the DOC made
the overbroad finding of entrustment or direction in the first instance. The DOC realized that it had to
disqualify all of the Korean banks so that none of them would be available to serve as benchmarks.
These other benchmarks would reinforce the conc lusions that DOC could and should have drawn
based on Citibank as a benchmark.

 We thank the Panel for its time, and look forw ard to the next round of written questions that
will allow us to address any additional specific areas of concern.

ANNEX D-3

COMMENTS OF KOREA ON THE US OPENING STATEMENT
AT THE SECOND SUBSTANTIVE MEETING IN THE
US DRAMS CASE (DS 296)

21 July 2004

 I would like to make a few points about the US argument on new information. First, as a
legal matter, the Panel has discretion to consider whatever information it finds useful. That is
significance of the SCM Agreement not having a provision like Article 17.5 of the Anti-Dumping
Agreement.

 Second, as a practical matter, we agree that the Panel should not be undertaking de novo
review. But that argument goes to the way in which the evidence is being used, not the mere
existence of evidence. If there is some information that helps clarify what the authority did during the
investigation, there is no reason that the Panel cannot use that information to understand better what
the authorities did and what information the authorities considered.

 Third, in this case the United States has se rious exaggerated the extent and use of new
information. Let me review the main items.

 With respect to the default rates, this inform ation serves a very narrow purpose. We argue at
paragraph 148 of our second submission that the in formation about cumulative default rates could
easily have been provided if DOC had asked. We ha ve not and are not asking the Panel to use this
information for any recalculation or any other purpose. We are si mply illustrating how easily Korea
could have responded if we had been asked.

 With respect to the MOU, the US argument is quite disingenuous. As paragraph 183 of the
US First Submission shows, the DOC reviewed such documents during the verification, and offered
its own characterization of the MOU. All Korea ha s done is provide the Panel with the MOU itself,
so that the Panel can itself test whether the DOC has fairly characterized the document reviewed at
verification. The US argument is basically that it can review the MOU, but the Panel cannot. This
argument is absurd.

 With respect to the sequence of meetings leading to the Hynix enrollment in the KDB
programme, we cited specifically to the DOC verifica tion report. We refer the Panel to Exhibit GOK
61, which provides the DOC document. Even if Hynix made a minor misstatement in its
questionnaire response, when the DOC investig ation collected additional and more detailed
information, the DOC cannot ignore that information.

 With respect to the FSS document in Exhibit GOK 50 and para 83 of the GOK Second
Submission, this information is simply responding to a US argument at para 52 of the US First
Submission. If the United States can draw an infe rence from a newspaper article, and refer to Hynix
as being “conspicuously absent”, all without any citation to the DOC determination below, then Korea
should be allowed to respond to that innuendo. Exhibit GOK 50 does nothing more.

 With respect to the alleged pressure on credit rating agencies, we are simply responding to a
new argument raised in the US First Submission. At the outset, we note that this whole line of
argument is secondary, and does not really address a lleged entrustment or direction of the Hynix

creditors. The Panel thus can and should ignore this US argument entirely. The US First Submission
does not identify where DOC had made any finding about this issue, and we could not find any
discussion in the DOC decision memorandum provided at Exhibit GOK 5. So Korea’s goal was
simply to let the Panel know that these various accusations reported in the press, and included along
with hundreds of other articles submitted by Micron in the case below, had been denied by the FSS at
the time.

 Finally, the United States goes on at some length about the CRPA. At the outset, we note that
this Korean law has been on the DOC record, and much of the Korean argument is simply clarifying,
based on citations to the relevant provisions, how th is Korean law works. That fact that DOC may
have misunderstood the CRPA does not make th ese misunderstandings “evidence” to support the
DOC conclusions. Moreover the Korean argument is based substantially on the evidence before the
DOC. In particular, we cite to Exhibit US 125, whic h is the relevant Hynix financial statement. The
United States professes surprise about the fact of me diation, but the text of the CRPA specifically
provides for mediation in Articles 29 and 32, a nd the notes to the Hynix financial statement
specifically note this fact. If the DOC did not read the documents very carefully, that is not our fault.

 We concede that the actual payment with interest is a fact not before the DOC. But what was
before the DOC are the facts that the zero coupon de benture was proposed, but then rejected. That is
precisely why the option 3 banks went to mediation, as the financial statement discloses. Moreover,
the DOC knew that Hynix had made a particular re serve, in anticipation of losing this point in
mediation. Thus, the only new fact is the final outcome of the mediation in 2002. But this final
outcome is not really the issue. The United States adopted as “fact” a scenario that was not at all a
fact based on the financial statement before the DOC.

 In summary, the United States has dramatically ex aggerated the extent of new information, in
part because the United States must realize now that its theory of GOK control is at odds with the
actual text and operation of the CRPA. We believ e all the Korean arguments can be fully supported
with information before the DOC. They do not in any way ask the Panel to conduct a de novo review.
Rather, they will help the Panel in discharging its responsibilities under Article 11 of the DSU. If the
Panel has any questions about any sp ecific points, we are happy to address those either today, or in
the form of answer to written questions.

ANNEX D-4

EXECUTIVE SUMMARY OF THE OPENING STATEMENT
OF THE UNITED STATES AT THE SECOND
SUBSTANTIVE MEETING OF THE PANEL

2 August 2004

The Commerce Department’s Subsidy Determination

1. Korea’s Submission of New Information : Korea’s second written submission and answers
to the Panel’s questions are replete with informa tion which was never provided to the DOC at any
time during its investigation, notwithstanding the DOC ’s extensive requests for information. All of
this new information – some of which is contra dicted by evidence that was submitted during the
investigation – should be disregarded by the Panel. Prior panels have recognized that in disputes
involving the review of a determination by an i nvestigating authority, the consideration of new
evidence by a panel is incompatible with the principle that "a panel is not to perform a de novo review
of the issues considered and decided by the investigating authorities".

2. Korea’s submission of new evidence illustra tes its continuing efforts to have the Panel
reweigh the facts. It is remarkable that Korea so blithely has ignored its own admonition that the
focus must be on the "evidence befo re the agency" at the time of its determination. We are quite
certain that if, for example, the United States had provided the Panel with information showing that
prior to its privatization in December 2003, th e GOK formally acknowledged to the WTO its legal
and practical control over Kookmin Bank, Korea would object strenuously on the grounds that the
information was not on the record.

3. It is equally distressing that Korea’s second submission and responses to the Panel’s questions
are laced with many assertions of fact without citation to any support in the underlying record. An
objective assessment of Commerce’s explanation of how the record evidence supported its
determination will lead the Panel to find that Co mmerce’s determination was entirely consistent with
the SCM Agreement.

4. Financial Contribution, Benefit, and Specificity : Korea, based on a novel and
fundamentally flawed interpretive analysis, and some verbal sleight of hand, concludes that the facts
of this case dictate the appropriate interpretation of the Agreement. Specifi cally, Korea argues that
"in the context of the Hynix restructuring" only the term "directs" is relevant. Thus, Korea argues for
purpose of this case the Panel should read the term "entrusts" out of the SCM Agreement. There is
absolutely nothing in the text of subparagraph (iv) th at even remotely suggests that the task delegated
to a private body must involve the administration of a formal "government programme".

5. Korea argues that the term "directs" can onl y mean "orders" because the French and Spanish
verbs – "ordonner" and "ordenar" – translate into English as "to order". The drafters could easily
have used the term "orders" in the English text for Article 1.1(a)(1)(iv), but they did not. The drafters
used the term "directs". While "order" is cert ainly one meaning of "directs", it is not the only
meaning.

6. The United States has consistently taken the position that whether there is government
entrustment or direction within the meaning of su bparagraph (iv), requires consideration of whether a
government "gave responsibility to", "ordered", or "regulated the activities of" private bodies to "carry
out" financial contribution functions.

7. The United States has explained in great de tail – relying entirely on record evidence – the
factual and legal bases for the Commerce Department ’s determination that the GOK pursued a policy
to support Hynix and prevent its failure and that the GOK entrusted and directed Hynix’s creditors to
effectuate that policy. Korea does not deny the ex istence of GOK support for Hynix. Nor could it do
so with any credibility given the explicit statements of government officials from the Blue House and
the Financial Supervisory Commission (FSC), as well as from Economic Ministers, regarding
government support of Hynix. Rather, Korea suggest s that after the Economic Ministers meetings in
late 2000, the evidence of the GOK’ s Hynix policy dries up. However, the extensive evidence of
GOK actions over the course of the entire 10-month period of the Hynix bailout – as documented in
our previous submissions – belies Ko rea’s claim. It also bears mentioning that in the midst of the
planning for Hynix’s October 2001 restructuring and recapitalization, a high-level Hynix official
acknowledged that "We won’t be going bankrupt. The Korean government won’t let us fail".

8. Korea’s allegations of "gaps" in the evidence rests on its view that a bank- and
transaction-specific analysis is required. We strongly disagree. The concept of government
entrustment or direction of a task does not require that the government micro-manage those given
responsibility for carrying out that task. Moreover, governments typically have a wide range of tools
at their disposal to deliver a financial contribution indirectly. These tools may vary greatly in terms of
their transparency. If subparagraph (iv) is to have any meaning, it is essential to recognize the
importance of examining, on a case-by-case basi s, all of the evidence surrounding possible
government entrustment or directi on, and to recognize reasonable infe rences that may be drawn from
that evidence. It is Ko rea’s suggestion that such an analysis is impermissible that the Panel should
find alarming. Given the nature of indirect subsidi es, the type of rigid evidentiary standard advocated
by Korea would render subparagraph (iv) virtually meaningless.

9. Finally, the United States will touch very brie fly on the topics of "benefit" and "specificity".
As a general matter, Korea offered nothing new on these issues in its second submission. In response
to the Panel questions, however, Korea states that , although it does not challenge the conclusion that
the KDB Fast Track Programme constituted a financial contribution, it does challenge the existence of
any benefit from, and the specificity of, the programme. Given Korea’s concession that the KDB Fast
Track programme constitutes a financial contribution, it is difficult to fathom how Korea can argue
that financial contributions provided by banks under the Fast Track programme could themselves
serve as benchmarks for determining the benefits from those very same financial contributions. Korea
offers no explanation for this dichotomy.

10. With respect to specificity, as discussed earlier, Korea’s argument concerning the timing of
Hynix’s nomination for the KDB Fast Track progra mme is contradicted by the record evidence
submitted by Hynix. Moreover, Korea entirely ignores th e fact that in the one-year existence of the
Fast Track programme, only six companies in total participated in the programme, four of which were
Hynix and its Hyundai affiliates.

The ITC’s Injury Determination

11. Subject Import Volume was Increasing
: Korea’s arguments that volume did not increase are
based entirely on the assumption that "volume" does not mean the volume of subsidized subject
imports, but instead means the volume of all Hynix-brand products being sold in the US market. A
brand-name analysis was not appropriate under th e circumstances and would contradict the SCM

Agreement, because a brand-name analysis would not have corresponded to the relevant enquiry,
which is to ascertain the effect of subsidized subject imports on the domestic industry.

12. Korea Cannot Explain Away the Increased Volume of Subject Imports : Even if, as Korea
asserts, subsidized subject imports gained market share in the US market only by replacing products
produced by Hynix’s Eugene facility, any such gain was at the expense of the domestic industry
because the Eugene facility was part of the domestic industry. Moreover, Hynix was not principally
using Eugene products to service the US market.

13. Korea’s Other Volume Arguments Also Fail : Context Matters . Consistent with the
approach endorsed in Thailand – H-Beams, the ITC put the import figures and trends into the factual
context of the DRAMs industry and the circumstan ces of the DRAMs investigation. As the ITC
determined, the commodity-like nature of domestic and subject imported DRAM products magnified
the ability of a given volume of imports to impact th e domestic market and industry. Korea concedes
that Article 15.2 of the SCM Agreement does not impose any numerical threshold on what is a
"significant" volume or a "significant" increase in volume.

14. Data Arguments. The Panel should disregard Korea’s continuing efforts to assign values to
the confidential volume data considered by the IT C. There is no basis to use data from Hynix’s
importer questionnaire response – however compiled – as a proxy. Moreover, there are a number of
problems with GOK Exhibit 62, problems that do not ex ist with respect to Confidential US Figure 1.
Whereas Confidential US Figure 1 rightly includes co mpany transfers in the calculation of Hynix’s
US shipments of subsidized subject imports, GOK Exhibit 62 does not include such transfers. GOK
Exhibit 62, therefore, presents a distorted pictur e of Hynix’s US shipments of subsidized subject
imports.

15. Korea Has Not Shown any Shortcomings in the ITC’s Price Effects Analysis: Underselling
by subject imports increased between 2000 and 2001 at a time when the volume of subsidized subject
imports was increasing, domestic market share was declining, and underselli ng of standard products
by non-subject imports was relatively stable. The underselling by subsidized subject imports
ballooned to 69.8 per cent of all observations in 200 2, and underselling by subsidized subject imports
was at a much higher frequency than underselling by non-subject imports at that time. While not
required to do so, the ITC did conduct a disaggregated analysis, which showed that Hynix’s
subsidized subject imports were the lowest pri ced product more often than products from any other
source.

16. Contrary to Korea’s assertion, subject imports can have significant adverse price effects if
they force domestic producers to lower their prices in order to retain market share. With respect to the
ITC ’s conclusion that subsidized subject imports significantly depressed prices in the US market, to
the extent that Korea is implying that evidence of price leadership is required under the SCM
Agreement, it is wrong. Second, the ITC found that factors other than subsidized subject imports
could not explain the unprecedented price depression e xperienced during the period of investigation.
Third, Korea’s assertion that non-subject imports are completely fungible with the domestic like
product is simply not supported by the evidence in this investigation.

17. The ITC’s Impact Analysis Was Consistent with the SCM Agreement : Korea tries to rebut
the ITC’s impact analysis with snippets of information about individual producers. These snippets of
information pertain only to individual producers, and are taken out of context and/or based on the
company’ s global operations and/or operations on a broader array of products.

18. The ITC’s Determination Was Also Consiste nt with Article 15.5 of the SCM Agreement :
The ITC’s determination more than satisfies the standard articulated by Korea of "some causal
connection" between subject imports and the material injury to the domestic industry, whether or not

the Panel examines the data under a correlation lens, a conditions of competition lens, or some other
lens. A brief summary of the data is provided in Figure US-5, attached to this statement.

19. The ITC examined known factors other than th e subsidized subject imports which at the same
time were injuring the domestic industry to ensure th at it did not attribute injury caused by such other
factors to the subsidized subject imports. The ITC provided a thorough evaluation of known causes of
injury other than the subsidized subject imports in its determination. The ITC explicitly agreed with
Hynix that there were capacity increases both globally and in the United States during the period of
investigation, but its analysis did not stop there. The ITC recognized that capacity increases lead to
increased supply and that imbalances in supply lead to the characteristic boom and bust phases of the
DRAM industry’s business cycle. At the same time, the ITC found that the business cycle, as well as
other factors affecting prices, simply did not expl ain the dramatic price declines experienced during
the period of investigation. The other factors a ffecting prices that the ITC examined included the
operation of the product life cycle and the slowing in the growth of demand at the end of the period of
investigation. Korea continues to mischaracter ize the evidence as showing a dramatic decline in
demand. The evidence showed that demand c ontinued to increase throughout the period of
investigation, but the growth in demand was not as great at the end of the period of investigation.
Korea simply fails to meet its burden of demonstrating how the United States failed to comply with
the requirements of SCM Agreement Article 15.5.

Article 19.4 of the SCM Agreement and Article VI:3 of GATT 1994

20. Korea has failed to demonstrate that the United States has levied duties at all, let alone levied
duties inconsistently with Article 19.4 and Article VI:3. Korea recognizes that the word "levy" is
defined in footnote 51 of the SCM Agreement as "the definitive or final legal assessment or collection
of a duty or tax", but Korea ignores the fact th at what has to be "definitive" for purposes of
Article 19.4 is not the "duty", but rather the "asse ssment or collection" of the duty. Korea concedes
that the United States has not yet "collected" any countervailing duties, and offers no explanation as to
how the United States has "assessed" countervailing duties.

21. Why Korea chose to invoke Article 19.4 and Article VI:3 is Korea’s business. However,
those provisions cannot be rewritten under the gui se of interpretation in order to accommodate
Korea’s litigation choices.

Korea’s Consultation Request Failed to Comply with Article 4.4 of the DSU

22. The Panel should reject Korea’s claims regarding Commerce ’s c ountervailing duty order
because Korea’s consultation request failed to comply with Article 4.4 of the DSU. Korea refused to
indicate any provision of a WTO agreement with wh ich it considered the countervailing duty order to
be inconsistent, even after the United States pointed out this failure to Korea. Korea claims that its
second consultation request "speci fically cited to Article VI:3 of GATT 1994," but the second
consultation request does not mention Article VI:3.

23. Article 4.4, at a minimum, requires an indication of at least one provision with which a
measure is considered to be inc onsistent. While the requirements of Article 4.4 are minimal, they
cannot be blithely ignored. Moreover, the United Stat es promptly informed Korea of the defect in its
second consultation request, and subsequently explained the defect to the DSB.

24. The United States does not believe that a failure to comply with Article 4.4 can be excused by
an alleged absence of prejudice, and Korea cites not hing to support such a proposition. However, to
the extent that the Panel considers a showing of pr ejudice necessary, the United States believes that it
was prejudiced by Korea’s repeated refusal to honour the US right to receive an indication of the legal
basis behind Korea’s consultation request insofar as the countervailing duty order was concerned.

ANNEX D-5

EXECUTIVE SUMMARY OF THE CLOSING STATEMENT
OF THE UNITED STATES AT THE SECOND
SUBSTANTIVE MEETING OF THE PANEL

2 August 2004

Standard of Review

1. We just heard our Korean colleague say th at the Panel must decide whether import volume
was significant. Of course, that is not the issue be fore the Panel. Instead, the issue is whether the
ITC’s conclusions regarding import volume were reasonable. Based on the discussion over the past
few days, we believe the Panel fully understands this.

The Commerce Department’s Subsidy Determination

2. At the last meeting the Panel asked, what must the government do for there to be an indirect
subsidy? We have thought a great deal about this question and we have explored it with the Panel. In
the end, we have concluded that the only answer is the one found in the SCM Agreement itself – the
government must "entrust" a private entity or "direct" a private entity to make a financial contribution.
That is, the government must set the task, the task must involve making a financial contribution, and
the government must give responsibility for carrying out that task to a private entity. Thus, we know
what the government must do. We also know based on the ordinary meanings of "entrust" and
"direct" what the government need not do. That is, the government does not have to have a formal
programme or dictate precisely how that task is carried out. Moreover, nothing in the ordinary
meaning of entrustment nor direction suggests that th e party tasked must believe that what it is being
tasked to do is totally irrational – that it is something no one would do absent government
intervention. The issue is simply whether that part y acts at the behest of the government to provide a
financial contribution.

3. So, once again, let us step back from that im pressionist painting and look at the whole picture
rather than focusing on the dots. In this case, there is ample evidence that the government set the task;
i.e., to give Hynix the financial assistance needed to resolve the company’s financial crisis. There is
also ample evidence that the banks had not been relieved of that task prior to the October
restructuring. Explicit statements by Ministers and by Hynix itself demonstrate that; just prior to the
October restructuring the government had publicly stated that Hynix was going to get whatever it
needed.

4. We also know that, for the most part, the government did not directly give Hynix the funds it
needed. So, how did the government implement its decision? Of course, the government did not
make the decision and then simply do nothing to implement it. The government turned to Hynix’s
creditors and gave them responsibility for completin g the task. Korea argues that the banks acted
solely for commercial reasons. But, the record s upports a different conclusion. Record evidence for
all elements of the Hynix bailout, such as the lo an approval documents and the Kookmin prospectus,
indicate that even the banks that were not controlled by the government were acting at the
government’s behest; i.e., that the government had asked them to assist Hynix and they were doing so

in accordance with that request. There is also the evidence of Hynix’s dismal financial condition,
evidence that the banks were clas sifying the chances of recovery on Hynix’s debts as doubtful at the
same time they were providing additional assistance, and evidence of government coercion of
recalcitrant banks. Based on the totality of that evidence, it was certainly reasonable for Commerce to
conclude that the banks were, in fact, acting at the behest of the government, and not purely for
commercial reasons.

5. In addition, there is the fact that delega ting the task of saving Hynix to the banks was a
readily available option for the GOK because most of Hynix’s debt was held by government banks,
which the government knew it could trust to carry out its decision. There was also a system – the
Creditors’ Council – through which those government banks could dictate terms to other Hynix
creditors as well, particularly if it was demonstrat ed to the banks that the government was willing to
step in as the enforcer, doing a little arm-twisti ng where necessary. While the GOK denies these
allegations by the banks, it cannot explain them under its theory of purely commercial behaviour.

6. In sum, the government did not micro-manage the Hynix bailout; but there is ample evidence
that the banks were acting at the government’s be hest in bailing out Hynix. Thus, as the EC noted,
this is not a close case. The government’s hand – as policy maker, facilitator and enforcer – is all
over the Hynix bailout. Without question, based on the evidence as a whole, one can objectively and
reasonably conclude that the Hynix bailout was a fina ncial contribution. Frankly, if the evidentiary
bar is set so high that the evidence in this case is not sufficient to establish a financial contribution,
then the indirect subsidy provision in Article 1 is utterly useless.

The ITC’s Injury Determination

7. Throughout these proceedings, Korea has insist ed that the United States, through the ITC,
"violated" US obligations under the SCM Agreemen t, "ignored" record evidence, and considered
other evidence in a "vacuum". Notwithstanding its repeated arguments, Korea has fallen far short of
satisfying its burden of proving that the United Stat es acted in a WTO-inconsistent manner. Indeed,
several of Korea’s factual and legal arguments contain no reference to the factual record, the ITC’s
determination, the SCM Agreement, or reports reviewing other investigating authorities’
determinations.

8. Korea has repeatedly asserted that the volum e of subject imports declined. The facts,
however, showed that subject import volume and ma rket share increased, as even Hynix’s counsel
admitted at the ITC’s hearing. In fact, what Korea is really alluding to in its argument is the Hynix
brand (composed of subsidized Hynix products made in Korea and products produced at Hynix’ s US
facility in Eugene, Oregon), not Hynix’s subject imports. But, Korea cannot point to any provision in
the SCM Agreement for the investig ating authority to consider volume on a brand-name basis in
circumstances such as in the DRAMs investigation, where brand names do not reflect country source
and thus do not correspond to the relevant legal i nquiry: namely the effect of subsidized subject
imports on the domestic industry.

9. Korea never explained why the ITC’s rejection of Hynix’s proffered reason for the increase in
subject import volume was inconsistent with the SC M Agreement. Hynix’s Eugene facility was part
of the domestic industry, so even if Hynix subs tituted subsidized imports for DRAM products made
by its US affiliate in Eugene, Oregon, those imports injured the domestic industry. The ITC provided
a satisfactory explanation for its rejection of Hyni x’s factual argument, but Korea simply disagrees
with the reason. As for Korea’s argument that Hyni x has no obligation to supply the US market first
from its Oregon facility, and then supplement it with imports, Hynix can supply the US market with
imports, as Samsung did, but only if those imports ar e fairly traded. Hynix’s imports benefited from
unfair subsidies, as my colleagues have explained at length.

10. The ITC found significant price undercutting by subsidized subject imports at high margins
and increasing frequencies, no matter how the data we re examined. Korea calls the ITC’s pricing
analysis "crude". In fact, the weighted averag e pricing comparisons that the ITC conducted were
tailored to the conditions in the DRAMs industry a nd were painstaking and representative. The ITC
calculated a weighted average for subject imports an d offset instances of overselling with instances of
underselling. It compared the weighted average pr ice for subject imports with the weighted average
price for domestic producers’ US shipments. Thus, the ITC’s analysis was consistent with the
relevant legal inquiry under the SCM Agreement, wh ich is the price effects of subsidized subject
imports on the domestic industry.

11. Although Korea has yet to demonstrate that a brand-name analysis was required, let alone
permitted, under the SCM Agreement given the facts of the DRAMs investigation, the ITC also
examined the pricing data on a disaggregated basi s by brand name by source, and this analysis
confirmed the results of its weighted-average prici ng analysis. The disaggregated analysis revealed
that Hynix was the lowest-price source more often than any other source.

12. Korea repeatedly accuses the ITC of conducti ng its examination of the volume and price
effects of subsidized subject imports in a vacuum. But, it is Korea that wants the Panel to look at
certain facts and findings in a vacuum. Korea wa nts the Panel to look at the absolute volume of
subject imports and the increases in subject import volume both absolutely and relative to domestic
consumption and production in the abstract. Bu t, the SCM Agreement does not require such an
approach, because it does not define any volume or increase as "by definition" significant or
insignificant.

13. As evidenced by its lengthy discussion of th e relevant conditions of competition and business
cycle in a separate section of its determination, and by the integration of this discussion into its
analysis of the volume, price effects, and impa ct of subsidized subject imports on the domestic
industry, the ITC clearly examined the evidence and the relevant factors in context. Subsidized
subject imports were highly substitutable for domesti c DRAM products. In this commodity market,
price was important, and purchasers reacted quickly to price undercutting through the rapid
dissemination of pricing information to certain purchasers, including through such mechanisms as
most-favoured customer, best price clauses, and othe r informal arrangements. Demand was inelastic,
so lower prices were unlikely to generate additional demand for the product, and demand continued to
rise each year. Because DRAM producers must i nvest constantly in new capital equipment and
research and development, they had to maximize capacity utilization.

14. Under these circumstances, a given volume can be more harmful than in other cases involving
a highly differentiated product because it is more likely to have a direct impact on the market,
particularly in terms of purchasers’ willingness to switch to, or increase their purchasing of,
subsidized subject imports, and/or use the low pri ces of subsidized subject imports as leverage to
extract lower prices. Indeed, under these circum stances, it was not even necessary for subsidized
subject imports to gain market shar e, if they forced the domestic indus try to lower its prices in order
to retain its share of the market.

15. The SCM Agreement, which employs disjunctiv e language, does not even require a finding of
a significant increase in subsidized subject import volume, let alone a significant increase in market
share. Here, however, not only were there significan t adverse price effects in the form of significant
underselling and significant price depression, but there was also a significant volume of subsidized
subject imports and significant increases in subject import volume, no matter how measured. As the
ITC explained, the commodity-like nature of the hi ghly substitutable domestic and subsidized subject
DRAM products magnified the ability of a given volu me of imports to impact the domestic market
and industry. In such a commodity market, which adjusts quickly to price changes, the ITC found
that significant monthly price disparities between suppliers would not usually be expected.

16. Thus, it found a pattern of frequent, sustaine d underselling by subject imports, often at high
margins, was especially significant in the context of the DRAM market, and could be expected to
have particularly deleterious eff ects on domestic prices. Although certain other factors played a role
in the price declines, the ITC found that the unpreced ented severity of the price declines that occurred
from 2000 to 2001 and persisted through 2002 indicated that supplier competition was an important
factor. The increasing frequency of underselling by subsidized subject imports from 2000 to 2002
corresponded with the substantial d ecline in US prices over those sa me years. In the absence of
significant quantities of subject Korean product compe ting at relatively low prices, domestic prices
would have been substantially hi gher. Korea never seriously challenged the ITC’s analysis of the
impact of subsidized subject imports on the domestic industry.

17. In the DRAMs investigation, there was a very high causal nexus between the material injury
suffered by the domestic industry and the subsidized subject imports, no matter what standard the
Panel applies, and no matter what lens the Panel uses to examine the evidence. Korea’s contrary
arguments are predicated on the assumption that the volume of subsidized subject imports was
declining, an assumption that has no support in the record evidence.

18. Finally, Korea has failed to demonstrate wh y the ITC’s evaluation of factors other than
subsidized subject imports is inconsistent with US obligations under the SCM Agreement. As Korea
stated, there is no requirement in the SCM Agreement for an investigating authority to quantify injury,
nor has the Appellate Body ever said there was an y requirement to do sophisticated modelling or an
econometric analysis of the data. The Appellate Body has explained that to "separate and distinguish"
means that an investigating authority is to provide a satisfactory explanation of the nature and extent
of the injurious effects of other factors, as di stinguished from the injurious effects of the unfair
imports. The ITC’ s determination shows that th e ITC not only examined all such factors, but
provided a satisfactory explanation of the nature a nd extent of the injurious effects of the other
factors, as distinguished from the injurious effect s of the unfair imports. Korea has been unable to
show why the ITC’s explanation is inadequate.

19. Korea would have the Panel believe that th e Government of Korea’s intervention in the
market to artificially sustain the existence of the number three producer of DRAMs in the world had
no adverse consequences on Hynix’s competitors. We respectfully disagree. While the consequences
of Korea’s subsidization of Hynix may have varied from market to market, the evidence before the
ITC – and the ITC’s analysis of that evidence – l eave no doubt that subsidized subject imports from
Hynix caused material injury to the US DRAMs industry.