"To examine, in the light of the relevant provisions of the covered agreements cited by Korea in document WT/DS336/5, the matter referred to the DSB by Korea 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."
(a) Japan improperly calculated the benefit to the alleged recipient of the alleged financial contributions from the October 2001 and December 2002 restructurings using methods that were not specified in Japan's national legislation or implementing regulations. Its findings of subsidy benefits during the 2003 investigation period from those restructurings were, therefore, inconsistent with its obligations under Article 14 of the SCM Agreement.
(b) Japan improperly based its findings concerning "financial contributions" and "benefits" from the October 2001 and December 2002 restructurings on the absence of evidence, and failed to identify positive evidence supporting its conclusions. Its findings of subsidies from the October 2001 and December 2002 restructurings were, therefore, inconsistent with its obligations under Articles 1 and 2 of the SCM Agreement. More generally, its failure to conduct an impartial, fair and reasonable investigation of these issues was inconsistent with its obligations under Articles 10, 11, 12, and 22 of the SCM Agreement and Article X:3 of the GATT 1994.
(c) Japan improperly treated entities that had no interest in the investigation as "interested parties," improperly applied "facts available" instead of considering the information on the record, and improperly made adverse inferences against the interests of Hynix due to allegedly inadequate cooperation by other interested parties or by other entities that were not under Hynix's control and that were not obligated to participate in the investigation. Its findings of subsidies from the October 2001 and December 2002 restructurings were therefore inconsistent with its obligations under Article 12 of the SCM Agreement. More generally, its failure to conduct an impartial, fair and reasonable investigation as a result of its mistaken identification of "interested parties" was inconsistent with its obligations under Articles 10, 11, 12, and 22 of the SCM Agreement and Article X:3 of the GATT 1994.
(d) Japan improperly found that the October 2001 and December 2002 restructuring transactions constituted "direct transfers of funds"; it did not make the comparison of outcomes required to determine that "revenue otherwise due" had been "foregone or not collected" in those transactions; and it improperly found government "entrustment or direction" in those transactions based on incorrect assumptions about the behaviour of rational creditors, and without evidence that the government caused the creditors to act in an unreasonable manner. Its findings that Hynix received "financial contributions" from the October 2001 and December 2002 restructurings were, therefore, inconsistent with its obligations under Article 1.1(a) of the SCM Agreement.
(e) Japan improperly failed to determine whether the alleged government direction of the October 2001 and December 2002 restructurings made Hynix "better off"; it improperly analyzed exchanges of claims in those restructurings that had equal economic value without considering both sides of the exchange; and it improperly ignored market benchmarks demonstrating that the alleged "financial contributions" in those restructurings did not make Hynix "better off" than the market-based alternatives. Its findings that the alleged "financial contributions" in the October 2001 and December 2002 restructurings provided a "benefit" to Hynix were, therefore, inconsistent with its obligations under Article 1.1(b) and Article 14 of the SCM Agreement. Japan's imposition of countervailing duties based on this flawed analysis was inconsistent with the requirements of 19.4 of the SCM Agreement and Article VI:3 of the GATT 1994.
(f) Japan improperly failed to consider whether the October 2001 and December 2002 restructurings were made using the same procedures and on the same terms that were generally available to other companies in a similar condition. Its findings that the alleged subsidies were specific to Hynix were, therefore, inconsistent with the requirements of Article 2 of the SCM Agreement.
(g) Japan imposed and maintained countervailing duties without determining whether a benefit continued to exist following changes in the ownership of Hynix as a result of the October 2001 and December 2002 restructurings. Its imposition of countervailing duties was, therefore, inconsistent with the requirements of Articles 10, 14, 19, and 21 of the SCM Agreement.
(h) Japan improperly levied a countervailing duty on imports entering Japan in 2006 to offset subsidies allegedly received in October 2001, even though, by Japan's own calculations, the alleged subsidies from the October 2001 restructuring had ceased to provide any benefit after 2005. Its imposition of countervailing duties was, therefore, inconsistent with the requirements of Articles 19 and 21 of the SCM Agreement.
(i) Japan's determination improperly failed to demonstrate that the allegedly subsidized imports were, through the effect of the alleged subsidies, causing injury within the meaning of the SCM Agreement. Its determination of injury and its imposition of countervailing duties were, therefore, inconsistent with the requirements of Articles 15.5 and 19.1 of the SCM Agreement.
(j) As a consequence of these errors, Japan's imposition of countervailing duties on imports of DRAMS from Korea was not consistent with the requirements of Article 32.1 of the SCM Agreement, which provides that "[n]o specific action against a subsidy of another Member can be taken except in accordance with the provisions of GATT 1994, as interpreted by this Agreement."
(1) The Korean government had expressed an intention to "keep Hynix alive."
(2) The actions by Hynix's creditors were irrational, because
(a) No rational creditor would have entered into the restructuring transactions, in view of Hynix's poor, and deteriorating financial condition; and
(b) The evidence submitted by the individual creditors (or the "facts available" adopted by the JIA where the creditors were non-responsive) did not establish that the creditors had conducted a sufficient analysis of the transactions before entering into them.
In reality, however, each of these "findings" was demonstrably wrong. Taken individually or as a whole, they fail to establish government entrustment or direction.
• Errors In The JIA's Determination
Hynix could not obtain financing from commercial market, and that from the normal commercial point of view, there was no investor who was willing to invest in or provide loans to Hynix in the normal commercial market.
And, that conclusion was not the result of evidence at all. It was, instead, an inference, based solely on the JIA's finding that Hynix was in financial distress at the time of the restructurings.
· The Government of Korea has a long history of actively normalizing its semiconductor industry, in particular Hynix, and maintained a policy to save Hynix;
· The Government of Korea had the power to control the entrusted or directed banks;
· the banks' internal documents show their unusual decision making process to commit to the May 2001 Program before their internal decisions were made, that certain banks ignored their internal conditions, and that certain banks participated in the Program after internally decided not to participate;
· the Government of Korea granted subsidies to Hynix through the D/A financing, KDB Program, and May 2001 Program that helped keep alive, but not cure, Hynix;
· banks which participated in the October 2001 and December 2002 Programs recognized the deteriorating financial conditions of Hynix;
· the statements of high-ranking government officials on Hynix's financial crisis, various news articles reporting that the Government of Korea would or did intervene;
· NACF's admission that the Government of Korea intervened into the December 2002 Program; and
· the banks' consideration of non-commercial factors in reaching their decision to participate in the October 2001 and December 2002 Programs.
· The Korean Government had expressed an intention to 'keep Hynix alive';
· No rational creditor would have entered into the restructuring transactions, in view of Hynix's poor, and deteriorating financial condition; and
· The evidence submitted by the individual creditors (or the findings made by the JIA where the creditors were non-responsive) did not establish that the creditors had conducted a sufficient analysis of the various transactions before entering into them."87
The requirements of due process and orderly procedure dictate that claims must be made explicitly in WTO dispute settlement. Only in this way will the panel, other parties, and third parties understand that a specific claim has been made, be aware of its dimensions, and have an adequate opportunity to address and respond to it. WTO Members must not be left to wonder what specific claims have been made against them in dispute settlement.88
· A determination based on assumption and not evidence is not consistent with each and every provision of the SCM Agreement requiring findings based on evidence, and a fair and impartial determination.90
· A determination based on "facts available," and not on evidence, is not consistent with each and every provision of the SCM Agreement requiring findings based on evidence, and a fair and impartial determination.91
Claims that Japan has violated "each and every provision" of the SCM Agreement render a nullity the due process provisions of the DSU, particularly in light of the Appellate Body's clear ruling that the "mere listing of treaty Articles" may not satisfy the standards of DSU Article 6.2. Since the Appellate Body has found that the listing of Articles – rather than their various sub-provisions – may fall short of the requirements of DSU Article 6.2, claims of violation of "each and every provision of the SCM Agreement" can only be an egregious violation of Japan's due process rights.
· The JIA's finding of a "direct transfer of funds" was based on a legal fiction that "deemed" that Hynix had first repaid its outstanding debts, and that the creditors used the repaid funds to make new loans and equity infusions. This "fiction" was, of course, contrary to the JIA's own finding that Hynix was unable to repay its outstanding debts.
· The JIA's finding that the creditors were motivated by "external," "non-commercial" factors was explicitly based on an assumption that, in light of "the deterioration of Hynix's financial situation,... there was no investor that would invest in or make loans to Hynix in the general commercial market from a normal commercial perspective." But, as discussed above, that assumption is inconsistent with the basic arithmetic and with the undisputed fact that private creditors acting solely from a "normal commercial perspective" do engage in restructuring transactions all the time.
· The JIA's finding of a subsidy benefit from the alleged financial contribution was based on the same incorrect assumption that "there were no investors who would additionally invest in or make loans to Hynix from a normal commercial perspective." Again, that assumption is inconsistent with the basic arithmetic and with the undisputed fact that private creditors acting solely from a "normal commercial perspective" do engage in restructuring transactions all the time.
· The JIA's finding that the subsidized imports had caused injury "through the effects of the subsidy" was based on the assumption that "Hynix had been saved from bankruptcy because of subsidies" and "[t]hus, the subsidies enabled Hynix to continue production and continue exporting." But bankruptcy is a process, not a defined outcome. And, the "Korean bankruptcy law favours reorganization over liquidation."97 Consequently, there is no reason to believe that, if Hynix had filed for "bankruptcy," it would have ceased operations.
In these circumstances, it is clear that the JIA's determination was based, fundamentally, on assumptions, and that the JIA's assumptions do not stand scrutiny. Japan has suggested, however, that the JIA's determination should nevertheless be upheld, because it listed facts and provided explanations and responded to comments and claimed to make decisions based on the "totality of the evidence." In Japan's view, the Panel's role should be limited to ensuring that the JIA provided the form of a fair procedure, without looking at whether the JIA's determination was actually supported by the evidence.98
· Korea continues to confuse method with application
· Article 14 does not prescribe how WTO Members must apply their Guidelines
· The Panel should reject Korea's argument that any failure to comply with Article 14 renders the countervailing duty order invalid
· Rebuttal to Korea's arguments
· Korea's flawed argument using the banks - for which the JIA made no finding of whether they have been entrusted or directed - as benchmarks
Japan notes that it is Korea's responsibility to show a prima facie case with respect to the value of Hynix if liquidated in accordance with the relevant provisions of Korean insolvency laws, if Korea wishes to advance such a claim in this dispute.
As a matter of law, this statement is simply wrong. Korea does not bear the burden of proving there were no subsidies. Instead, Korea's burden is simply to establish that the JIA's findings were not consistent with the requirements of the SCM Agreement.
This finding, however, does not mean that the JIA made a finding as to what steps Hynix creditors would have taken had no subsidies been provided. The fact in this case is that the actual subsidies, not some potential restructuring, were granted to save Hynix.173
In those two sentences, Japan has admitted that the JIA had no basis for finding a benefit in this case.
· The JIA's Findings on The October 2001 Program Were Reasonable
· The JIA's Findings on The December 2002 Program Were Reasonable
· The JIA's Treatment of Other Creditors Was Reasonable
· The JIA Reasonably Found that Past Subsidies Caused a Distortion
· China believes that in considering whether to reject the actions of private investors as market benchmark, the effect of previous subsidies on the company at issue is not a relevant factor to be taken into account;
· For non-recurring subsidies that are allocated over time by the investigating authority, the imposition period of CVDs against such subsidies should not extend beyond the allocation period of such subsidies as established by the authority.
Article 6.2 of the DSU calls for sufficient clarity with respect to the legal basis of the complaint, that is, with respect to the "claims" that are being asserted by the complaining party. A defending party is entitled to know what case it has to answer, and what violations have been alleged so that it can begin preparing its defence. Likewise, those Members of the WTO who intend to participate as third parties in panel proceedings must be informed of the legal basis of the complaint. This requirement of due process is fundamental to ensuring a fair and orderly conduct of dispute settlement proceedings.
• Revenue foregone
• Any such method used to calculate benefit to the recipient must be consistent with the guidelines in Article 14, paragraphs (a) to (d)
· Article 6.2 of the DSU;
· the circumstances in which the market benchmark for determining benefit may be other than the market of the granting Member;
· the need to use the position of an outside investor, rather than an inside investor, as the market benchmark;
· the distinction between the existence and grant of a subsidy;
· the point at which a subsidy may be deemed to exist within the meaning of Article 1.1 of the SCM Agreement; and
· the circumstances in which the change of ownership case law may be relevant.
The request for the establishment of a panel shall be made in writing. It shall indicate whether consultations were held, identify the specific measures at issue and provide a brief summary of the legal basis of the complaint sufficient to present the problem clearly. In case the applicant requests the establishment of a panel with other than standard terms of reference, the written request shall include the proposed text of special terms of reference.
· sub-paragraphs (b), (c) and (e) of para. 3.1 supra fall outside the Panel's terms of reference, in so far as those claims allege violations of Articles 10, 11, 12, 14, 15, 22 and 32.1 of the SCM Agreement, and Articles VI:3 and X:3 of the GATT 1994, because item 15 of the Request for Establishment, in which those provisions are enumerated, did not cover the issues identified in sub-paragraphs (b), (c) and (e); and
· items 3, 4, 5, 6, 7, 9, 12, 13, and 15 of Korea's Request for Establishment are inadmissible because those items did not "provide a brief summary of the legal basis of the complaint sufficient to present the problem clearly," contrary to Article 6.2 of the DSU.
Articles 14 and 19.4 of the SCM Agreement and Article VI:3 of the GATT 1994 because, inter alia, Japan failed to properly measure the benefit in accordance with the principles of the SCM Agreement, which resulted in countervailing duties levied in excess of the amount allowed under the SCM Agreement and the GATT 1994.
Articles 10, 11, 12, 14, 15, 22, and 32.1 of the SCM Agreement and Articles VI:3 and X:3 of the GATT 1994 because Japan, inter alia, failed to conduct a thorough and complete investigation, and failed to conduct its investigation and make determinations in accordance with fundamental substantive and procedural requirements.
3. Articles 1.1 and 14 of the SCM Agreement because, inter alia, Japan failed to demonstrate that a benefit was conferred upon the respondent Hynix Semiconductor, Inc., ("Hynix"), given available market benchmarks and the circumstances of financial restructuring.
4. Articles 1.1 and 14 of the SCM Agreement because, inter alia, the analyses of the "commercial rationality" of loans and other investments in Hynix, and the other analyses related to the determination of the financial contribution and benefit to Hynix, that were undertaken by Japan are inconsistent with Japan's obligations under the SCM Agreement.
9. Articles 14 and 19.4 of the SCM Agreement and Article VI:3 of the GATT 1994 because, inter alia, Japan failed to properly measure the benefit in accordance with the principles of the SCM Agreement, which resulted in countervailing duties levied in excess of the amount allowed under the SCM Agreement and the GATT 1994.
Articles 1 and 2 of the SCM Agreement because, inter alia, Japan imposed an improper burden of proof on Hynix and Korea; reached conclusions without adequate evidentiary basis, and thereby failed to base its decisions on affirmative, objective, and verifiable evidence.
Article 12 of the SCM Agreement because, inter alia, Japan improperly treated entities that had no interest in the investigation as "interested parties," improperly applied "facts available" instead of considering the information on the record, and improperly made adverse inferences against the interests of Hynix due to allegedly inadequate cooperation by other interested parties or by other entities that were not under Hynix's control and that were not obligated to participate in the investigation.
Articles 10 and 32.1 of the SCM Agreement because, inter alia, the countervailing duties imposed by Japan against DRAMS originating in Korea were not in accordance with the relevant provisions of the SCM Agreement or the relevant provisions of GATT 1994.
[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... (emphasis added)
[W]e are of the view that the "objective assessment" to be made by a panel reviewing an investigating authority's subsidy determination will be informed by an examination of whether the agency provided a reasoned and adequate explanation as to: (i) how the evidence on the record supported its factual findings; and (ii) how those factual findings supported the overall subsidy determination. Such explanation should be discernible from the published determination itself. The explanation provided by the investigating authority—with respect to its factual findings as well as its ultimate subsidy determination—should also address alternative explanations that could reasonably be drawn from the evidence, as well as the reasons why the agency chose to discount such alternatives in coming to its conclusions.
A panel may not reject an agency's conclusions simply because the panel would have arrived at a different outcome if it were making the determination itself. In addition, in the absence of an allegation that the agency failed to investigate sufficiently or to collect certain information, a panel must limit its examination to the evidence that was before the agency during the course of the investigation, and must take into account all such evidence submitted by the parties to the dispute. In other words, a panel may not conduct a de novo review of the evidence or substitute its judgement for that of the investigating authority. A failure to apply the proper standard of review constitutes legal error under Article 11 of the DSU.
These general principles reflect the fact that a panel examining a subsidy determination should bear in mind its role as reviewer of agency action, rather than as initial trier of fact. Thus, a panel examining the evidentiary basis for a subsidy determination should, on the basis of the record evidence before the panel, inquire whether the evidence and explanation relied on by the investigating authority reasonably supports its conclusions....281 (footnotes omitted)
Article 31: General rule of interpretation
1. A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.
2. The context for the purpose of the interpretation of a treaty shall comprise, in addition to the text, including its preamble and annexes:
(a) any agreement relating to the treaty which was made between all the parties in connection with the conclusion of the treaty;
(b) any instrument which was made by one or more parties in connection with the conclusion of the treaty and accepted by the other parties as an instrument related to the treaty.
3. There shall be taken into account, together with the context:
(a) any subsequent agreement between the parties regarding the interpretation of the treaty or the application of its provisions;
(b) any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation;
(c) any relevant rules of international law applicable in the relations between the parties.
4. A special meaning shall be given to a term if it is established that the parties so intended.
Article 32: Supplementary means of interpretation
Recourse may be had to supplementary means of interpretation, including the preparatory work of the treaty and the circumstances of its conclusion, in order to confirm the meaning resulting from the application of article 31, or to determine the meaning when the interpretation according to article 31:
(a) leaves the meaning ambiguous or obscure; or
(b) leads to a result which is manifestly absurd or unreasonable.
Article 33: Interpretation of treaties authenticated in two or more languages
1. When a treaty has been authenticated in two or more languages, the text is equally authoritative in each language, unless the treaty provides or the parties agree that, in case of divergence, a particular text shall prevail.
2. A version of the treaty in a language other than one of those in which the text was authenticated shall be considered an authentic text only if the treaty so provides or the parties so agree.
3. The terms of the treaty are presumed to have the same meaning in each authentic text.
4. Except where a particular text prevails in accordance with paragraph 1, when a comparison of the authentic texts discloses a difference of meaning which the application of articles 31 and 32 does not remove, the meaning which best reconciles the texts, having regard to the object and purpose of the treaty, shall be adopted.
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..." (emphasis added, footnote omitted)
(1) The Korean government had expressed an intention to "keep Hynix alive";
(2) No rational creditor would have entered into the restructuring transactions, in view of Hynix's poor, and deteriorating, financial condition; and
(3) The evidence submitted by the individual creditors (or the findings made by the JIA based on facts available where the creditors were non-responsive) did not establish that the creditors had conducted a sufficient analysis of the various transactions before entering into them.
110. The term "entrusts" connotes the action of giving responsibility to someone for a task or an object. In the context of paragraph (iv) of Article 1.1(a)(1), the government gives responsibility to a private body "to carry out" one of the types of functions listed in paragraphs (i) through (iii) of Article 1.1(a)(1). As the United States acknowledges, "delegation" (the word used by the Panel) may be a means by which a government gives responsibility to a private body to carry out one of the functions listed in paragraphs (i) through (iii). Delegation is usually achieved by formal means, but delegation also could be informal. Moreover, there may be other means, be they formal or informal, that governments could employ for the same purpose. Therefore, an interpretation of the term "entrusts" that is limited to acts of "delegation" is too narrow.
111. As for the term "directs", we note that some of the definitions—such as "give authoritative instructions to" and "order (a person) to do"—suggest that the person or entity that "directs" has authority over the person or entity that is directed. In contrast, some of the other definitions—such as "inform or guide"—do not necessarily convey this sense of authority. In our view, that the private body under paragraph (iv) is directed "to carry out" a function underscores the notion of authority that is included in some of the definitions of the term "direct". This understanding of the term "directs" is reinforced by the Spanish and French versions of the SCM Agreement, which use the verbs "ordenar" and "ordonner", respectively. Both of these verbs unambiguously convey a sense of authority exercised over someone. In the context of paragraph (iv), this authority is exercised by a government over a private body. A "command" (the word used by the Panel) is certainly one way in which a government can exercise authority over a private body in the sense foreseen by Article 1.1(a)(1)(iv), but governments are likely to have other means at their disposal to exercise authority over a private body. Some of these means may be more subtle than a "command" or may not involve the same degree of compulsion. Thus, an interpretation of the term "directs" that is limited to acts of "command" is also too narrow.
113. We recall, moreover, that Article 1.1(a)(1) of the SCM Agreement is concerned with the existence of a financial contribution. Paragraph (iv), in particular, is intended to ensure that governments do not evade their obligations under the SCM Agreement by using private bodies to take actions that would otherwise fall within Article 1.1(a)(1), were they to be taken by the government itself. In other words, Article 1.1(a)(1)(iv) is, in essence, an anti-circumvention provision. A finding of entrustment or direction, therefore, requires that the government give responsibility to a private body—or exercise its authority over a private body—in order to effectuate a financial contribution.
114. It follows, therefore, that not all government acts necessarily amount to entrustment or direction. We note that both the United States and Korea agree that "mere policy pronouncements" by a government would not, by themselves, constitute entrustment or direction for purposes of Article 1.1(a)(1)(iv). Furthermore, entrustment and direction—through the giving of responsibility to or exercise of authority over a private body—imply a more active role than mere acts of encouragement. Additionally, we agree with the panel in US – Export Restraints that entrustment and direction do not cover "the situation in which the government intervenes in the market in some way, which may or may not have a particular result simply based on the given factual circumstances and the exercise of free choice by the actors in that market". Thus, government "entrustment" or "direction" cannot be inadvertent or a mere by-product of governmental regulation. This is consistent with the Appellate Body's statement in US – Softwood Lumber IV that "not all government measures capable of conferring benefits would necessarily fall within Article 1.1(a)"; otherwise paragraphs (i) through (iv) of Article 1.1(a) would not be necessary "because all government measures conferring benefits, per se, would be subsidies."
115. Furthermore, such an interpretation is consistent with the object and purpose of the SCM Agreement, which reflects a delicate balance between the Members that sought to impose more disciplines on the use of subsidies and those that sought to impose more disciplines on the application of countervailing measures. Indeed, the Appellate Body has said that the object and purpose of the SCM Agreement is "to strengthen and improve GATT disciplines relating to the use of both subsidies and countervailing measures, while, recognizing at the same time, the right of Members to impose such measures under certain conditions". This balance must be borne in mind in interpreting paragraph (iv), which allows Members to apply countervailing measures to products in situations where a government uses a private body as a proxy to provide a financial contribution (provided, of course, that the other requirements of a countervailable subsidy are proved as well). At the same time, the interpretation of paragraph (iv) cannot be so broad so as to allow Members to apply countervailing measures to products whenever a government is merely exercising its general regulatory powers.
116. In sum, we are of the view that, pursuant to paragraph (iv), "entrustment" occurs where a government gives responsibility to a private body, and "direction" refers to situations where the government exercises its authority over a private body. In both instances, the government uses a private body as proxy to effectuate one of the types of financial contributions listed in paragraphs (i) through (iii). It may be difficult to identify precisely, in the abstract, the types of government actions that constitute entrustment or direction and those that do not. The particular label used to describe the governmental action is not necessarily dispositive. Indeed, as Korea acknowledges, in some circumstances, "guidance" by a government can constitute direction. In most cases, one would expect entrustment or direction of a private body to involve some form of threat or inducement, which could, in turn, serve as evidence of entrustment or direction. The determination of entrustment or direction will hinge on the particular facts of the case. (footnotes omitted)
As a conceptual matter, sub-paragraph (iv) of Article 1.1(a) does not limit a finding of "entrustment or direction" to situations in which private entities are forced by a government to undertake actions that are not in their own interests. A government could, for example, order a bank to make a loan on commercial terms to a creditworthy borrower. In such cases, there might be entrustment or direction, but there would also be no benefit to the recipient — and, as a result, there would be no subsidy.
a finding that a transaction was or was not in the private entity's own interests would ordinarily be relevant to a determination whether entrustment or direction occurred that is based on circumstantial evidence. Obviously, a finding that a particular transaction was not in the private entity's own interests would lead to an inference that some "external," "non-commercial" factor (to use the JIA's phraseology) had caused the private entity to enter into the transaction. On the other hand, such an inference would obviously be improper when there is a finding that the particular transaction actually was in the private entity's own interests.
150.... if, as here, an investigating authority relies on individual pieces of circumstantial evidence viewed together as support for a finding of entrustment or direction, a panel reviewing such a determination normally should consider that evidence in its totality, rather than individually, in order to assess its probative value with respect to the agency's determination. Indeed, requiring that each piece of circumstantial evidence, on its own, establish entrustment or direction effectively precludes an agency from finding entrustment or direction on the basis of circumstantial evidence. Individual pieces of circumstantial evidence, by their very nature, are not likely to establish a proposition, unless and until viewed in conjunction with other pieces of evidence.
151. Furthermore, in order to examine the evidence in the light of the investigating authority's methodology, a panel's analysis usually should seek to review the agency's decision on its own terms, in particular, by identifying the inference drawn by the agency from the evidence, and then by considering whether the evidence could sustain that inference. Where a panel examines whether a piece of evidence could directly lead to an ultimate conclusion—rather than support an intermediate inference that the agency sought to draw from that particular piece of evidence—the panel risks constructing a case different from that put forward by the investigating authority. In so doing, the panel ceases to review the agency's determination and embarks on its own de novo evaluation of the investigating authority's decision. As we explain below, panels may not conduct a de novo review of agency determinations.
152. In this case, as we observed above, the USDOC relied on the evidence to arrive at certain factual conclusions as an intermediate step in its analysis before finding entrustment or direction. These intermediate factual conclusions were: (i) the GOK pursued a policy of preventing the financial collapse of Hynix; (ii) the GOK held control or influence over Hynix's Group B and C creditors; and (iii) the GOK pressured certain of Hynix's Group B and C creditors into participating in the financial restructuring. A proper assessment by the Panel, therefore, would have considered whether the individual piece of evidence being examined could tend to support—not establish in and of itself—the particular intermediate factual conclusion that the USDOC was seeking to draw from it. By looking instead to whether such evidence directly supported a finding of entrustment or direction, the Panel determined certain pieces of evidence not to be probative when, in fact, had they been properly viewed in the framework of the USDOC's examination, their relevance would not have been overlooked. (footnotes omitted)
[T]he deterioration of Hynix's financial situation was such that its rating was downgraded even to "Selective Default," and it was unable to raise funds from the commercial market. The Investigating Authorities therefore find that there was no investor that would invest in or make loans to Hynix in the general commercial market from a normal commercial perspective.
Under such circumstances, KEB, Woori Bank, Chohung Bank and NACF made financing decisions that were not based on commercial consideration[s].305
The alleged presumption
[T]he deterioration of Hynix's financial situation was such that its rating was downgraded even to "Selective Default," and it was unable to raise funds from the commercial market. The Investigating Authorities therefore find that there was no investor that would invest in or make loans to Hynix in the general commercial market from a normal commercial perspective.309 (emphasis supplied)
The inside investor perspective
Given the totality of these facts, the Investigating Authorities find that the Government of Korea had a political intent to make Hynix survive at the time, had been ascertaining at all times the progress of discussion of the October 2001 Program, which is considered to have started at the end of July 2001, kept in contact with creditor financial institutions, and had an intention to intervene depending on the circumstances.318
Further, taking into account the facts that the Government of Korea had a strong interest in the Hynix problem since the end of 2000, that the government had kept contacting the creditor financial institutions, requesting their cooperation and monitoring them, and that in 2002 the government undertook intervention as described above, the Investigating Authorities find that it was commonly recognized that the Government of Korea had the intent to support Hynix at the time of the December 2002 Program.319
Singularity of Government Intent
· The Deputy Prime Minister of Korea was quoted as saying "The creditor council will support Hynix if it sees any hope for Hynix, but the slow down in semiconductor and other factors can lead them to another decision."
· The President of Shinhan Bank, Lee Inho, was quoted as saying, "Before all financial support, we should make a right judgment if Hynix can survive or not, and more financial aid would be difficult."
· The President of Hanvit Bank, Lee Deokhun, was quoted as saying that the creditor's council might agree to provide additional financial assistance to Hynix. In this regard, he noted that the alleged Korean government interference "does not matter since the creditor council is independently searching a support plan to minimize our own financial damage."
· October 2001: Korea asserts that the independent analyses by Anjin Accounting and the Monitor Group had demonstrated that Hynix's going-concern value at the time of the October 2001 restructuring far exceeded its liquidation value.
Korea accepts that these reports were not finalized until after the terms of the October 2001 restructuring had been approved by the banks, but asserts that the banks testified that they had received the reports in draft form before they made their decisions. Korea also asserts that at least one of the banks also submitted its own internal analysis, showing roughly the same results.
· December 2002: Korea asserts that the analyses prepared by Deutsche Bank and [[BCI]] in connection with the December 2002 restructuring had shown that Hynix's going concern value far exceeded its liquidation value. Korea states that the final versions of these reports had been prepared and circulated to the banks before the banks made their decisions to participate in the restructuring.
Korea asserts that the JIA never disputed the calculation of the going-concern value or liquidation value in those reports. Instead, the JIA disputed the substantive merits of the reports.
Based thereon, the Investigating Authorities examined the decision-making process of the individual creditor banks and find that there were decisions that were not commercially reasonable. It is not found that the decisions of the creditor banks were commercially unreasonable directly from the fact that it was impossible to raise funds from the commercial market or from new investors. …
In the Essential Facts, the commercial reasonableness of the decisions by the creditor banks to participate in the Hynix bailout measures was examined based on the specific individual circumstances and on the evidence concerning the review process pertaining to participation in the bailout measures on the premise that existing creditors would possibly provide additional funding in order to maximize the recovery of credit.349
Outside / Inside Investor Perspective
In the Essential Facts, the Investigating Authorities find it was difficult for Hynix to raise funds from the commercial market at the time taking into consideration the worsening DRAM market, the deteriorating financial condition of Hynix, the trends of Hynix share price and others, the deterioration in its external credit rating, and other indicators. Based thereon, the Investigating Authorities examined the decision-making process of the individual creditor banks and find that there were decisions that were not commercially reasonable.350
(140) In the Essential Facts, the Investigating Authorities find it was difficult for Hynix to raise funds from the commercial market at the time taking into consideration the worsening DRAM market, the deteriorating financial condition of Hynix, the trends of Hynix share price and others, the deterioration in its external credit rating, and other indicators. Based thereon, the Investigating Authorities examined the decision-making process of the individual creditor banks and find that there were decisions that were not commercially reasonable. It is not found that the decisions of the creditor banks were commercially unreasonable directly from the fact that it was impossible to raise funds from the commercial market or from new investors. Accordingly, the rebuttal by the Government of Korea that "the Investigating Authorities concluded that the debt restructuring acts of the banks were all non-commercial measures because of the unsatisfactory financial state of Hynix," and "commercial reasonableness was examined by evaluating the measures from the perspective of corporations that are providing new financing or investment to the pertinent company" differs from the findings in the Essential Facts; thus this rebuttal cannot be accepted. When examining the decision-making processes of the individual creditor banks, the Investigating Authorities conducted substantive bank-by-bank analysis of their decision-making processes to participate in the Hynix support measures based on the submitted internal examination documents and other materials that served as a basis for their decisions. Consequently, the rebuttal that "an abstract and general evaluation of the commercial reasonableness of the debt restructuring was conducted despite that it must be evaluated from the real and specific standpoint of the creditor institutions participating in such measures" also differs from the findings in the Essential Facts; thus this rebuttal cannot be accepted.
(141) In the Essential Facts, the commercial reasonableness of the decisions by the creditor banks to participate in the Hynix bailout measures was examined based on the specific individual circumstances and on the evidence concerning the review process pertaining to participation in the bailout measures on the premise that existing creditors would possibly provide additional funding in order to maximize the recovery of credit. No abstract judgment was made as to whether or not the decisions conform to a fixed economic model. The assertions of Hynix and Micron are both arguments that concern economic models, and are not based on specific evidence leading to the decisions by the individual banks to participate in the bailout measures. Accordingly, they cannot be accepted.
(142) In any case, irrespective of whether one is an existing creditor or not, financial institutions examine a variety of factors from a profit-maximization or loss-minimization perspective such as the financial conditions of the pertinent company, its future potential, comparison of its going-concern value with its liquidation value when making investment or lending decisions. If such an examination was carried out in a reasonable manner, then it can be said that a commercially reasonable decision had been made based on the results of the examination even if the result was the incurrence of a loss. On the other hand, in the case where the examination was insufficient, then one cannot make a finding that a commercially reasonable decision had been made even if it resulted in generation of profit. In the Essential Facts, the Investigating Authorities find that the financial institutions that participated in the support did not conduct sufficient examination of this sort, and that they decided to support non-commercially. (emphasis supplied)
According to the internal credit examination document concerning the October 2001 Program Woori Bank submitted at the on-the-spot investigation, Woori Bank was fully aware of the pessimistic financial situation of Hynix. It based its approval of the October 2001 Program on considerations of the public interest [[BCI]].* Moreover, there was a news report that President of the Bank had stated that the Bank was prepared to provide support for the debt-to-equity swap and new funds if the creditor banks agreed.* These facts support the fact that Woori Bank gave priority to the public interest, i.e., the bailout of Hynix, over its own commercial judgment. At the same time, according to Woori Bank's response to the questionnaires, the credit rating of Hynix was [[BCI]]* the soundness classification was [[BCI]] at the end of 2001, and Woori Bank set aside [[BCI]]% [of claims to Hynix] as a loan-loss reserve.* This rate was very high compared with the average reserve rate for other claims, which was [[BCI]]%,* and it shows that the bank had low expectations of the possibility of recovering Hynix loans. As described above, with regard to the reports by various institutions, which was submitted as the basis for its judgment, it was apparent at that time that the two reports existing at the time of the resolution of the October 2001 Program (the SSB Report and the Monitor Group Report) lacked reliability to serve as the material to substantiate the validity of the financial analysis to participate in the October 2001 Program from a commercial perspective. At the same time, Woori Bank selected option 1 prior to the release of the Arthur Andersen Report, on which the October 2001 Program relied. The Investigating Authorities do not find that Woori Bank's provision of credit under such circumstances as credit provided based on normal commercial judgment.358 (* footnotes omitted)
Internal analyses of the October 2001 restructuring
Chohung Bank extended credit in a non-commercial manner on the basis of fact that inter alia the decision was made to fulfil the [Memorandum of Understanding (hereinafter "MOU")] rather than based on the possibility of rehabilitating Hynix and that the Bank selected Option 1 before the AA Report and others were presented. With regards to the finding, Chohung Bank asserts that it had "various internal and external materials;" however, Chohung Bank responded at the on-the-spot investigation that "the materials that formed the basis of the pertinent examination no longer remain at our Bank,"* and it has not submitted the aforementioned "various internal and external materials" to the Investigating Authorities. In addition, although the internal credit examination document that the Bank submitted contains an analysis of the liquidation value of Hynix (i.e., the compensation when selected Option 3), there is no indication that the Bank evaluated the Hynix going-concern value or the Hynix share price for the selection of Option 1 or Option 2. Thus, the assertion that the Bank selected the most favourable option from Options 1, 2, and 3 based on the impact each option would have on its profit-and-loss is inconsistent with the evidence on the record of the investigation. Consequently, the assertion that the Bank "selected Option 1 which was the most favourable to the Bank, out of Options 1, 2, and 3, based on the impact it would have on profit-and-loss and the MOU" and the similar assertion of Hynix cannot be accepted.366 (* footnote omitted)