Document: WT/DS273/R Page H-1 ANNEX H REQUEST FOR THE ESTABLISHMENT OF A PANEL Contents Page Annex H Request for the Establishment of  a Panel – Document WT/DS273/2 H-2
Document codes: WT/DS273/R; WT/DS273/2
Complainant: EU
Respondent: South Korea
Third parties: China, Taiwan, Japan, Mexico, Norway, U.S.
Dispute stage: Panel
Agreements cited: Art. 3.1, 3.2, 1, 2, 5, 6.3, 6.5  Subsidies and Countervailing Measures (SCM)

ANNEX H

REQUEST FOR THE ESTABLISHMENT
OF A PANEL

Contents Page
Annex H Request for the Establishment of a Panel – Document H-2

ANNEX H

REQUEST FOR THE ESTABLISHMENT
OF A PANEL

KOREA – MEASURES AFFECTING TRADE IN COMMERCIAL VESSELS

Request for the Establishment of a Panel by the European Communities

 The following communication, dated 11 June 2003, from the Permanent Delegation of the
European Commission to the Chairman of the Dis pute Settlement Body, is circulated pursuant to
Article 6.2 of the DSU.

 On 21 October 2002, the European Comm unities requested consultations with the
Government of the Republic of Korea (Korea) pursuant to Article 4 of the Understanding on Rules
and Procedures Governing the Settlement of Disputes (DSU), Article XXIII:1 of the General
Agreement on Tariffs and Trade 1994 (GATT 1994) and Articles 4, 7 and 30 of the Agreement on
Subsidies and Countervailing Measures (SCM Agreement) with regard to measures affecting trade in
commercial vessels. This request was circul ated to the WTO Members on 24 October 2002 as
document , "Korea – Measures Affecting Trade in Commercial Vessels".

 Consultations were held on 22 Nove mber, 13 December 2002 and 7 May 2003.
Unfortunately, these consultations failed to settle the dispute.

 The European Communities therefore request s that a panel be established pursuant to
Article 6 of the DSU, Article XXIII:2 of GATT 1994, Articles 4, 7 and 30 of the SCM Agreement (to
the extent that Article 30 incorporates by reference Article XXIII of GATT 1994).

 The measures that are the subject of this requ est are prohibited and actionable subsidies. In
particular, the European Communities considers th at the following measures are inconsistent with
Korea's obligations under the SCM Agreement:

• The Act Establishing the Export-Import Bank of Korea ("KEXIM"),
 any
implementing decrees and other regulations, that specifically allow and enable

KEXIM to provide Korean exporters of cap ital goods with financing at preferential
rates.

• The pre-shipment loan and advance paym ent refund guarantee schemes established
by KEXIM. Under the pre-shipment loans programme, KEXIM provides pre-delivery
loans at preferential rates to finance production costs of export contracts, such as raw
material cost, labour and overheads un til delivery of the goods. Under the advance
payment refund guarantees programme, KEXIM provides guarantees at preferential
premium rates that a foreign buyer will be refunded any advance payments given to a
Korean exporter, including any accrued inte rest on the advance payments, if the
Korean exporter fails to perform his obligations under the relevant export contract.
 The individual granting of pre-ship ment loans and advance payment refund
guarantees by KEXIM to Korean shipyard s, including Samho Heavy Industries,
Daedong Shipbuilding Co., Daewoo Shipbuild ing and Marine Engineering, Hyundai
Heavy Industries, Hyundai Mipo, Samsung Heavy Industries and Hanjin Heavy
Industries & Construction Co.

• The provision by the Korean Government, through government-owned and
government-controlled banks, of corporate rest ructuring subsidies in the form of debt
forgiveness, debt and interest relief and de bt-to-equity swaps. These subsidies were
granted to at least three shipyards (Daew oo Shipbuilding and Marine Engineering,
Samho Heavy Industries, Daedong Shipbuilding Co).

• The Special Tax Treatment Control Law, more specifically, the special taxation on in-
kind contribution (Article 38) and the special taxation on spin-off (Article 45-2)
scheme, establishes two tax programmes limited to companies under corporate
restructuring and provides tax concessions to Daewoo, the combined benefit of which
is estimated at won 78 billion.

 The European Communities cons iders that the Korean measures are in breach of Korea's
obligations under the provisions of the SCM Agreement, in particular, but not necessarily exclusively
of:
 – Articles 3.1(a) and 3.2 of the SCM Agreement, because, inter alia, the KEXIM Act,
the advance payment refund guarantees and the pre-shipment loans provided by
KEXIM and the corporate restructuring packages and tax concessions are specific
subsidies within the meaning of Articles 1 and 2 of the SCM Agreement and are
de jure or de facto export contingent.

 – Article 5(a) of the SCM Agreement, because, inter alia, the above-mentioned KEXIM
subsidies, the corporate restructuring packages and tax concessions are specific
subsidies within the meaning of Articles 1 and 2 of the SCM Agreement and are
causing injury to the Community industry.

 – Article 5(c) of the SCM Agreement, because, inter alia, the above-mentioned KEXIM
subsidies, the corporate restructuring packages and tax concessions are specific
subsidies within the meaning of Articles 1 and 2 of the SCM Agreement and cause
serious prejudice to the interests of the European Communities, in particular through
significant price undercutting, price suppression, price depression or lost sales within
the meaning of Articles 6.3 and 6.5 of the SCM Agreement

 The European Communities requests that a Pane l be immediately established with standard
terms of reference, in accordance with Articles 4.4 and 7.4 of the SCM Agreement and Article 7 of the
DSU.

 The European Communities asks that this requ est for the establishment of a Panel be placed
on the agenda for the next meeting of the Dispute Settlement Body, which is scheduled to take place
on 24 June 2003.

 The European Communities further requests th at the DSB at that meeting initiate the
procedures provided for in Annex V of the SCM Agreement pursuant to paragraph 2 of that Annex. In
particular, the European Communities requests that the DSB designate a representative to serve the
function of facilitating the information-gathering process of Annex V. The European Communities is
prepared to propose names to the DSB and is cons ulting with Korea on this matter. The European
Communities also intends to put forward suggestio ns as to the information that should be sought
under this procedure once the panel is established.