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Report of the Panel

TABLE OF CASES CITED IN THIS REPORT

Short TitleFull Case Title and Citation of Case
Argentina – Footwear (EC) Appellate Body report, Argentina – Safeguard Measures on Imports of Footwear, WT/DS121/AB/R, adopted 12 January 2000, DSR 2000:I, 515 Panel report, Argentina – Safeguard Measures on Imports of Footwear, WT/DS121/R, adopted 12 January 2000, as modified by the Appellate Body report, WT/DS121/AB/R, DSR 2000:II, 575
Argentina – Poultry Panel report, Argentina – Definitive Anti-Dumping Duties on Poultry from Brazil, WT/DS241/R, adopted 19 May 2003
Canada – Aircraft Panel report, Canada – Measures Affecting the Export of Civilian Aircraft, WT/DS70/R, adopted 20 August 1999, as upheld by the Appellate Body report, WT/DS70/AB/R, DSR 1999:IV, 1443
EC – Bed Linen Panel report, European Communities – Anti-Dumping Duties on Imports of Cotton-Type Bed Linen from India, WT/DS141/R, adopted 12 March 2001, as modified by the Appellate Body report, WT/DS141/AB/R, DSR 2001:VI, 2077
EC – Bed Linen (Article 21.5 – India) Appellate Body report, European Communities – Anti-Dumping Duties on Imports of Cotton-Type Bed Linen from India – Recourse to Article 21.5 of the DSUby India, WT/DS141/AB/RW, adopted 24 April 2003
EC – Hormones Appellate Body report, EC Measures Concerning Meat and Meat Products (Hormones), WT/DS26/AB/R, WT/DS48/AB/R, adopted 13 February 1998, DSR 1998:I, 135
EC – Tube or Pipe Fittings Appellate Body report, European Communities – Anti-Dumping Duties on Malleable Cast Iron Tube or Pipe Fittings from Brazil, WT/DS219/AB/R, adopted 18 August 2003 Panel report, European Communities – Anti-Dumping Duties on Malleable Cast Iron Tube or Pipe Fittings from Brazil, WT/DS219/R, adopted 18 August 2003, as modified by the Appellate Body report, WT/DS219/AB/R
Egypt – Steel Rebar Panel report, Egypt – Definitive Anti-Dumping Measures on Steel Rebar from Turkey, WT/DS211/R, adopted 1 October 2002
Mexico – Corn Syrup Panel report, Mexico – Anti-Dumping Investigation of High Fructose Corn Syrup (HFCS) from the United States, WT/DS132/R and Corr.1, adopted 24 February 2000, DSR 2000:III, 1345
Thailand – H-Beams Appellate Body report, Thailand – Anti-Dumping Duties on Angles, Shapes and Sections of Iron or Non-Alloy Steel and H-Beams from Poland, WT/DS122/AB/R, adopted 5 April 2001, DSR 2001:VII, 2701 Panel report, Thailand – Anti-Dumping Duties on Angles, Shapes and Sections of Iron or Non-Alloy Steel and H-Beams from Poland, WT/DS122/R, adopted 5 April 2001, as modified by the Appellate Body report, WT/DS122/AB/R, DSR 2001:VII, 2741
US – Countervailing duty on DRAMs Panel report, United States – Countervailing Duty Investigation on Dynamic Random Access Memory Semiconductors (DRAMS) from Korea, WT/DS296/R, not yet adopted
US – Export Restraints Panel report, United States – Measures Treating Exports Restraints as Subsidies, WT/DS194/R and Corr.2, adopted 23 August 2001, DSR 2001:XI, 5767
US – Hot-Rolled Steel Appellate Body report, United States – Anti-Dumping Measures on Certain Hot-Rolled Steel Products from Japan, WT/DS184/AB/R, adopted 23 August 2001, DSR 2001:X, 4697
US – Lamb Appellate Body report, United States – Safeguard Measures on Imports of Fresh, Chilled or Frozen Lamb Meat from New Zealand and Australia, WT/DS177/AB/R, WT/DS178/AB/R, adopted 16 May 2001, DSR 2001:IX, 4051
US – Line Pipe Appellate Body report, United States – Definitive Safeguard Measures on Imports of Circular Welded Carbon Quality Line Pipe from Korea, WT/DS202/AB/R, adopted 8 March 2002 Panel report, United States – Definitive Safeguard Measures on Imports of Circular Welded Carbon Quality Line Pipe from Korea, WT/DS202/R, adopted 8 March 2002, as modified by the Appellate Body report, WT/DS202/AB/R
US – Softwood Lumber IV Appellate Body report, United States – Final Countervailing Duty Determination with Respect to Certain Softwood Lumber from Canada, WT/DS257/AB/R, adopted 17 February 2004
US– Softwood Lumber VI Panel report, United States – Investigation of the International Trade Commission in Softwood Lumber from Canada, WT/DS277/R, adopted 26 April 2004
US – Steel Safeguards Panel report, United States – Definitive Safeguard Measures on Imports of Certain Steel Products, WT/DS248/R, WT/DS249/R, WT/DS251/R, WT/DS252/R, WT/DS253/R, WT/DS254/R, WT/DS258, WT/DS259, adopted 10 December 2003, as modified by the Appellate Body report, WT/DS248/AB/R, WT/DS249/AB/R, WT/DS251/AB/R, WT/DS252/AB/R, WT/DS253/AB/R, WT/DS254/AB/R, WT/DS258/AB/R, WT/DS259/AB/R
US – Wheat Gluten Appellate Body report, United States – Definitive Safeguard Measures on Imports of Wheat Gluten from the European Communities, WT/DS166/AB/R, adopted 19 January 2001, DSR 2001:II, 717
US – Wool Shirts and Blouses Appellate Body report, United States – Measure Affecting Imports of Woven Wool Shirts and Blouses from India, WT/DS33/AB/R and Corr.1, adopted 23 May 1997, DSR 1997:I, 323

I. INTRODUCTION

A. COMPLAINT OF KOREA

1.1.
On 25 July 2003, the Government of Korea ("Korea")1 requested consultations with the European Communities ("EC") pursuant to Article 4 of the Understanding on Rules and Procedures Governing the Settlement of Disputes ("DSU"), Article 30 of the Agreement on Subsidies and Countervailing Measures ("SCM Agreement"), and Article XXII of the General Agreement on Tariffs and Trade 1994 ("GATT 1994"), with regard to the provisional countervailing measures imposed on dynamic random access memory chips ("DRAMs") from Korea, as announced in Commission Regulation (EC) No. 708/2003 and published in the Official Journal of the EC on 24 April 2003, and with regard to any final measures on the same products.2 A first round of consultations took place on 21 August 2003.
1.2.
On 25 August 2003, Korea requested further consultations with the EC pursuant to Article 4 of the DSU, Article 30 of the SCM Agreement, and Article XXII of the GATT 1994, with regard to the EC's final countervailing measures imposed on DRAMs from Korea, as adopted by the Council on 11 August 2003 through Regulation No. 1480/2003 and subsequently published in the Official Journal of the EC on 22 August 2003.3 Korea and the EC held a second round of consultations on 8 October 2003, but failed to reach a mutually satisfactory resolution of the matter.
1.3.
On 19 November 2003, Korea requested the establishment of a Panel to examine the matter.4

B. ESTABLISHMENT AND COMPOSITION OF THE PANEL

1.4.
At its meeting on 23 January 2004, the DSB established a Panel in accordance with Article 6 of the DSU and pursuant to the request made by Korea in document WT/DS299/2.
1.5.
At that meeting, the parties to the dispute also agreed that the Panel should have standard terms of reference. The terms of reference are, therefore, the following:

"[t]o examine, in the light of the relevant provisions of the covered agreements cited by Korea in document WT/DS299/2, the matter referred by Korea to the DSB in that document, and to make such findings as will assist the DSB in making the recommendations or in giving the rulings provided for in those agreements."

1.6.
China, Japan, Chinese Taipei and the United States reserved their third-party rights.
1.7.
On 24 March 2004, the parties agreed to the following composition of the Panel:5

Chairperson: Ms. Luz Elena Reyes de la Torre

Members: Mr. Scott Gallacher

Mr. Thinus Jacobsz

1.8.
Ms. Luz Elena Reyes de la Torre resigned from the Panel on 22 June 2004. On 27 July 2004, the parties appointed Mr. Gary Clyde Hufbauer as a new Chairman of the Panel. On 29 July 2004, the Panel was re-composed as follows:6

Chairman: Mr. Gary Clyde Hufbauer

Members: Mr. Scott Gallacher

Mr. Thinus Jacobsz

C. PANEL PROCEEDINGS

1.9.
The Panel met with the parties on 3-4 November and on 9 December 2004. The Panel met with third parties on 4 November 2004.
1.10.
The Panel submitted its Interim Report to the parties on 15 March 2005. The Panel submitted its Final Report to the parties on 19 April 2005.

II. FACTUAL ASPECTS

2.1.
This dispute arises from the EC's imposition of definitive countervailing duties on DRAMs from Korea. The countervail investigation was initiated on 25 July 2002, following a complaint filed by Infineon, the largest domestic producer in the EC. Micron, the other EC producer, supported the complaint and cooperated in the investigation. The EC sent questionnaires to a number of interested parties, including two exporters in Korea (Hynix and Samsung), the Government of Korea, and a number of Korean financial institutions. The period of investigation ("POI") for the subsidy investigation covered 1 January to 31 December 2001, while the injury POI covered 1 January 1998 to 31 December 2001.
2.2.
On 24 April 2003, the Commission published Regulation 708/2003 imposing provisional countervailing duties on DRAMS from Korea (hereafter, "the Preliminary Determination").7 Two programmes were found to be countervailable subsidies, i.e., the KDB Debenture and the October 2001 Restructuring Programme. The rate of the provisional duty for Hynix was set at 33 per cent. No duty was imposed on Samsung, as the subsidy amount determined for this exporter was de minimis.
2.3.
On 22 August 2003, Regulation 1480/2003 imposing a definitive countervailing duty on DRAMs from Korea was published (hereafter, "the Final Determination").8 At this stage, the EC determined that five programmes were countervailable: the Syndicated Loan, the Korea Export Insurance Corporation ("KEIC") Guarantee, the Korea Development Bank ("KDB") Debenture Programme, the May 2001 Restructuring Programme, and the October 2001 Restructuring Programme. The amount of subsidisation for Hynix was 34.8 per cent, while for Samsung it was determined to be de mininis. The EC confirmed its provisional finding that the domestic industry suffered material injury and that it was caused by subsidised imports of DRAMs from Korea. The rate of the definitive countervailing duty for Hynix was equal to the subsidy amount, i.e., 34.8 per cent. Given the de minimis subsidisation finding, no countervailing duty was imposed on Samsung.

III. PARTIES' REQUESTS FOR FINDINGS AND RECOMMENDATIONS

A. KOREA

3.1.
Korea requests that this Panel find that the EC has acted inconsistently with its obligations under Articles 1, 2, 10, 12, 14, 15, 19, 22 and 32 of the SCM Agreement, as well as Article VI:3 of GATT 1994. Specifically, the Korea requests this Panel to find the EC acted inconsistently with:

· Article 1.1(a) of the SCM Agreement in determining the existence of financial contributions with respect to the Syndicated Loan, the KEIC Guarantee, the KDB Debenture Programme, and the May and October 2001 Restructuring Programmes;

· Articles 1.1(b) and 14 of the SCM Agreement in determining the existence of a benefit, and its measurement, for the Syndicated Loan, the KEIC Guarantee, the KDB Debenture Programme, and the May and October 2001 Restructuring Programmes;

· Articles 1.2 and 2 of the SCM Agreement in making an erroneous finding of de facto specificity, specifically with respect to the KDB Debenture and the May and October 2001 Restructuring Programmes;

· Articles 19.4 of the SCM Agreement and VI:3 of the GATT 1994 in levying countervailing duties in excess of the amount allowed under those provisions;

· Article 12.7 of the SCM Agreement in applying "facts available" with respect to certain aspects of its subsidy investigation;

· Article 15.1 of the SCM Agreement because the EC's injury and causation determinations were not based on positive evidence and did not involve an objective assessment of the effects of allegedly subsidized imports;

· Article 15.2 of the SCM Agreement because, inter alia, the EC determinations improperly assessed the significance of the volume effects of Hynix imports;

· Article 15.2 of the SCM Agreement because, inter alia, the EC determinations improperly assessed the significance of the price effects of Hynix imports;

· Article 15.4 of the SCM Agreement because, inter alia, the EC failed to consider all factors relevant to the overall condition of the Community industry;

· Article 15.5 of the SCM Agreement becausethe EC failed to demonstrate the requisite causal link between Hynix imports and injury, and because the EC improperly assessed the role of other factors and, therefore, failed to ensure that it did not attribute the effects of other causes to Hynix's imports;

· Article 22.3 of the SCM Agreement because the EC's injury determination did not set forth in sufficient detail the EC's findings and conclusions on all material issues of fact and law; and,

· Articles 10 and 32.1 of the SCM Agreement in imposing a definitive countervail measure on DRAMs from Korea that was neither in accordance with the relevant provisions of the SCM Agreement nor with the relevant provisions of the GATT 1994.

3.2.
Korea also requests the Panel to recommend that the EC terminate its countervailing duty order against imports of DRAMs from Korea immediately.9

B. EUROPEAN COMMUNITIES

3.3.
The EC invites the Panel to reject all claims and arguments raised by Korea in these proceedings.10

IV. ARGUMENTS OF THE PARTIES

4.1.
The arguments of the parties as submitted, or as summarized in their executive summaries as submitted to the Panel, are attached as Annexes (see Table of Annexes, page vi). Replies to questions posed by the Panel were received from both parties.

V. ARGUMENTS OF THE THIRD PARTIES

5.1.
The arguments of those third parties which have made submissions to the Panel, as submitted or as summarized in their executive summaries, are attached as Annexes (see Table of Annexes, page vi). Neither China nor Chinese Taipei made written submissions. China did not submit replies to the Panel's questions.

VI. INTERIM REVIEW

6.1.
On 15 March 2005, we submitted the Interim Report to the parties. On 29 March 2005, both parties submitted written requests for the review of precise aspects of the Interim Report. On 5 April 2005, the EC submitted written comments on Korea's comments. Neither party requested an interim review meeting.
6.2.
We have briefly outlined our treatment of parties' requests below. Where necessary, we have also made certain technical revisions to our Report.

A. KOREA COMMENTS

Status of the KDB
6.3.
Korea asserts that the Panel's characterization with regard to Korea's position regarding the status of the KDB under the Syndicated Loan and the KDB Debenture Programme – as set forth in paragraphs 7.69 and 7.91 – does not fairly describe its position during the panel procedure. Korea asserts that in footnote 339 to its First Written Submission and in its response to question 1 of the Panel, it made it clear that it did not agree that the KDB is a public body and that, given the other issues involved in the dispute, it was simply unnecessary to contest the public body issue. Korea requests the Panel to more accurately reflect Korea's position on the KDB in the Final Report. The EC considers that the Report accurately reflects Korea's position and notes that Korea is unable to make any concrete suggestion for re-drafting. In our view, the Report appropriately reflects Korea's position. We note that our Report does not state that Korea agrees with the EC's characterization of the KDB as a public body. We only conclude that Korea chose not to contest this characterization. It is clear from both the footnote referred to by Korea in its comments on the Interim Report, and in its answer to question 1 of the Panel, that Korea was not contesting this determination of the KDB as a public body. In its comments on the Interim Report, Korea once again confirmed that it was not contesting the public body issue. We therefore do not consider it necessary to amend our Report and reject Korea's request in this respect.

Qualifications to the Panel's analysis of benefit and the May 2001 Restructuring Programme

6.4.
Korea asserts that a qualification similar to that contained in paragraph 7,200 should appear after paragraphs 7,201 to 7,203, in case these paragraphs were to be maintained in the Final Report. The EC has no difficulty with such an amendment. We have amended the Report as requested by Korea.

Qualifications and Corrections to the Panel's Analysis of the KEB

6.5.
Korea requests that the Panel reiterate in paragraph 7,134 its earlier conclusion set forth in paragraph 7,103 that evidence of past conduct, whether direction or otherwise, cannot establish entrustment or direction with respect to a future event. The EC does not agree that past conduct is irrelevant to a future event and fully reserves its legal position in this respect. We are of the view that our footnote 143 sufficiently explains our position with regard to the EC' s reliance on the question of evidence relating to government direction at the time of the Syndicated Loan for the purposes of establishing government direction with regard to the KEB's participation in the October 2001 Restructuring Programme. The statement referred to by Korea in paragraph 7,103 about the use of evidence concerning past events has to be read in the context of our discussion of the May 2001 Restructuring Programme. While, in our view, evidence of past conduct cannot as such establish entrustment or direction with respect to a future event, this does not mean that it is irrelevant. The importance of such evidence has to be seen in the context in which it is used and the purposes for which it is used. We explain in our Report the different context of the May and October Restructuring Programmes. We thus do not find it necessary to amend our Report and reject Korea's request in this respect.
6.6.
In addition, Korea asserts that our finding in paragraph 7,134 is premised on a serious factual error. Korea considers that the Panel improperly found relevant the EC's considerations that the KEB was until 1998 a specialized government bank. According to Korea, evidence on the record before the investigating authority showed that since December 1989 the KEB was a public corporation under the Korean Commercial Code and its shares were traded on the Korean Stock Exchange. Korea asserts that under these circumstances, the Panel should revise its discussion and analysis of the KEB's participation in the October 2001 Restructuring. The EC points out that the investigating authority referred to the year 1998 with respect to Korea's shareholding in the bank. In light of these comments, we have amended our Report in paragraphs 7,133 and 7,134 in order to more accurately reflect what the investigating authority asserted with regard to the KEB. This clarification does not, however, change the basis for our analysis that we find relevant the EC's considerations concerning the important role played by the Korean Government in the KEB in the past.

Comments on Panel's Analysis of the KDB Debenture Programme

6.7.
Korea asserts that in paragraphs 7,197 and 7,198, the Panel gives the appearance of effectively adopting certain factual assertions from the EC Final Determination which Korea considers to have been contradicted by evidence of record. In particular, Korea considers that comments made before the investigating authority by the KDB contradict the authority's conclusion that the CBO programme was created only for relatively small firms and that the KDB controlled the roll-over of programme bonds placed in CBO funds.11 Korea requests that the Panel either note the basis for the EC authority's conclusions within its discussion and identify the contested facts or disassociate itself from these facts. The EC considers that Korea nowhere indicates where these alleged facts were contested during the panel proceedings. In addition, the EC argues that the exhibit referred to by Korea contains mere assertions by one of the interested parties made before the investigating authority.
6.8.
We note that our task is not to conduct a de novo review of the investigation, rather to examine whether the authority provided a reasonable and reasoned explanation of how the facts support the determination made. In the paragraphs referred to by Korea, we consider that similar arguments were made before the investigating authority as were made before us concerning the KDB Debenture Programme. The investigating authority responded to these arguments in the Final Determination, and therefore we considered it useful to directly quote from the Final Determination. In relevant part, we considered reasonable the investigating authority's explanations provided in the Final Determination. The two alleged inconsistencies raised by Korea in its comments are clearly not essential to the overall analysis of the investigating authority, as is also evidenced by the fact that Korea did not put much emphasis in its arguments before the Panel on these alleged inconsistencies. In our view, the two alleged errors in the EC investigating authority's statement which we quoted are not particularly relevant to the question of benefit to Hynix. We do not consider it necessary for us to further examine the correctness of the statements made. We therefore reject Korea's request to amend our Report in this respect.

Comments on Panel's Analysis of Financial Contribution with respect to Woori Bank in the October 2001 Restructuring Programme

6.9.
Korea asserts that in paragraph 7,121, the Panel noted that the record of the investigation shows that Woori Bank participated as an Option 1 bank in the October 2001 Restructuring Programme on the basis of public policy considerations. Korea disagrees with this conclusion, pointing to some evidence of record allegedly showing that Woori Bank decided to participate in the October 2001 Restructuring Programme based on commercial considerations. Korea is of the view that the EC's reliance on only three paragraphs of what is a detailed commercial analysis in the so-called Loan Committee Report discussing what the EC viewed as public policy considerations is improper and takes these factors out of context. Korea requests that the Panel reconsider its entrustment or direction analysis and calculus with respect to Woori Bank and the October Restructuring Programme, given that the misstatement of the record of investigation identified above affected the Panel's ultimate conclusions regarding Woori Bank's participation in the October 2001 Restructuring Programme. The EC considers that the facts on the record simply show that, as well as the "commercial" explanations provided by Woori Bank, public policy considerations also played a role, as Korea admits in its comments. The EC therefore sees no reason to amend the Report on this point.
6.10.
We note that we do not state in our Report that the record of evidence shows that Woori Bank based its participation only on public policy considerations. However, as Korea acknowledges, the record shows that Woori Bank participated, inter alia, on the basis of such public policy considerations. In light of Korea's comments, we decided to clarify the first sentence of paragraph 7,121 to reflect this nuance. However, this does not alter our overall assessment with regard to Woori Bank. First, as we state in paragraph 7,121, we consider relevant in the context of an examination of government entrustment or direction the fact that a private body bases its decision to invest on public policy considerations, albeit only in part. Moreover, Woori Bank's public policy reasons for participating was only one piece of evidence that led us to the conclusion that the EC's determination of government direction with regard to Woori Bank was justified. It was certainly not the only evidence of such direction, nor was it a determinative factor in our assessment. In sum, we reject Korea's request to reconsider our analysis with respect to Woori Bank's participation in the October 2001 Restructuring Programme.

B. EC COMMENTS

Paragraph 8.1
6.11.
The EC requests the Panel to replace in Section "VIII. Conclusions and Recommendations", the term "countervailing measures" (plural) in paragraph 8.1 with "definitive countervailing measure" as the Panel did not make any findings with respect to the provisional measures imposed. Korea did not provide any comments on this request. We agree with the proposed change, and have amended our Report accordingly.

"Entrustment or direction"

6.12.
With regard to the Panel's findings regarding entrustment or direction generally, the EC first requests that the Report should always refer to "entrustment or direction" and not just "direction". Second, the EC requests the Panel to reconsider the question of the relevance of the totality of the facts and evidence available. The EC asserts that, for example, the existence of an express guarantee – the KEIC Guarantee – by Korea because Hynix was considered too big to fail, throughout the POI, as well as the implied guarantee, is highly relevant to the question of entrustment or direction in the context, for example, of the October 2001 Restructuring Programme. No comments were received from Korea on these requests.
6.13.
With regard to the EC's first request, we note that the use of the term "direction", rather than "entrustment or direction", when discussing the EC investigating authorities' determinations is not accidental. We made a deliberate choice to use this term as the EC investigating authority itself made findings of government direction, and not government entrustment. We therefore reject the EC's request in this respect. In the general section of the Report entitled "General standard of entrustment or direction under Article 1.1(a)(1)(iv) of the SCM Agreement", where we discuss the legal standard in more general terms, we did add the term "entrustment" in the middle of paragraph 7.59.
6.14.
As far as the EC's second request is concerned, we recall that our views as to the "totality of facts" argument of the EC are set forth in paragraph 7.63. We see no reason to change this view at this stage. We therefore reject the EC's request in this respect.

Paragraph 7.87

6.15.
The EC requests the Panel to delete the word "potential" in the first sentence of paragraph 7.87. No comments were received from Korea on this request. We note that the investigating authority found in paragraph 45 of the EC Final Determination, which is quoted in paragraph 7.86 of our Report, that the guarantee is a financial contribution by the government within the meaning of Articles 2.1(a)(iv) and (i) of the EC's basic Regulation, which provisions are in relevant part identical to Article 1.1(a)(1)(iv) and (i) of the SCM Agreement and refers to a direct or potential direct transfer of funds. We have amended our Report to more accurately reflect the fact that the EC made a finding of a direct or potential direct transfer of funds.

Paragraph 7,320

6.16.
The EC requests the Panel to delete the words "the usual practice of making" in the final sentence of paragraph 7,320. No comment was received from Korea on this request. We accept the EC's comment and have amended our Report accordingly in order to clarify the EC's views on this matter.

Paragraph 7,393

6.17.
The EC requests the Panel to make two changes to paragraph 7,393: (1) state in the second sentence that Hynix imports increased by "(361 per cent overall)" instead of by "(461 per cent overall)" and (2) to end the third sentence with the following: "and fell from 31.4 per cent in 2000 to 20 per cent in 2001". No comments were received from Korea on this request. We accept the EC's comments and have amended our Report accordingly.

VII. FINDINGS

7.1.
This case concerns a challenge by Korea of the definitive countervailing measure imposed by the EC on imports of DRAMs from Korea. The EC found that, of the two Korean DRAMs producers, Hynix and Samsung, the latter did not receive a subsidy above de minimis and it thus decided not to impose any countervailing duty on imports from this producer. However, the EC determined that, from December 2000 through November 2001, Korea extended subsidies to Hynix, either through the provision of a financial contribution by its public bodies or by directing private bodies to take part in the restructuring operation of Hynix. The EC determined that such financial contributions conferred a benefit to Hynix and thus constituted subsidies in the sense of the SCM Agreement. Examining developments in the state of the domestic industry from 1998 to 2001, the EC concluded that the subsidized imports of DRAMs were causing injury to the domestic producers of DRAMs. The EC thus imposed a countervailing duty on imports of DRAMs from Hynix equal to the margin of subsidization of 34 per cent ad valorem.
7.2.
Korea's challenge concerns both the EC's subsidy determination, and the determination of injury to the domestic industry. In particular, Korea claims that the EC's finding of a financial contribution by the government is not consistent with Article 1.1(a) of the SCM Agreement. Korea further claims that the EC's determination of the existence and amount of benefit conferred to Hynix was in breach of Articles 1.1(b) and 14 of the SCM Agreement, and that the EC failed to demonstrate that some of the alleged subsidy programmes were specific in the sense of Articles 1.2 and 2 of the SCM Agreement. A final claim relating to the subsidy determination concerns the use of facts available by the EC which Korea considers to have been inconsistent with Article 12.7 of the SCM Agreement.
7.3.
With regard to the injury determination, Korea submits that the EC failed to properly examine the volume and price effects of the allegedly subsidized imports and did not adequately evaluate all relevant factors having a bearing on the state of the domestic industry as required by Articles 15.1, 15.2 and 15.4 of the SCM Agreement. In addition, Korea claims that the EC did not establish the required causal relationship between the subsidized imports and the injury to the domestic industry found to exist and failed to ensure that injury caused by other factors was not attributed to the subsidized imports thereby acting in breach of Article 15.5 of the SCM Agreement.

A. GENERAL ISSUES

1. Standard of Review

7.4.
Article 11 of the DSU sets out the mandate of the Panel in WTO dispute settlement proceedings. It provides that:

[t]he function of the panel is to assist the DSB in discharging its responsibilities under this Understanding and the covered agreements. Accordingly a panel should make an objective assessment of the matter before it, including an objective assessment of the facts of the case and the applicability of and conformity with the relevant covered agreements, and make such other findings as will assist the DSB in making the recommendations or giving the rulings provided for in the covered agreements. (emphasis added)

7.5.
The requirement under Article 11 of the DSU for a panel to make an objective assessment of the matter before it has been interpreted, inter alia, in the context of trade remedies other than anti-dumping (for which the AD Agreement contains its own specific standard of review) to entail an examination by the panel of whether the investigating authority examined all relevant facts, whether adequate explanation has been provided of how the facts support the determination made, and consequently, whether the determination was made consistent with the international obligations of the Member concerned. In this regard, we recall the Appellate Body's guidance regarding the application of Article 11 of the DSU in the US – Lamb case:

"[w]e wish to emphasize that, although panels are not entitled to conduct a de novo review of the evidence, nor to substitute their own conclusions for those of the competent authorities, this does not mean that panels must simply accept the conclusions of the competent authorities. To the contrary, …, a panel can assess whether the competent authorities' explanation for its determination is reasoned and adequate only if the panel critically examines the explanation, in depth, and in the light of the facts before the panel. Panels must, therefore, review whether the competent authorities' explanation fully addresses the nature, and especially, the complexities, of the data, and responds to other plausible interpretations of that data. A panel must find, in particular, that an explanation is not reasoned, or is not adequate, if some alternative explanation of the facts is plausible, and if the competent authorities' explanation does not seem adequate in the light of that alternative explanation. Thus, in making an "objective assessment" …, panels must be open to the possibility that the explanation given by the competent authorities is not reasoned or adequate."12 (emphasis in original)

7.6.
We are, therefore, fully conscious of the fact that it is not the role of the Panel to perform a de novo review of the evidence which was before the investigating authority at the time it made its determination. We will, therefore, examine whether on the basis of the record before it, a reasonable and objective investigating authority could have reached the conclusions the EC investigating authority reached with regard to the determination of subsidization and injury.

2. Burden of Proof

B. CLAIMS CONCERNING THE EC'S SUBSIDY DETERMINATION

7.8.
Korea challenges the EC's subsidy determination with regard to each of the five restructuring measures through which the EC found that subsidies were provided to Hynix. Korea considers that the EC's findings that each of these five restructuring efforts constituted a financial contribution by the government that conferred a benefit are inconsistent with Articles 1 and 14 of the SCM Agreement.
7.9.
In general, Korea claims that the EC's financial contribution analysis with respect to these five measures is flawed as it failed to establish, inter alia, that the private bodies that participated in the restructuring measures were entrusted or directed by the Government of Korea to do so. Moreover, Korea asserts that the EC's benefit analysis failed to rely on the correct market benchmarks and illegitimately considered all measures as grants, in clear contradiction with the nature of the measures adopted. The EC, on the other hand, rejects all of Korea's assertions and considers that the investigating authority conducted an objective examination in which it found sufficient evidence that Korea entrusted or directed private bodies to participate in the restructuring. In addition, the EC argues that, in light of the reasonable conclusion that no market operator would have provided financing to Hynix in the course of the period of investigation, the investigating authority was entitled to consider all measures as grants.
7.10.
In light of the reference that will need to be made to the various restructuring efforts found to constitute subsidies to Hynix, we consider it useful to first describe briefly each of these five programmes which were examined by the EC. We will then examine in detail the claims and arguments of the parties with respect to the EC's determination of financial contribution and benefit for each of these programmes.17
7.11.
We note that the record shows that Hynix's financial situation was critical during the years following the financial crisis in Korea of 1997, and that, by the end of 2000, Hynix had accumulated more than USD 9.46 billion of liabilities, almost twice its net worth and more than four times the market capitalisation of the company.18 It appears that the important problem that Hynix was facing consisted of the maturing of the majority of these liabilities in the year 2001, which would imply serious liquidity problems for Hynix. The EC determined that, by November 2000, Korea decided to take action to "alleviate Hynix' cash crunch" and provided subsidies through five different support and restructuring programmes from December 2000 to October 2001: the Syndicated Loan, the KEIC Guarantee, the KDB Debenture Programme, the May 2001 Restructuring Programme and the convertible bonds purchase in particular, and the October 2001 Restructuring Programme.
7.12.
The Syndicated Loan of a total amount of KRW 800 billion was part of a financial plan to resolve the problem of a "mismatch" between Hynix's cash flow and the extent of debt obligations that matured and had to be repaid in 2001. While ten banks participated in the Syndicated Loan, the EC examined only three banks, the Korea Development Bank ("KDB"), the Korea Exchange Bank ("KEB") and the Korea First Bank ("KFB") and considered that their participation in the Syndicated Loan constituted a financial contribution by Korea conferring a benefit on Hynix. The EC found the KDBto be a public body, and the KEB and KFB (each participating in the Syndicated Loan for an amount of KRW 100 billion) to be acting under the direction of Korea.
7.13.
In January 2001, Hynix benefited from an increase in its 90 day D/A (documents against acceptance) export credit facility from USD 800 million to USD 1.4 billion. It documents each export transaction, on the basis of which it receives immediate payment from the fourteen participating banks. The overseas purchasers later pay the banks. The Korea Export Insurance Corporation ("KEIC") guarantees that the banks will receive payment,in case either the exporter or the importer goes bankrupt. The EC concluded that, without the KEIC Guarantee, the banks would not have been willing to extend the export credit facility for Hynix and determined that the KEIC, as a public body, was therefore providing a financial contribution that conferred a benefit to Hynix.
7.14.
Around the same time, i.e., on 4 January 2001, Hynix was admitted to the KDB Debenture Programme. Under this programme, maturing debt was to be rolled-over and re-packaged for investors. Hynix had to pay 20 per cent of the due debt, while 80 per cent was purchased by the KDB, which then repackaged 70 per cent thereof for sale to investors as collateralised bond obligations ("CBOs") and/or collateralised loan obligations ("CLOs"), guaranteed by the Korea Credit Guarantee Fund ("KCGF"); and 10 per cent was retained by the KDB. The EC found that the bond purchase by the KDB as part of this programme constituted a financial contribution by the government which conferred a benefit on Hynix.
7.15.
In May 2001, a further recapitalisation plan, referred to as the "May 2001 Restructuring Programme", was agreed by the eighteen Hynix creditor banks united in the Creditors' Council. The May Programme included an injection of fresh capital into Hynix through the offering of KRW 1.3 trillion of global depositary receipts ("GDRs"); an extension of the maturities of short and long-term debt (a debt roll-over); and the purchase by the creditor banks of convertible bonds ("CBs") worth KRW 1 trillion. The EC found that the creditor banks had been directed by Korea to agree to these measures and countervailed the CBs purchase as being a financial contribution by the government which conferred a benefit on Hynix.
7.16.
Finally, on 31 October 2001, the Creditors Financial Institutions Council ("CFIC") decided on a second restructuring package for Hynix, the so-called "October 2001 Restructuring Programme". Creditor banks were given several options, ranging from walking away from Hynix and collecting part of the amount owed as determined by a liquidation report, to providing even further financing. Six banks provided new funds to Hynix and agreed to a new loan of KRW 1 trillion to Hynix with an interest rate of 7 per cent; a debt-to-equity swap by acceptance of bonds convertible into shares; and extending the maturities of existing loans until 31 December 2004, converting the maturing corporate bonds into corporate bonds with a three year maturity and an interest rate of 6.5 per cent and adjusting the interest rate of the remaining loans in Korean currency to 6 per cent. The EC considered that the participation by these six so-called "Option 1" banks in the October 2001 Restructuring Programme constituted a financial contribution by the government which conferred a benefit on Hynix, as these banks were either public bodies or directed to take part in the restructuring by Korea.
7.17.
The EC concluded that the overall amount of the subsidy provided by Korea to Hynix through these five programmes was 34.8 per cent ad valorem.19

1. Claim regarding the EC's determinations of the existence of a financial contribution by the government

(a) Korea

7.18.
Korea argues that the EC's findings of financial contribution with regard to five different programmes are inconsistent with Article 1.1(a) of the SCM Agreement, mainly because the EC failed to establish that the private bodies that participated in the programme were entrusted or directed by Korea to provide a financial contribution to Hynix.

(i) General standard of entrustment or direction under Article 1.1(a)1(iv) of the SCM Agreement

7.19.
With respect to the appropriate legal standard of entrustment or direction under Article 1.1(a) of the SCM Agreement, Korea argues that, in order to find a financial contribution through a private body, an authority must demonstrate an explicit and affirmative government action addressed to a particular party to perform a particular task or duty.20 Korea asserts that the ordinary meaning of the term "entrust" is "to give responsibility for" while the ordinary meaning of "to direct" is "to give a formal order or command".21 As the French and Spanish versions of Article 1 of the SCM Agreement confirm, the most appropriate interpretation of the term "to direct" must be the meaning that conveys the idea of ordering the private body to take some action, and not the looser idea of mere guidance or suggestions.22 Korea argues that Article 1 of the SCM Agreement only targets government action. In this context, the terms "entrust or direct" must therefore be read to mean that the disciplines of the SCM Agreement apply to the actions of private bodies only in case the private body becomes the instrument of the government. If any discretionary authority is left to private body, its actions cannot be imputed to the government, and the SCM Agreement does not apply.23 In the view of Korea, the "entrusts or directs" standard is not merely an "effects test". Korea argues that the perceived reaction of private entities to reported government inducement, or even confirmed reaction by private entities, cannot be the basis on which the Member's compliance with its treaty obligations under the WTO is established. Korea finds support for its interpretation in the report of the panel in US – Export Restraints. Korea submits that, under this legal standard, the EC failed to establish that the private bodies that participated in the five programmes which were alleged to constitute a financial contribution were entrusted or directed by the Korean government or a Korean public body to do so.

(ii) Syndicated Loan

7.20.
With regard to the Syndicated Loan that was provided by ten banks in December 2000, Korea submits that there is no basis in the facts of the record for the EC's finding that two private banks, the KEB and KFB24, took part in the loan because they were entrusted or directed to do so. Korea considers that the EC attached undue importance to the letter of the Ministry of Finance and Economy to the KEB dated 28 November 2000. According to Korea, all this letter did was to advise or recommend the KEB to seek a lending limit waiver from the FSC. The letter clearly does not command the KEB to provide financing to Hynix.25 According to Korea, even if the letter is read to require the KEB to act in a certain manner, then at best the letter requires the KEB to seek a lending limit waiver from the Financial Supervisory Commission ("FSC"), a Korean public body. The letter did not order the KEB to participate in the Syndicated Loan and provide funds.26 Korea argues that while the FSC waiver which was obtained by the KEB may have enabled the KEB and two other banks which had reached their lending limits to participate in the loan, this does not explain these banks' decision to actually participate in the loan. Korea notes that seven other banks also participated in the loan without the need for a waiver. In sum, while the waiver granted by the FSC, a public body, permitted the transaction, this does not suffice to conclude that this public body or the government required the KEB to take part in the transaction. Korea recalls that the Syndicated Loan was already on the table in early November and that the question in December was simply a matter of how to execute the loan.27

(iii) KEIC Guarantee

7.21.
Korea submits that the financial contribution that was countervailed by the EC consisted of the extended D/A financing of the creditor banks which was guaranteed by the KEIC. Korea argues that the EC failed to establish that these creditor banks were directed by the government to provide further D/A financing, and ignored the fact that the financing was driven by the very rational and commercial considerations of the creditors involved, as is not contested by the EC.28 While it may well be correct that a public body such as the KEIC made available export insurance to creditors, this cannot be read to constitute an explicit and affirmative delegation or command by Korea to Hynix creditors to extend such D/A financing in the amount of USD 600 million.29 The fact that the KEIC may be considered to be a public body is irrelevant as KEIC only provided insurance, and not any D/A financing. It was the D/A financing which the banks provided that constituted the financial contribution that was countervailed without evidence of entrustment or direction of those banks.30

(iv) KDB Debenture Programme

7.22.
Korea submits that the EC did not establish that all creditors that took part in the KDB Debenture Programme were entrusted or directed by Korea to provide funds.31 The EC was therefore not entitled to consider their participation as a financial contribution by the government or a public body under Article 1.1(a) of the SCM Agreement. Korea asserts that, even if the EC characterisation of the KDB as a public body is correct, numerous creditors other than the KDB were also involved and the EC did not establish entrustment or direction with regard to these creditors.32 Korea notes that the KDB Debenture Programme did not actually involve the provision of new funds but merely a refinancing of existing bonds.33 In any case, Korea points out that there is no evidence on the record that any specific lender was legally obligated by the KDB Debenture Programme to participate in any specific refinancing.34 Therefore, the EC statement that all Hynix creditors were directed by Korea to participate in the KDB Programme is unsubstantiated and incorrect and reveals a confusion between financial contribution and the possible benefit to Hynix.35

(v) May 2001 Restructuring Programme

7.23.
Korea submits that the EC's finding that the May 2001 Restructuring Programme of Hynix constituted a countervailable subsidy is also flawed. Korea recalls that the May 2001 Restructuring Programme occurred at a time of rising DRAMs prices and that it was successful only because Hynix could persuade sophisticated international investors to invest a huge sum of money in the company, as was recognised by the EC in the Preliminary Determination.36 Korea argues that the EC's finding of financial contribution in the context of the May 2001 Restructuring Programme was based on insufficient circumstantial evidence of entrustment or direction.
7.24.
In particular, Korea first asserts that the EC relied on erroneous press reports concerning the reason for the presence of an FSS official at one meeting of the Creditors Council and alleging government pressure being exercised on one of the eighteen participating banks. Korea submits that the presence of an FSS official at this one meeting is explained by the fact that it was only logical that the FSS, as the principal Korean agency concerned with bank supervision, was present at the meeting to witness discussion of the prior commitments of the creditors. All this shows, at a maximum, is an abstract government interest, not direction or entrustment.37 Moreover, Korea argues that the press reports about Korea putting pressure on one bank, the KorAm Bank, were mistaken as this bank was simply waiting for certain legal documents from Hynix before finalizing its investment. The KorAm went ahead with the investment as soon as it received the documents concerned.38
7.25.
Secondly, Korea considers incorrect and inappropriate the reliance of the EC on the fact that there was insufficient market financing available to Hynix by May 2001 to conclude that the participating banks thus must have been acting under the entrustment or direction of the government. Korea refers to opposite conclusions reached by the EC itself in its Preliminary Determination. Moreover, according to Korea, the commercial reasonability of the financing is a matter which relates to the question of benefit to Hynix rather than the question of the existence of a financial contribution.
7.26.
Thirdly, Korea also considers inappropriate the EC reliance on alleged earlier cases of directed financial contributions (such as the Syndicated Loan, the KEIC Guarantee and the KDB Debenture Programme) to support of a finding of entrustment or direction in respect of the May 2001 Restructuring Programme. Especially, in light of the fact that the EC itself treated all five restructuring efforts as distinct measures, and in the absence of any demonstrated linkage between the restructuring operations, such past actions are simply irrelevant in establishing direction in the May 2001 restructuring.
7.27.
Finally, Korea submits that the EC failed to examine all of the banks involved in the May 2001 restructuring before making findings of an alleged financial contribution provided by all participating banks. The EC relied on press reports concerning alleged pressure put on one bank only, the KorAm Bank, and failed to show that this bank was representative of all others. The EC did not examine which of the banks were alleged to have been entrusted or directed by Korea due to presence of an FSS official at the March meeting of the Creditors Council. Korea argues that it appears that the only basis for the EC's conclusions seems to have been that such presence was not disclosed earlier, which entails an attempt to penalize Korea for an alleged failure to cooperate, and such a penalty is not authorized by Article 12.7 of the SCM Agreement.

(vi) October 2001 Restructuring Programme

7.28.
With regard to the October 2001 Restructuring Programme, Korea asserts that the EC relied on a patchwork of circumstantial evidence most of which bears no relationship to the October Restructuring Programme as such, but rather rehashes press reports relating to the Syndicated Loan, the FSC waiver, the presence of an FSS official at the March 2001 meeting, and the allegations concerning the KorAm Bank. In fact, Korea submits that the EC based its conclusion of financial contribution in the context of the October 2001 Restructuring Programme on only one new press report. This report contains a statement of the deputy PM which does not address the question of Korea's direction of banks to participate in the October 2001 Restructuring Programme.
7.29.
Korea asserts that the EC conclusion of entrustment or direction of the banks that took part in the October 2001 Restructuring Programme was largely based on the fact that the government was a shareholder in a number of these banks. Korea submits that the government-shareholding in and of itself does not prove direction or entrustment. According to Korea, for such a determination to be made, it needs to be positively established that the government actually exercised its control to direct the particular bank in a particular way. The EC failed to do this.39 Moreover, Korea argues that the existence of a choice that was given to creditors as to whether they wanted to continue to invest in Hynix as well as the fact that some 100 per cent government-owned banks, when given this choice, decided not to participate in the October Restructuring Programme, clearly prove the absence of entrustment or direction.
7.30.
In particular, Korea asserts that with regard to Citibank, the EC ignored all relevant evidence (such as a Citibank affidavit; statements of Korea with regard to Citibank, as well as Citibank officials' statements) and merely relies on the alleged close relationship between Citibank and the government, which does not prove direction or entrustment. Korea notes that, in a parallel investigation concerning Hynix, the US Department of Commerce found Citibank not to have been directed. With regard to the KEB, Korea argues that the KEB's low internal rating of Hynix does not show direction by the government, especially since the KEB, as an existing creditor, may have had different objectives than new creditors. The EC's argument, based on an alleged past culture of government influence over the KEB lending practices, even if correct, is unlikely to be valid in 2001 now that an outside international bank like Commerzbank controls the KEB's lending practices. Concerning Woori Bank, Korea points out that the EC ignored the fact that, at the time of the restructuring in October 2001, there were still two banks, Woori Bank and Peace Bank, which later merged as Woori Bank. The EC completely failed to examine Peace Bank's involvement or its alleged direction or entrustment. The fact that Woori Bank seemed to have taken certain public policy objectives into account when deciding to take part in the restructuring is only normal for an important national bank. It does not suffice to conclude, as the EC does, that this bank was entrusted or directed by the government to participate. In the view of Korea, the fact that a Memorandum of Understanding ("MOU") existed between Woori and the government is irrelevant for the October 2001 Restructuring Programme. In any case, this MOU only set forth general prudential rules for Woori Bank as the recipient of public funds.40 With regard to Chohung Bank, Korea submits that government shareholding does not equal entrustment or direction, as the EC failed to demonstrate that the government actually used its alleged power to influence decisions as shareholder or under the MOU, which was put in place to protect the banks from government influence rather than the reverse. As far as the National Agricultural Cooperative Federation ("NACF") is concerned, Korea submits that the economic public policy objectives of the NACF relate only to the agricultural sector, and do not imply any government direction in a non-agricultural sector like DRAMS. The NACF's cooperative goals have, in any case, no bearing on the question of direction or entrustment.

(b) EC

(i) General standard of entrustment or direction under Article 1.1(a)1(iv) of the SCM Agreement

7.31.
According to the EC, the terms "entrust or direct" in Article 1.1(a)(1)(iv) have a wider meaning than the meaning advanced by Korea. The EC argues that the use of the term "direct" in the SCM Agreement rather than the term "order" implies that the term "direct" has a wider connotation including "to regulate, conduct or control affairs", "to give commands or orders with authority". It is thus of the view that an indication or a nudge by the government or a public body to a private body is also a "direction".41 Similarly, the EC submits that the concept of "entrust" indicates a particularly light control and includes the notion of "putting something into the care or protection of someone".42 The fact that a certain discretionary authority is left to the private body is therefore not inconsistent with a finding of entrustment or direction. Such acts of entrustment or direction may well include threats, encouragements, or even in certain circumstances attending a meeting and monitoring the results of that meeting, depending on the facts of the case.43
7.32.
According to the EC, the real issue in this case is an evidentiary one. In this respect, the EC emphasises the general problems of evidence gathering in countervail investigations which concern the behaviour of states and the difficulty of finding "the smoking gun". The EC submits that Korea did not discharge its obligations under the SCM Agreement since it did not place evidence in relation to the subsidies determination before the investigating authority at the time of investigation. In this regard, the EC refers, for instance, to the minutes of the Economic Ministers' meeting which were not submitted by Korea. The EC recalls that Article 1.1 of the SCM Agreement provides that a subsidy will be deemed to exist in any of the circumstances described in that provision, and argues that the use of the term "deemed" refers to the possibility of an evidentiary gap.44,45
7.33.
According to the EC, the panel report in US – Export Restraints is irrelevant to the case at hand and does not in any case support Korea's assertions.46 The EC is of the view that the panel findings in that report need to be put in context of facts of the case. The EC recalls that the US – Exports Restraints case concerns a restriction on exports, which is an inherently prohibitive or passive government action, and thus completely different from the affirmative government action at issue in this case.47 That panel's interpretation cannot be extended beyond the specific facts of the case as the fact pattern differs significantly from the fact pattern of this case.48 In any case, the EC considers that the panel report in that case, in so far as it is applicable or relevant, does not support Korea's argument. The EC asserts that the US – Export Restraints panel recognized the possibility of a general act of entrusting or directing a private body to take a certain course of action. In other words, there can be government direction or entrustment if a government generally entrusts or directs a company or a bank to act in the public interest and, in such case, there is no need to show that there was a specific entrustment or direction with respect to each specific act leading to a financial contribution.
7.34.
The EC considers that it has established the existence of a financial contribution in the sense of Article 1.1(a) of the SCM Agreement with regard to each of the five challenged Hynix rescue operations.

(ii) Syndicated Loan

(iii) KEIC Guarantee

7.36.
The EC submits that Hynix would not have been able to obtain the D/A extension by USD 600 million (from USD 800 million to USD 1.4 billion) without the KEIC Guarantee, and this due to its precarious financial situation and the fact that some banks had already reached their prudential lending limits.53 The EC notes that Korea does not contest the EC's finding that the KEIC is a public body and hence no entrustment or direction in respect of KEIC needs to be demonstrated. In the case of the KEIC however, the EC submits, there is also evidence that the government directed the KEIC to provide the additional guarantee. Moreover, the government itself guaranteed the guarantor - the KEIC - that, in the event of future problems caused by the guarantee to Hynix, the government would provide additional funds to the KEIC. In sum, the EC concludes that Hynix was only able to secure the further guarantee from the KEIC due to government direction to the KEIC and the government's assurance that it would underwrite the guarantee. The EC argues that three letters of 28 November 2000 (from the Ministry of Economy and Finance), 30 November 2000 (from the Ministry of Commerce) and 10 January 2001 (from the three Ministries involved) contain clear and irrefutable evidence of this government direction of the KEIC.

(iv) KDB Debenture Programme

7.37.
The EC submits that the KDB is a public body and that the purchase of corporate bonds under the programme was therefore a clear financial contribution in the sense of Article 1.1(a)(1) of the SCM Agreement. The EC notes that Korea does not contest its determination of the KDB as a public body. In the view of the EC, of the total programme budget of KRW 2.9 trillion, 1.2 trillion (41 per cent) was used for purchasing Hynix bonds, of which Hynix paid back KRW 280.4 billion under the conditions of the programme, thus receiving a financial contribution of KRW 919.6 billion.

(v) May 2001 Restructuring Programme

7.38.
The EC submits that the investigating authority based its determination on the totality of facts, and that it is not appropriate to assess the strength of each piece of evidence in isolation. The EC also notes that the authority was to a certain extent obliged to use facts available due to the non-cooperation of Korean actors.54
7.39.
Addressing the arguments by Korea, the EC submits, first, that the use of press reports as evidence is common and accepted. The EC asserts that, in this particular case, the press reports concerning the FSS official's presence at the Creditors Council meeting were from a reputable source specialized in economic and financial matters. The EC considers important the fact that the press report was dated the day of the meeting and that the information was thus fresh. Moreover, the EC notes, the government failed to present the written record of the minutes of this meeting to contradict information contained in the press report.55 The EC further argues that the significance of the press reports has to be put in the context of this case, in which 2/3rds of the CBs were purchased by banks 100 per cent owned by government or with government majority or decisive shareholding. Moreover, and with respect to the press reports concerning the government pressure on one bank, the KorAm Bank, the EC submits that these reports clearly show the reluctance of this bank and the fact that it eventually participated only due to government direction. As these reports are evidence of the willingness of the government to use pressure, there is no reason why the government would not have been as willing and able to similarly put pressure on the other seventeen participating banks.
7.40.
Second, the EC emphasises that the absence of alternative financing on the market is very important in the totality of facts on which the authority based its conclusions.56 The EC considers that the absence of alternative financing is a major factor supporting the authority's conclusion that the banks were entrusted or directed to take part in the restructuring as there would have not been any need for government direction had such alternative financing existed.
7.41.
Third, and in a similar vein, the EC submits that the existence of earlier financial contributions is important in the totality of facts given the close temporal and economic connection between the various events. According to the EC, it is only reasonable to assume that the government's interest in saving Hynix would continue.
7.42.
Finally, the EC is of the view that no bank-by-bank analysis was required as the totality of facts showed government direction for each of the banks involved in the May 2001 Restructuring Programme.

(vi) October 2001 Restructuring Programme

7.43.
The EC considers that the Final Determination sets forth sufficient evidence to support its finding of the existence of a financial contribution to Hynix. The EC asserts that state control or participation is a strong indicator of entrustment or direction. In this regard, the EC asserts that four of the largest Hynix creditors, i.e., the KDB, Woori Bank, Chohung Bank, and the KEB, were either totally or by large majority owned by the government. Of the two less important creditors in the October Restructuring Programme, the NACF and Citibank, one (NACF) is a cooperative established by a special law and jointly managed by the Ministry of Finance and Economy and the Ministry of Agriculture and Fishery.
7.44.
In the case of two of the banks, Woori Bank and Chohung Bank, the EC submits that there was direct evidence on the recordthat they based their decisions on public policy considerations, rather than their own commercial considerations. In the view of the EC, the fact that the failure of company would cause a shock to the national economy would not justify a commercial bank's decision to inject money in a company with no reasonable expectation to receive its money back. The EC asserts that these factors, taken as a whole, are sufficient to demonstrate that there was government entrustment or direction, in particular taking into account that the investigating authority operated under a facts available standard.
7.45.
With regard to Korea's claim that the EC should have taken into account that a number of Hynix's creditor banks with substantial government participation did not participate in Option 1 of the October 2001 Restructuring Programme, the EC states that Korea's argument is posited on the assumption that it was reasonable for any bank to participate in Option 1 because there was a chance that it could recover losses. However, the EC states that it was not commercially reasonable on any view for any of the players to participate in Option 1, irrespective of the amount of exposure at the time of the October 2001 Restructuring Programme. Finally, the EC considers that evidence of prior government entrustment or direction is relevant as it shows the government's involvement which was likely to continue as long as necessary to save Hynix.
7.46.
In response to some of Korea's arguments concerning each of the specific participating banks, the EC asserts that the authority did not ignore any Citibank evidence. In fact, according to the EC, what Korea calls "evidence" are no more than self-interested statements and affidavits of little or no probative value. The EC also disagrees with Korea's assertion that Commerzbank controlled the lending practice of the KEB, as in fact, of the twenty directors, only four were from Commerzbank, and the government as the largest shareholder was able to influence the other directors' appointments. Finally, with regard to Woori Bank, the EC emphasises that Peace Bank no longer existed at the time of the investigation and that none of the interested parties made any arguments before the investigating authority about the need to examine Peace Bank. In fact, according to the EC, Peace Bank had effectively been taken over by the government by October 2001.

(c) Panel Analysis

7.47.
Korea's claim concerns the definition of a subsidy under Article 1 of the SCM Agreement, and the requirement of determining the existence of a financial contribution by the government under Article 1.1(a) of the SCM Agreement in particular. Article 1 of the SCM Agreement provides in relevant portion as follows:

1.1 For the purpose of this Agreement, a subsidy shall be deemed to exist if:

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

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

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

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

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

(....)

and

(b) a benefit is thereby conferred. (footnote omitted)

(i) General standard of entrustment or direction under Article 1.1(a)1(iv) of the SCM Agreement

7.48.
Article 1.1 of the SCM Agreement thus provides that a subsidy shall be deemed to exist in case there is a financial contribution by the government or any public body within the territory of a Member which confers a benefit. Article 1.1(a)(1) subparagraphs (i) to (iii) set forth three situations that are considered to constitute such a financial contribution by the government. Subparagraph (iv) adds that a financial contribution may also be considered to have been provided by the government, in cases where the government has entrusted or directed a private body to provide one of the types of financial contributions described in subparagraphs (i) to (iii) of Article 1.1(a)(1) of the SCM Agreement. In other words, the Agreement provides that a financial contribution will be considered to have been provided by the government in cases where the government or a public body itself provides such a financial contribution, or in cases where the government entrusts or directs a private body to do so.
7.49.
In our view, two situations thus need to be distinguished. If the government or a public body carries out one of the functions illustrated in subparagraphs (i) to (iii), then such action constitutes a financial contribution in the sense of Article 1.1(a) of the SCM Agreement. If a private body undertakes the same action, there is no financial contribution in the sense of Article 1.1(a) of the SCM Agreement, unless it is established that the private body was entrusted or directed by the government to provide the financial contribution. We note, in this respect, that Article 1.1(a)(1) of the SCM Agreement clarifies that the term "government" as used in the SCM Agreement covers both the government as such, as well as any public body within the territory of a Member. In our view, therefore, and the parties do not seem to disagree in this respect, there is no need for a finding of entrustment or direction in cases where it has been established that the party providing the financial contribution was itself a public body.
7.50.
However, in cases where the financial contribution was provided by a private body, as the investigating authority considered to have been the case on a number of occasions with respect to support for Hynix, the disciplines of the SCM Agreement will not apply as there is no financial contribution by the government, unless it can be demonstrated that the private body was entrusted or directed by the government to provide such a financial contribution. We will thus need to examine the exact scope and meaning of the terms "entrust" and "direct" as used in Article 1.1(a)(1)(iv) of the SCM Agreement.
7.51.
Article 3.2 of the DSU requires us to interpret the terms of the various WTO Agreements in accordance with the "customary rules of interpretation of public international law". This is a reference to the rules of treaty interpretation laid down in the Vienna Convention on the Law of Treaties (the "Vienna Convention"), particularly Articles 31-32 thereof.57 We will therefore examine the ordinary meaning of the terms used in Article 1 of the SCM Agreement, in their context and in light of the object and purpose of the Agreement.
7.52.
The ordinary meaning of the term "entrust" is "to give (a person etc.) the responsibility for a task" or "to commit the execution of (a task) to a person".58 The term "direct" in turn means, inter alia, "to give authoritative instructions to; order (a person) to do, (a thing) to be done; order the performance of."59 In other words, the term "entrust" refers to a delegation over the performance of a task, while the term "direct" refers to a more direct command, an order.60 Both, in our view, clearly contain the notion of the imposition of a requirement or an obligation on the person that is entrusted with a task or that is directed to carry out a task. The private body that is directed to provide a financial contribution or is entrusted to do so, is thus acting on behalf of the government, and its actions can therefore be ascribed to the government.
7.53.
The use of these terms is not surprising in the context of the SCM Agreement which, like the WTO Agreements generally, deals with government behaviour and not the behaviour of private parties. Article 1.1(a)(1) provides that the first element of a subsidy is a "financial contribution by a government or any public body". All four subparagraphs (i) to (iv) thus deal with government behaviour. Subparagraphs (i) to (iii) focus on explaining what is meant by a financial contribution, while subparagraph (iv) deals with situations in which the financial contribution was provided by a private body, but acting under the entrustment or direction of the government. In this context, the terms "entrust or direct" thus bridge the distance between private parties' actions, which fall outside the scope of the SCM Agreement, and the government behaviour to which the disciplines of the SCM Agreement apply. By entrusting or directing a private body to carry out one of the functions illustrated in subparagraphs (i) to (iii), the government is providing a financial contribution, and the private parties' actions may thus be attributed to the government.61
7.54.
Korea argues on the basis of the language used in the report of the panel in the US – Export Restraints case that there is a requirement to demonstrate an explicit and affirmative act by government to a particular entity to perform a particular task. In our view, the specific language of the panel in that case was inspired by the facts of that case, which are entirely different from the facts currently before us. Indeed, the panel in US – Export Restraints made it quite clear that the scope of its rulings was squarely focussed upon the particular fact pattern that Canada – the complainant in that case – had cited, i.e.:

"… a border measure that takes the form of a government law or regulation which expressly limits the quantity of exports or places explicit conditions on the circumstances under which exports are permitted, or that takes the form of a government-imposed fee or tax on exports of the product calculated to limit the quantity of exports."62 (emphasis added)

7.55.
The panel in US – Export Restraints then observed that it was these "essential characteristics" of an export restraint that delineated the scope of Canada's claims in that case and the panel's rulings.63
7.56.
We share that panel's basic understanding of the terms "entrust" or "direct" as requiring a government action which obliges a private body to act in a particular way and generally refers to the situation in which government executes a particular policy by operating through a private body. However, we do not feel bound by the precise language used by the panel in the US Export Restraints case which had a completely different factual setting. Neither do we feel that we need to interpret what this panel may or may not have intended to imply by using the words it did, as our task is not to interpret panel reports but rather the provisions of the SCM Agreement in accordance with customary rules of interpretation of public international law.
7.57.
In that respect, we consider that Article 1.1(a)(1) of the SCM Agreement does not require that the government's entrustment or direction be conveyed to the private bodies in a particular way. Rather, it encompasses entrustment or direction irrespective of the precise form it takes. As the US Export Restraints panel observed, it follows from the ordinary meanings of the two terms "entrust" and "direct" that the action of the government must contain an element of delegation (in the case of entrustment) or command (in the case of direction).64 And such delegation or command should invariably take the form of an affirmative act. But it does not necessarily need to be "explicit". It could be explicit or implicit, informal or formal.65 The key is being able to identify such entrustment or direction in each factual circumstance. This will obviously need to be determined, on a case-by-case basis, whether an investigating authority could reasonably have concluded on the basis of all of the relevant and probative evidence before it that such entrustment or direction existed.66
7.58.
This ordinary meaning of the terms "entrusts or directs" is consistent with the object and purpose of the SCM Agreement to discipline certain – but not all – forms of government action which distort international trade. As such, Article 1.1.(a)(1)(iv) should not be read too broadly so that it encapsulates the actions of private bodies acting independently of government delegation or command. But neither should it be read too narrowly so that it allows governments to escape their obligations under the SCM Agreement by acting indirectly, implicitly or informally through private bodies. In our view, the ordinary meaning of the terms "entrusts or directs" that we have outlined above in paras. 55-56 fits squarely in line with the object and purpose of the SCM Agreement.
7.59.
We consider that it is important to distinguish between the legal standard that has to be met and the evidence that is relied upon to prove government entrustment or direction. We note that the EC placed much importance on the fact that the private bodies participating in the various restructuring efforts were not acting in a commercially reasonable way. We agree with the EC that, when demonstrated, such non-commercial behaviour may well be seen as an indication of possible government entrustment or direction. It can thus be taken into account as an element of evidence that the government was perhaps entrusting or directing these private bodies to act in a certain way, but it is not sufficient as evidence of government entrustment or direction as such. Rather, it raises evidentiary issues that the investigating authority will need to work through in order to ascertain whether an action by a private body was the object of some form of government entrustment or direction. In other words, the investigating authority will need to ensure that the evidence of entrustment or direction is probative and compelling and this will obviously differ from case to case. In this respect, we consider that evidence which demonstrates merely that the government encouraged or facilitated private investment would not be sufficient to conclude that the government entrusted or directed such private actions. Something more will be required.67
7.62.
We will therefore now examine, with this standard in mind, the EC determination of a financial contribution concerning each of the five different programmes at issue. We recall in this respect that we must, under Article 11 of the DSU, make an objective assessment of the matter before us. This requires us to examine whether the investigating authority examined all relevant facts and whether adequate explanation has been provided of how the facts support the determination made. In other words, the question before us is whether on the basis of the record evidence, the EC reached reasoned and reasonable conclusions as to the existence of a financial contribution by the government or a public body in the sense of Article 1.1(a) of the SCM Agreement.
7.63.
Finally, we wish to add in this respect that in the Final Determination, the EC clearly addressed each of these five different programmes as distinct measures, making findings of a financial contribution and benefit with regard to each of these five programmes. Therefore, we will examine these five programmes as five distinct programmes. We do not consider appropriate the suggestion made by the EC before us on various occasions that evidence with regard to all of the five programmes can be placed in a pot labelled "the totality of facts" and then be drawn upon in justifying a conclusion as to financial contribution and benefit with respect to each different programme. This approach could have been followed perhaps had the investigating authority itself treated the five programmes as one big Hynix bail-out exercise.71 But it did not do so, and that is why we will thus also examine the merits of the EC determination in light of the specific evidence it relied on to make its findings with respect to each of the different re-financing programmes at issue in this case.

(ii) Syndicated Loan

7.64.
The Syndicated Loan was developed by Hynix's financial advisor Salomon Smith Barney Inc. ("SSB") during the second half of 2000 as part of a financial plan to resolve the problem of a "mismatch" between Hynix's cash flow and the extent of debt obligations that would mature and had to be repaid in 2001, which was sometimes referred to at the time as Hynix's "short term liquidity problems". Citibank was appointed as lead manager of the Syndicated Loan and Citibank held meetings with domestic banks to present its plan in the course of December 2000. In total, 10 banks participated in the loan which amounted to KRW 800 billion:72 the Korea Development Bank ("KDB"), Hanvit Bank, Chohung Bank, the Korea Exchange Bank ("KEB"), the Korea First Bank ("KFB"), Kookmin Bank, Citibank, Shinhan Bank, Hana Bank and the KorAm Bank. The EC examined three banks, the KDB, KEB and KFB and considered that their participation in the Syndicated Loan constituted a financial contribution by the government which conferred a benefit on Hynix.
7.65.
From the record, we conclude that the loan was released in two tranches and the interest rate of the tranches was set at that of unsecured three-year corporate bonds for BBB- rated companies, plus an additional margin to reflect the risky nature of the financing, bearing in mind the high debt ratio of Hynix. One of the conditions of the loan was the separation of Hynix from the Hyundai group. The loan agreement further provided that the loan amount was to be used exclusively for redeeming the previously issued corporate bonds, refinancing the existing debt or securing liquidity.73
7.66.
The EC made determinations with regard to the existence of a financial contribution with regard to only three of the ten participating banks, i.e., the KDB, KFB and KEB. What these three banks had in common is the fact that, due to the prudential lending limits that had been put in place by the government after the Korean financial crisis of 1997, these banks would not have normally been able to take part in the Syndicated Loan, as they had already reached their lending limits.74 However, Article 20(3) of the Enforcement Decree of the Banking Act allowed a governmental body, the Financial Supervisory Commission ("FSC"), to grant an approval permitting banks to exceed these ceilings "when it is recognised that it is inevitable for industrial development (…) or the stability of national life." The three banks mentioned above received such a waiver from the FSC and participated in the Syndicated Loan.
7.67.
The EC determined that one of these three banks, the KDB, was a public body, and its participation in the loan was, therefore, considered to be a financial contribution in the sense of Article 1.1(a) of the SCM Agreement without any need for evidence of entrustment or direction.75 With regard to the KEB and KFB, which each participated in the Syndicated Loan for an amount of KRW 100 million, the EC concluded that these two banks had been directed to take part in the loan by the government in pursuing the public policy goal of alleviating the difficult financial situation of Hynix for reasons of industrial development.76 It thus found these banks' participation in the Syndicated Loan also to constitute a financial contribution by the government.
7.68.
We will thus need to examine the EC's determination with regard to these three banks, the KDB, KEB and KFB. Of these three banks, one was determined to be a public body, while the two other banks, the KEB and KFB were considered as private bodies. We will first examine the EC's determination of the existence of a financial contribution by the government with respect to the public body, the KDB. We will then examine the EC's determination with regard to the KEB and KFB. In this respect, we note that, upon examining the benefit question, the EC concluded that the KFB contribution was negligible and its participation in the Syndicated Loan was therefore not countervailed. For that reason, and in line with the arguments as set forth by Korea in its various submissions before us, our discussion of the EC's determination with regard to the two private bodies, the KEB and KFB, will focus on the KEB only.77
7.69.
Korea does not challenge the EC determination of the KDB as a public body. Neither does it contest the fact that a loan of the kind extended by the KDB in this programme is a government practice which involves a direct transfer of funds in the sense of subparagraph (i) of Article 1.1(a)(1) of the SCM Agreement. In light of our above analysis of the requirements of Article 1 of the SCM Agreement, and the fact that Korea did not adduce a prima facie case otherwise, we consider that the EC finding that the KDB's participation in the Syndicated Loan constituted a financial contribution by the government is consistent with Article 1.1(a) of the SCM Agreement.
7.70.
With regard to the loans extended by the two financial institutions that were not considered to be public bodies, the KEB and KFB, the EC reasoned its conclusion that they had been directed by the government to take part in the loan in the following manner:

"(32) On 28 November 2000, a letter from the Ministry of Finance and Economy, signed by the Minister of Finance and Economy, was sent to the President of the Korea Export Insurance Corporation ("KEIC") and the President of the KEB. The letter transmits the results of the discussion on "alleviating the cash crunch of Hyundai Electronics", which was on the agenda of the Economic Ministers' meeting held on the same day (November 28). The letter orders the recipients to make sure that the measures decided would be "carried out perfectly". The letter also states that the measures to help Hynix were initiated by the Financial Supervisory Service. The letter orders KEB to request an extension of the credit ceilings on behalf of the creditor financial institutions, which according to the results of the Economic Ministers' discussions would be subject to special approval by the FSC. The Minister thereby imposed an obligation on KEB to apply for the extension and on the FSC to approve such an application.

(33) In December 2000, KEB filed the request for approval of this extended credit limit for Hynix financing and submitted similar requests for Korea First Bank ("KFB") and the KDB. In the FSC decision it was explained that these banks intended to grant a syndicated loan and a D/A facility (documents against acceptance-backed loans) to Hynix. FSC approved these requests on the basis of Article 20(3)1.3. of the Enforcement Decree. This provision allows FSC to extend the ceilings "when it recognises that it is inevitable for the industrial development... or the stability of the national life". This provision is a public interest provision and shows that from the GOK point of view, the granting of the extra credit was a public interest issue.

(34) It is noted that according to the minutes of the relevant FSC meeting, the FSC Commissioners approved the increase in the credit ceiling for Hynix financing because Hynix was too big and too important to fail. In the minutes the following is explained: "The semiconductor industry is a strategic industry; after Hynix's merger with LG Semicon in 1999, the company accounted for 20 per cent of the world semiconductor market and 4 per cent of the Korean exports. Hynix employs 24,000 employees in the industry, and other involved companies exceed 2,500 with over 150,000 employees. To support the syndicated loan and D/A financing would improve Korea's international competitiveness. Therefore, for the promotion of the electronics industry policy, the FSC finds it in the best interest to increase the ceiling".

(35) It is noted that without the extension of the credit ceilings it would have been impossible for the three abovementioned banks to participate in the syndicated loan. They would have breached their obligations under the Banking Act. The GOK, by directing the FSC to approve the extension and by directing KEB to apply for such extension, had effectively directed the banks to extend the loans in a way that they would not otherwise have been able to do under Korean banking laws. It was evident that the credit limits needed to be lifted in order to provide the financing to Hynix. Indeed, when the GOK and Hynix were invited specifically to comment on the new information indicating the GOK direction as regards the lifting of the credit limits, neither of them indicated in their comments that there would have been another source of funding available to Hynix at the time of the measures. Moreover, neither party invoked any such probability at any other stage of the investigation.

[SEE IMAGE IN SOURCE DOCUMENT](36) In accordance with the findings set out in recitals 55 to 59 of the provisional Regulation which are hereby confirmed, KDB is considered to be a public body within the meaning of Article 1(3) of the basic Regulation. As regards KEB and KFB, their participation in the syndicated loan for an amount of KRW 100 billion each is considered to be directed by the GOK in pursuing the public policy goal of alleviating the difficult financial situation of Hynix for reasons of industrial development. Therefore, they are in this case considered to be directed by the GOK to carry out a function normally vested in the GOK. The fact that the particular provision of the Enforcement Decree was evoked also demonstrates that lifting the credit limits was considered as a question of public interest. Moreover, the GOK intervention shows that the granting of the extra credit was a question of public interest, which falls within the practices normally followed by governments. Therefore, the participation of the banks in the syndicated loan fulfils the criteria explained in recital 15. Consequently, these measures constitute a financial contribution by government within the meaning of the basic Regulation in Article 2(1)(a)(i) for KDB and Article 2(1)(a)(iv) for KEB and KFB." (footnotes omitted)

7.71.
In sum, the EC based its finding of government entrustment or direction of the KEB and KFB on three considerations. First, the EC alleges that the letter of the Minister of Finance and Economy of 28 November 2000 orders the KEB to request an extension of the credit ceilings on behalf of the creditor financial institutions, and that, in so doing, the Minister thereby imposed an obligation on the KEB to apply for the extension, and on the FSC to approve such an application.78 A second important consideration for the EC was that the FSC granted the lending limit waiver based on the public interest provision of Article 20(3) of the Enforcement Decree of the Banking Act.79 Finally, the EC emphasises the crucial relevance of this waiver as the three banks in question would not have been able to lend without the waiver.80 Its overall conclusion was therefore that

"[t]he GOK, by directing the FSC to approve the extension and by directing KEB to apply for such extension, had effectively directed the banks to extend the loans in a way that they would not otherwise have been able to do under Korean banking laws."81

7.72.
We start our examination by looking at the letter of 28 November 2000 to which the EC attached particular importance in reaching its finding of government-direction of the KEB.82 The letter which is signed by the Minister of Finance and Economy and sent to the attention of the Presidents of the KEIC and the KEB states as follows83:

"[e]nclosed please find discussion results on alleviating the cash crunch of Hyundai Electronics which are part of discussion items at the Economic Ministers meeting held today (28 Nov., Tuesday). Please make sure they are carried out perfectly."

7.73.
The enclosure, entitled "Results of Discussion at the Economic Ministers' Meeting (28 Nov.) (Measures to alleviate the cash crunch of Hyundai Electronics: Initiated by the Financial Supervisory Service)", states in relevant part:

"[a]s for the issue of (lifting) the ceilings on loans extended to the same borrower in connection with the syndicated loan in won, pursue a resolution of special approval by the Financial Supervisory Commission upon the request of the Korea Exchange Bank representing creditor financial institutions".

7.74.
In our view, this letter – and its enclosure – reveal that the Economic Ministers had decided to take certain action to alleviate the so-called cash crunch of Hyundai Electronics/Hynix. One of the actions they decided on was to pursue a special approval by the FSC of lifting the lending limits upon the request of the KEB. It is clear that the decision taken was thus to require the public body FSC to lift the lending limits, when such a request would be made by the KEB.
7.75.
The EC concluded that the letter was clear evidence that the government was directing the KEB to request a lending limit waiver from the FSC and that the KEB was informed that it would receive a positive reply to such a request. The next step in the EC's reasoning is that by directing the KEB to apply for a waiver and by directing the FSC to approve the waiver, Korea had effectively directed the KEB to extend the loans in a way that it would otherwise not have been able to do under Korean banking laws.
7.76.
In examining this letter, we find very important that this letter from the government together with its enclosure was directly addressed to the KEB. In the letter the government requests the KEB to make sure that the results of the discussion on alleviating the cash crunch of Hyundai Electronics/Hynix, as set forth in the enclosure are "carried out perfectly". The title of the enclosure itself also refers to "measures to alleviate the cash crunch of Hyundai Electronics". In our view, the fact that the letter was sent to the KEB, may reasonably be read to imply that the government was requiring the KEB to assist in carrying out the measures to alleviate Hynix's cash crunch decided upon by the three Economic Ministers. At the same time, we acknowledge that the text of the letter, and its enclosure, could be read more narrowly to require the KEB only to apply for a lending limit waiver, and not to require it to provide a financial contribution by participating in the loan. However, and taking into account the particular circumstances of this case, we do not find unreasonable the conclusion of the EC that this letter actually required the KEB to participate in the Syndicated Loan.
7.77.
We note that an important element in the evaluation and assessment of this piece of evidence by the EC was the fact that this letter and other information concerning the Economic Ministers' meeting was withheld from the investigating authority by the government. As stated in paragraph 30 of the Final Determination:

"(30) Since the publication of the provisional Regulation, new information of the GOK directing the FSC to raise the legal lending limits of some banks participating in the syndicated loan has been obtained. The Commission's provisional findings as regards this measure should therefore be reassessed in the light of the new information. The interested parties, Hynix and the GOK, were specifically invited to comment on the new information and their comments have been taken into account in the reassessment of this measure."84

7.78.
We recall that, in the Final Determination, the EC clearly stated that in the appreciation of the facts, it had taken due account of the failure of certain parties to cooperate fully with the investigating authority:

"(16) When determining the existence of a public body or of government direction, the investigating authority bears the burden of proof when making a positive finding. Such findings must be made on the basis of positive evidence, taking account of the totality of the facts on the record and available to the authority, and weighing these facts in accordance with the considerations above. In appreciating the facts in question, due account must be taken, in accordance with Article 28 of the basic Regulation, of the failure of certain parties to cooperate fully with the investigation, which has in some cases necessitated the use of information from other sources. In this particular case, it has become apparent that the GOK failed to provide a number of requested documents on meetings relating to the future of Hynix. The GOK also failed to inform the Commission that such meetings took place, in spite of clear requests being made to this end in the questionnaire and at the on-the-spot verification. The GOK has been made aware of the consequences of non-cooperation in accordance with Article 28(1) and (6) of the basic Regulation. In view of this lack of cooperation, it has been necessary, in addition to taking account of relevant GOK documents submitted by other parties, to use information from secondary sources, including from the Korean press. Such information has been viewed with special circumspection, the GOK and Hynix given the opportunity to comment on it, and, where practicable, it has been cross-checked with other independent sources."85

7.79.
As we explain in detail in our section dealing with Korea's claims under Article 12.7 of the SCM Agreement, we are of the view that the investigating authority was justified in concluding that this information was not provided to it, in spite of clear requests to do so. We do not accept Korea's argument that it did not understand the EC's general request for information to include the provision of this letter and other related information. It was only because Micron, one of the EC DRAMs producers, included this letter in its comments on the Preliminary Determination that the investigating authority became aware of the letter and its enclosure. In other words, we find that Korea failed to cooperate with the EC in this respect, and the EC was thus entitled to make its determination based on the facts available. In this case, the facts thus ultimately became available due to the submission of the information by Micron.
7.81.
We recall that our standard of review requires us to examine whether a reasonable investigating authority on the basis of the facts before it could have reached these conclusions and thus whether the EC provided a reasonable and adequate explanation of how the facts support the determination made. We are not to make a de novo review of the letter ourselves, nor, however, should we show total deference to the investigating authority.
7.82.
In our view, in light of the clear withholding of this information, the fact that the letter required the KEB to request a waiver of the lending limits and informed the KEB that this waiver would be granted, it was not unreasonable of the investigating authority to reach the conclusion that, effectively, the KEB was required to take part in the Syndicated Loan. We find reasonable the conclusion that the government, by requiring the KEB to request that the last hurdle (i.e., the lending limit) to its participation in the loan be lifted, was actually telling this bank that it had no excuse not to take part in the Syndicated Loan. In other words, this letter can reasonably be read to demonstrate that the government was expecting, and thus directing, the KEB to participate. In this respect, we find relevant the EC's consideration that it would not have been possible under Korean law for the KEB to lend the KRW 100 million to Hynix, as it did under the Syndicated Loan, without the lending limit waiver from the FSC. While, in the absence of any additional facts such as the withholding of information, this would not, in and of itself, necessarily imply that the government actually entrusted or directed the KEB to provide such funds to Hynix, it is clearly a factor to be taken into account when examining and evaluating such direct evidence of government direction as constitutes the letter. All the more so in this case where the letter was withheld from the investigating authority.
7.83.
Similarly, we consider relevant the fact that the FSC approved the waiver for public interest reasons. In fact we note that the threshold for lifting the legal lending limits, i.e., when this is "inevitable for industrial development (...) or the stability of national life" appears to be very high, but yet it was considered to have been met in the case of the three banks in question. This, again, clearly shows that the government had taken a particular interest in trying to assist Hynix and that it considered the survival of Hynix to be in Korea's public interest. While it may not be, in and of itself, sufficient evidence to establish that the government entrusted or directed the KEB to participate in the Syndicated Loan, it does, in our view, strengthen the position of the EC that it was reasonable to read the letter as requiring the KEB to participate in the Syndicated Loan. The fact that the letter was withheld from the authority further tilts the balance in favour of the EC's overall conclusion of government direction.
7.84.
In sum, and taking into account the circumstances of this case and the clear case of non-cooperation by Korea in producing clearly necessary information, we consider reasonable the EC's conclusion that Korea directed the KEB to participate in the Syndicated Loan. For these reasons, we find that the EC's determination with regard to the existence of a financial contribution by the KEB to Hynix was consistent with Article 1.1(a) of the SCM Agreement.

(iii) KEIC Guarantee

7.85.
The second action which was found to be a subsidy was the extension of a guarantee by the Korea Export Insurance Corporation ("KEIC") which is the official export credit agency of Korea. The KEIC provides export insurance and guarantees to manage the risk associated with overseas transactions. In January 2001, fourteen Hynix creditor banks increased the ceiling of the export credit facility for D/A's (documents against acceptance) provided to Hynix from USD 800 million to USD 1.4 billion, an increase of USD 600 million. The KEIC granted the short-term export credit insurance for the extended D/A limit as regards the transaction between Hynix and its overseas subsidiaries. In other words, Hynix collects the foreseen payment for the export transaction from the banks concerned, which hold the D/A documents. The affiliated importer in the country of destination then makes the payment for the goods concerned directly to the banks against the D/A. Hynix pays the KEIC a premium for the guarantee and pays interest to the banks concerned for the D/A amounts withdrawn until the importer makes the final payment. The KEIC insurance covers the amounts due to the banks which cannot be collected due to bankruptcy of either the exporter or the importer.
7.86.
In its Final Determination, the EC found that the KEIC Guarantee constituted a financial contribution by the government and concluded as follows:

"(45) Thus the guarantee was given by KEIC due to specific GOK direction in pursuing the public policy goal of alleviating the difficult financial situation of Hynix for reasons of industrial development. Therefore, KEIC, despite being a public body, was specifically directed by the GOK to carry out a function and follow practices normally vested in the GOK. Consequently, the guarantee is a financial contribution by government within the meaning of Articles 2(1)(a)(iv) and (i) of the basic Regulation. This guarantee conferred a benefit to Hynix, since without the guarantee Hynix was not able to receive the D/A extension of USD 600 million. At the same time, the GOK's assurance that KEIC would be compensated in case of default showed that the premium paid by Hynix could not cover the risk undertaken by KEIC to guarantee the D/A extension and, therefore constituted a non-commercial act. The GOK effectively underwrote the risk of failure of payment by Hynix without asking for any compensation for it. According to the information on the record, the banks would not have granted the D/A facility without the guarantee. Moreover, there is no information that Hynix could have obtained comparable financing from other sources. This coverage of the guarantee, without any adequate premium being paid, is therefore considered to have conferred a benefit to Hynix within the meaning of Article 2(2) of the basic Regulation. In view of the provisions of Article 6(c) of the basic Regulation, since no comparable commercial loan could have been obtained without the guarantee, the coverage of the D/A extension is effectively a grant. The benefit to Hynix and thereby the amount of the subsidy is the amount of the D/A extension, USD 600 million."

7.87.
The EC considered that the KEIC was a public body.86 It further found that the KEIC provided an export insurance guarantee, which involved a direct or potential direct transfer of funds and thus constituted a financial contribution. Korea does not contest the EC's determination of the KEIC as a public body. Korea only takes issue with the fact that what was countervailed by the EC was the amount of the D/A extension of USD 600 million, and not the guarantee as such. In addition, it notes that the fact that an extension of USD 600 million of the D/A facility was granted by the banks does not necessarily imply that such an amount of USD 600 million was actually provided to Hynix. We are of the view that these arguments relate to benefit and the calculation of the amount of the subsidy rather than to the question of the existence of a financial contribution, which we are addressing here. It is clear from the EC's Final Determination that what was considered by the EC to constitute the financial contribution was the KEIC Guarantee. As the provision of a guarantee of this sort involves a potential direct transfer of funds, we consider that this Guarantee constituted a financial contribution in the sense of Article 1.1(a)(1)(i) of the SCM Agreement. Given that the KEIC was found to be a public body, we consider there was no further need for an additional finding of entrustment or direction by government to the KEIC to provide the guarantee. Therefore, we consider that the EC's finding that the KEIC provided a financial contribution to Hynix was not inconsistent with Article 1.1(a) of the SCM Agreement.

(iv) KDB Debenture Programme

7.88.
A third programme found to constitute a subsidy by Korea was the KDB Debenture Programme to which Hynix was admitted on 4 January 2001. This was a programme which essentially lasted for one year (2001) and was set-up by the government in response to financial instability in Korea caused by the fact that a large amount of bonds issued by a few companies (including Hynix) were due to mature simultaneously. Under this Programme, maturing debt was rolled-over and re-packaged for investors. A participating company repayed on its own 20 per cent of its corporate bonds falling due and the KDB assumed the remaining 80 per cent. This constituted the first phase of the programme. Of the 80 per cent originally assumed by the KDB, 20 per cent of the bonds was then sold to the company's creditor banks in proportion to their debt exposure to the company; 70 per cent was re-packaged for sale to investors as collateralised bond obligations ("CBOs") and/or collateralised loan obligations ("CLOs"), guaranteed by the Korea Credit Guarantee Fund ("KCGF");87 and the KDB retained the remaining 10 per cent. The participating company had to repurchase at least 3 per cent of any CBOs and 5 per cent of any CLOs.88
7.89.
We note that companies were placed in the Programme upon nomination by the main creditor bank, and needed the approval by the Creditors Financial Institutions Council ("CFIC"), based on an assessment of the company's financial future. The CFIC consisted of representatives of the KCGF, the KDB and seventeen other creditor banks.89 The CFIC ultimately decided on participation in the programme. If banks holding 75 per cent of the loans of the company agreed to the participation of the company in the Programme, the CFIC considered the decision unanimous. To be placed in the Programme, companies had to be able to repay 20 per cent of their maturing bonds; normalise business operations through a rescue plan; have credit ratings below A but higher than BB; and agree to any change in majority shareholdings requested by their creditor banks, or to the replacement of management in case of insolvency. Hynix was admitted to the programme on 4 January 2001 with a credit rating of BBB-. In total six companies were admitted; four of which, including Hynix, belonged to the Hyundai group.90 The EC found that the bond purchase by the KDB as part of this programme constituted a financial contribution by the government which conferred a benefit on Hynix.
7.91.
We note that Korea does not contest the EC determination of the KDB as a public body. Nor does it appear to contest that the purchase of corporate bonds constitutes a direct transfer of funds and thus a financial contribution in the sense of Article 1.1(a)(1)(i) of the SCM Agreement. However, Korea argues that numerous creditors other than the KDB were also involved and that the EC did not establish entrustment or direction with regard to these creditors.92 We are of the view that this is not a relevant consideration as it was the public body KDB which first provided a direct transfer of funds to Hynix by purchasing 80 per cent of Hynix corporate bonds. This is the financial contribution that went to Hynix and this is the financial contribution that the EC found to have been provided to Hynix. Whether or not the full cost of this financial contribution was borne by the public body KDB is not relevant in determining the existence of the financial contribution. We therefore consider that there was no need for the EC to establish that other banks that participated in the Programme and that purchased bonds were entrusted or directed by the government to do so.
7.93.
In our view, the EC determination that the purchase of corporate bonds by a public body such as the KDB was a financial contribution was consistent with Article 1.1(a) of the SCM Agreement.

(v) May 2001 Restructuring Programme

7.94.
The fourth programme on which the EC based its subsidy determination is the May 2001 Restructuring and the convertible bonds ("CBs") purchase, in particular. In March 2001, seventeen Hynix creditor banks set up the Creditors Financial Institution Council ("CFIC"), and, in April 2001, Hynix' s financial advisor, SSB, prepared a further recapitalisation plan for Hynix. In May 2001, three measures were agreed: an injection of fresh capital into Hynix through the offering of KRW 1.3 trillion of global depositary receipts ("GDRs"); an extension of the maturities of short and long-term debt (a debt roll-over); and the purchase by the creditor banks of CBs worth KRW 1 trillion. The creditors agreed to support this financial restructuring on the condition that the GDRs offering in the international capital markets would be successful. If not, the roll-over of maturities would be cancelled and the CBs re-purchased by Hynix. In addition, the funds received from the CBs issuance had to be maintained in an escrow account and could only be used for the repayment of corporate bonds maturing in the first half of 2002. In mid-June 2001, Hynix raised USD 1.25 billion in the GDRs offering and, on 20 June 2001, as agreed, the creditor banks purchased the CBs in proportion to their debt exposure on 30 November 2000, and short and long term debt was rolled-over for between 1 to 4 years.93 The EC countervailed the CBs purchase which it found to be a financial contribution by the government which conferred a benefit on Hynix.
7.95.
In the Final Determination, the EC concludes that the creditor banks that participated in the May 2001 Restructuring Programme were directed by the government to buy the bonds, and their CBs purchase thus constituted a financial contribution. In reaching this conclusion, the EC emphasises the importance of the fact that essential information concerning the presence of Financial Supervisory Service ("FSS")94 and FSC officials at the 10 March Creditors' Council meeting was withheld from the EC authorities in spite of explicit requests to make known any government involvement in the restructuring and any government participation in meetings of the creditor banks. This un-cooperative behaviour, combined with the fact that the official of the FSC was not just anybody but its vice-chairman, led the EC to the conclusion that the creditor banks were directed to participate in the May 2001 Restructuring Programme and to purchase the CBs.95
7.96.
The question before us is thus whether the EC drew a reasonable and reasoned conclusion on the basis of the facts before it when it found that the creditor banks that purchased such bonds were directed to do so by the government. The answer to that question will determine whether the EC's finding that the purchase of CBs worth KRW 1 trillion by the creditor banks constituted a financial contribution by the government was consistent with Article 1.1(a) of the SCM Agreement. We recall that, in our view, a financial contribution exists in case a direct or potential direct transfer of funds, such as the purchase of CBs, is made by the government or a public body, as well as in the case where this is done by the government entrusting or directing a private body to provide such funds. In so far as there are banks whose status as a public body is not contested and which took part in the May 2001 Restructuring Programme, we are of the view that there would be no need for an additional finding that these banks had been entrusted or directed by the government to participate. However, and with regard to the private banks' participation, an investigating authority will only be able to find a financial contribution by the government if it has established that such private bodies were entrusted or directed by the government to purchase the CBs.
7.97.
We note that, in the Preliminary Determination, the EC considered that there was not sufficient evidence to conclude that it was commercially unreasonable for the banks to participate in the May 2001 Restructuring Programme.96 In the Final Determination, however, the EC considered that this conclusion had to be reconsidered in light of new information from secondary sources, including press articles that contacts had taken place between the banks and government officials of the FSC/FSS. As the EC states in its Final Determination:

"[t]he parties failed to rebut this new information. In fact, both of them admitted expressly that the FSS representatives were indeed present in the meeting of 10 March 2001 and had contacts with the banks in the context of these measures, as indicated by the new information."97

7.98.
While the parties argued about the possible role of press reports as evidence, it appears to us, that the facts are not contested: FSS/FSC officials had contact with the banks in March to May 2001, and FSS/FSC officials, among which the FSC vice-chairman, were present during the 10 March creditors' meeting. One press article relied on by the EC concluded that the March meeting was held to get the banks to support the Hyundai group, and that government officials persuaded the reluctant banks to provide support to Hynix. The press reports thus revealed a set of facts which was later confirmed by the parties, and their value as a source of information is thus not an issue. We are of the view that a distinction should be made between the facts described in the press reports and the journalistic colouring of these facts. While we do not reject press reports as a source of evidence, we are of the view that the investigating authority should be very careful about attaching too much weight to unverified statements in press reports. The characterisation of the events by the press reports, without supporting evidence, is in other words not particularly probative in a trade remedy investigation. In our view, while the government officials' presence may show the interest the government took in the survival of Hynix, this is not sufficient to conclude that the government delegated this task of rescuing Hynix to private banks or ordered them to do so.
7.99.
It appears that, when the EC confronted the parties with this new information, and with the various press reports, the interested parties to the investigation explained that the FSC/FSS official was present at the meeting as an observer to act as a witness for the creditors' prior commitments of funding, and not to influence the creditor banks or their decision to extend further credits to Hyundai companies.98 They further indicated that the follow-up phone calls with the FSC/FSS officials and the creditor banks were only conducted in the exercise of the normal prudential supervisory role of the FSC/FSS.99 The EC considers that, in light of the fact that this information was withheld from the authorities and that the FSS official present at the meeting was its vice-chairman, this explanation is "hardly convincing". According to the EC, "the banks were not freely and independently deciding on the issue of the CB purchase on the basis of commercial considerations, but were directed to buy the bonds by the GOK."100
7.100.
The EC considered important, in the evaluation of the evidence concerning the presence of the government officials, the fact that this information was not provided by the parties concerned, but was discovered only through press reports. While it is clear that the investigating authority enjoys a wide discretionary authority in weighing the evidence before it, we consider that an authority cannot, in the absence of other supporting information, simply assume that, in case certain information was not provided, the information is necessarily incriminating or that the investigating authority is justified in reading the information in the most negative light. In our view, there is a clear difference between the situation with regard to the May 2001 Restructuring Programme and the earlier discussed Syndicated Loan. In the Syndicated Loan, we considered that the EC was justified when assessing the letter as a critical piece of evidence to take into account the fact that this letter was withheld form the investigating authority. In the case of the Syndicated Loan, the non-cooperation was an additional element that entitled the authority to read the direct evidence in a certain light. In the case of the May 2001 Restructuring, however, as we will discuss below, we find that the facts on the record do not, as such, seem to support the EC's reading that the government was directing the eighteen creditor banks to purchase the CBs. In such circumstances, the mere fact that the information was not provided when requested, is not sufficient to reach a conclusion which is not sufficiently supported by the facts on the record. This is why in this case we do not find that the non-cooperation was sufficient to tilt the balance in favour of the EC's conclusion of government direction. In this case, the EC rejected the explanation given by Korea and some of the banks involved in the March meeting of the presence of the FSS officials, without any further adequate explanation, mainly because the presence of the government officials was not revealed by Korea, when pertinent questions were put to it by the investigating authority. In our view, the fact that such information was not provided may be a factor in the overall assessment of the evidence but it is not, in our view, sufficient to relieve the authority of demonstrating direction or entrustment where this is required for a finding of a financial contribution by the government.
7.101.
Moreover, the fact that an important FSC/FSS official was present at the meeting is certainly relevant, but in our view cannot be considered to be determinative of government entrustment or direction. It may be instructive as to the importance of Hynix or reveal the interest of the Korean government in Hynix, but it is, in our view, insufficient as a basis for the conclusion that this government interest went beyond that and that the government was actually entrusting or directing the private creditors to invest in Hynix.
7.102.
As we explained earlier, the terms "entrust or direct" refer to the government using the private bodies as the instrument through which the government is providing a financial contribution, either by giving the private body a command or by delegating a task to the private body which involves a financial contribution. We consider that the maximum one can conclude from this high ranking government official's presence is that the private bodies may have felt that the government was interested in seeing the creditor banks reach agreement to rescue Hynix, and that the government would also be doing what it could to achieve that goal by acting through its public bodies for example. This, however, is not the same as the government entrusting or directing the banks to accept the terms of the May 2001 Restructuring Programme.101 In a similar vein, we read the press reports that financial support to Hynix, and acceptance of the CBs by the reluctant banks, became more likely after the request by Hynix's financial advisor Citibank for financial support from the government for Hynix and the positive position expressed by the FSC chairman, as an indication that the general government interest in Hynix may have facilitated the restructuring.102
7.103.
We do not wish to imply that this information is therefore irrelevant, simply that it is not enough, in and of itself. We will therefore now examine the remainder of the evidence the EC relied on in reaching its conclusion that the creditor banks were directed by the government to buy the bonds. On the basis of the Final Determination, we consider that the EC based its conclusion on the following additional arguments.103 First, the EC argues that the "totality of the facts" reveals that the government had been directing banks and other institutions since November 2000 to take measures in order to alleviate the liquidity problems of Hynix and to promote the electronics industry policy.104 We found earlier in our Report that with regard to the Syndicated Loan, the KEIC Guarantee and the KDB Debenture Programme, the financial contributions provided, were mainly those provided by public bodies, while the May 2001 Restructuring Programme raises the question of alleged entrustment or direction by the government of private bodies. While we considered consistent with the SCM Agreement the EC's determination that the KEB, a private body, had been directed by the government to participate in the Syndicated Loan, we fail to see how evidence relating to what happened in December 2000 can support the specific finding that in May 2001 the creditor banks were directed to buy bonds.
7.104.
The EC also relies on the argument that the information on the record shows that creditors had no commercial reasons in June 2001 to purchase KRW 1 trillion worth of CBs from Hynix. According to the EC, the banks acknowledged the inability of Hynix to service its debts already at the beginning of May 2001, in the 7 May 2001 CFIC resolution. According to the EC, several banks also increased their loss provisions with respect to Hynix debt.105 In addition, the EC points to the sharply declining Hynix stock price between mid-June and 20 June 2001, when the banks purchased the CBs, and the fact that the banks reported certain portions of the acceptance price of Hynix CBs as losses in settling their accounts at the end of June 2001.
7.105.
We wish to note that we do not share Korea's view that the commercial reasonableness of a private body's actions is a matter which relates only to the question of benefit and cannot be used as evidence of government entrustment or direction. In our view, entrustment or direction can be demonstrated by all means of evidence as long as the overall conclusion is reasonable and adequately explained. In the absence of a clear and explicit government order, the evidence to be relied on will inevitably be circumstantial. The fact that private parties act in a strange or not commercially reasonable manner can form part of the proof that someone was requiring these private parties to act in this abnormal way. Such evidence of non-commercial behaviour is, however, not enough to establish government entrustment or direction.
7.106.
In our view, the information the EC is pointing to certainly reveals the less than rosy state of affairs for Hynix, but it fails to support a finding of entrustment or direction with regard to the private bodies participating in the May 2001 Restructuring Programme. The banks were obviously well-aware that their investment in Hynix was very risky and that it could well go terribly wrong. But we do not consider that the situation was such that one can reasonably conclude from this that the only explanation for the banks' participation was that they were directed by the government to buy Hynix bonds in June 2001. Moreover, some of the elements mentioned by the EC are not informative of the situation in May 2001 when the banks committed themselves to purchasing Hynix bonds. For example, of the banks mentioned106 to have increased their loan loss provisions with respect to Hynix debt, only one bank, Shinhan Bank, had actually done this at the time of the May 2001 Restructuring Programme. We fail to see how a similar action taken by certain banks in late September 2001 and late October 2001 can be relevant in assessing the commercial reasonableness of a decision taken in May 2001. In a similar vein, the fact that stock prices were going down between mid-June and 20 June 2001 when the banks purchased their CBs and that they continued to go down thereafter is hardly informative of the situation in May 2001 when the decision to participate was taken by the banks in question. The purchase of the CBs on 20 June 2001 was only the execution of a commitment taken well before that date.
7.107.
In addition, we note that the EC's analysis of the financial situation of the DRAMs industry in the Preliminary Determination seems to contradict the very negative situation it is portraying in the Final Determination. As the EC noted in the Preliminary Determination, DRAMs prices were going up again in March 2001 at the time the SSB report was made, which would become the basis for the May 2001 Restructuring Programme. The SSB forecast indicated that the DRAMs market would recover in the third quarter of 2001 so that the equity infusion and the extension of maturities would be sufficient to help Hynix to overcome its liquidity crisis. It further stated that the credit rating of Hynix at the time of the measures was set at BB+ by Korean rating agencies and B- by international ones.107 While these are clearly not good ratings, they are not such as to make investment decisions automatically suspicious or extraordinary. Moreover, and this we find particularly relevant, the banks made their participation in the measures conditional upon the success of the GDRs issuance, which was successfully carried out by 15 June 2001. It was only thereafter that the banks executed the remainder of the SSB re-capitalisation plan, and purchased the CBs.108 In sum, we do not find reasonable the conclusion that the only possible explanation for the banks' participation in the May 2001 Restructuring Programme was government direction.
7.108.
Finally, the EC refers in support of its conclusion of direction by Korea of the eighteen banks participating in the May 2001 Restructuring Programme to the press allegations of government pressure exercised on one bank, the KorAm Bank. The press report suggests that the FSS threatened the KorAm Bank into participating, which it finally did.109 According to the KorAm Bank itself, it was simply waiting for a memorandum to be delivered by Hynix pledging to make its best efforts to reduce its debt. The KorAm Bank went ahead with the CBs purchase as soon as it received this memorandum. In the absence of any additional supporting material and in light of the uncontested fact that the KorAm Bank indeed only participated after having received the memorandum, we consider that allegations in a press article are insufficient as a basis for a conclusion of direction by the government of the KorAm Bank to purchase Hynix bonds. Moreover, and even assuming, arguendo, that this press report would demonstrate government direction of the KorAm Bank, we consider that evidence of one bank having been directed to participate does not, without any additional supporting evidence, provide sufficient support for a finding that the totality of the CBs purchase in which seventeen other banks participated was a government-directed financial contribution.
7.109.
We wish to add, by way of conclusion, that we are not blind to the problems of evidence gathering in countervail investigations, and do not want to be seen as requiring an investigating authority to come up with the smoking gun in the sense of a written order by the government to a private body to provide a financial contribution. We understand that, in most cases, the authority will have to base its decision on a number of arguments and pieces of evidence which perhaps when considered in combination may all point in the direction of government entrustment or direction, especially in cases where the level of cooperation by the interested parties is low. However, practical evidence gathering problems are not an overriding justification for finding that financial contributions by private bodies meet the entrustment or direction standard set by the SCM Agreement. Nor should such problems create the impression that an authority is entitled to assume a lot from very little. If the overall picture is such, however, that it is reasonable to conclude that the government entrusted or directed the private body to do something which involves a financial contribution, then its determination is consistent with the SCM Agreement. While the May 2001 Restructuring Programme is a close case, we consider that the evidence before the investigating authority was insufficient to reasonably conclude that the government entrusted or directed the private banks to purchase the Hynix CBs.110

(vi) October 2001 Restructuring Programme

7.111.
The fifth and final programme considered to constitute a subsidy was the October 2001 Restructuring Programme. On 4 October 2001, a second Hynix CFIC was set up in accordance with the provisions of the Corporate Restructuring Promotion Act ("CRPA"). The CRPA was enacted in August 2001 and its purpose was to facilitate corporate restructuring, which before was based on agreements between creditor banks and the companies concerned. The CFIC consisted of a hundred and ten financial institutions including seventeen banks and fifteen investment trust companies. The decisions of the CFIC were taken by a 75 per cent majority. The votes were allocated in proportion of each institution's exposure to the total loans to Hynix. Any financial institution exercising its dissenter's rights by disagreeing with a CFIC resolution would be excluded from the CFIC permanently. In its second meeting held on 31 October 2001, the CFIC decided on a "second restructuring package" for Hynix. The following measures were proposed:

(a) provision of new loan of KRW 1 trillion to Hynix with an interest rate of 7 per cent;

(b) debt to equity swap by provision of bonds convertible into shares;

(c) extending the maturities of existing loans until 31 December 2004, converting the maturing corporate bonds into corporate bonds with a three year maturity and an interest rate of 6.5 per cent and adjusting the interest rate of the remaining loans in Korean currency to 6 per cent.

7.112.
The financial institutions were given three options by the CFIC in the 31 October meeting. The first option was to agree with the proposals by extending new credit and participating in a debt-to-equity swap ("Option 1"). Secondly, the banks which did not want to participate in the new loan were obliged to swap 28.5 per cent of their loans into equity and waive the rest of the Hynix debt ("Option 2"). Thirdly, the CFIC also decided that those banks which objected to the measures and used their dissenter's rights would have their loans purchased back at the liquidation value as established by Arthur Andersen, the firm that was commissioned to conduct a study on the financial situation of Hynix at the time ("Option 3").
7.113.
Nevertheless, only six banks agreed to extend new credit, which amounted to KRW 658 billion instead of the planned KRW 1 trillion. These banks swapped a considerable amount of their loans into equity. These so-called Option 1 banks were the KEB, Woori Bank, Chohung Bank, KDB, NACF and Citibank.111 Eight banks refused to extend new loans, so they swapped approximately one-third of their loans into equity and wrote-off the rest as a loss. The remaining banks objected to the restructuring and elected to receive the liquidation value of their loans, and had to write the remaining debt off as a loss. The loans remaining with the banks of the first category were subject to maturity extensions and interest rate cuts as explained above.112 The EC considered that the participation by the six Option 1 banks in the October 2001 Restructuring Programme constituted a financial contribution by the government which conferred a benefit on Hynix. The rate of subsidization for this October 2001 Restructuring Programme was calculated to be 19.4 per cent.
7.114.
In the Final Determination, the EC determined that the Option 1 banks were either public bodies or entrusted or directed by the government to participate in the October 2001 Restructuring Programme.113 The EC came to the conclusion that no market investor would have invested in Hynix in October 2001. The EC put particular emphasis on the seriously deteriorating situation of Hynix from June 2001 onwards.114 From June 2001 to August 2001, 128 megabit DRAMs prices fell on average by 68 per cent and continued to fall by a further 52 per cent by November 2001, with similar developments for 64 megabit DRAMs prices.115 Hynix stock prices collapsed almost immediately after the 15 June 2001 GDRs issuance, and, by 6 September 2001, the price of GDRs had fallen by 72 per cent resulting in great losses for the purchasers.116 According to the EC, these developments were recognised by the Hynix creditor banks as they downgraded the credit rating for Hynix and for the semiconductor industry in general during 2001.117 Standard & Poor downgraded Hynix to CC in September and SD (selective default) in October 2001.118 In October 2001, the debts of Hynix were six times greater than its equity.119 Hynix was, according to the EC, virtually bankrupt.120 Therefore, the EC considered that the six Option 1 banks which extended new loans to Hynix, extended the maturities of the existing loans, and held a great amount of Hynix shares, did not behave in a commercially reasonable manner. The EC went on to examine whether the apparently non-commercial behaviour of the six Option 1 banks was due to the involvement of the government in the banks concerned.121 Before conducting a bank-by-bank analysis, the EC pointed to the fact that, of the nine banks which stopped financing Hynix in October 2001, seven were private banks, while of the six Option 1 banks, the four largest creditors were either totally or by a large majority owned by the government.122 It added that one of them was a special bank with a public policy role and that three others were under government control due to the fact that they were themselves under restructuring, had agreements with the government regulating their business operations and received capital injections from the government.123 The EC further concluded that the KDB was a public body.124
7.115.
The Final Determination also addresses the argument made by parties that certain banks, in spite of being government-owned, did not take part in Option 1 of the October 2001 Restructuring Programme. Korea argued that this fact contradicts the EC's conclusion, based to a large extent on government shareholding power, that the six Option 1 banks were directed by the Korea to participate. In the Final Determination, the EC explains that, of the four government-owned banks that did not participate in Option 1 (i.e., government-owned Option 3 banks), two – the Kwangju Bank and the Kyongam Bank – were to be merged with Woori Bank that did take part. Similarly, a third one – the Seoul Bank – was going to be sold to Hana Bank following the IMF's recommendations. As for the fourth, the Industrial Bank of Korea ("IBK"), the EC considers that to force it to participate again would be such an obvious breach of IBK's mandate as a specialized bank for SME's that it was better not to.125
7.116.
We recall that, under Article 1.1(a)(1) of the SCM Agreement, when a financial contribution is provided by a public body, there is no need for an additional finding of "entrustment or direction" by the government. The EC found the KDB to be a public body and its participation in the October 2001 Restructuring Programme by, inter alia, extending new loans was considered to be a financial contribution in the sense of the SCM Agreement.126 Korea does not object to the EC's determination that the KDB is a public body. In this respect, we find that Korea has not made a prima facie case that the EC's finding that the KDB provided a financial contribution to Hynix was inconsistent with Article 1.1(a) of the SCM Agreement.
7.117.
With respect to the five other banks which the EC considered not to be public bodies, we will examine whether the EC made reasonable and reasoned conclusions on the basis of the facts before it that these banks were directed by Korea to carry out the measures in question.127

Woori Bank

7.118.
In its bank-by-bank analysis, the EC asserts that Woori Bank was aware of the gloomy financial state of Hynix and took part on the basis of public policy considerations, which are not commercial and can only be explained by the government using its 100 per cent shareholder status to influence decisions.128
7.119.
It is not contested that Woori Bank was 100 per cent government-owned via the Korea Deposit Insurance Corporation ("KDIC") since late 2000. The EC did not consider Woori Bank to be a public body.129 This implies that, in order for a loan by this bank to be considered a financial contribution in the sense of Article 1.1(a)(1) of the SCM Agreement, the EC was required to establish that the government entrusted or directed the bank to provide the financial contribution in question. In our view, even if an investigating authority decides that such 100 per cent government ownership is not sufficient to qualify an entity as a public body, the extent of government ownership still remains a very relevant factor in the evaluation of the evidence concerning possible entrustment or direction by the government. It is clear that, as the sole shareholder, it is easier for the government to direct the bank to act in a certain manner than in a situation of no or only minor government involvement. At the same time, it should be clear that, in our view, government ownership, in and of itself, is not sufficient to establish entrustment or direction under Article 1.1(a)(1) of the SCM Agreement. We consider that Article 1.1(a)(1) of the SCM Agreement is clear: either a financial contribution is provided by the government or a public body, or it is provided by a private body, in which case it will be covered by the SCM Agreement only in case this private body acted under the direction or the entrustment of the government to behave in this manner, in which case the private body's action may be attributed to the government, and the SCM Agreement applies.
7.120.
In the case of a 100 per cent government-owned bank, such as Woori Bank, it thus needs to be demonstrated that the government actually exercised its shareholder power to direct the bank to support to Hynix. In light of our standard of review, we will therefore examine whether on the basis of all the facts before it, the investigating authority made a reasonable and reasoned conclusion when it found that Korea directed Woori Bank to participate in the October 2001 Restructuring Programme.
7.121.
The record of the investigation shows that Woori Bank participated as an Option 1 bank in the October 2001 Restructuring Programme, inter alia, on the basis of public policy considerations, referring to the impact on the national economy of Hynix going bankrupt. While we agree with Korea that important national banks such as Woori Bank may well take into account the broader picture rather than pursuing a pure strategy of profit maximization, we do not agree that this consideration is irrelevant.
7.122.
We further find highly relevant in the assessment of the evidence before the EC, the seriously deteriorated situation of Hynix in October 2001 compared with the situation of Hynix at the time the creditor banks agreed on the May 2001 Restructuring Programme. We recall that the uncontested figures mentioned in the Preliminary and Final Determination show that, between June 2001 and August 2001, 128 megabit DRAMs prices fell on average by 68 per cent and continued to fall by a further 52 per cent by November 2001, with similar developments for 64 megabit DRAMs prices.130 Hynix stock prices collapsed almost immediately after the 15 June 2001 GDRs issuance, and, by 6 September 2001, the price of GDRs had fallen by 72 per cent resulting in great losses for the purchasers.131 According to the EC, these developments were recognised also by the Hynix creditor banks as they downgraded the credit rating of Hynix and for the semiconductor industry in general during 2001. Standard & Poor downgraded Hynix to CC in September and SD in October 2001.132 Korea does not contest the accuracy of this account of events. In our view, these developments are very relevant in evaluating the behaviour of these non-public bodies.
7.123.
Another important difference between the May 2001 Restructuring Programme and the October 2001 Restructuring Programme is, in our view, the fact that the second Hynix creditors' council – the CFIC – was set up in October 2001, in accordance with the CRPA. The CRPA was enacted in August 2001 with the purpose of facilitating corporate restructuring through a majority voting procedure. Before, such restructuring was based on individual private agreements between creditor banks and the distressed companies. In our view, this difference indicates that the May 2001 Restructuring Programme took place under an informal approach that allowed small dissenting creditor banks the option of not participating in the re-financing programme. By the time of the October 2001 Restructuring Programme, a government-driven policy considerably circumscribed the options of dissenting creditors.
7.124.
Korea argues that the MOU between Woori Bank and the government is irrelevant for October 2001 Restructuring Programme and, in any case, only provided general prudential rules for Woori Bank as the recipient of public funds.133 We first wish to note that we do not consider that the MOU between Woori Bank and the government formed the basis of the EC's decision of direction by the government with regard to this bank. We note that it is explained in the EC's Preliminary Determination, that in December 2000, Woori Bank concluded an agreement for the implementation of the management improvement plan for the bank in the form of a MOU with the government, which gave the government important powers in case of a failure to implement the plan. A further MOU was entered into with the government in July 2001 to implement a business plan. While these MOUs are not directly relevant to the October 2001 restructuring of Hynix, and did not appear to have formed the basis for the EC's decision, we can see how an investigating authority could reasonably take these MOUs into account as evidence of a possible means for the government to intervene in the daily operations of the bank in question.
7.125.
In our view, Korea failed to demonstrate that the EC finding of government direction of Woori Bank in the October 2001 Restructuring Programme was not a reasonable and reasoned conclusion. The EC based its finding on the combination of a 100 per cent government ownership of Woori Bank, the disastrous financial situation of Hynix in October 2001, the recognised public interest considerations in deciding to participate in the Programme, and the fact that the restructuring took place in the framework of a formal government act, the CRPA. We thus reject Korea's claim that the EC finding of a financial contribution with regard to the Woori Bank's participation in the October 2001 Restructuring Programme was inconsistent with Article 1.1(a) of the SCM Agreement.

Chohung Bank

7.126.
With regard to Chohung Bank, in which the government held 80 per cent of the shares at the time of the investigation, the investigating authority considered that the internal rating did not support the decision to invest in Hynix, and noted that this bank immediately raised its loss reserves after participating in the measures and approved the measures by reference to its MOU with the government. This, in the view of the investigating authority showed that banks under restructuring were restricted in their business decisions to comply with government conditions. According to the EC, it is clear that the government used its 80 per cent shareholder status to influence the decisions.134 The EC also considered relevant the fact that it found that the government directed Chohung Bank to support Hynix on earlier occasions, in particular in the May 2001 Restructuring Programme.135
7.127.
We are of the view that a very similar reasoning as the one developed above with regard to Woori Bank applies to Chohung Bank, in which the government held 80 per cent of the shares.136 We agree with Korea that shareholding does not equal direction. But, as we stated earlier, it remains a relevant fact which, in combination with other relevant facts, may lead to a conclusion that the power of a majority shareholder may have been used to direct the private body to provide a financial contribution. In this respect, we do not see much of a difference in practical terms between 80 per cent shareholding and 100 per cent shareholding. In both cases, it is clear that, if the government wants to impose a decision on the private bank, its proposed action will not be seriously scrutinized.
7.128.
The situation would, of course, be different in case the government, in spite of being a 80 per cent shareholder of a bank would not be able to de facto impose its decision on the bank because, for example, a majority of the directors were appointed by the minority shareholders. Korea has argued that Chohung Bank explained to the EC that Korea had no direct or indirect influence on its management activities, and that, in spite of the government ownership of 80 per cent of the shares, it remained a commercial bank that took its decisions on the basis of purely commercial considerations.137 In particular, Chohung Bank pointed to the fact that all of its directors started their careers in that bank and that Korea thus did not force the Chohung Bank to have directors nominated by the government or any other public body.138 The career-director argument, however, could equally be cited for the proposition that these were not independent-minded persons, dedicated to the management of Chohung Bank strictly on commercial principles.
7.129.
In our view, the amount of shareholding by the government determines the extent to which it can influence the decision-making process set out in company law and the articles of association of the company concerned.139 Korea has not provided any evidence that the government shareholding power did not allow the government to exercise substantial management power. We thus consider reasonable the conclusion of the EC that this important government shareholding power enabled the government to control and direct the actions of Chohung Bank. As such, this potential direction and control is not, however, sufficient to establish actual direction in the sense of Article 1.1(a)(1)(iv) of the SCM Agreement. We therefore examine additional evidence that the EC relied upon in reaching its conclusion.
7.130.
The EC refers to the internal rating by Chohung Bank of Hynix as "inappropriate for investment". The EC also notes that the bank immediately raised its loss reserves after participating in the October 2001 Restructuring Programme, and accounted the whole debt-to-equity conversion as a loss. It also refers to the fact that Chohung Bank itself approved the measure by reference to its need to comply with a MOU it signed with the government in November 1999, which was amended in May 2000. Korea argues that the EC ignored the explanations provided by Chohung Bank itself concerning, inter alia, the fact that the MOU only concerned the restructuring measures imposed by the government in response to the 1997 financial crisis. Chohung Bank also argued to the investigating authority that, in the Board's meetings held during the POI, there was no mention made of the fact that the government was willing to subsidize Hynix, or that it directed the Chohung Bank to inject funds into Hynix. Rather, Chohung Bank submitted to the investigating authority that the decisions concerning Hynix were taken by three specifically trained teams and following a generally applied procedure.140 The EC replied to these concerns by simply stating that Chohung Bank did not provide any new evidence in its comments which would alter the Commission's conclusion. It further referred to alleged earlier cases of government direction in respect of the May 2001 Restructuring Programme, the letters to the KEIC and KEB regarding the Syndicated Loan, the FSC lending limit waiver and the KEIC Guarantee. We do not consider that such information is highly relevant to the question of possible government direction of Chohung Bank in October 2001. As far as the alleged government direction in the May 2001 Restructuring Programme is concerned, we found that there was insufficient evidence to reach a conclusion of direction or entrustment, and thus we also fail to see how that same evidence could somehow confirm or strengthen the EC reasoning with regard to the October 2001 Restructuring Programme.
7.131.
What remains, however, is the EC reliance on the disastrous financial state of Hynix at the time the October 2001 Restructuring Programme was agreed on, as explained earlier. In our view, given the deterioration of the situation since May 2001, and taking into account the credit rating for Hynix both from independent sources such as Standard & Poor and internally by Chohung Bank, it seems to us to have been a reasonable conclusion of the EC that the renewed investment in Hynix by Chohung Bank did not correspond with normal commercial behaviour. In combination with the very important amount of government shareholding power, and the absence of any convincing evidence of the commercial reasonableness of such investments, we consider that the EC was acting in a reasonable manner when it concluded that Chohung Bank had been directed by the government to participate in the October 2001 Restructuring Programme of Hynix.
7.132.
We therefore reject Korea's claim that the EC's determination of a financial contribution by the Chohung Bank in October 2001 was inconsistent with Article 1.1(a) of the SCM Agreement.

KEB

7.133.
With respect to the KEB, the EC asserts that the bank's internal rating of Hynix did not justify granting further financing, especially in light of the fact that the KEB was undergoing restructuring itself and should have avoided risky investments. The EC also notes that this bank used to be a specialized government bank and that Korea remained the largest shareholder with 43.17 per cent of the shares. Given the fact that the loans were made available at rates for financially sound companies, and based on the available facts, the EC concluded that Korea must have used its shareholder influence to influence decisions. The EC also refers to the reports disclosing government pressure on the KEB at the time of the Syndicated Loan, supporting the view that as majority shareholder, the government did influence decisions.141
7.134.
We find relevant the EC's considerations that this bank used to be a specialized government bank and that the government of Korea remains the largest shareholder with 43.17 per cent of the shares.142 We are of the view, as explained above, that the fact that the government is the largest shareholder of the KEB is an important but not a determinative factor in establishing government direction of private bodies in the sense of Article 1 of the SCM Agreement. It is a factor which may be taken into account when assessing all the evidence concerning government direction. The remainder of the evidence relied on by the EC shows that the KEB's internal rating of Hynix was very bad, but that the loans were nevertheless made available at rates for financially sound companies. While Korea argues that Commerzbank, the second largest shareholder of the KEB, controlled the lending practices of the KEB, we find relevant the fact that only four of the twenty directors of the KEB were from Commerzbank, and that the government, as the largest shareholder, was able to influence appointments of the other directors.143 On this basis, and in light of the particularly negative financial state of Hynix in October 2001, we consider reasonable the EC conclusion that the government must have been using its shareholder power to influence decisions.144 We wish to emphasize that we consider particularly relevant the precarious financial state of Hynix at the time of the October 2001 Restructuring Programme, which was different from the situation that existed at the time of the May 2001 Restructuring Programme. In our view, the combination of important government control and the extremely negative financial state of Hynix justifies, in the absence of strong evidence to the contrary, the reasonable conclusion by the EC of the actual exercise of government control to direct the bank to participate in the October 2001 Restructuring Programme, and to provide a financial contribution.
7.135.
We therefore reject Korea's claim that the EC's finding of a financial contribution by the government with regard to the KEB was inconsistent with Article 1.1(a) of the SCM Agreement.

NACF

7.136.
The EC considered the NACF to be a body which carries out an economic policy of supporting the agricultural sector. It adds that the NACF had an underwriting from the government of the losses incurred resulting from its activities, and that the NACF's internal rating for Hynix did not justify further financing, and certainly not at interest rates below market rates. In sum, according to the EC, there can be no other explanation for the non-commercial behaviour than the government direction.145
7.137.
We recall that it is not contested that the NACF is a body which carries out an economic policy of supporting the agricultural sector, and is jointly managed by the Ministry of Economy and Finance and the Ministry of Agriculture and Forestry, and has specialized functions as an agricultural policy bank, such as implementation of Korea's agricultural policy. We note that the EC argued before us that, for that reason, the NACF was to be considered as a public body. It seems, however, that at the time of the investigation, the EC did not consider the NACF to have this public body status. While it is clear that the NACF was not acting in its agricultural role when investing in Hynix, we do not agree with Korea that, for that reason, its general public policy orientation is completely irrelevant. We note again that it is uncontested that the bank's own internal credit rating for Hynix was not such as to justify further financing. Once again, in light of the deteriorated situation of Hynix and given Korea's role in the NACF, and its public policy orientation, we consider that it was not unreasonable of the EC to conclude that a quasi public body like the NACF was directed by the government to participate in the October 2001 Restructuring Programme. We do not consider, as Korea seems to be arguing, that the EC should have simply accepted the NACF's statement that it had commercial reasons for participating in the October 2001 Restructuring Programme, and was not directed to take part by the government, given the other facts on the record which the EC reasonably explained to have led it to the opposite conclusion.146
7.138.
We therefore reject Korea's claim that the EC's finding of a financial contribution by the government with regard to the NACF was inconsistent with Article 1.1(a) of the SCM Agreement.

Citibank

7.139.
In the Final Determination, the EC notes that Citibankhad very close relationship with the government, as it was one of the first foreign banks to operate in Korea in 1967. The EC considers that Citibank failed to cooperate and that its assertions that it was not acting under the direction of the government could therefore not be verified via a proper response to the questionnaire and a verification visit. According to the EC, Citibank failed to explain why it became involved in Hynix only in January 2001, when the situation was already sufficiently bad to deter most private banks, outside the context of special programmes such as the May 2001 Restructuring. By October 2001, Citibank rated Hynix as "D" (doubtful). The EC concludes that Citibank's links with the government were intensified during the financial crisis which made it particularly vulnerable to government direction. The EC considers that Citibank's failure to cooperate suggests that Citibank had something to hide. The EC considers that the bank's internal rating for Hynix did not justify new financing. In light of the failure to cooperate, the EC considers that the only conclusion for such non-commercial behaviour can be government direction.147
7.140.
In our view, in the case of Citibank, the situation is considerably different in one important respect with regard to the alleged direction by the government of Citibank. The government had no shareholder power in Citibank. While it is correct that Citibank had a close relationship with the government since the late 1960's, and was clearly an important player in assisting Korea's economic recovery after the 1997 financial crisis, this does not necessarily demonstrate that the government had some form of control over Citibank. Hence, the quality of the evidence with regard to Citibank will have to be higher to demonstrate that the government actually directed Citibank to participate in the October 2001 Restructuring Programme. In our view, had Citibank from the outset fully cooperated with the investigating authority the evidence relied on by the EC would not be sufficient to reasonably conclude that the government actually directed Citibank to participate. As with the other banks, we consider relevant the fact that the commercial reasonableness to take part in the October 2001 Restructuring Programme appears doubtful, given Citibank's internal rating of Hynix and the general state of Hynix and the industry at the time. But we do not consider this distress context sufficient to conclude that Citibank had been directed to participate. For the other banks that participated, we are of the view that the important government shareholding position was precisely that bit of additional evidence that could justify a reasonable investigating authority's conclusion of direction. In the case of Citibank, it appears that the non-cooperation by Citibank was considered the additional element that led the EC to the conclusion of government direction. As we conclude elsewhere in our Report, we consider that the EC was entitled to consider that Citibank had failed to respond to the EC questionnaire and, thus, did not provide any specific and verifiable information concerning its involvement in the October 2001 Restructuring Programme.
7.141.
We recall that in the Final Determination, the EC reached the following conclusion based on Citibank's failure to cooperate:

"(133) As for the GOK direction, information on the record indicates that there were considerable links between the GOK, Hynix and Citibank. For the GOK and Citibank these went beyond the loans investigated. Such links can be interpreted in two ways. Firstly, they can be interpreted as indicating that Citibank may well have had commercial reasons for providing financing to Hynix, or as alleged by one of the parties, they could be interpreted as placing Citibank in a vulnerable position with regards to direction by the GOK. Due to the non-cooperation it was not possible to establish whether Citibank acted on coercion or whether this was in accordance with their normal business practice. In this respect, it is recalled that the reason for non-cooperation was to prevent access to Hynix's cost, finance and accounting data. In the absence of any other explanation, this can reasonably be taken as an indication that this data in Citibank's possession contain information revealing that there were no commercial reasons to provide the financing in question, and that the financing was provided due to GOK direction. This reason is also the one suggested in the complaint. In addition, as explained in recital 94 of the provisional Regulation, Citibank has had an unusually close and symbiotic relationship with the GOK since 1967, when it was authorised to operate in Korea. This close relationship between the GOK and Citibank is witnessed in the role played by Citibank in assisting the GOK to extricate itself from the Korean financial crisis of 1997. Citibank led and successfully completed Korea's bank debt restructuring for a total of USD 21,75 billion in 1998. Moreover, Citibank helped the GOK and government-related institutions to access capital markets during the Korean financial crisis by successfully sponsoring a USD 4 billion global bond offering. All these facts confirm that Citibank has a very close relationship to the GOK. On the basis of these facts, and of the refusal of Citibank to grant access to the information in its possession, and failing any other verifiable evidence being available, the conclusion to be drawn in accordance with Article 28(6) of the basic Regulation is that the GOK was involved and directed Citibank to provide the financing in question."148

7.142.
As we explain in a separate section of our Report dealing with Korea's claims concerning the application of Article 12.7 of the SCM Agreement, we consider that the EC was justified in making its determinations with regard to Citibank based on the facts available, given the fact that information reasonably considered as necessary was not provided. We note that Korea argues that Citibank should not have been considered as an un-cooperative party in light of its good faith efforts to provide the information. In addition, Korea argues that Hynix is not to be blamed for Citibank's failure to provide the information either, and that, therefore, the EC was not allowed to draw any adverse inferences from Citibank's failure to provide the requested information. In other words, Korea argues that it was not Hynix's fault that the information was not provided but that this non-provision was due to Citibank's internal policies. At the same time, it argues that it was not Citibank's fault either as Hynix did not consent to the disclosure of the information and that without such consent Citibank would risk legal liability problems under Korean law. It appears that Korea wants to have its cake and eat it at the same time. In any case, it is clear that necessary information was not provided within a reasonable period and the EC was thus entitled to resort to the use of the facts available under Article 12.7 of the SCM Agreement.
7.144.
In sum, the complete refusal by Citibank to provide any meaningful and verifiable information requested by the authority, combined with the close relationship between Korea and Citibank, as well as Citibank's role as Hynix's principal financial advisor and the doubtful commercial reasonableness of participating in the October 2001 Restructuring Programme justify, in our view, the reasonable conclusion by the EC that Citibank was directed by Korea to participate in the October 2001 Restructuring Programme.
7.145.
We therefore conclude that the EC determination of a financial contribution by the government through Citibank was consistent with Article 1.1(a) of the SCM Agreement.

Conclusion

7.146.
For the reasons set forth above, we thus find that the EC finding of the existence of a financial contribution by the government of Korea by the participation in the October 2001 Restructuring Programme of the KDB, Woori Bank, Chohung Bank, KEB, NACF and Citibank is consistent with Article 1.1(a) of the SCM Agreement.

2. Claims regarding the EC's determinations of the existence and amount of benefit

(a) Korea

7.147.
Korea argues that the EC's finding and measurement of "benefit" was inconsistent with Articles 1.1(b) and 14 of the SCM Agreement. According to Korea, under these provisions, as clarified by the Appellate Body in the Canada – Aircraft and US – Lumber IV cases, the EC was under an obligation in measuring benefit to compare what was received by Hynix with what was available on the market. Instead, the EC ignored the available market benchmarks, and simply considered all loans, loan guarantees, bonds and equity as grants, thereby disregarding the specific obligations contained in Article 14 of the SCM Agreement with regard to the determination of benefit.149
7.148.
In addition, Korea asserts that the EC did not adequately explain why Korean market benchmarks could not be used, nor did it demonstrate why its alternative grant methodology was related or connected with prevailing market conditions in the Korean market, as required by Article 14. Korea is of the view that Article 14 of the SCM Agreement clearly establishes a requirement to examine benefit by using the private market in the country under investigation as a benchmark. According to Korea, if this is not possible, the authority should provide a justification for departing from this benchmark and must demonstrate that the alternative benchmark chosen is related to the prevailing market conditions in the country of investigation.150
7.149.
Korea further argues that in the case of (1) the Syndicated Loan, (2) the KEIC Guarantee, and (3) the May 2001 Restructuring Programme, the change of position of the EC from "no benefit" in the Preliminary Determination to "benefit" in the Final Determination, and this without any explanation, confirms that the EC strove to achieve a pre-ordained outcome from this investigation and provides the context in which Korea invites the Panel to consider the EC's benefit analysis. According to Korea, the argument offered by the EC concerning "new information" about the Economic Ministers' meeting151 and the presence of government officials at a meeting between the creditors152 may affect the conclusions on financial contribution and entrustment, but it is unrelated to the question of benefit.

Syndicated Loan

7.150.
Korea argues that the EC improperly treated the amount of the loans in excess of the waived lending limit as grants. Such loans carried interest payment requirements and the loans extended by the KEB, KFB and the KDB should therefore, according to Korea, have been compared to the loans granted by seven other banks involved in the programme which were not alleged to have been directed or entrusted to grant such loans. Korea submits that the loans extended by these banks provided an adequate market benchmark for the determination of benefit.

KEIC Guarantee

7.151.
Korea takes issue with the EC finding that, under this programme, no "adequate premium" was required which, according to the EC, turned what it considered to be a loan guarantee into a grant. According to Korea, under Article 1.1(b), and Article 14 in the context of Item (j) of Annex I of the SCM Agreement, the EC should have examined the difference between the actual fee paid by Hynix and the fee that covers the operating costs and losses of the export insurance programme in order to determine the existence of a benefit. Korea submits that the EC failed to even examine what an adequate premium would have been. Second, even if the EC was correct in considering the export insurance programmes as a loan guarantee, Korea submits that Article 14(c) of the SCM Agreement then required the EC to examine the difference between the financial alternatives that could be obtained with the guarantee and those obtainable without the guarantee. The EC's general assertion that no alternative financing would have existed without the guarantee is economically unsustainable as an alternative will always exist, albeit at a high interest rate. In any case, Hynix did pay a premium and the EC's analysis of the KEIC Guarantee programme as a grant is thus flawed.

KDB Debenture Programme

7.152.
Korea argues that the EC's treatment of the Programme's bonds as grants was based on the unsubstantiated assumption that the KDB would not recover the money invested. Korea argues that the EC thus failed to make a comparison between the KDB interest rate and available market benchmarks such as those offered by the Syndicated Loan153 or the GDRs offering, which provided clear evidence that it was commercially reasonable to participate in the KDB Debenture Programme. In addition, Korea argues that the largest part of the Hynix bonds were not ultimately purchased by the KDB but rather by the creditor banks (20 per cent) and private investors (70 per cent), for which the EC simply assumed that their participation also constituted a grant.

May 2001 Restructuring Programme

7.153.
Korea takes issue with the treatment of a CBs purchase of KRW 1 trillion as a grant, as the CBs carried clear interest obligations and had the potential of being converted into equity. Korea argues that the EC conclusion that it was obvious that the money invested by the creditors would not be recovered is not supported by the facts.154 The success of the GDRs issuance disproves the EC's point. According to Korea, the EC should have compared the CBs' interest rates with applicable market interest rates.

October 2001 Restructuring Programme

7.154.
Korea is of the view that the EC improperly considered the three measures155 that together formed the October 2001 Restructuring Programme as grants. The new loans granted, under the Programme, were not grants as the EC concluded. Korea argues that they were secured by a priority collateral on the Hynix factory. In addition, neutral third party analysis commissioned by the creditors156 showed that, by granting new loans, the creditors substantially increased their chances of recovering at least part of their investments made in previous years. Neither was it correct to consider the maturity extensions as debt forgiveness measures, as by extending the maturity the aim of the creditors was precisely to increase the likelihood of recovering their money. Similarly, the debt-to-equity swap was incorrectly considered a debt-forgiveness measure as it constituted a normal, albeit risky, investment decision by creditors hoping to participate in the expected recovery of the company. Korea points out that the prices charged for the swap were similar to, and even a bit lower than the share prices of Hynix on the stock exchange, which implied that the shares obtained in the swap could easily be sold on the stock exchange. In any case, Korea submits, it would not make sense to go through the pains of engaging in a complex swap if all that was going on was simply a form of debt forgiveness. Option 1 banks could then have elected Options 2 or 3.

Additional calculation errors

7.155.
Finally, and in case the Panel were to reject Korea's claims on the benefit analysis performed, Korea argues that the EC made several important errors in the actual calculation of benefit. First, Korea asserts that the EC failed to take into account the part of the KDB Debenture Programme bonds which were later swapped into CBs in the May 2001 Restructuring Programme. Korea argues that, similar to the reduction in benefit the EC calculated when considering that part of the CBs of the May 2001 Restructuring Programme were converted into equity in the October 2001 Restructuring Programme, the EC should have reduced the part of the benefit from the KDB Debenture Programme bonds that was changed into CBs in the May 2001 Restructuring Programme. By not doing so, Korea submits that the EC committed a double-counting error.
7.156.
In addition, Korea asserts, the EC failed to deduct from the alleged benefit the interest paid by Hynix under the KDB Debenture Programme. Similarly, Korea argues that the EC did not take into account the actual interest payments made to Option 1 banks in the October 2001 Restructuring Programme, in violation of Article 1.1(b) and 14 of the SCM Agreement. Finally, Korea is of the view that the EC ignored information from the audited books of Hynix on the actual value of the maturities issued under the October 2001 Restructuring Programme, namely KRW 1,579 trillion, and instead continued to use the incorrect amount of KRW 1,825 trillion. This is a violation of Articles 1.1(b) and 14 of the SCM Agreement.

(b) EC

7.157.
The EC considers that Article 1 of the SCM Agreement does not provide a definition of "benefit". Neither does Article 14 of the SCM Agreement contain such a definition as this provision merely sets forth guidelines for calculating the amount of a subsidy in terms of benefit to the recipient. Article 14 of the SCM Agreement leaves much discretion to the authority in determining the method best suited for establishing and calculating the benefit.157 According to the EC, the general guiding principle, as expressed by the Appellate Body in the Canada – Aircraft case is that the benchmark for determining benefit is the financing available on the market, and the extent to which the recipient is better off than it would have been absent the government contribution.158 In assessing the alternative sources of financing available on the market, the EC considers that this should be assessed on an ex ante basis at the time of the provision of the financing, not when the risk has passed. The EC argues that, at a certain point, the risk is such that the market will simply not provide any further financing, even when there is less than 100 per cent certainty that no money will be recovered. Any so-called "loans" granted by the government in such circumstances should then not be compared, as required by paragraph (b) of Article 14, to other comparable loans available on the market, as there are none, but instead can be considered as the provision of risk capital, the full amount of which constitutes the benefit which may be countervailed. In such a situation, the EC argues that an investigating authority can establish benefit based on any reasonable method in accordance with the general guiding principles of Article 14 of the SCM Agreement.
7.158.
In response to some of the arguments made by Korea, the EC argues that the authorities are not obliged to use a market benchmark if the market in question is so distorted by government influence that participation by so-called market actors is not a sign of viability of the company but rather evidence of the success of government efforts to salvage a company which is "too big to fail". According to the EC, to accept Korea's assertion, would allow the public powers to change the very benchmark by which commercial activity is to be identified.
7.159.
The EC further rejects the Korean argument that the benchmark chosen should be related to prevailing market conditions in Korea, as there is no such obligation in the applicable paragraphs (a) to (c) of Article 14 of the SCM Agreement. Korean reliance on the US – LumberIV case dealing with Article 14(d) is irrelevant to the factual situation at hand, which does not involve the provision of goods by the government.
7.160.
Finally, in response to the Korean argument that the EC failed to consider the investment decisions from the perspective of an inside investor seeking to increase its chances of at least partial recovery of at least part of the money invested, the EC emphasises that it considered this perspective and concluded there was little difference in whether the commercial reasonability of the financing was considered from an inside or outside investor perspective. More importantly, the EC is of the view that, from the point of view of WTO law, this distinction is irrelevant as the benchmark relates to the market in general and not to specific companies already in a relationship with the company receiving a subsidy.
7.161.
The EC asserts that the fact that the benefit determination changed from the Preliminary to the Final Determination in the case of the Syndicated Loan, the KEIC Guarantee, and the May 2001 Restructuring Programme is irrelevant. The EC explains that the situation changed between the Preliminary and Final Determination due to the discovery of new facts and evidence showing less than full disclosure from the Korean side and demonstrating the intervention of the government in the market, thereby vitiating the argument that certain market actors were financing Hynix of their own free will.
7.162.
The EC considers that Korea failed to demonstrate that the EC determination of a benefit in all five of the programmes found to constitute a financial contribution by the government of Korea to Hynix was inconsistent with Articles 1.1 and 14 of the SCM Agreement.

Syndicated Loan

7.163.
The EC argues that the information on the record shows that the EC reasonably took the view that Hynix had reached the point where, given the economic environment and the precarious financial situation of the company, the market would make no further capital available, absent the intervention of the government. According to the EC, Korea failed to show that there was any loan available from a market undistorted by the government's intervention.159 Therefore, Korea failed to demonstrate that the method adopted for determining benefit by the EC was inconsistent with the general principle expressed in Article 14 of the SCM Agreement.

KEIC Guarantee

7.164.
The EC argues that the record indicates that the creditor banks were only willing to extend their loans by USD 600 million due to the KEIC Guarantee which assured payment to the banks in case Hynix would go bankrupt. This, the EC argues, is evident from the disastrous financial situation of Hynix at the time, internal bank documents160, and the fact that some banks had reached their prudential limits and needed an FSC waiver to extend their loans. There is, moreover, evidence on the record that the KEIC itself only provided the guarantee due to government intervention, and that it was in fact the government that was ultimately underwriting the guarantee. As Hynix would not have obtained the credit extension without the guarantee, it was reasonable for the EC to consider the full amount of the credit as the benefit provided by the KEIC Guarantee.
7.165.
The EC considers that it was not obliged to conduct an interest rate comparison as there would not have been an alternative source of funding at any interest rate in the absence of government intervention. The EC thus rejects Korea's allegations that, under Article 14(c), the EC should have examined the terms of the loans obtained on the basis of the guarantee with the terms of loans available without the guarantee, as no such loans were available.161 The EC also considers the reference by Korea to Item (j) of Annex I of the SCM Agreement to be misplaced, as it does not concern a long-term guarantee programme but rather an ad hoc guarantee by the government to Hynix through the KEIC.

KDB Debenture Programme

7.166.
With regard to the KDB Debenture Programme, whereby the KDB helped roll-over maturing bond obligations and repackaged the debt for investors, the EC considers that the record again showed that Hynix would not have been able to obtain any further financing through the market, and that it was thus reasonable of the authority to consider the full amount of the financing as the benefit conferred. The EC argues that, for all of the reasons discussed above with regard to these loans, the Syndicated Loan is no evidence of the availability on the market of financing for maturing bonds.162 Even the government in its questionnaire response indicated that only companies rated A+ were able to obtain financing, while already by the end of 2000 Hynix was heavily indebted and was given a very poor credit rating.163

May 2001 Restructuring Programme

7.167.
The EC notes that, by May 2001, Hynix was heavily indebted and its situation could not be characterized as a temporary cash-crunch. The EC argues that the alleged success of the GDRs issuance has to be seen in light of the distorted market due to the long-term commitment of the government. The GDRs offering memorandum put particular emphasis on the government's support for Hynix in order to lure international investors into investing in Hynix.164 The EC asserts that it considered the inside investor perspective, but that under any circumstances it would not have been commercially reasonable to provide further financing to Hynix at that time.165

October 2001 Restructuring Programme

7.168.
The EC argues that the benefit determination for this Programme was based on two main grounds: (1) that Hynix would not have been able to obtain the necessary financing on the market; and (2) that, at the time of the financing, it was obvious that the money would not be recovered, therefore justifying the EC consideration of this financing Programme as a grant. The EC emphasises that the record showed that, throughout the summer 2001, Hynix's financial situation continued to worsen and, by 5 October 2001, its credit rating was SD (selective default). In addition, Hynix had a bad history of servicing debts and its stock price had collapsed immediately after the GDRs issuance on 15 June 2001, and there was clearly no proposal of a new GDRs issuance. The interest rates charged in the October 2001 Restructuring Programme were nevertheless those applied to financially sound companies and lower than the rates applied to Hynix in January 2001. The EC argues that the record showed that Hynix's problems were no surprise and existed even during the so-called boom year 2000. According to the EC, the banks made their financing decision without any viability assessment of their own. The two reports relied on, the SSB report and the Monitor Group report, were not viability assessments and, in the case of the Monitor Group report, consisted of only 10 pages describing certain technical and market related issues in a general way. The EC argues that it was reasonable of the authority to conclude in these circumstances that the decision of the six Option 1 banks to participate in the October 2001 Restructuring Programme was not the decision of commercially reasonable actors. With regard to the Arthur Andersen report which allegedly did contain a viability study, the EC recalls that only one page was provided to the investigating authority which was clearly insufficient to take this report into consideration, and that this report had in any case not been available to the Option 1 banks at the time they made their decision.
7.169.
With regard to the fixed priority collateral provided by Hynix, the EC argues that the collateral was considered, but that it was irrelevant as it could never have been sufficient to convince the Option 1 banks to give money to a SD rated company, and in fact none of the Option 1 banks mentioned the collateral as the reason for investing. The EC notes that even Hynix did not consider it important during the investigation. As to Korea's argument that the bonds could be traded, the EC emphasises that, by the time the convertible bonds could be converted, i.e., 1 June 2002, their value had plummeted from 3,100 in October 2001 to 708. In any case, it is evident that no reasonable person would have actually bought shares of a SD rated company in October 2001, whether they could be traded or not. Finally, the EC points out that for Hynix there was a clear tax advantage in having the operation in the form of a debt-to-equity swap rather than a simple write-off of debt. A simple write-off would put an end to the liabilities but would give rise to an extraordinary – and taxable – gain.

Additional calculation errors

7.170.
The EC also rejects Korea's claim of any errors in the calculation of the benefit. With regard to the KDB Debenture Programme, the EC refers to the explanation provided in the Final Determination.166 The EC emphasises that Hynix never argued at the time of the investigation that the amount allegedly double-counted was included both in the KDB Debenture Programme and in the May 2001 Restructuring Programme, and that it never claimed that any interest paid should have been deducted.
7.171.
With regard to the October 2001 Restructuring Programme, the EC argues that there is no obligation in Article 14 of the SCM Agreement to take into account any interest paid once it has been determined that no reasonable investor would have provided the financing. Hynix never claimed such deduction of interest during the investigation. The interest in question was not paid at the time the new "loan" was granted in any case, and whether any interest was actually paid is further irrelevant.
7.172.
With regard to the amount of KRW 1,825 trillion, this amount was provided by the main creditor bank of Hynix, the KEB, in Annex 18 of its questionnaire response, and was communicated to Hynix in a letter of 11 July 2003.

(c) Panel Analysis

7.173.
Korea's claims relate to the existence and amount of a benefit conferred by the alleged financial contribution. We note that Article 1.1 of the SCM Agreement provides that a subsidy can only be deemed to exist if there is a financial contribution by the government which confers a benefit. The existence of a financial contribution by the government is thus necessary but not sufficient in order to conclude that a subsidy has been provided. Only when this financial contribution confers a benefit will a subsidy be deemed to exist. The SCM Agreement does not provide a definition of what constitutes a benefit. In our view, the ordinary meaning of the term "benefit" is that of an "advantage", something which leaves the recipient "better off".167 In light of the fact that the notion of a "benefit" appears to us to be a relative notion, it becomes important to establish the benchmark for determining whether the recipient is better off thanks to the financial contribution. Article 14 of the SCM Agreement entitled "Calculation of the Amount of a Subsidy in Terms of the Benefit to the Recipient" provides in our view highly relevant context for interpreting the term "benefit" of Article 1.1(b) of the SCM Agreement.
7.174.
Article 14 of the SCM Agreement reads as follows:

"[f]or the purpose of Part V, any method used by the investigating authority to calculate the benefit to the recipient conferred pursuant to paragraph 1 of Article 1 shall be provided for in the national legislation or implementing regulations of the Member concerned and its application to each particular case shall be transparent and adequately explained. Furthermore, any such method shall be consistent with the following guidelines:

(a) government provision of equity capital shall not be considered as conferring a benefit, unless the investment decision can be regarded as inconsistent with the usual investment practice (including for the provision of risk capital) of private investors in the territory of that Member;

(b) a loan by a government shall not be considered as conferring a benefit, unless there is a difference between the amount that the firm receiving the loan pays on 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 this case the benefit shall be the difference between these two amounts;

(c) a loan guarantee by a government shall not be considered as conferring a benefit, unless there is a difference between the amount that the firm receiving the guarantee pays on a loan guaranteed by the government and the amount that the firm would pay on a comparable commercial loan absent the government guarantee. In this case the benefit shall be the difference between these two amounts adjusted for any differences in fees;

(d) the provision of goods or services or purchase of goods by a government shall not be considered as conferring a benefit unless the provision is made for less than adequate remuneration, or the purchase is made for more than adequate remuneration. The adequacy of remuneration shall be determined in relation to prevailing market conditions for the good or service in question in the country of provision or purchase (including price, quality, availability, marketability, transportation and other conditions of purchase or sale)."

7.176.
We, therefore, agree with this statement of the Appellate Body in the Canada – Aircraft case concerning the tem benefit in Article 1.1 of the SCM Agreement:

"[w]e also believe that the word "benefit", as used in Article 1.1(b), implies some kind of comparison. This must be so, for there can be no "benefit" to the recipient unless the "financial contribution" makes the recipient "better off" than it would otherwise have been, absent that contribution. In our view, the marketplace provides an appropriate basis for comparison 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 the recipient in the market."168

7.177.
We note that the parties as well agree on the principle that the market place is the appropriate basis for comparison. However, Korea is arguing: (1) that the EC failed to use the available market benchmark in Korea to assess whether a benefit was conferred on Hynix and this without any justification; and (2) that the EC ignored the real nature of the financial contributions as loans or loan guarantees and simply treated all alleged financial contributions as grants. The argument of the EC is, in essence, that the record showed that the financial situation of Hynix was such that no reasonable private investor would have been willing to provide funds to this company, whether in the form of a loan, a loan guarantee or an equity infusion, as it was clear that the chances of ever recovering the money invested were minimal. In sum, the market would not have provided the financing to Hynix. In such a situation, the funding provided, in whatever form, is equal to the provision of risk capital for which Article 14(a) of the SCM Agreement does not provide a precise method for calculating benefit. It simply states that a benefit is conferred if the investment decision can be regarded as inconsistent with the usual investment practice – including for the provision of risk capital – of private investors in the territory of that Member. According to the EC, the record showed that this was the case. The benefit then consisted of the financing which no reasonable investor would have provided to Hynix, and the alleged subsidy programmes were all, irrespective of their terms and conditions, treated as grants.
7.179.
Both questions are at issue in this case. Whilst the existence of a benefit under Article 1.1(b) is legally and logically distinct from the calculation of the amount of the benefit under Article 14, we will address both of these questions in this section of our Report, and to the extent necessary to resolve this dispute, primarily because this was the way in which the EC's findings with regard to each of the alleged subsidy programmes, as well as each of the parties, handled these two issues.
7.180.
We consider it best to address these questions in turn, and to the extent necessary to resolve the dispute, in the specific context of the EC's findings with regard to each of the alleged subsidy programmes. We will first discuss the EC's findings with respect to the existence of a benefit in each of the five programmes.

(i) Existence of a benefit in the sense of Article 1.1(b) of the SCM Agreement

Syndicated Loan

7.181.
In its Final Determination, the EC explained that the participation in the Syndicated Loan by the three banks examined, the KDB, KEB and KFB conferred a benefit of the amount by which the legal lending limits were exceeded as this is the amount that Hynix was able to receive only due to the FSC lifting of the lending limits. The EC found that, without the lifting of the limits, these amounts would not have been granted by the banks in question, and considered that there was no evidence of an alternative source of similar financing available to Hynix.170
7.182.
In a benefit analysis, the question to be answered is whether the financial contribution leaves the recipient better off than it would otherwise have been, absent that contribution, in case it had to turn to the market to be provided the financial contribution in the form of, as in this case, a loan. In our view, the EC partly mixed the financial contribution question with that of benefit to the recipient. The fact that a public body like the KDB was only able to provide the financial contribution due to the lending limit waiver received from another public body reveals the extent to which the government was willing to provide a financial contribution to Hynix, but is uninformative as to the question of benefit to the recipient. We also wish to point out that the question in a subsidy context is whether the specifically identified financial contribution confers a benefit on the recipient, such that it constitutes a subsidy. The EC concluded that the financial contribution in question was the loan extended by the KDB, KEB and KFB in December 2000 to Hynix, not the waiver of the lending limit by another public body, the FSC. The alleged benefit conferred is thus the benefit conferred by the loan, and not the alleged benefit conferred by another government action which was not determined to constitute a financial contribution in the sense of Article 1.1(a) of the SCM Agreement. In other words, the benefit analysis is not about the KDB and what it had to do in order to be able to take part in the loan, it is about the recipient of the loan Hynix and whether it obtained the loan from the KDB on more advantageous terms than would have been available on the market.
7.183.
In this respect, we find very relevant the fact that in total ten banks participated in the Syndicated Loan and extended loans on similar terms to Hynix. Of these banks, the Final Determination discusses the KDB, KEB and KFB, and leaves unmentioned the seven others. Among the remaining seven banks, a certain number such as, for example, Citibank, the KorAm Bank and Chohung Bank were not considered to be public bodies by the EC in its investigation. We consider that it does not suffice for the EC to simply assert that the seven other banks were not examined and that it may or may not be the case that these banks were directed to take part in the Syndicated Loan to ignore them as possible market benchmarks. If a number of parties provide the same type of financing as the public body, such as in the case of the Syndicated Loan, their participation is an obvious aspect of a benefit analysis.171
7.184.
In our view, this is precisely what Article 14(b) of the SCM Agreement provides for, in so far as it refers to the existence of a benefit in the context of a financial contribution in the form of a loan. A loan shall not be considered to confer 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. This requires an authority to first examine whether such a comparable commercial loan could actually be obtained on the market by the recipient of the government loan. The EC ignored the loans provided by seven other banks without examining whether these loans were commercial or whether their provision was so influenced by the alleged government intervention that they did not represent loans that could actually be obtained on the market.
7.185.
We consider relevant the fact that, in its Preliminary Determination, the EC examined the participation of all ten banks in the Syndicated Loan and found that there actually was no basis "to conclude that the interest rate of the loan and the maturity periods were not in conformity with market conditions" and for these reasons, it was concluded that "there was no benefit".172 It appears from the Final Determination that the only new information that was discovered related to the alleged pressure exercised by the government on the KEB to participate in the loan and the fact that FSC would provide a lending limit waiver to enable the KDB, KEB and KFB to participate in the Syndicated Loan. While this information may have been relevant to the question of financial contribution and the alleged government direction of the KEB and KFB, we fail to see how it could also invalidate the market benchmark conclusions the EC had earlier reached itself with regard to the other seven banks involved in the Syndicated Loan.

KEIC Guarantee

7.187.
In the Final Determination173, the EC found that the financial contribution by the KEIC in the form of an export credit guarantee conferred a benefit on Hynix. The EC concluded that, without the guarantee, no further financing would have been available for Hynix, and that Hynix never raised such a possibility of alternative financing absent the guarantee. It thus concluded that there existed no benchmark for the cost comparison requested by the parties and considered the benefit for Hynix to be the full amount of the D/A extension of USD 600 million.
7.188.
We recall that the standard for determining the existence of a benefit conferred by a financial contribution is whether this financial contribution has left the recipient better off than he would otherwise have been, absent the financial contribution by the government. In this case, the question is thus whether the EC correctly concluded that the KEIC Guarantee gave Hynix an advantage compared to the situation it would have been in had it been required to go to the market.
7.189.
We consider that the question of the existence of a benefit in the case of a government guarantee can be examined from more than one angle, depending on the circumstances. Based on our general conclusion that a benefit in the sense of Article 1.1 of the SCM Agreement is determined in relation to the market place, it appears to us that one possible approach for examining whether a benefit existed would be to compare the guarantee provided by the government with a comparable guarantee provided by the market. If the government charges less than a market fee for its guarantee in light of the specific circumstances of the case, there would be a benefit to the recipient. We note in this respect, that none of the parties either before the investigating authority or before us in the course of the panel proceedings has argued that a private market operator would have provided an export guarantee similar to the one that was provided by the KEIC so that the fees could be compared. This implies that, if one opts to examine benefit by looking at the difference between the government providing a financial contribution, and the market doing so, then it would be clear that a benefit was provided, as no private market operator was even argued to have been willing to provide such a guarantee. In fact, it appears from the evidence before the investigating authority that even the public body – the KEIC itself – was hesitant to provide the guarantee and needed a governmental assurance. Such a government backing was given by the letter of 10 January 2001 signed by the Minister of Finance and Economy informing the KEIC, FSS and KEB of the results of the Economic Ministers' meeting of 9 January 2001 by which the government promised that support would be provided from a separate source of funding in case the KEIC would found itself confronted with a shortage of reserve payment capacity as a result of the guarantee.174
7.190.
If, on the other hand, one examines the question of benefit in light of Article 14(c) of the SCM Agreement concerning loan guarantees, it appears that the examination is to focus on the difference between the amount paid on a loan guaranteed by the government, compared to the amount that would have to be paid on a comparable commercial loan, absent the government guarantee. In this case there does not seem to have been any evidence on the record, and none has been brought to our attention, to contradict the EC's conclusion that, absent the government guarantee, the banks would not have been willing to agree to the D/A extension by USD 600 million, at all. Korea considers that the amount of benefit should be examined by comparing the costs/interest paid for the D/A financing with the costs/interest that Hynix would have paid without the KEIC Guarantee. We find reasonable, however, the conclusion of the EC that:

"[t]here was no indication that an alternative financing without guarantee was available to Hynix at the time, and Hynix never raised such a possibility. Therefore there is no benchmark for the cost comparison requested by the parties".175

7.191.
In addition, Korea argues that Item (j) of Annex I to the SCM Agreement requires that in a government export credit guarantee situation, benefit has to be assessed by examining whether the fees paid by the recipient of the guarantee were adequate to cover long-term operating costs and losses. We note that Annex I of the SCM Agreement sets forth an illustrative list of export subsidies and Item (j) of Annex I is thus relevant in determining whether a prohibited export subsidy exists, not whether a benefit exists. Item (j) applies a cost-to-government standard rather than a benefit-to-recipient standard, and as such, the test set forth in Item (j) is simply irrelevant, in our view, in determining whether a benefit in terms of Article 1.1 of the SCM Agreement exists.
7.192.
In sum, in so far as the existence of a benefit is concerned, we consider that the EC made a reasonable and reasoned conclusion on the basis of the record before it that the KEIC Guarantee conferred a benefit on Hynix in a manner consistent with Article 1.1(b) of the SCM Agreement.
7.193.
This does not necessarily mean that we agree with the EC's approach when it comes to calculating the amount of the subsidy under its grant methodology. We will discuss the question of the calculation of the amount of the subsidy and the EC's grant methodology in a separate section following our discussion of the EC's findings in so far as the existence of a benefit is concerned in the remaining programmes.

KDB Debenture Programme

7.194.
The Final Determination sets forth the conclusions of the EC concerning the existence of a benefit conferred by the KDB Debenture Programme in the following manner:

"(63) Considering the explanations in recitals 50 to 62, the KDB programme can be seen to have conferred a benefit to Hynix also bearing in mind that no comparable financing was available to it in the market. Hynix was not able to finance its maturing bonds through bank loans, since it had exhausted its possibilities of receiving loans due to its already high exposure in its creditor banks and its weak financial situation which did not allow further credit to be granted to it by any other bank. Refinancing of the bonds in the bond market was not possible due to its weak credit rating which did not allow the market to accept its maturing bonds, as admitted by the GOK in its questionnaire response. For these reasons, the conclusions on the point of existence of benefit and thereby the existence of a subsidy, in recital 61 of the provisional Regulation are hereby confirmed."176 (emphasis added)

7.195.
We recall that the KDB Debenture Programme was set-up by the government in response to financial instability in Korea caused by the fact that a large amount of bonds issued by a few companies (including Hynix) were due to mature simultaneously. Under the programme, maturing debt was to be rolled-over and re-packaged for investors. Participating companies had to pay 20 per cent of the due debt, 80 per cent being assumed by the KDB.177 In other words, the purpose of the programme was to provide financing for those companies for which the market would not be willing to provide such financing. Indeed, as confirmed by the government during the investigation, the Korean bond market applied extremely strict conditions in 2001 and companies with moderate credit ratings were not able to refinance their bonds in the market. As explained by the government in its questionnaire response:

"[c]ompanies with moderate grade ratings, that previously could have issued bonds, were not able to do so. Since many of the companies were otherwise viable, the KDB programme sought to provide the liquidity during this period. As a practical matter, if companies had a credit rating above A-, they could issue bonds through the normal bond market. If companies had credit ratings of either BBB+, BBB, BBB-, BB+ or BB and otherwise met the eligibility requirements they could participate in the KDB programme."178

7.196.
The record shows that, by January 2001, Hynix's credit rating was BB+179, which implies that under the government's own admission Hynix would not have been able to issue bonds on the market. It is therefore clear to us that the KDB purchase of Hynix bonds as part of the KDB Debenture Programme, provided an advantage to Hynix compared to what it would have been able to obtain on the market. We find further relevant the fact that none of the parties at any time presented evidence that Hynix could have re-financed its bonds in a foreign market, and as the EC noted in its Final Determination, the speculative rating B given to Hynix by the international rating agency Standard & Poor's in January 2001 did not support such a possibility either.180
7.197.
Korea argues that the successful GDRs offering is proof of the viability of Hynix and of the existence of a market for Hynix bonds. Korea also refers to the participation of the creditor banks in the refinancing of the 80 per cent of Hynix bonds purchased by the KDB, and the fact that other private investors also purchased bonds through the CBOs/CLOs programme on the same terms as other participating companies. We note that the same arguments were made before the investigating authority, which in the Final Determination responded to such arguments in the following manner:

"(56) As regards the GDR issuance, it is accepted that Hynix raised money in the capital market through this instrument in June 2001. However, by that time 80 per cent of its bonds financed via the KDB programme had already matured and they had been taken over by KDB before that date. The GDR issuance was therefore not helpful as regards these bonds and another way had to be found for their financing, already as from January 2001. As such, the GDR issuance is not, therefore, an indication that Hynix would have had access to the capital markets in January 2001. Furthermore, without the KDB programme Hynix would already have been bankrupt due to failure to pay these bonds by the time of the GDR issuance. It is also noted that as explained under recitals 73 to 76 of the provisional Regulation, the Hynix stock price collapsed almost immediately after the issuance in June 2001 and the investors who bought Hynix stocks suffered considerable losses. Therefore its possibilities to raise money in such a way were ruled out, in particular considering that its total liabilities still reached KRW 7,2 trillion in July 2001.

(57) Indeed, the timing of the measures is an important factor. It needs to be stressed that the decision of the investors to buy Hynix GDR in June might have been influenced by the very fact that most of Hynix's maturing liabilities were abolished by the GOK-inspired KDB programme between January and June 2001. The KDB programme was well known and attracted a great deal of public comment. The Hynix GDR offering memorandum also refers to the "KRW 2,9 trillion anticipated continued availability under the KDB Programme to provide refinancing for maturing bonds in 2001". Consequently, the investors' decision to invest in Hynix in June 2001 might well have been influenced by the belief that the GOK would continue making sure that Hynix did not fail. This point is referred to also in recital 44 of the provisional Regulation. Therefore, the information on the record indicates that the KDB programme might have influenced the decisions of the investors to invest in Hynix in June 2001.

(58) As regards the Hynix argument that its bonds were resold into the CBO/CLO programme on the same terms as other participating companies' bonds, it is noted that the terms of the existing CBO/CLO programme were very different, and were not available to Hynix.

(59) The CBO programme was created in order to increase the bond financing going to relatively small firms with lower credit ratings. The programme could not have been available to Hynix because of its size. In addition, Hynix could not have sold the same amount of bonds to the programme because of the concentration limits, which only allowed a maximum of 10 per cent of the pool of bonds backing any CBO/CLO to be from any one company. It is also noted that KDB bought all Hynix bonds, even those allegedly intended for the CBO programme. Even after the KDB programme ended, KDB still held Hynix bonds designated for sale to CBO funds. KDB also delayed the sale of the bonds into CBO funds and retained control over the bonds in the KDB programme even after they were placed in CBO funds, and directed their roll-over into new long-term bonds when Hynix was unable to pay them upon maturity. The Korea Credit Guarantee Fund ("KCGF") also increased the guarantee level on CBOs from 34 per cent to 53 per cent to account for the inclusion of the KDB programme. Consequently, it cannot be claimed that the normal terms and conditions of the programme were applied to Hynix bonds. Indeed, they were treated very differently.

(60) The way the KDB programme was carried out is also very different from the way comparable transactions would have been carried out in the market. According to the KDB programme, KDB bought all the maturing bonds, converted them to much lower interest rates than that held by the original bonds, placed 20 per cent of them to creditor banks and 70 per cent to CBOs/CLOs. Moreover, the conditions applied differed significantly from those of the CBO/CLO programme, including the application of increased State guarantees. The bonds were not sold by public offering but through private placement to existing creditors. This does not correspond to refinancing of bonds under market terms.

(61) KDB also argued that the KDB programme is not a subsidy since KDB makes its decisions on funding and fund utilisation on a commercial basis and is engaged in profit-earning business focused on corporate finance.

(62) As regards the KDB argument that the KDB programme is not a subsidy due to the nature of the activities of KDB, it is noted that recitals 55 to 59 of the provisional Regulation set out the reasons why the financing provided by KDB constitutes a financial contribution by a Government within the meaning of Article 2(1)(a)(i) of the basic Regulation. Since KDB has not provided any new evidence in its comments that would alter the assessment made in the provisional Regulation, the conclusions set out in recitals 55 to 59 of the provisional Regulation are hereby confirmed."181 (footnotes omitted)

7.198.
We consider reasonable the explanations provided by the EC on the basis of the facts on the record. In particular, we wish to underline that we consider that the specific circumstances of the GDRs offering, which was concluded on 15 June 2001 (and thus well after the intervention of the KDB), and which may have been profoundly influenced by the intervention of the government through the KDB, render the GDRs offering unsuited as evidence of a market that would be equally willing to invest in Hynix as the government was at the time the KDB purchased the bonds.
7.199.
In our view, the EC has drawn a reasonable and reasoned conclusion, based on the facts before it, that the KDB purchase of Hynix bonds under the KDB Debenture Programme conferred a benefit to Hynix. In other words, we find that Korea failed to demonstrate that the EC established the existence of a benefit conferred to Hynix by the KDB Debenture Programme in a manner inconsistent with Article 1.1(b) of the SCM Agreement, and therefore we reject Korea's claim in this respect.
7.200.
Our ruling does not necessarily imply that we agree with the EC calculation of the amount of the benefit under its grant methodology, a question that will be discussed later in our Report.

May 2001 Restructuring Programme

7.201.
We recall that, in the earlier section of our Report concerning the existence of a financial contribution, we concluded that the EC failed to establish that the private bodies which participated in the May 2001 restructuring through a bond purchase of KRW 1 trillion were directed to do so by the government. In the absence of a proper determination of the existence of a financial contribution, the principle of judicial economy suggests that it is not necessary for us to discuss the question of benefit conferred by the private creditor bank's behaviour.
7.202.
However, for purposes of implementation and in case of an appeal which would overturn our financial contribution determination, and thus assuming, arguendo, that the EC properly determined that all banks that took part in the May 2001 Restructuring Programme were directed by the government to do so, we will now examine whether the EC was justified on the basis of the record evidence to consider that a benefit was conferred by the purchase of the CBs by the creditor banks in May 2001.
7.203.
With regard to the existence of a benefit it seems that, in this case, the basis for concluding that the creditor banks were directed to participate in the May 2001 Restructuring Programme was precisely the fact that no reasonable market investor would have purchased Hynix's CBs in May-June 2001. If this conclusion is assumed, arguendo, to have been reasonable, it seems difficult to conclude otherwise when it comes to the question of benefit.182 In sum, and assuming, arguendo, that the existence of a financial contribution by the purchase of CBs in May 2001 was properly established, we find that the EC's conclusion that a benefit was thereby conferred was consistent with Article 1.1(b) of the SCM Agreement. Our ruling does not necessarily imply that we agree with the EC calculation of the amount of the benefit under its grant methodology, a question that will be discussed later in our Report.

October 2001 Restructuring Programme

7.204.
The investigating authority concluded that the financial contribution provided by the six Option 1 banks participating in the October 2001 Restructuring Programme conferred a benefit on Hynix as the company was rated "selective default" at the time and therefore no financing was available to it on the commercial markets.183 We will therefore examine whether the EC conclusion concerning the existence of a benefit was justified by the facts on the record.
7.205.
We first recall that, with regard to the existence of a benefit, it seems that in this case the basis for concluding that the creditor banks were directed to participate in the October 2001 Restructuring Programme was precisely the fact that no reasonable market investor would have purchased Hynix CBs in May-June 2001, and that, therefore, the only logical explanation for the participation by the six Option 1 banks was that they had been directed by the government, among other means of persuasion by using its shareholder power. In our view, this conclusion was reasonable, and thus it seems difficult to conclude otherwise when it comes to the question of benefit.184 In sum, given the reasons why we considered the existence of a financial contribution by the October 2001 Restructuring Programme to have been properly established, we find that the EC's conclusion that a benefit was thereby conferred in a manner was consistent with Article 1.1 of the SCM Agreement.
7.207.
In addition, we consider that the EC conclusion is supported by the low interest rates of the new loans and the maturity extensions. The new loan for Hynix – a company which we recall was rated selective default – was set at 7 per cent while the Syndicated Loan in January 2001, when Hynix was still rated BBB+, was 13 per cent. The maturity extension of October 2001 led to a decrease of the interest rate by 6 per cent, although the whole reason for the extension was precisely the inability to pay off the debt. As the EC correctly pointed out, one would reasonably expect a commercial bank to have increased the interest rate to reflect the increased risk of loosing the money invested. The fact that the opposite occurred is highly remarkable. All this is uncontested. It is similarly uncontested that the participating banks themselves were raising their loan loss provisions. The record shows that Chohung Bank immediately raised its loss reserves after participating in the measures to cover 80 per cent of the Hynix debt and accounted the whole debt-to-equity conversion as a loss. Woori Bank referred to public interest considerations as a reason for participating.
7.208.
The only real argument of Korea in support of the commercial reasonableness of the Option 1 banks' participation in the October 2001 Restructuring Programme is that the banks invested in Hynix because they believed the going concern value of Hynix was greater than its liquidation value. For that reason, their decision to provide further financing made commercial sense from an inside investor perspective. As the EC points out, the banks do not seem to have based this conclusion on independent assessment studies, as could be expected given the situation of Hynix. The reports referred to – the SSB report, the Monitor Group August and November reports, or the Abbie Gregg report – were not viability assessments on which a decision to further invest in Hynix might reasonably be considered to have been based. As the EC stated, the Monitor Group report, for example, consisted of only 10 pages describing certain technical and market related issues in a general way. Only the Arthur Andersen report was a viability study which actually examined the liquidation value of Hynix. It did this, it seems, mainly for the purpose of the Option 3 banks which would have their loans purchased back at the liquidation value, as established by Arthur Andersen. However, as we discuss elsewhere in our Report, this Arthur Andersen report was effectively withheld from the investigating authority for reasons of confidentiality. In our view, it was reasonable for the investigating authority to refuse to take this report into consideration as only one page of a more than 200 page long document had been provided. Moreover, it appears that this Arthur Andersen report was only finalized in December 2001 and, like the Monitor Group report of November 2001 cannot have been the basis for the decision of the banks in October 2001. In sum, it appears from the record that the reports allegedly supporting the insider investor argument were either not provided to the authorities, or were not informative of the decision-making process by the Option 1 banks.
7.210.
The facts and figures used in these paragraphs of the Final Determination were not contested. For all the above reasons, we find that the EC determination concerning the existence of a benefit was consistent with Article 1.1(b) of the SCM Agreement.

(ii) Calculation of the amount of the benefit – The EC's grant methodology

7.211.
We recall that, in essence, the investigating authority found that the record showed that the financial situation of Hynix was such that no reasonable private investor would have been willing to provide funds to this company, whether in the form of a loan, a loan guarantee or an equity infusion, as it was clear that the chances of ever recovering the money invested were minimal. In sum, the EC considered that the market would not have provided the financing to Hynix. In such a situation, the funding provided, in whatever form, is equal to the provision of risk capital for which Article 14(a) of the SCM Agreement does not provide a precise method for calculating benefit. It simply states that a benefit is conferred if the investment decision can be regarded as inconsistent with the usual investment practice – including for the provision of risk capital – of private investors in the territory of that Member. According to the EC, the record showed that this was the case. The benefit then consisted of the financing which no reasonable investor would have provided to Hynix, and the alleged subsidy programmes were all, irrespective of their terms and conditions, treated as grants.
7.214.
In light of our findings in this respect, we see no need to address Korea's alternative claims of errors – such as the alleged double-counting as discussed in paras. 7,155-7.156, supra – made by the EC in calculating the amount of the subsidy.
7.215.
In sum, and for the above reasons, we find that the EC's calculation of the amount of benefit conferred by each of the financial contributions was inconsistent with Articles 1.1(b) and 14 of the SCM Agreement.

3. Claim regarding the EC's determinations on specificity

(a) Korea

7.216.
Korea asserts that the EC made a determination of de facto specificity of the alleged subsidies under the KDB Debenture Programme based on (1) the limited number of users of the subsidies and (2) the predominant use of the subsidy programmes by Hynix, without providing any positive evidence to substantiate such conclusions.
7.217.
Korea argues that the KDB Debenture Programme was not a free ticket and the circumstances of each enrolment depended upon the very specific considerations of the company and its creditors who could file the application for enrolment of the company. The more relevant question, and one the EC does not provide any insight on, is whether firms that fulfilled the eligibility criteria and sought participation were prevented from doing so. The EC's conclusion that the programme was specific because of the limited number of users is thus purely speculative. Moreover, Korea asserts, the fact that Hynix used up almost 41 per cent of the funds does not necessarily mean that it was the predominant user of the alleged subsidies, as such data needs to be considered in light of the importance of the DRAM sector in Korea.187 Finally, Korea argues that the EC failed to take account of the extent of diversification of the Korean economy and the length of time the programme had been in operation as explicitly required by Article 2.1(c) of the SCM Agreement.
7.218.
In any case, Korea submits, 70 per cent of the KDB bonds were repackaged in the May 2001 CBOs/CLOs programme, and, as this programme was not specific, such bonds should have been excluded. Korea argues that the EC's allegation that the bonds were sold via the CBOs under different conditions is simply incorrect and unsupported by evidence.188
7.219.
With regard to the May and October 2001 Restructuring Programmes, Korea argues that the EC's specificity analysis is not clearly substantiated or based on positive evidence and failed to take into account the overall context in which these restructuring efforts took place. According to Korea, all the transactions were executed under the broader framework intended to bring creditors together to work out debt of troubled but viable companies, in a manner recommended by the IMF and based on the so-called "London approach". To find specificity in this context, Korea submits, is like saying that a country's bankruptcy laws are company specific.
7.220.
In sum, Korea submits that the EC violated Articles 1.2 and 2 of the SCM Agreement because the EC made an erroneous finding of de facto specificity with respect to the KDB Debenture Programme and failed to clearly substantiate, on the basis of positive evidence, the existence of specificity with respect to the May and October 2001 Restructuring Programmes.189

(b) EC

7.221.
With regard to the KDB Debenture Programme, the EC argues that there was ample reason to believe that it was in fact specific, as only six companies made use of the Programme and, of these few, Hynix was the dominant user. The EC asserts that the authority considered all the factors mentioned in Article 2.1 of the SCM Agreement and took into account the extent of diversification of the Korean economy and the length of time the Programme had been in operation. The EC considers that the specificity of the measures is to be examined by looking at the scope of the measures vis-à-vis the beneficiaries. In addition, the EC argues that the number of eligible companies is not relevant, what matters is the limited actual use by the companies of the Programme.
7.222.
With regard to the May and October 2001 Restructuring Programmes, the EC emphasises that Korea admits that the transactions were unique, and that it is therefore disingenuous to argue that these Programmes are equivalent to the normal application of generally applicable bankruptcy laws.

(c) Panel Analysis

7.223.
The EC concluded that the KDB Debenture Programme constituted a de facto specific subsidy to Hynix based on the limited use of the programme by a small number of companies – six out of a potential of more than 200 eligible companies – and the disproportionate use of the funds under the programme by Hynix – which used up to 41 per cent of the total funds under this programme. In the Final Determination, the EC found as follows:

"(65) As explained under recitals 62 to 64 of the provisional Regulation, it was concluded that, whilst the KDB programme was not specific in law under Article 3(2)(a) of the basic Regulation, it was nevertheless de facto specific under Article 3(2)(c) of the basic Regulation, since three of the four criteria of that provision were fulfilled: the use of the programme by a limited number of companies, predominant use by certain companies and the granting of disproportionately large amounts of subsidy to certain companies. Since specificity in law was not claimed, further analysis of the terms and conditions of the programme is not relevant. However, the number of firms potentially eligible under such criteria is relevant. Regarding de facto specificity, it is concluded that the programme was only used by six companies, four of which belonged to Hyundai Group, and that Hynix used 41 per cent of the funds of the programme. It is noted that the information on the record indicates that more than 200 companies in Korea would have fulfilled the selection criteria of the programme. Against the background of this group of potential recipients, the large proportion of Hyundai Group of companies in the participants and the predominant use by Hynix of the total funding of the programme clearly fulfils the specificity criteria under Article 3(2)(c) of the basic Regulation."

7.224.
We understand Korea's argument with regard to the KDB Debenture Programme to be that it does not suffice in order to find specificity in the sense of Article 2 of the SCM Agreement to simply note that the programmes were only used by a limited number of companies if, for example, the eligibility criteria are broad enough and the restricted use of the programme depends on the extent of the commitments companies are willing to make rather than on any government behaviour.
7.225.
Article 1.2 of the SCM Agreement provides that a subsidy is only countervailable if "such a subsidy is specific in accordance with the provisions of Article 2". Article 2 of the SCM Agreement provides, in relevant part, as follows:

2.1 In order to determine whether a subsidy, as defined in paragraph 1 of Article 1, is specific to an enterprise or industry or group of enterprises or industries (referred to in this Agreement as "certain enterprises") within the jurisdiction of the granting authority, the following principles shall apply:

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

(b) Where the granting authority, or the legislation pursuant to which the granting authority operates, establishes objective criteria or conditions2 governing the eligibility for, and the amount of, a subsidy, specificity shall not exist, provided that the eligibility is automatic and that such criteria and conditions are strictly adhered to. The criteria or conditions must be clearly spelled out in law, regulation, or other official document, so as to be capable of verification.

(c) If, notwithstanding any appearance of non‑specificity resulting from the application of the principles laid down in subparagraphs (a) and (b), there are reasons to believe that the subsidy may in fact be specific, other factors may be considered. Such factors are: use of a subsidy programme by a limited number of certain enterprises, predominant use by certain enterprises, the granting of disproportionately large amounts of subsidy to certain enterprises, and the manner in which discretion has been exercised by the granting authority in the decision to grant a subsidy.3 In applying this subparagraph, account shall be taken of the extent of diversification of economic activities within the jurisdiction of the granting authority, as well as of the length of time during which the subsidy programme has been in operation.

(...)

[SEE IMAGE IN SOURCE DOCUMENT]2.4 Any determination of specificity under the provisions of this Article shall be clearly substantiated on the basis of positive evidence.

2 Objective criteria or conditions, as used herein, mean criteria or conditions which are neutral, which do not favour certain enterprises over others, and which are economic in nature and horizontal in application, such as number of employees or size of enterprise.

3 In this regard, in particular, information on the frequency with which applications for a subsidy are refused or approved and the reasons for such decisions shall be considered. (emphasis added)

7.226.
We are of the view that an authority when it has reasons to believe that the subsidy is de facto specific in the sense of Article 2.1(c) of the SCM Agreement may consider such other factors as the use of a subsidy programme by a limited number of certain enterprises, predominant use by certain enterprises, the granting of disproportionately large amounts of subsidy to certain enterprises, and the manner in which discretion has been exercised by the granting authority in the decision to grant a subsidy. The EC determined that (1) the subsidy programme was used by a very limited number of companies, as only six out of an eligible two hundred companies used the programme; (2) that it was predominantly used by the Hyundai group companies among which Hynix190; and (3) that a disproportionate 41 per cent of the total subsidy amount of KRW 2.9 trillion was granted to Hynix. These figures are uncontested and clearly constitute "positive evidence".191 In addition, the EC pointed out that, after the participants to the programmes had been announced, there was a lot of criticism within Korea from companies in similarly difficult situations complaining about the lack of transparency and the eligibility criteria. These criticisms indicate that the EC also considered the manner in which discretion was exercised in admitting companies to the KDB Debenture Programme.192
7.227.
In sum, the EC's conclusion is based on the disproportionate use of the Programme's funds for Hynix, which led it to the reasonable conclusion that the KDB Debenture Programme, as applied, constituted a de facto specific subsidy to Hynix.
7.228.
We do not consider that the fact that the bonds, once purchased by the KDB, were subsequently sold via the CBOs/CLOs programme has any bearing on the specificity analysis. The subsidy that is countervailed consists of the financial contribution through the purchase of a bond and thus the granting of a loan by the KDB – a public body – to Hynix. The fact that the KDB later resells the bonds via the CBOs/CLOs programmes, together with bonds of other participating companies, is not relevant in this respect.
7.230.
In our view, having considered all four factors mentioned in Article 2.1 of the SCM Agreement for de facto specificity, and having reasonably concluded that under all four factors the KDB Debenture Programme was de facto specific for Hynix, we consider that the EC determination of specificity with regard to the KDB Debenture Programme was consistent with Article 1.2 and Article 2.1 of the SCM Agreement.
7.232.
We therefore find that the EC did not act in a manner inconsistent with Articles 1.2 and 2 of the SCM Agreement and reject Korea's claims with respect to specificity.

4. Claim regarding Articles 19.4 of the SCM Agreement and VI:3 of the GATT 1994

(a) Korea

7.233.
Korea submits that the EC violated Article 19.4 of the SCM Agreement and Article VI:3 of the GATT 1994 because of the EC's failure to measure the benefit in accordance with the principles of Article 14 of the SCM Agreement, and its failure to utilize Hynix's consolidated turnover in the denominator of its margin calculation. According to Korea, the EC confuses the scope of the investigation with the question which product and which companies benefit from the alleged subsidies, which is the relevant question for the calculation of the subsidy amount. As the alleged subsidies were not specifically given to the production of DRAMs, Korea argues that the denominator to be used should not only be the unconsolidated sales of Hynix, the DRAMs producing mother company, but also include all of its consolidated subsidiaries, as they all benefited from the alleged subsidies. This failure inevitably led to a duty being imposed in excess of the subsidy found to exist, in violation of Article 19.4 of the SCM Agreement.

(b) EC

7.234.
The EC argues that, as the countervail proceedings covered imports of DRAMs from Korea, the relevant denominator consisted of the sales of the Korean DRAMs producer found to have received subsidies. The EC explains that the investigating authority allocated such subsidies over time and distinguished between the export subsidies which were allocated over Hynix's exports and the untied subsidies which were allocated over Hynix total sales. According to the EC, all of Hynix subsidiaries are separate legal entities with separate accounting. There is no reason to assume that such subsidiaries benefited from the programmes. The EC asserts that, while the results of the subsidiaries affect the parent company, the opposite is clearly not necessarily the case. The EC argues that the clear assumption in the SCM Agreement is that the recipient of the subsidy, in this case Hynix, is also the legal person benefiting from the subsidy. As the scope of the investigation was limited to DRAMs from Korea, the EC concludes that it was only normal not to include the sales of non examined subsidiaries.

(c) Panel Analysis

7.235.
In light of our earlier findings concerning the flaws in the determination of the existence and amount of a subsidy, we consider that it would be neither necessary nor appropriate for us to make any findings on the claims concerning the calculation of a subsidy we find was not properly established by the EC. We, therefore, do not make any ruling in respect of this claim.

5. Claim regarding the EC's application of "facts available"

(a) Korea

7.236.
Korea argues that on four occasions the EC resorted to the use of facts available in a manner inconsistent with Article 12.7 of the SCM Agreement. Korea submits that the EC ignored relevant information duly submitted and drew adverse inferences from an alleged failure to cooperate in a manner which can only be considered as punitive. In particular, Korea rejects the EC's use of facts available in two cases of alleged failure to cooperate by Korea with regard to the Economic Ministers' meetings (of 28 November 2000 and 9 January 2001) and the attendance of an FSS official at the creditors meeting of 10 March 2001. In addition, Korea argues that the EC acted in a manner which is inconsistent with Article 12.7 of the SCM Agreement in the case of Hynix's alleged refusal to allow Citibank to cooperate and in respect of Hynix's alleged failure to provide the Arthur Andersen report which formed the basis for the banks to participate in the October 2001 Restructuring Programme.
7.237.
With regard to the Korea's failure to provide information concerning the Economic Ministers' meetings and the attendance of the FSS official, Korea explains that this was simply due to a misunderstanding which was a consequence of the very general and vague nature of the EC's questions during the investigation. Korea submits that it replied to all the questions to the best of its abilities, explaining that it had not been involved in negotiating or coordinating the Hynix restructuring process. In addition, Korea asserts that, when notified of the EC's specific inquiry about the Economic Ministers' meetings and related documents, Korea promptly submitted its comments in its 30 May 2003 submission explaining, in detail, the nature of the meetings, the situation surrounding the meetings held in late 2000 and early 2001, and the reasons why relevant information was not included in the questionnaire response or examined during verification. Korea asserts that if the information and explanation promptly provided by Korea was deemed to have been somehow unsatisfactory or deficient, the EC should have requested Korea to provide further information and explanation. In the view of Korea, this is exactly the two-way communication the WTO jurisprudence requires. Korea thus takes issue with the EC using the misunderstanding over the information with respect to the Economic Ministers' meetings and the attendance by an official of the FSS of a creditors' meeting as an excuse to ignore the information submitted. In the view of Korea, this form of punishment has absolutely no basis in the SCM Agreement. In sum, Korea argues that the EC's resort to the use of facts available under Article 12.7 of the SCM Agreement was unjustified and its application disproportionate to the alleged non-cooperation.194
7.238.
With respect to the two cases of alleged failure to cooperate by Hynix, Korea submits that the EC refused to use information that was provided within a reasonable period of time, thereby acting in a manner which is inconsistent with Article 12.7 of the SCM Agreement. First, with regard to the Arthur Andersen report, Korea takes issue with the EC's contention that Hynix refused to provide a copy of the report prepared by this consulting firm, which was highly relevant to the question of alleged direction by Korea, as it demonstrated the commercial reasonableness of the investment decisions of the creditor banks. Korea asserts that initially Hynix had submitted a copy of the report but that, at a later stage, it asked the EC to remove it from the file, for reasons of confidentiality due to the contractual relationship between Hynix and the consultant firm that authored the report. However, Korea asserts that Hynix invited the EC to consult the report in the course of the verification visit. Moreover, at a later stage in the investigation, and responding to a question from the EC, Hynix enclosed a translation of the relevant page of the report establishing the liquidation and going concern value of Hynix. Korea states that Hynix made a number of references to the report at different stages of the investigation. Korea is of the view that the EC was not justified in completely disregarding the report and its conclusions. Moreover, the EC applied facts available and drew adverse inferences from the alleged failure to provide the report in a manner which was disproportionate and punitive.
7.239.
Secondly, with regard to Citibank's alleged non-cooperation, Korea argues that the EC's finding that Hynix prevented Citibank from cooperating with the investigation thereby "seriously impeding" the investigation is not correct. Korea asserts that Citibank duly replied to the original questionnaire. Although Citibank was not able to provide certain information requested by the EC in its deficiency letter, Korea asserts that Citibank continued to try to cooperate. In particular, Korea refers to the submission of an affidavit in May 2003 setting out Citibank's reasons for lending to Hynix. Korea asserts that Hynix and Citibank explained the reasons why the latter could not disclose certain information requested by the EC in its deficiency letter. Korea asserts that there is no evidence on the record that Hynix requested or instructed Citibank to refuse cooperation with the EC's investigation. Finally, Korea takes issue with the EC's conclusion that Citibank's lack of cooperation could be taken as an indication that it had participated in debt restructuring at the direction of the government of Korea.

(b) EC

7.240.
The EC submits that Article 12.7 of the SCM Agreement allows an investigating authority to use the facts available in case necessary information is not provided with a reasonable period of time or in case interested parties refuse access to such necessary information or significantly impede the investigation. The EC is of the view that, in the four instances referred to by Korea, the investigating authority was entitled to use the facts available and did not use these in a punitive manner. The EC considers that Article 12.7 of the SCM Agreement would not be of much use if it would not entitle an authority to take the non-cooperation into account when weighing the evidence. The EC asserts that the essential point of a provision like Article 12.7 is, and can only be, the possibility of drawing adverse inferences.195
7.241.
With regard to the Economic Ministers' meetings and the meeting that was attended by an FSS official, the EC asserts that the facts concerning these meetings are actually not contested by Korea.196 The EC considers that the documents which revealed these facts were not provided by either Korea, or any of the interested Korean parties, in spite of the fact that they were obviously relevant and had clearly been requested by the investigating authority. This non-provision of such information legitimately cast a shadow over the conduct of the parties being investigated and it means that the investigating authority has some flexibility when it comes to assessing the facts available to it. Since the information ultimately provided was used by the authority, the EC is of the view that Article 12.7 of the SCM Agreement is actually irrelevant to the way the EC used this information, which is purely a question of weighing the evidence. The EC takes issue with Korea's assertion that it did not "reasonably believe" that the fact of the ministerial meeting, the subject matter of the Ministers' discussions, and the various outcomes and associated documents might be considered germane to the investigation.
7.242.
Regarding the Arthur Andersen report, the EC asserts that neither Korea nor Hynix ever provided the investigating authority with a copy of the report. A sixteen page summary in Korean which was first submitted was later withdrawn for confidentiality reasons.197 In the end, what was provided in response to a deficiency letter, was one page of the report which sets forth the conclusions on the average pay-back ratios in case Hynix is treated as a going concern and in case Hynix is liquidated. Such a one page excerpt of the report is clearly insufficient in order to be able to make an informed decision about the implications of the report, as it does not enable the authority to analyze how the authors of the report arrived at the final figures and whether their assessment was correct and justified. The EC also takes issue with Korea's argument that the EC never indicated any concern or problem about the report, as it was clear from the Preliminary Determination that the authority had not taken account of the report or its alleged findings. In any case, the EC notes that the importance of the report should not be overestimated as it was only finalized in December 2001 and could thus not have been the basis for the creditors' decision in October 2001 regarding the October 2001 Restructuring Programme.
7.243.
Finally, with respect to Citibank, the EC asserts that Hynix's refusal to give consent to Citibank to supply the requested information and documents to the investigating authority constituted a clear failure to provide necessary information and significantly impeded the investigation. The investigating authority was, therefore, entitled under Article 12.7 of the SCM Agreement to base its determination with regard to Citibank on the facts available, which included, in so far as relevant, the evidence submitted by Citibank in the form of an affidavit. The EC asserts that it is undisputed that the reason for Citibank's non-cooperation was Hynix's refusal to give its consent, and that the authority was justified in taking this refusal into account when reviewing and weighing all information concerning Citibank.

(c) Panel Analysis

7.244.
Korea's claims concern the use of facts available by an investigating authority under Article 12.7 of the SCM Agreement, which provides as follows:

[i]n cases in which any interested Member 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.

7.246.
Korea argues that, on four occasions, the EC resorted to the use of facts available in a manner inconsistent with Article 12.7 of the SCM Agreement. We examine each of Korea's claims in turn.

(i) Economic Ministers' meetings / Attendance by an FSS official at a creditors' meeting

7.247.
We recall that, following the Preliminary Determination, the EC discovered, through press reports, a couple of documents of Korea and letters reporting the results of meetings of the Economic Ministers that took place on 28 November 2000 and 9 January 2001 which relate to Hynix's restructuring process. In addition, it was discovered that a high ranking FSS official attended an important meeting of the Creditors Council on 10 March 2001. Korea recognizes the veracity of these documents and confirmed the presence of this public official at that meeting.
7.248.
The EC relied on these documents when making its determination of the existence of a financial contribution by the government, in particular in respect of the Syndicated Loan and the KEIC Guarantee, as well as the May 2001 Restructuring Programme. The EC also considered that the fact that the letters of Korea, and the public official's presence at the meeting, were not disclosed by Korea, when requested, allowed the authority to use other sources of information as well, such as press reports.
7.249.
We do not understand Korea to be arguing that the EC should not have relied on these documents or should have used other information that it provided instead. Rather, Korea appears to be arguing that the EC gave undue weight to the documents and that its reading of these documents was improperly coloured by the alleged failure of Korea to provide these documents itself. That, in our view, is not a matter of relevance to the use of Article 12.7 of the SCM Agreement which deals with a situation in which information is not provided, or cannot be used and other secondary source information is used instead. The weighing of the information and the evidence before it, is part of the discretionary authority of the investigating authority. Under our standard of review, we will examine whether the investigating authority came to reasonable conclusions on the basis of all of the evidence properly before it. There is no rule in the SCM Agreement that stops the investigating authority from taking into account information from all sources, including press reports. In this particular case, we do not consider that the EC should have necessarily accepted at face value the interpretation of the letters and explanation of the course of events offered by Korea. Whether, in the end, the EC had a sufficient basis for making a determination of the existence of a financial contribution in the case of the Syndicated Loan, the KEIC Guarantee and the May 2001 Restructuring Programme is a question which can only be answered by looking at all the evidence before the authority. We conducted this review earlier in our Report.
7.250.
In any case, and even if one would want to examine the facts in the light of Article 12.7 of the SCM Agreement, we are of the view that it was not unreasonable of the EC to reach the conclusion that necessary information had been requested but not provided by Korea. In the questionnaire that was sent to Korea, the EC requested the following:

"[e]xplain the role of government or public officials in negotiating or co-ordinating this [Syndicated Loan] process, including details of their participation in relevant meetings and the nature of their involvement with Hynix and/or the banks concerned."199

7.251.
And with regard to the KEIC Guarantee, the following question was asked:

"[g]ive details of the involvement of government or public officials in this process [KEIC Guarantee] including details of their participation in relevant meetings."200