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Report of the Panel

TABLE OF WTO CASES CITED IN THIS REPORT

Short TitleFull Case Title and Citation

REPORTS CITED IN THIS REPORT

Short TitleFull Case Title and Citation
US – Norwegian Salmon CVD GATT Panel Report, Imposition of Countervailing Duties on Imports of Fresh and Chilled Atlantic Salmon from Norway, SCM/153, adopted 28 April 1994, BISD 41S/576

I. INTRODUCTION

1.1.
On 14 March 2006, the Government of Korea ("Korea") requested consultations with the Government of Japan ("Japan") pursuant to Article 4 of the Understanding on Rules and Procedures Governing the Settlement of Disputes (the "DSU"), Article 30 of the Agreement on Subsidies and Countervailing Measures (the "SCM Agreement"), and Article XXII of the General Agreement on Tariffs and Trade 1994 (the "GATT 1994") regarding the imposition of countervailing duties by Japan on imports of certain Dynamic Random Access Memories ("DRAMS") from Korea, and certain aspects of the investigation and determination that led to the imposition of such duties.1
1.2.
On 27 March 2006, the United States requested to be joined in these consultations pursuant to Article 4.11 of the DSU.2 The European Communities made a similar request on 29 March 2006.3 Japan accepted these requests.4 Consultations were held on 25 April 2006, but failed to settle the dispute.
1.3.
On 18 May 2006, Korea requested the Dispute Settlement Body (the "DSB") to establish a panel pursuant to Article 6 of the DSU, Article XXIII of the GATT 1994, and Article 30 of the SCM Agreement.5
1.4.
At its meeting on 19 June 2006, the DSB established a Panel pursuant to the request by Korea in document WT/DS336/5, in accordance with Article 6 of the DSU. 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:

"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."

1.5.
On 24 August 2006, the parties agreed to compose the Panel as follows:

Chairman: Mr. Daniel Moulis

Members: Dr. Faizullah Khilji

Mr. José Luis Santiago Pérez Gabilondo

1.6.
China, the European Communities and the United States reserved their third party rights.
1.7.
The Panel met with the parties on 5-6 December 2006 and on 23-24 January 2007. It met with the third parties on 6 December 2006.
1.8.
The Panel issued its Interim Report to the parties on 16 April 2007.

II. FACTUAL ASPECTS

2.1.
This dispute arises from Japan's imposition of definitive countervailing duties on imports of DRAMS from Korea manufactured by Hynix Semiconductor, Inc. ("Hynix"). Japan's investigating authorities (the "JIA") initiated a countervailing investigation on 4 August 2004, after an application for the imposition of countervailing duties on DRAMS from Korea was submitted by Elpida Memory, Inc. and Micron Japan, Ltd. The JIA sent questionnaires to a number of parties, including Hynix, the Government of Korea, and a number of Korean financial institutions. The period of investigation for the subsidy determination covered 1 January to 31 December 2003, while the injury period of investigation covered 1 April 2001 to 31 March 2004.
2.2.
On 21 October 2005, the JIA informed the Government of Korea and the parties involved in the proceeding of the essential facts under consideration, pursuant to Article 12.8 of the SCM Agreement. In the essential facts, the JIA found that certain debt restructuring programmes entered into by Hynix and its creditors in October 2001 and December 2002 were countervailable subsidies, and calculated a countervailing duty rate of 27.2 per cent on imports of DRAMS from Korea manufactured by Hynix. The JIA provided the Government of Korea and parties involved in the proceeding with the opportunity to submit comments and rebuttals on the essential facts as well as surrebuttals to the rebuttal comments.
2.3.
In its final determination dated 20 January 20066 the JIA upheld the findings set out in the essential facts. Annexed to the JIA's final determination were the essential facts ("Annex 1 (Essential Facts)")7, and the JIA's summary of and response to the comments and rebuttals and surrebuttals that had been submitted ("Annex 3 (Rebuttals and Surrebuttals)")8. These Annexes constitute an integral part of the final determination.
2.4.
Japan gave public notice of the final determination and announced the imposition of countervailing duties in Cabinet Order No. 139 and Ministry of Finance Notice No. 35,10 published respectively in Issue No. 4264 and Special Issue No. 17 of the Official Gazette, both dated 27 January 2006.

III. PARTIES' REQUESTS FOR FINDINGS AND RECOMMENDATIONS

A. KOREA

3.1.
Korea requests11 the Panel to find that:

(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."

3.2.
Korea also requests that the Panel suggest that the countervailing duty measures imposed by Japan on imports of DRAMS from Korea be immediately rescinded, and that any countervailing duties collected by Japan on such imports be refunded forthwith.

B. JAPAN

3.3.
Japan requests the Panel to reject Korea's claims in their entirety.

IV. ARGUMENTS OF THE PARTIES

4.1.
The arguments of the parties are set out in their written submissions and oral statements to the Panel, and in their answers to questions. The parties' arguments as presented in their written submissions and oral statements are summarized in this section.

A. FIRST WRITTEN SUBMISSION OF KOREA

4.2.
The following summarizes Korea's arguments in its first written submission.

1. Japan's Imposition of Countervailing Duties Was Based on a Fundamentally Flawed Assumption

4.3.
The imposition of countervailing duties by the Japanese Investigating Authority ("JIA") on DRAMs from Korea produced by Hynix was based on its conclusion that restructuring transactions entered into by Hynix's creditors in October 2001 and December 2002 constituted subsidies within the meaning of the "SCM Agreement". That determination, in turn, hinged almost entirely on the JIA's assumption that no rational creditor would have entered into the restructuring transactions with a company in Hynix's financial condition.
4.4.
The JIA's assumption, however, reflects a flawed understanding of how creditors of a firm that is facing "financial distress" actually operate.12 For creditors of an insolvent firm, the fundamental issue is whether the firm's "going-concern" value is greater than its "liquidation value." If the going-concern value is higher, rational creditors will take the steps needed to capture that higher value. When the realization of the higher going-concern value requires new investments, the existing creditors of an insolvent firm will be able to maximize their returns by providing new funds to the insolvent company – despite its apparently bad financial condition.
4.5.
By contrast, the arithmetic of the cost-benefit analysis will discourage new investors from making new loans or investments to an insolvent firm, because any returns generated by the new investments will have to be shared with the existing creditors to satisfy their unsatisfied pre-existing claims, even if those existing creditors do not participate in the new investment. The advantage that existing claimants have when analyzing new investments is not, however, immutable – because the arithmetic of the cost-benefit analysis for new investments can be altered by changing the status of pre-existing claims (for example, by "subordinating" the pre-existing claims). In practice, this subordination of existing claims is often accomplished by converting pre-existing debt into equity. Pre-existing creditors may benefit from the conversion of pre-existing debt into shares, if that conversion allows the company to attract investments and generate returns that would not otherwise be available.
4.6.
Despite these economic realities, creditors may, in practice, find it difficult to reach an agreement on debt-restructuring due to cooperation problems. Bankruptcy procedures have evolved both to enforce the legal rights of creditors, and to provide a mechanism for working out the conflicting interests of the creditors, managers and shareholders of the firm. In practice, a variety of approaches have been adopted. In the end, however, the outcome under the different approaches is essentially the same. As one World bank expert explained: "[T]he differences among bankruptcy laws matter mainly for negotiating tactics, not outcomes."13
4.7.
The October 2001 and December 2002 restructurings of Hynix's debts were undertaken pursuant to a generally available Korean law modeled on the "London Approach" to debt restructuring. The restructurings were consistent with economic principles and with normal financial practices in Korea and other markets. And, they were extraordinarily successful for the creditors: The creditors that converted debt into equity in October 2001 earned a return of over 150 per cent, while the creditors that converted debt into equity in December 2002 earned a return of over 290 per cent.
4.8.
In these circumstances, the JIA's assumption that no rational creditor would have entered into the October 2001 and December 2002 restructurings is fundamentally flawed. As discussed more fully below, the findings that the JIA made based on that assumption are not consistent with the requirements of the SCM Agreement.

2. Japan's Investigation Was Procedurally Flawed and Legally Invalid

(a) Failure to Promulgate Benefit Calculation Methods

4.9.
Article 14 of the SCM Agreement requires that "any method" used to calculate the benefit of a subsidy must be provided for in the relevant legislation or implementing regulations. Japan's legislation and implementing regulations fail to meet this requirement. Japan's countervailing duty statute does not even mention the word "benefit." Its "Guidelines" – which implement Japan's countervailing duty statute – provide little guidance beyond what is already contained in Article 14 of the SCM Agreement. None of the detailed calculation formulas and methodologies described in Japan's determination in this case appear anywhere in the Japanese "Guidelines." In fact, although Japan's determination in this case sets forth specific rules for calculating the "benefit" of extensions of loan maturities and debt-equity swaps, the Guidelines do not even mention such transactions.
4.10.
If "any method" used to calculate the benefit of subsidies must be set forth in a Member's legislation or implementing regulations, then methods that are not set forth in legislation or implementing regulations cannot be used. Consequently, the JIA's determination that the alleged subsidies conferred a benefit on Hynix during the investigation period cannot be sustained. Indeed, unless and until Japan complies with the minimal procedural requirements of Article 14, it is not permitted to impose countervailing duties on imports from any WTO Members.

(b) Improper Burden of Proof

4.11.
From the earliest days of the GATT, it has been recognized that an investigating authority may not assume that the dumping or subsidies exist, and then require the foreign respondents to refute that assumption. Instead, the investigating authorities must obtain positive evidence demonstrating the existence of each element required for the imposition of antidumping or countervailing duties.14
4.12.
The JIA's analysis in this case failed to follow those principles. Its determination was based on the assumption that no rational creditor motivated by commercial considerations would have entered into the restructuring transactions. The JIA claimed (incorrectly in Korea's view) that the contrary evidence presented by the Korean government, Hynix and its creditors (including direct testimony) should be disregarded. But, the rejection of the evidence contradicting its assumptions is not proof that the assumptions were correct. Because the JIA failed to adduce positive evidence demonstrating the existence of a subsidy, its determination was not consistent with the provisions of Articles 2.4 and 15.1 of the SCM Agreement that require positive evidence of the existence of subsidies and injury, or with the more general requirement (under Articles 10, 11, 12, and 22 of the SCM Agreement and Article X:3 of the GATT 1994) that an investigating authority conduct an impartial, reasonable and fair investigation.

(c) Improper Identification of "Interested Parties"

4.13.
The JIA issued questionnaires in Japanese to 16 financial institutions that had been creditors of Hynix during the relevant period. When some of those institutions failed to provide information, the JIA resorted to "facts available." According to the JIA, this use of "facts available" in this manner was authorized by Article 12.7 of the SCM Agreement.
4.14.
By its terms, Article 12.7 applies only when necessary information is not provided by "interested parties." And, in order for an entity to be an "interested party," it must have an "interest" in the outcome of the proceeding.15 If an entity does not have an interest in the outcome, Article 12.7 does not permit the use of "facts available" for information the entity is unable or unwilling to provide.
4.15.
The JIA asserted that it was "obvious" and "normal" to consider the financial institutions to be "interested parties." However, the JIA never explained why it believed those entities were "interested" in the proceeding. Thus, it failed to establish a factual foundation for concluding that any of the financial institutions to which it sent questionnaires was, in fact, an "interested party."
4.16.
As the Appellate Body has recognized, it is improper to punish exporters that cooperate fully in an investigation for the non-responsiveness of others that are beyond their control.16 But that is exactly what the JIA did in this case: It imposed countervailing duties on Hynix's exports because other entities that were not under Hynix's control did not provide requested information, even though Hynix itself cooperated fully with all of the JIA's requests. That result is not consistent with the definition of "interested party" in Article 12 of the SCM Agreement, or with Japan's overall obligation to conduct an impartial, fair and reasonable investigation under Articles 10, 11, 12, and 22 of the SCM Agreement and Article X:3 of the GATT 1994.

3. Japan's Findings of Subsidies to Hynix Were Inconsistent with the Requirements of the SCM Agreement

(a) Improper Finding that Hynix Received Financial Contributions

(i) Improper Classification of Transactions that Did Not Involve Any Transfer of Funds as "Direct Transfers of Funds"

4.17.
As a matter of elementary logic, a "direct transfer of funds" under sub-paragraph (i) of Article 1.1(a)(1) requires, at a minimum, that there be a transfer of funds. In this regard, the ordinary meaning of the term "transfer" requires a "conveyance from one person to another of property."17 The term "funds" refers to "money."18 Thus, in order for there to be a "transfer" of "funds," money must change hands – from the government (or government-directed private body) to the subsidy recipient.
4.18.
In its determination, the JIA held that the term "direct transfers of funds" in sub-paragraph (i) encompassed all of the elements of the restructurings, including inter alia: (1) "extensions of the maturities" of existing loans, (2) "reductions of the interest rates on existing loans," (3) "conversion of interest-bearing debts to long-term loans," and (4) "debt-equity swaps." This conclusion is, however, plainly incorrect. There is no conveyance of money when a lender agrees to extend the maturities of existing loans, or to reduce the interest rates on existing loans, or to convert existing interest payment obligations into loan principal, or to write-off loans entirely, or to convert debts into equity. In those transactions, a creditor holding existing claims against the borrower agrees to modify the nature of those claims – or to exchange one set of claims for another – without providing any money to the borrower. Consequently, there is no transfer of funds, and sub-paragraph (i) of Article 1.1(a)(1) does not apply. As a result, the JIA's finding that the restructurings provided "financial contributions" because all of their elements were "direct transfers of funds" cannot be sustained.

(ii) Lack of Factual Findings for a Determination that Revenue Otherwise Due Had Been Foregone

4.19.
Although modifications to loan terms and debt-equity swaps are not "direct transfers of funds" within the meaning of sub-paragraph (i) of Article 1.1(a)(1), they might, in appropriate circumstances, be considered "foregone government revenue" within the meaning of sub-paragraph (ii) of that provision. In this regard, the Appellate Body has explained that the analysis under sub-paragraph (ii) necessarily requires a "comparison between the revenues due under the contested measure and revenues that would be due in some other situation."19 But, the JIA never purported to make such a comparison in this case – and it never made the factual findings that would be needed for such a comparison. Thus, the JIA's finding of financial contributions from the various elements of the restructuring – such as the extension of the maturities of the loans, modifications to interest rates, write-off of debts, and swaps of debt for equity – cannot be sustained.
4.20.
Even if Japan were permitted to offer post hoc rationalizations to explain how the various transactions constituted "foregone government revenue," the outcome would be the same. For example, extensions of loan maturities (or roll-ups of interest into principal) do not represent foregone revenue when interest is charged on the amounts to be paid for the extended loan period. Furthermore, exchanges of debt for equity do not represent foregone revenue, when the debt would otherwise have been discharged in bankruptcy proceedings, and did not have a greater value than the equity for which it was exchanged. In these circumstances, the various modifications to the terms of Hynix's outstanding debts did not represent any "foregoing" of revenues by Hynix's creditors, and thus were not financial contributions within the meaning of sub-paragraph (ii) of Article 1.1(a) of the SCM Agreement.

(iii) Improper Finding of "Entrustment or Direction" of Hynix's Private Creditors

4.21.
The Appellate Body has observed that sub-paragraph (iv) of Article 1.1(a) is a kind of "anti-circumvention" provision, which prevents governments from evading the disciplines of the SCM Agreement by taking action through private bodies that would constitute subsidies if performed directly by the government.20 A finding of "entrustment or direction" is permitted, therefore, only where a government uses a private body as a "proxy." The Appellate Body has also clarified that the evidence relied upon by an investigating authority in making that determination must demonstrate that entrustment or direction has occurred with respect to each private body in a given financial contribution.21
4.22.
The JIA's finding of "entrustment or direction" was based, in the end, on the following findings:

(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.

4.23.
First, none of the stories cited by the JIA reported a government desire to save Hynix at the expense of its creditors. Instead, the stories relating to the restructurings consistently reported only that the government viewed the restructurings as matters to be left to the creditors. There is no indication whatsoever that the government attempted to intervene to force the creditors to enter into transactions that were not in their own interests.
4.24.
There were a number of reports indicating that the Korean government was keeping an eye on the developments in Hynix's situation throughout all of the restructurings – and that the government at times expressed its desire to see the situation resolved expeditiously. However, this monitoring and expressed desire for expeditious resolution by the creditors is entirely consistent with the government's prudential role in preventing serious harm to the overall financial sector. By the same token, an intent to see the creditors resolve matters quickly is not the same as an intent to use the creditors as a "proxy" to save Hynix by pressuring them into entering into transactions that were not in their own interests.
4.25.
Second, as discussed above, rational profit-maximizing creditors can have sound reasons to provide new loans, extend the maturities of existing loans, swap debt for equity, or forgive loans entirely, even when the borrower is insolvent. Furthermore, there is ample evidence that such transactions occur all the time – whether in the context of formal bankruptcy proceedings or in informal workouts. The evidence in this case demonstrated that Hynix's going-concern value far exceeded its liquidation value at all relevant times. Consequently, the restructuring transactions were economically rational for Hynix's creditors.
4.26.
Third, the JIA itself admitted that finding of subjective irrationality in the banks decision-making processes was based on its conclusion that the banks' decisions were objectively irrational. Fortified by an assumption that the creditors' actions simply had to be irrational, the JIA looked for justifications to reject the evidence showing that the creditors had, in fact, undertaken a rational analysis and come to a rational decision. In following that approach, the JIA clearly did not conduct an unbiased examination of the evidence. But even with its biased rejection of the information presented by the creditors, the JIA still failed to establish its case. While the JIA might have rejected the creditors' descriptions of the analyses they performed, it did not present any positive evidence demonstrating that the creditors had actually failed to perform a rational analysis.
4.27.
Finally, the JIA's determination that the restructuring transactions were commercially irrational is inconsistent with the fact there were a number of "private creditors" who were not found by the JIA to be "entrusted or directed" and who entered into the restructuring transactions at the same time and on the same terms as the allegedly government-directed banks. Consequently, the JIA's assumption that the creditors entered into the restructurings only because of "entrustment or direction" by the Korean government cannot be sustained.

(b) Improper Finding that Hynix Received a Benefit from the Alleged Financial Contributions

4.28.
The Appellate Body has held that the determination of the existence of a benefit under Article 1.1(b) of the SCM Agreement requires a comparison: A benefit exists only where the "financial contribution" makes the recipient "better off" than it would otherwise have been.22
4.29.
Under Article 1.1(a)(1) of the SCM Agreement, the "financial contribution" from "entrustment or direction" is the government's action, and not the funds transfers or foregone revenue provided by the private creditors in response. Because the SCM Agreement refers to "benefits" flowing from the "financial contribution," it follows that the benefit analysis must focus on the effects of that government action. Consequently, the issue in this case is not whether Hynix was made "better off" by the various restructuring transactions. Instead, the issue is whether the alleged government involvement resulted in better restructuring transactions for Hynix than it would have been able to negotiate in the absence of government involvement.
4.30.
The JIA made no findings on that issue. It made no findings as to what a non-government-directed restructuring might have looked like. As a result, it never made the comparison required by the Appellate Body – to determine whether the governmentaction constituting the "financial contribution" made Hynix "better off."
4.31.
Furthermore, even if the benefit analysis were focused on the transactions themselves, and not on the alleged government action, the result would be the same.23 Article 14 of the SCM Agreement makes clear that transactions that are consistent with normal market behaviour do not confer a benefit on the recipient. As discussed above, there is ample evidence that real-world creditors enter into restructuring transactions with insolvent companies all the time. The restructuring of Hynix's debt was fully consistent with normal commercial practices – especially in light of the evidence demonstrating that Hynix's going-concern value far exceeded its liquidation value.
4.32.
And, the evidence was not just limited to economic theory and textbook examples. Instead, the evidence demonstrated that creditors that the JIA conceded were not government-directed entered into the same transactions on the same terms as the allegedly government-directed creditors. That fact alone should have resulted in a finding that the restructurings were consistent with the relevant market benchmarks.
4.33.
The JIA claimed that the actions of the non-government-directed creditors could not establish a market benchmark, due to distortions caused by subsidies allegedly provided to Hynix in the past. In other words, the JIA ignored the actual market transactions because it considered them inconsistent with the hypothetical transactions in a hypothetical market in which past transactions had not occurred. That analysis cannot be reconciled with the SCM Agreement's instructions to use actual market transactions as the benchmark for finding benefits. Also, it effectively double-counts alleged subsidy benefits, by finding a benefit from alleged past subsidies both when the alleged subsidy was first received and again when it allegedly permitted the recipient to obtain subsequent market-equivalent financing that would not otherwise have been available.
4.34.
In these circumstances, the JIA's failure to rely on actual market behaviour and the available market benchmarks to measure the benefit to Hynix cannot be sustained. Because the restructurings were consistent with normal commercial practices, and because non-government-directed private bodies entered into the same transactions at the same time and on the same terms, there was no benefit from the alleged government entrustment or direction.

(c) Improper Finding that the Alleged Subsidies Were Specific to Hynix

4.35.
The JIA found that the restructuring transactions were all specific to Hynix, because they were all "rescue measures specific to a specific corporation." But, that conclusion has no basis in the evidence. Even if the JIA were correct in describing the restructurings as government-directed "rescue measures", there is no evidence that such measures were unique to Hynix.
4.36.
The legal framework that governed Hynix's restructurings was the same as the rules that governed the restructuring of other Korean companies. The type of reports by financial experts that were relied upon in the Hynix restructurings were also relied upon in the restructurings of other Korean companies. There is no evidence that the terms of the Hynix restructuring transactions were any more favourable to Hynix than the terms of other restructurings involving similarly situated companies in Korea. In fact, the evidence presented to the JIA (including statements by Hynix's creditors) confirmed that Hynix was not treated any more favourably than any other Korean companies going through restructurings.
4.37.
By focusing microscopically on Hynix, the JIA missed the broader picture. In the absence of evidence that the role of the government and the government-directed banks in the Hynix restructuring was any different from their role in the thousands of similar situations occurring in Korea at the same time, the JIA's determination that the alleged subsidies were specific to Hynix cannot be upheld.

4. Japan Improperly Imposed Countervailing Duties on Imports that Were Not Subsidized

(a) Failure to Consider the Impact of Changes in the Ownership of Hynix

4.38.
The debt-equity swaps undertaken in the restructurings worked a fundamental change in the ownership of Hynix. Before those transactions, none of the creditor banks or financial institutions owned any shares in Hynix. Afterward, the creditor banks and financial institutions collectively owned an overwhelming majority of Hynix's shares. The restructurings also resulted in a fundamental change in Hynix's management – with a vice president of KEB (the lead creditor bank) taking over as Hynix's Chief Executive Officer in July 2002.
4.39.
The Appellate Body has held that, when there is a change in the ownership of a company at fair market value, the investigating authorities must consider whether the subsidies received before the change in ownership continue to provide a benefit after the ownership change. It has also held that such a change in ownership creates a rebuttable presumption that the benefits of the subsidy have been extinguished. And, it has found that the failure of investigating authorities to comply with that obligation is inconsistent with Articles 10, 14, 19, and 21 of the SCM Agreement.24
4.40.
In this case, the JIA failed to consider whether the subsidies allegedly provided to Hynix continued to provide benefits following the change in ownership wrought by the debt-equity swaps. Thus, in accordance with the Appellate Body past decisions, the JIA's determination was not consistent with Articles 10, 14, 19, and 21 of the SCM Agreement.

(b) Improper Imposition of Duties on Imports after the Benefit of the Alleged Subsidies Had Expired

4.41.
According to the JIA's analysis, Hynix's facilities had an estimated useful life of five years. As a result, the alleged subsidies were allocated over a five-year period, including the year in which they were received. Thus, the subsidies allegedly received by Hynix in 2001 were all allocated to the five-year period from 2001 to 2005.
4.42.
The JIA's final determination was published in January 2006. At the time the determination was published, the JIA knew that, under its calculations, the benefits from the October 2001 restructuring had already been assigned fully to previous years, and could not have any additional impact on 2006 or future years. Nevertheless, the JIA imposed a countervailing duty of 18.1 per cent in 2006 to offset the subsidies allegedly received in the October 2001 restructuring.
4.43.
Article 19.4 of the SCM Agreement provides that the countervailing duty imposed may not exceed the amount of the subsidy found "to exist." In other words, it does not permit duties to be imposed based on past subsidies that no longer "exist." Article 21.1 of the SCM Agreement makes this requirement explicit, providing that: "A countervailing duty shall remain in force only as long as and to the extent necessary to counteract subsidization which is causing injury."
4.44.
In this case, the JIA's calculations fully allocated the benefits of the October 2001 restructuring to the five years from 2001 to 2005. There were no benefits left from the October 2001 restructuring to be allocated to 2006. Consequently, the JIA's imposition of countervailing duties in 2006 based on the alleged benefit of the October 2001 restructuring was inconsistent with the requirements of Articles 19 and 21 and cannot be sustained.

5. Japan's Finding that the Subsidized Imports Were Causing Injury Was Inconsistent with the Requirements of the SCM Agreement

4.45.
The "causation" requirement set forth in Article 15.5 requires a demonstration "that the subsidized imports are, through the effects of subsidies, causing injury…." This requirement is echoed in Article 19.1, which permits the imposition of countervailing duties only if "a Member makes a final determination... that, through the effects of the subsidy, the subsidized imports are causing injury...." Under these provisions, it is not enough that the imports which happen to be subsidized are causing injury. Instead, it must also be demonstrated that the injury is occurring "through the effects of the subsidy."
4.46.
In its determination, the JIA concluded that any harm caused by Hynix's exports was necessarily a result of the subsidy, because Hynix would not have been in operation, and thus would not have been able to export, in the absence of subsidies. The JIA's argument is, however, based on a fundamental legal error. Contrary to what the JIA appears to believe, "bankruptcy" is not a synonym for piece­meal liquidation. Instead, "bankruptcy" is a legal process, which affords a debtor protection from its creditors while the debtor's future is being determined.
4.47.
The Korean bankruptcy laws do provide for liquidation of insolvent debtors in certain circumstances. But, as a general matter, "Korean bankruptcy law favours reorganization over liquidation."25 Consequently, there is no reason to believe that, if Hynix had filed for "bankruptcy," it would have ceased operations. In all likelihood, the "bankruptcy" of Hynix would simply have resulted in corporate reorganization before the Korean courts. Thus, the JIA's finding that the injury had occurred "through the effects of the subsidy" – which was based exclusively on its assumption that Hynix would have ceased operations without the alleged subsidies – has no basis. And, since the JIA has failed to "demonstrate that the subsidized imports are, through the effects of subsidies, causing injury," its countervailing duty measures cannot be sustained.

6. Request for Ruling and Recommendation

4.48.
In Korea's view, once the JIA's determination is brought into conformity with Japan's obligations under the GATT 1994 and the SCM Agreement, there can be no basis for the imposition of countervailing duties on imports of DRAMs from Korea. Korea therefore requests that the Panel suggest that the countervailing duty measures imposed by Japan on imports of DRAMs from Korea be immediately rescinded, and that any countervailing duties collected by Japan on such imports be refunded forthwith.

B. FIRST WRITTEN SUBMISSION OF JAPAN

4.49.
The following summarizes Japan's arguments in its first written submission.

1. The Panel's Terms Of Reference

4.50.
Korea's First Written Submission (FWS) raises a number of claims that either are outside of the Panel's terms of reference under Article 6.2 of the DSU or fail to present a prima facie case. Of the ten potential claims ultimately raised by Korea26, six lack sufficient specificity to form a valid claim. Specifically: Claim 2 (cites Articles not cited in Korea's Panel Request and fails to specify specific obligations within the cited Articles), Claim 3 (cites Articles not cited in Korea's Panel Request and fails to specify specific obligations within the cited Articles), Claim 5 (fails to specify specific obligations within the cited Article), Claim 6 (fails to specify specific obligations within the cited Article), Claim 7 (fails to specify specific obligations within the cited Articles), and Claim 10 (fails to provide any argument in support of the allegation), which correspond to Items 3, 4, 5, 6, 7, 9, 12, 13, and 15 of Korea's Panel Request, are not presented with sufficient clarity and should be dismissed.
4.51.
Furthermore, as pointed out in Japan's Request for a Preliminary Ruling, Items 9, 10, and 15 of Korea's Panel Request were not presented with sufficient clarity under Article 6.2 of the DSU to begin with. Japan respectfully requests that the Panel make a preliminary ruling to dismiss such defective claims.

2. Evidentiary and Procedural Issues

(a) Korea Failed to Meet Its Burden of Proof in This Dispute

4.52.
Korea fails to meet its burden of proof as the complaining party to present a prima facie case, and simply alleges violations without adequate analysis or explanation.27 However, as the Appellate Body has confirmed, Korea cannot rely on the Panel to make a case for the complaining party.28

(b) The Standard of Review of the Panel

4.53.
Article 11 of the DSU establishes the standard of review for panels which is to conduct an "objective assessment of the facts of the case and the applicability of and conformity with the relevant covered agreements." The Appellate Body has repeatedly clarified that in a dispute involving a determination made by investigating authorities, a panel may not conduct a de novo review of the evidence assessed in the investigation or substitute its judgement for that of the competent authorities, and that the panel's "objective assessment" is to inquire whether the evidence and explanation relied on by the investigating authority reasonably supports its conclusions.29 For example, where an investigating authority makes a finding relying on the totality of the evidence which includes circumstantial evidence, the panel must review the investigating authority's conclusion on the same basis.
4.54.
However, Korea has asked the Panel to review the JIA's determination in a manner that is different from how the JIA conducted its analysis and to examine information and arguments that was not before the JIA in the investigation. Korea's request for a de novo review is inconsistent with Article 11 of the DSU, and should be rejected.

3. The JIA's Factual Findings on The Subsidization of Hynix

4.55.
In addition to its findings on subsidization through public bodies, the JIA determined subsidization through private bodies under entrustment or direction by the Government of Korea based on the totality of the evidence on record. The record of the investigation demonstrates that the Government of Korea maintained a political intent to promote its semiconductor industry and also made the normalization of Hynix, which had been experiencing serious financial difficulties, one of its economic priorities. The Government of Korea repeatedly stated that Korea would take measures to normalize certain companies, such as Hynix. As such, Korea had strong concerns about the financial situation of Hynix. The Prime Minister's Decree No. 408 in 2000 allowed the Government of Korea to request cooperation or support of financial institutions and to exercise its rights as a shareholder in financial institutions. Certain banks recognized this situation and that the government's policies may influence their investment decisions in prospectuses submitted to the US SEC. The Government of Korea executed Memoranda of Understanding with various banks, gaining a degree of control over these banks. Furthermore, the Government of Korea held a significant share of the ownership of certain banks and was in a position to exert substantial or direct influence on such banks. The JIA found that from late 2000 through late 2002, the Government of Korea intervened in the banks' financial decision-making repeatedly.
4.56.
The JIA found that from late 2000 through May 2001, the Government of Korea extended subsidies to Hynix in a number of programs provided by public bodies and through private bodies under the entrustment or direction of the Government of Korea. Despite these subsidies, the financial situation of Hynix, which had been unable to obtain financing from the market, continued to deteriorate, necessitating further financial assistance. The Government of Korea's actions with respect to the private financial institutions ranged from, inter alia, pressing the private bodies to agree to provide financial support at meetings of Council for Creditor Financial Institutions, to sending instructions to KEIC to maintain prior subsidized financing, and to pressuring investment trust companies to make financial contributions against their will. The JIA found that the Government of Korea extended subsidies in the May 2001 Program through public bodies and private bodies entrusted or directed by the Government of Korea. The Government of Korea later officially acknowledged that the May 2001 Program was an example of success of the Government of Korea's efforts. The JIA examined each of the banks' determinations to participate in the Program on a bank-specific basis and found that the decisions of four banks to participate in the May 2001 Program were based on a factor other than commercial factors. Consequently, the JIA found entrustment or direction by the Government of Korea over these four banks.
4.57.
Hynix's financial condition continued to deteriorate after the May 2001 Program, and in October 2001, Hynix fell into a situation of "Selective Default" for its loan obligations. Hynix was unable to obtain financing from the commercial market. The Government of Korea's interest and involvement in Hynix's restructuring continued after May 2001. Through an examination of, inter alia, their internal credit examination records and reports on Hynix by external organizations, the JIA found that certain private banks' decisions to participate in the October 2001 Program were not based on commercial considerations. Furthermore, although the banks claimed to have relied on the Arthur Anderson Report when making their decisions, the Report was not issued until after the decisions were made. Thus, the JIA found that the decisions by four banks to participate in the October 2001 Program were based on a factor other than commercial factors. Consequently, the JIA found entrustment or direction by the Government of Korea over these four banks.
4.58.
The October 2001 Program did not solve Hynix's financial problems, which continued through 2002, necessitating yet another bailout in December 2002. The JIA found, inter alia, that the Government of Korea kept contacting creditors, requesting their cooperation, monitoring them, and had intervened into the preparation of the report commissioned by the banks and Hynix summarizing the December 2002 Program, i.e., the Deutsche Bank Report, which contained obvious discrepancies in its calculations. Hynix itself admitted that the Deutsche Bank Report contained errors effecting its calculation of the going-concern value of Hynix. The JIA found that the decisions of four banks to participate in the December 2002 Program were based on a factor other than commercial factors. Consequently, the JIA found entrustment or direction by the Government of Korea over these four banks.

4. Korea's Claims of Errors

(a) The JIA Correctly Based the Final Determination on an Objective Assessment of the Evidence on the Record and Provided Reasoned and Adequate Explanations Based on Probative and Compelling Evidence

4.59.
The JIA conducted a reasonable and objective examination of the extensive evidence on record and made its determination on the basis of the evidence in its totality. Evidence on the record that infers entrustment or direction includes the Government of Korea's official documents, the questionnaire responses of the interested parties, sworn statements by the financial institutions to the US SEC recognizing the Government of Korea's influence on their decisions, the investigative reports of Korea's National Assembly, and detailed public comments by top officials of the Government of Korea and bank representatives attesting their collaboration for Hynix, and various news reports. The JIA also reviewed credit ratings by third parties and financial institutions that participated in Hynix bailout programs; reports for Hynix bailout programs prepared by several external organizations including SSB, Arthur Andersen, and Deutsche Bank; and internal credit examination documents of individual banks to decide whether to participate in Hynix bailout programs, and provided a reasoned explanation of how such evidence demonstrated entrustment or direction to certain private banks as well as its overall determination. The JIA also examined arguments raised by interested parties concerning the JIA's determination, and gave explanations of the reasons why it chose to discount alternatives to reach its conclusions. Thus, the JIA's Final Determination was consistent with the requirements of the SCM Agreement.
4.60.
Korea has failed to demonstrate any example of an alleged "reversal of the burden of proof" or a "finding not based on affirmative evidence" by the JIA. Korea's claims on these issues are based on an erroneous position that "smoking gun" evidence is required for finding entrustment or direction, a position already rejected in prior disputes, and should be rejected.

(b) Korea Misinterprets the Evidentiary Standard for an Investigation

4.61.
As clarified by the Appellate Body, the SCM Agreement does not specify a particular "standard for the evidence required to substantiate a finding of entrustment or direction under Article 1.1(a)(1)(iv)", and only requires that "the total evidence relied on by an agency must 'demonstrate' entrustment or direction" for the relevant financial institutions. This evidence need not be "irrefutable," nor "be of such quality or quantity so as to 'force' the [investigating authority] to arrive at a finding of entrustment or direction."30 Under the SCM Agreement, individual pieces of circumstantial evidence may be assessed "in conjunction with other pieces of evidence" to establish a proposition. Consequently, investigating authorities may conduct a comprehensive analysis on "the totality of the evidence" and, when taking into account circumstantial evidence, consider "how the interaction of certain pieces of evidence may justify certain inferences that could not have been justified by a review of the individual pieces of evidence in isolation."31
4.62.
The evidentiary standard Korea proposes has no basis in the SCM Agreement. If accepted, such argument would amount to an imposition of a qualitative standard higher than that contemplated by the SCM Agreement, and thus should be rejected.

(c) The JIA Properly Found Financial Contributions to Hynix

(i) The JIA's Finding of a Transfer of Funds Was Consistent with Article 1.1(a)(1)(i) of the SCM Agreement

4.63.
The JIA correctly found that the extension of loan maturities, reductions of interest rates, transfers of the interest payments of loans into long-term loans, and debt-to-equity swaps were transfers of funds under Article 1.1(a)(1)(i) of the SCM Agreement. Korea appears to argue that only the types of transfers of funds explicitly listed in Article 1.1(a)(1)(i) qualify as transfers of funds for the purpose of the SCM Agreement. Korea, however, ignores the text of the provision, which indicates the listed transfers of funds are merely illustrative. This Article has been interpreted broadly in light of the use of an illustrative list. The panel in Korea - Commercial Vessels found that "interest rate reductions and deferrals," "interest/debt forgiveness," and "debt-for-equity swaps", which are the types of transfer of funds at issue in this case, are financial contributions under Article 1.1(a)(1)(i).32 Korea also ignores the admonition of the Appellate Body that a narrow interpretation of the SCM Agreement's financial contribution provisions "would permit the circumvention of subsidy disciplines" of the SCM Agreement.33 Thus, Korea's claim on "transfer of funds" is based on an incorrect interpretation of Article 1.1(a)(1)(i) of the SCM Agreement.

(ii) The JIA Properly Found the Government of Korea's Entrustment or Direction to Private Creditors

4.64.
The JIA examined the totality of the evidence on record and found that the Government of Korea entrusted or directed certain private bodies to provide financial contributions to Hynix within the meaning of Article 1.1(a)(1)(iv) of the SCM Agreement. The JIA's findings were consistent with the requirements of Article 1.1(a)(1)(iv) as clarified by the Appellate Body, which has explained that "entrust" and "direct" are broader than "delegation" and "command."34
4.65.
The JIA based its finding of entrustment or direction on ample evidence, including evidence of the non-commercial nature of the investment decisions taken by the participating creditor banks35, evidence demonstrating the Government of Korea's power to control the creditor banks that ultimately participated in the October 2001 Program and the December 2002 Program36, and evidence that the Government of Korea had the clear intent to save Hynix and evidence that the Government of Korea exercised its authority over the banks, giving the banks the responsibility to restructure and rescue Hynix.37 After assessing such evidence in its totality, The JIA reasonably concluded that the Government of Korea had entrusted or directed the financial institutions to provide the financial assistance to Hynix.
4.66.
Such evidence demonstrated that the Government of Korea took actions that were much more than mere expressions of an intention to save Hynix, as the Government of Korea had exercised its authority over the banks to provide the financial measures to Hynix. The JIA examined each financial institution on a bank-specific and bailout program-specific basis, focusing on the banks' own assessments of Hynix and of the bailout programs. After reviewing such evidence, the JIA concluded that the banks based their decisions to participate in the programs on a factor other than commercial factors. The JIA did not, as Korea now argues, apply a particular economic theory in its analysis of the banks' decision-making process or operate under the broad supposition that "no rational creditor would have entered" the Hynix bailout programs. Indeed, the JIA did not require the banks to establish that they made a sufficient analysis according to some particular economic model. The JIA examined the banks' actual decision-making process to participate in the Hynix bailouts, following the process that these banks stated that they had followed. The JIA concluded that the evidence demonstrated that private creditors made non-commercial decisions. The JIA further determined that certain private banks participated in Hynix bailout programs because of entrustment or direction by the Government of Korea.
4.67.
Korea mistakenly argues that entrustment or direction can only be found when the entrusted or directed party pursues a measure that is against its own interest. However, Korea's argument has no basis in the text of the SCM Agreement. It also ignores the Appellate Body's explanation that entrustment may be established when the government simply "giv[es] responsibility to someone for a task or an object."38 Thus, an examination of entrustment or direction requires an objective determination of whether such responsibility was given, not whether the responsibility was against the interest of the entrusted or directed private body.
4.68.
Korea's insistence that specific pieces of evidence should be examined in isolation from other evidence and must directly indicate a particular conclusion is inconsistent with the SCM Agreement, which does not limit the types of evidence on which an investigating authority may rely. As the Appellate Body explained, circumstantial evidence may be assessed in their totality; the interaction of certain pieces of evidence may justify certain inferences.39 Thus, Korea's insistence that each of individual pieces of evidence must establish the fact of existence of the entrustment or direction is baseless, and it is an attempt to distort the analytical approach adopted by the JIA in the investigation. Korea is requesting a de novo review by the Panel. Its arguments, therefore, should be rejected.
4.69.
Relying in part on an incorrect English translation of the JIA's determination, as well as information the Government of Korea, nor any other party, chose not to submit to the JIA during the investigation, Korea only presents general arguments on the JIA's bank-specific findings of entrustment or direction and ignores the JIA's actual analysis and explanations. A review of the JIA's actual bank-by-bank analysis would confirm that the JIA reasonably reached findings of entrustment or direction.

(d) The JIA Properly Found Benefit

4.70.
Under Articles 1.1(b) and 14 of the SCM Agreement and as clarified by the Appellate Body40, a benefit analysis is made from the perspective of the recipient, not the provider, and whether the recipient was better off than it would have been absent the financial contribution. Contrary to Korea's argument41, there is no requirement in the SCM Agreement that an investigation authority must consider what a "non-government restructuring might have looked like" in determining the amount of benefit without referring to the evidence on the record. Korea bases its arguments on two erroneous premises: (i) that investigating authorities must compare financial contributions actually provided to the recipient with financing, which might have been available to the recipient, ignoring the fact that Hynix and bailout programs could not have existed without prior government subsidies and therefore no evidence on the record provides any basis to consider such situation, and (ii) that benefit can be measured by the difference of returns that the creditors could have received had there been no government entrustment or direction.
4.71.
Korea ignores the Appellate Body's clarification42 that a situation distorted by the very same subsidies in question may not serve as a benchmark for the calculation of benefit because the use of such a distorted situation would frustrate the object and purpose of the SCM Agreement. Accordingly, the JIA did not use subsidy-distorted transactions as a benchmark, because Hynix's financial conditions were realized only as a result of the Government of Korea 's prior and contemporaneous subsidies, for which the JIA determined benefit. Korea also ignores the fact that the financial institutions which were not found to have been entrusted or directed by the Government of Korea also entered into the bailout programs based on consideration of non-commercial factors and overlooks the facts including Hynix's disastrous and ever deteriorating financial state, its bad history of serving debt, the collapse of the stock price after the GDR issuance of June 2001, and the reality that no new investors were willing to put funds into Hynix.
4.72.
Korea's remaining arguments on benefit either lack support in the evidence on the record of the investigation or are not based on the provisions of the SCM Agreement.

(e) The JIA Properly Found Specificity

4.73.
The JIA correctly found specificity under Article 2 of the SCM Agreement because the bailouts in question were tailored subsidies for one particular company, Hynix. The panel in EC-Countervailing Measures on DRAM Chips affirmed a similar finding that the bailouts were specific to Hynix, explaining that these subsidies were "for Hynix," "to Hynix," and "of Hynix."43 Korea has not attempted to distinguish the JIA's analysis on specificity in this case from that previously considered by the panel in EC-Countervailing Measures on DRAM Chips, nor has Korea identified the specific obligation within Article 2 of the SCM Agreement that the JIA allegedly violated. Japan is not required to search for the basis of Korea's claim among the numerous obligations under Article 2. The absence of any explanation specific obligations regarding specificity in Korea's FWS confirms that Korea has failed to present a prima facie case.
4.74.
Korea argues that the legal framework in which the Hynix bailouts were conducted was available to other Korean enterprises prevents a finding of specificity. However, Korea ignores the fact that the JIA did not find that the general legal framework itself was a government subsidy and the JIA's analysis on specificity, which was similar to that affirmed by the panel report's explanation in EC-Countervailing Measures on DRAM Chips.44
4.75.
Korea's argument is also based on non-record evidence concerning companies that were subject to the CRPA restructuring during the investigation. Therefore, Korea's claim concerning specificity should be dismissed.

(f) Korea's Change-in-Ownership Argument Is Irrelevant to the JIA's Subsidies Determination

4.76.
Korea's change-in-ownership argument is presented without any analysis or explanation on how Articles 10, 14, 19, and 21 support its conclusion. Furthermore, Korea argues that the debt-to-equity swaps under the October 2001 and December 2002 Programs themselves extinguished the benefits received by Hynix, but does not present any argument or evidence regarding change in ownership subsequent to the findings of benefit under each Program. However, the issue of a change in ownership is whether a subsidy continues to provide a benefit after a transfer of all or substantially all the property of the recipient of the subsidy (i.e., through privatization) through an arm's length transaction at fair market value.45 The debt-to-equity swaps under the October 2001 and December 2002 Programs do not meet any of these conditions. Korea is repeating an argument, which has already been rejected by the panel in Korea – Commercial Vessels, that a new subsidy, which is not a "fair market transaction", does not extinguish the benefit of a prior subsidy.46 The provisions of Articles 1.1(a)(1)(i) and 14(a) of the SCM Agreement also clearly contradict an interpretation that an equity infusion that amounts to a subsidy simultaneously extinguishes the benefit therein. Thus, Korea has failed to meet its burden of proof to present a prima facie case, and its argument should be rejected.

(g) The JIA Properly Imposed a Countervailing Duty on Imports Found to Have Been Subsidized during the Period of Investigation

4.77.
Korea's argument on the imposition period of countervailing duties does not follow from the SCM Agreement and should be rejected. The JIA found and calculated the amount of subsidies that existed at the time of the period of investigation, as required under Articles 19.1 and 19.4 of the SCM Agreement. There is no provision in the SCM Agreement that requires a determination of the imposition period in advance, or provides that an "allocation period" of a subsidy defines such imposition period. The provision of Article 19.2 - "all requirements for imposition have been fulfilled" - clarifies that the imposition of countervailing duties under Article 19 is a separate and distinct phase that occurs after the determination of subsidization. An investigating authority may impose a countervailing duty only after it determines that the countervailable subsidy "was bestowed"47 during the period of investigation, from the information gathered with respect to a period of investigation. There is no additional obligation, as Korea insists, to determine that the subsidy "is being bestowed" at the time of the imposition of the duties.
4.78.
Article VI:3 of GATT 1994, which authorizes the imposition of duties on a "subsidy determined to have been granted," further clarifies that an imposition of countervailing duties shall be based on a determination which necessarily precedes the imposition of the duty. Articles 10 and 11.1 of the SCM Agreement recognize that investigating authorities must conduct an investigation following multiple steps to determine the subsidization and injury; as a corollary of the time that is necessary to comply with these requirements, the imposition of countervailing duties concern the amount of subsidy found to exist in the period of investigation. The Appellate Body in Mexico-Anti-Dumping Measures on Rice also confirmed that the investigating authority's determination of the conditions for the imposition of a trade remedy may be based on a past period, i.e., the period of investigation.48 Korea's argument also ignores the guidance of the EC-Tube or Pipe Fittings panel report, which states, "[W]e are of the view that a finding that dumping exists during a recent past IP is a finding of 'present' dumping for the purposes of the Agreement."49
4.79.
Korea has not made any specific argument that a subsidy had been "removed" or "taken away" to qualify as a withdrawal in the meaning of Article 19.1 or any relevant argument concerning Article 21, which addresses a review that would be conducted after the imposition of countervailing duties.
4.80.
Based on the above, Korea's claim concerning the imposition period of the countervailing duty should be rejected.

(h) Japan's Guidelines Sufficiently Set Forth the Benefit Calculation Methods

4.81.
Contrary to Korea's argument, Japan complied with the requirements of Article 14 of the SCM Agreement to provide the calculation methods for subsidies in its Guidelines for Procedures Relating to Countervailing and Anti-dumping Duties, and notified WTO Members of the Guidelines prior to the investigation. The JIA explained the methods as applied in the present investigation and its application of the methods was consistent with the provisions of Articles 14.
4.82.
Korea's argument overlooks "the considerable leeway" that WTO Members have "in adopting a reasonable methodology"50 and the recognition of the Appellate Body that "more than one method consistent with Article 14 is available to investigating authorities for purposes of calculating the benefit to the recipient."51 Korea's argument reflects a fundamental misunderstanding between the methods set forth in Japan's Guidelines in accordance with the chapeau of Article 14 of the SCM Agreement with the application of the methodologies in this particular case. Korea has not demonstrated that the Guidelines or the application of methodologies fall outside of the parameters of Articles 14(a) through (d) of the SCM Agreement. Thus, Korea has not presented a prima facie case that the JIA violated Article 14 of the SCM Agreement.

(i) The JIA's Designation of Certain Financial Institutions as "Interested Parties" Is Consistent with the SCM Agreement

4.83.
Korea's argument on "interested parties" overlooks the last sentence of Article 12.9 of the SCM Agreement which allows WTO Members to include as interested parties domestic or foreign parties that are not included in the list of examples of interested parties. Contrary to Korea's argument, an interested party does not need to have an interest in the outcome of the proceedings, which is confirmed by Article 23, which recognizes the existence of "interested parties" that are not directly or individually affected by the administrative actions in the countervailing duty investigation. Thus, Korea's interpretation of "interested parties" would render inutile the provisions of Article 12.9 and Article 23 and is inconsistent with the SCM Agreement. Korea's argument also ignores the object of Article 1.1(a)(1)(iv), which is an "anti-circumvention" provision under which subsidies are provided through private bodies, as confirmed by the Appellate Body52. Korea's interpretation would remove the very parties that are at the centre of the investigation under Article 1.1(a)(1)(iv) from direct examination, ignoring the fundamental purpose of this provision.
4.84.
Contrary to Korea's allegation, the JIA did not "punish" Hynix or apply "adverse facts available" by including certain financial institutions as interested parties. First, Korea has not offered any specifics of its allegations or indicated the specific provisions of the SCM Agreement that the JIA allegedly failed to follow. Korea has not provided any explanation of the relevancy of Appellate Body Report in US – Hot-Rolled Steel, the only case cited by Korea,to this dispute. As a factual matter, the JIA did not find any subsidy with respect to a financial institution which did not submit timely responses to the questionnaire or which refused to accept the on-the-spot investigation and did not include the financial contribution from these institutions in the countervailing duties imposed. The JIA did not apply "adverse facts available" as Korea alleges. The JIA based its determinations on the information on the record that it was able to obtain, including the situations of the other parties that did provide information where interested parties did not provide information requested by the JIA. Korea has failed to present a prima facie case for its claim concerning the scope of interested parties, and Korea's arguments should be rejected.

(j) The JIA Correctly Considered the Effects of Subsidies to Injury

4.85.
Korea has failed to present any specific arguments to support its assertion that the causation analysis of the JIA in this case, as explained in the Final Determination, failed to comply with Articles 15.5 and 19.1 of the SCM Agreement. Rather than present a prima facie case, Korea is seeking from the Panel an advisory opinion on a particular provision of the SCM Agreement. In the absence of specific claims and arguments, Korea's claim on this issue should be rejected.
4.86.
Article 15.5 and footnote 47 of the SCM Agreement clearly equate the analysis of the effects of the subsidy to the analysis undertaken under Articles 15.2 and 15.4 relating to the effect and impact of the subsidized imports. Contrary to Korea's unsupported claim, the text of Article 15.5 of the SCM Agreement requires the establishment of a causal link between the subsidized imports and the injury to the domestic industry and does not impose an additional and separate inquiry into the role of the subsidies. Korea has presented no argument of any defect in the JIA's analysis under Articles 15.2 and 15.4. Its claim, therefore, fails.
4.87.
In the investigation, the JIA found that the subsidies themselves allowed the importation of the subsidized imports, thereby causing injury to the domestic industry. Thus, the JIA correctly found that the injury was caused through the effects of subsidies. Korea's claims should be rejected.

(k) Korea's Claim under Article 32.1 of the SCM Agreement is without Merit

4.88.
Any violation of Article 32.1 of the SCM Agreement is necessarily dependent on a violation of other provisions of the SCM Agreement. As Korea has not demonstrated any other inconsistencies under the SCM Agreement, there is no violation of Article 32.1

(l) Korea's Suggestion to the Panel to Specify a Particular Way to Implement a Recommendation (If Any) is Unnecessary

4.89.
Japan is confident that the Panel will not need to issue any recommendation in this dispute. However, assuming arguendo that the Panel was to find an inconsistency with the covered agreements, there is no "exceptional" circumstance in the present case to necessitate a departure from the "general rule" to allow all possible modalities of implementation.

5. The Non-Record Evidence And Argument Presented By Korea Are Not Appropriately Before The Panel

(a) Korea's Submission of Non-Record Evidence Should Be Rejected

4.90.
In its FWS, Korea submitted a new body of evidence (and analysis based on such evidence), which the JIA never saw and thus could not consider in the investigation. It would be inconsistent with the provisions of Article 11 of the DSU for the Panel to consider such evidence in dispute as it was not part of the record of the investigation under Article 12.2 of the SCM Agreement.

(b) Korea's Claims Based on Evidence and Arguments, Which the Government of Korea and Other Interested Parties Chose Not to Submit in the Investigation, Should Be Rejected

4.91.
Under Article 12.2 of the SCM Agreement, the decision of "the investigating authorities can only be based on such information and argument as were on the written record of this authority and which were available to interested Members and interested parties participating in the investigation." When an interested Member or party chooses not to submit a specific argument or information to the investigating authority at the time of the investigation and as a result the investigating authority is precluded from considering such argument or information, the investigating authority cannot be faulted for not examining such argument or information.
4.92.
Korea has submitted arguments and information regarding, inter alia, a "rational creditor" or a "rational profit-maximizing" person or action, who will not take into account previous investments or other sunk costs. During the investigation, however, The Government of Korea argued that the existing creditors would act differently from new investors. Korea also argues that the JIA should have considered evidence of other companies facing insolvency, which The Government of Korea and the other interested parties chose not to submit. In both cases, the JIA cannot be faulted for not considering such evidence or arguments which was not submitted in the investigation. Korea's arguments made based on such "non-record" arguments or evidence concerning the burden of proof, financial contributions, benefit, and specificity should also be rejected.

C. FIRST ORAL STATEMENTS OF KOREA

4.93.
The following summarizes Korea's arguments in its first oral statements.

1. Opening Statement of Korea at the First Meeting of the Panel

Introduction
4.94.
It is beyond dispute that the government of Korea moved aggressively to address the fall-out from the Asian financial crisis. The focus of those efforts, however, was to relieve the financial crisis – to restore the banks to health. This process necessarily involved corporate restructuring – through debt write downs and operational restructuring – in order to eliminate an overhang of non-performing loans that otherwise might choke economic recovery.
4.95.
In its investigation, the JIA focused on the small part of this process that concerned Hynix. It gathered dozens of newspaper articles, press releases and other statements describing the restructuring – all of which described a government playing its appropriate role in promoting corporate restructuring in order to ameliorate a banking crisis. Unfortunately, without understanding the overall context, the JIA wrongly concluded that the Government of Korea was taking extraordinary measures to force Hynix's creditors to save the company.

Errors In The JIA's Determination

(a) Procedural Flaws In The JIA's Determination

(i) Use of Improper Benefit Calculation Methods

4.96.
In paragraphs 90 to 106 of its Notice of Important Facts, the JIA listed the formulas and methodologies it intended to use to calculate the subsidy benefits in this case. These formulas and methodologies were not provided for in Japan's legislation and implementing regulations. Accordingly, the JIA's determination is not consistent with the first sentence of Article 14 of the SCM Agreement, which provides that "[A]ny 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."
4.97.
Japan has claimed that Korea's arguments under this provision constitute an improper "as such" claim. But that is not correct. Korea is challenging the JIA's use in this investigation of methods that are not provided for in Japan's legislation and regulations. It is not arguing that the JIA could not, in other cases, calculate subsidy benefits using the rudimentary methods that are provided for in Japan's legislation and regulations.
4.98.
Japan also claims that its legislation and regulations could not describe the detailed methods actually used in this case, because it needed to maintain flexibility. But the formulas and methodologies in question were actually copied from the published regulations of the US Department of Commerce. It is a little hard to take seriously Japan's claims that it could not have stated its methodologies in its regulations, when it copied those methodologies directly from the regulations of another country.

(ii) Improper Burden of Proof

4.99.
The Appellate Body has held that the evidence cited by the investigating authority must "demonstrate" that the relevant criteria have been met. In addition, it has also specifically cautioned against acceptance of unsupported assumptions by an investigating authority.
4.100.
In this case, the JIA did not establish the existence of the critical facts that would permit a finding of subsidies. Instead, it assumed that those facts existed, and then set about to explain why the Korean respondents' counter-arguments were insufficient. The result was to shift the burden of proof entirely onto the Korean respondents – treating them as "guilty" of subsidies unless they could prove their innocence.
4.101.
Such an approach does not meet the requirement of "impartial" administration set forth in Article X:3 of the GATT. It makes a mockery of the provisions of Article 12, which provide that interested parties must have a fair opportunity to make their case, as well as the provisions of Article 22 requiring publication of the "reasons" for the determination. And, perhaps most importantly, it is inconsistent with the requirements of Articles 1 and 2 of the SCM Agreement, which allow a subsidy to be found only when certain defined criteria exist – and not whenever a respondent is unable to prove that those criteria do not exist.

(b) Determination of Financial Contribution

(i) Direct Transfer of Funds and Forgone Revenue

4.102.
The JIA considered the extensions of loan maturities and debt-equity swaps encompassed in the restructuring transactions by the private entities to constitute transactions which, if performed by the government, would have fallen under the category of "direct transfer of funds." This classification is not consistent with the provisions of the SCM Agreement. The expression "transfer of funds" refers to situations in which financial resources, typically money, are transferred from one person to another. It does not refer to situations in which one person gives up a claim on another.
4.103.
This does not mean that debt forgiveness, or maturity extensions, or debt-equity swaps can never be found to be "financial contributions" within the meaning of Article 1.1(a) of the SCM Agreement. Those transactions potentially fit within the concept of "government action foregoing or not collecting revenue" in sub-paragraph (ii) of Article 1.1(a) – at least if it is established that the government has actually foregone or not collected revenue by entering into those transactions. Consequently, if the JIA wanted to classify such transactions as "financial contributions," it needed to analyze them in terms of the requirements of sub-paragraph (ii). Because the JIA failed to undertake such an analysis, its imposition of countervailing duties is not consistent with the requirements of the SCM Agreement.

(ii) Entrustment or Direction

4.104.
Japan claims that Korea's argument regarding entrustment or direction is based on a mistranslation of paragraph 81 of the JIA's response to comments. However, the differences between the translation proposed by Japan and the translation prepared by Korea are slight, and do not affect the basic point.
4.105.
On the issue of the Korean Government's alleged intent, Japan asserts that Korea has failed to look at the evidence in its totality. However, Japan has not identified any reports that Korea ignored, and it has not identified any evidence suggesting that the Government of Korea wanted the banks to adopt measures that were inconsistent with the banks' own best interests. An objective and unbiased review of the evidence in its totality would find that the Korean government's role was no more than the normal prudential supervision one would expect given the difficult situation of Korea's financial sector and the size of Hynix's debts.
4.106.
Japan also contends that the JIA never actually found that no rational investor would have entered into the restructuring transactions on the same terms that Hynix's creditors accepted. However, that statement is belied by the JIA's determination. The JIA explicitly stated that, at the time of each of the restructuring transactions,

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.

4.107.
As a logical matter, the mere fact that there was evidence that Hynix was in financial distress does not automatically justify the conclusion that no investor acting "from the normal commercial point of view" would have invested in or made loans to Hynix. Instead, two further assumptions are needed. First, one needs to make some assumption about the motivations of investors "in the normal commercial market" making decisions "from the normal commercial point of view." And, second, one needs to make some assumption about whether the particular investments in Hynix would or would not have been consistent with the accomplishment of the investor's objectives.
4.108.
In Korea's first submission, it challenged the JIA's assumption that the restructuring transactions were not consistent with the objectives of investors "in the normal commercial market" making decisions "from the normal commercial point of view." In particular, Korea provided a lengthy explanation of the economic, legal and empirical analysis supporting the conclusion that a rational investor in the position of Hynix's creditors who was seeking to maximize expected profits would have entered into the restructuring transactions at issue in order to unlock the "going concern" value of the company, and avoid a liquidation that would have generated lower returns. The point is indisputable. Consequently, the JIA's conclusion 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" was based on a false assumption and is, therefore, fundamentally illogical.
4.109.
In Korea's first submission, it also gave an example of Woori Bank's own internal analysis of the October 2001 and December 2002 restructurings which showed its participation in those transactions would allow Woori to avoid losses of hundreds of billion of Won. This example reveals that the JIA's assessment that the bank's internal analyses of the restructuring transactions were inadequate and did not follow normal commercial procedures was, biased.
4.110.
None of the JIA's assumptions were based on evidence, and none was correct. Consequently, the JIA's finding of entrustment or direction was not consistent with the requirements of the SCM Agreement.

(c) Benefit

4.111.
The guidelines set forth in Article 14 of the SCM Agreement do not directly address debt restructurings, but they do reflect the basic principle that benefits must be measured by comparing the alleged subsidy transaction with the normal practices of participants in transactions of the same type in the same market. Thus, if creditors of Hynix would have entered into the same restructuring transactions in the absence of government entrustment or direction, there is no benefit – whether the financial contribution is considered to be the alleged government entrustment or direction, or the participation in the restructurings by the allegedly entrusted or directed creditors.
4.112.
In its determination, the JIA made no effort to determine what terms would have been available to Hynix if there had been no alleged government entrustment or direction. It failed to identify the normal practices of participants in transactions of the same type in the same market. As a result, the JIA failed to undertake the benefit analysis required by Articles 1 and 14 of the SCM Agreement. Its determination cannot, therefore, be upheld.
4.113.
The JIA's benefit analysis is also inconsistent with the fact that more than a hundred separate institutions that were not found to be entrusted or directed also participated in the restructuring transactions. The fact that these private entities participated in the transactions on the same terms as the government bodies and the allegedly government-directed banks indicates that the transactions did not confer a benefit on Hynix.
4.114.
The JIA has contended that the existence of past subsidies irrevocably tainted any subsequent market transactions by the non-entrusted or -directed creditors. But, that interpretation is flatly inconsistent with the requirements of the SCM Agreement. Among other things, the JIA's interpretation simply cannot be reconciled with the provisions of Article 14 requiring investigating authorities to look to actual market transactions and normal market practices as the benchmark for determining whether a benefit has been conferred. More generally, the interpretation of Article 14 proposed by the JIA would lead to absurd and inconsistent results. It would find a benefit based solely on the identity of the body making the loan, and not based on any finding that the terms of the government loan made the recipient "better off" than the available market alternatives.

(d) Allocation Period and Imposition Period

4.115.
The JIA decided in this case that the alleged subsidies received by Hynix should be allocated over a five-year period, including the year in which they were received. This meant that the subsidies allegedly received by Hynix in 2001 were all allocated to the five-year period from 2001 to 2005. There was no remaining benefit from those subsidies in 2006, when the JIA issued its determination. Consequently, the JIA's decision to continue to impose countervailing duties based on the October 2001 restructuring for a period extending beyond the five-year benefit "amortization" period is inconsistent with Articles 19.4 and 21.1 of the SCM Agreement.
4.116.
In its first written submission, Japan asserted that the JIA's imposition of duties was consistent with past decisions concerning similar provisions of the Antidumping Agreement. But the Antidumping Agreement does not permit investigating authorities to calculate dumping margins for years into the future based on an amortization of a non-recurring price differential at some time in the past. In these circumstances, any effort to analogize the estimation of dumping margins on sales during future periods with the calculation of the amortized amount of the subsidy benefits from a particular transaction in a particular future year is inherently illogical.

(e) Injury Causation

4.117.
Articles 15.5 and 19.1 of the SCM Agreement require that the investigating authority must demonstrate "that the subsidized imports are, through the effects of subsidies, causing injury." The ordinary meaning of this requirement is clear. It is not enough that the imports which happen to be subsidized are causing injury. Instead, it must also be demonstrated that the injury is occurring "through the effects of the subsidy."
4.118.
Japan, contends that this Panel should follow the interpretation adopted by a GATT Panel in Norwegian Salmon, which held that similar language in the Tokyo Round Antidumping and Subsidy Codes required only a finding that the dumped or subsidized imports caused injury, and not a finding that the injury occurred through the effect of the dumping or subsidies. Japan's position is, however, directly inconsistent with its strident criticism of the Norwegian Salmon decision at the time that decision was first announced. And, in any event, the Norwegian Salmon decision is not consistent with the ordinary meaning and context of the relevant provision.
4.119.
In its determination, the JIA took the position that it had considered whether the injury had occurred through "the effect of the subsidy." In particular, the JIA claimed that it was appropriate to find that the injury had occurred through the "effect of the subsidies" because, in the absence of the subsidy, Hynix would have been forced into bankruptcy and ceased production and exports.
4.120.
The problem in this case is that there is no evidence that Hynix would have ceased production and exports in the absence of the subsidies. The JIA did not identify provisions in the Korean bankruptcy laws that would have forced Hynix to cease production and exports in the event that it was forced to file for court protection under those laws. In fact, as demonstrated in Korea's first submission, the Korean bankruptcy laws would actually have allowed Hynix to continue operations under court protection while its creditors worked out a debt restructuring program. There is no reason to believe Hynix would have ceased production or export.

Conclusion

4.121.
This case is, in large part, about the difficulties the JIA had in handling its very first countervailing duty case, making things up as it went along in the absence of a sufficient description of procedures and substantive methodologies in Japan's statute and regulations. It may well be that the JIA tried its best. But effort does not excuse non-compliance with the procedural safeguards required by the SCM Agreement.
4.122.
Perhaps even more fundamentally, this case is about assumptions. Despite all of the details in its Notice of Important Facts, the JIA's decision turned on certain critical assumptions about market behaviour, about Korean law, and even about the meaning of certain terms in the SCM Agreement. Those assumptions were not supported by any evidence, and they turned out, in the end, to be unreasonable and incorrect. In Korea's view, the inconsistency with the provisions of the SCM Agreement of a determination based on such flawed assumptions is manifest.

2. Closing Statement of Korea at the First Meeting of the Panel

4.123.
In Korea's view, the Japanese investigating authority started its investigation with an assumption that the restructuring transactions must have been directed or entrusted by the Korean government, and then set about to compile evidence that it thought would be sufficient to justify a determination to that effect. But the underlying assumption with which the JIA began the case inevitably infected its judgment. It failed to see that the evidence it gathered did not, on its own, support the conclusions that the JIA wished to reach. Instead, as expressed in Korea's first written submission and in Korea's opening statement at the first meeting of the Panel, certain assumptions had to be made to link the evidence the JIA gathered to the conclusions it reached. It is telling that Japan continues to deny that such assumptions were made, even as it repeated many of them in its oral statement at the first meeting of the Panel.
4.124.
During the course of the JIA's investigation, Hynix and its creditors and the Korean government all explained to the JIA that the creditors had agreed voluntarily to the transactions at issue because those transactions made economic sense for the creditors. The JIA rejected that claim based on its assumption 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." In a single stroke of its pen, the JIA eliminated the vast army of lawyers, bankers and economists who, right now, are toiling on debt restructurings for financially insolvent companies, both inside and outside of formal bankruptcy proceedings, in virtually every single country in the world.
4.125.
It is beyond dispute that firms all over the world at times find themselves in a position of "financial distress" in which they do not have the funds needed to make the payments that are due to their creditors — just as Hynix did. It is equally certain that the creditors of such firms routinely enter into debt restructurings to maximize their own expected profits. This is not economic theory. It is a reality that could be seen every day. And, once that reality is recognized, the JIA's determination falls apart.
4.126.
One does not need assumptions of government interference to make sense of the restructurings. One needs only economic self-interest. And, even if Korea assumes for the sake of the argument that Japan were correct in asserting that the government of Korea twisted the arms of the creditors, there still would be no subsidy, because entrustment or direction of private entities to enter into transactions that are in the private entities' own interests cannot confer a benefit within the meaning of the SCM Agreement.
4.127.
The SCM Agreement requires investigating authorities to base determinations on facts, not presumptions. In its finding of entrustment or direction, in its finding of a benefit, and in its finding that injury occurred through the effect of the alleged subsidies, the JIA failed to meet that standard. Consequently, its determination cannot be sustained, and the countervailing duties it imposed should be rescinded.

D. FIRST ORAL STATEMENTS OF JAPAN

4.128.
The following summarizes Japan's arguments in its first oral statements.

1. Opening Statement of Japan at the First meeting of the Panel

(a) Standard of Review and Evidentiary Standard

(i) The Requirements under the WTO Agreements

4.129.
Japan has pointed out errors in Korea's claims in its First Written Submission and emphasizes here the issues concerning the standard of review and evidence of a subsidy investigation under the WTO Agreements. First, it is essential that Korea's claims be reviewed in light of the applicable standard of review that "a panel... 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".53
4.130.
Secondly, the Appellate Body has rejected any particular standard of evidence beyond that set forth in the SCM Agreement (i.e., the existence of subsidy "can only be based on" record evidence) and has recognized that an investigating authority has full discretion in conducting an investigation within such bounds, or "on its own terms".54
4.131.
Thirdly, Article 1.1(a)(1)(iv) of the SCM Agreement "is, in essence, an anti-circumvention provision."55 WTO Members may not escape the SCM Agreement's disciplines where a government "entrusts or directs" private bodies to provide a financial contribution.

(ii) The Actual Investigation and Determination by the JIA

- Hynix's Financial Situation: On the Verge of Collapse

4.132.
Korea has not based its arguments on the actual investigation that the Investigating Authorities of Japan ("IA") conducted; thus, its arguments are inconsistent with the applicable standard of review. Korea argues that the Hynix restructuring was rational in light of a certain economic model. However, the JIA determined whether the Government of Korea had entrusted or directed financial institutions to save Hynix, not whether the outcome might appear to align with a general voluntary work-out. The premise of Korea's voluntary work-out theory is that of a company facing a temporary funds shortage. However, the reality of Hynix was quite different. Japan will highlight here that: (1) Hynix had been facing a dire financial distress; and (2) The Government of Korea's consistent policy and actions to save Hynix.
4.133.
The Hynix liquidity problem was not temporary. The Government of Korea's financial contributions had saved Hynix from collapse. After 1997, Hynix's situation was disastrous. Hynix's maturing debts of approximately KRW 9 trillion in 2001 dwarfed its 2000 year-end deposit balance of KRW 10.1 billion.56 "Hynix did not have the cash on hand to repay those debts"57 and would have gone "bankrupt without obtaining outside financing"58. Hynix's financial indicia continued to decline sharply in early 2001 when it was saved temporarily by the May 2001 Program.
4.134.
In August 2001, Hynix defaulted on payment obligations59and by October 2001, Standard & Poor's downgraded Hynix's rating to "Selective Default,"60 but the October 2001 Program could not solve Hynix's troubles, which worsened throughout 2002.61 Its external advisor stated "Hynix is not an investment-grade company", and "Hynix is technically bankrupt, kept alive only through debt restructuring programs."62 No financial institution would provide new credit to Hynix until the December 2002 Program.63

- The Policy and Actions of The Government of Korea to Save Hynix Since the "Big Deal"

4.135.
In July 1998, the Government of Korea and its business community agreed to the "Big Deal" scheme to reorganize companies among five major conglomerates, which established Hynix.64 The Government of Korea maintained its objective to promote the semiconductor industry and prioritized Hynix's normalization65, its policy from the company's inception. The Government of Korea gave effect to its policy through the various Hynix bail-out programs from December 2000.
4.136.
The Government of Korea did not merely exercise its general regulatory powers to do so. It drove the process at the 28 November 2000 Economic Ministers' Meeting, which formed the basis for the first three restructurings, discussing "Measures to alleviate the cash crunch of [Hynix]", and subsequently sent a notice to the Korea Export Insurance Corporation and the Korea Export Bank ("KEB") to instruct them to "carr[y the results of the discussion] out perfectly".66 In accordance with this notice, KEB and two other banks requested the regulating government body for, and were promptly granted, a waiver of the credit ceilings of these banks, which allowed them to participate in the Syndicated Loan.67
4.137.
The Government of Korea also possessed the legal means to involve itself in specific operations of banks.68 The Government of Korea did exert such authority, as Woori Bank and Kookmin Bank admitted.69
4.138.
In January 2001, the Financial Supervisory Service notified banks that liabilities would be exempted or reduced when loans became uncollectible for, inter alia, "a purchase of a financially deteriorating company that is necessary under the government's national industrial policy, and provision of assistance for operating funds, etc. after such purchase."70
4.139.
At the Council for Creditor Financial Institutions' meeting in March 2001 which formed the basis of the May 2001 Program, high-ranking government officials pressured financial institutions to provide Hynix financial support.71 The Government of Korea boasted that this Program was an example of success of its own efforts.72 Deputy Prime Minister's announcement that "in the case that [the problem] does not settle, the government will directly step in...[t]here will be criticism no matter..., but we will accept the responsibility for resolving these problems"73 exemplifies the Government of Korea's intent to support Hynix between the May 2001 and October 2001 Program. Hynix's financial situation further deteriorated in 2002, and The Government of Korea worked together with creditors to realize the December 2002 Program, intervening in the preparation of the structural adjustment plan.74
4.140.
These facts and other facts, such as the content and process of internal examinations of KEB and Woori Bank, Chohung Bank and the National Agricultural Cooperative Federation ("NACF"), indicate the implementation of bailouts based on the Government of Korea's entrustment or direction. NACF, a quasi-public body, and these three private bodies were under the Government of Korea's substantial influence. Even other banks that also participated in the bailouts based their decisions on non-commercial factors. One of the reasons the JIA found entrustment or direction only to these four banks was because the Government of Korea's substantial power to control these banks further tilted the balance to infer entrustment or direction.

(iii) The Facts Found in the Investigation and the Evidentiary Standard for Entrustment or Direction

4.141.
Korea has clarified that it only disputes the JIA's factual findings regarding the October 2001 and December 2002 Programs and has not challenged the prior programs. Among the facts Korea does not dispute are the fact that:

· 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.

4.142.
Korea's arguments on the factual findings are limited to five narrow aspects. First, Korea argues that the banks considered the Arthur Andersen Report ("AA Report") for the October 2001 Program. However, the AA Report was completed well after the Program's conclusion, and the banks were not able to consider it before deciding to participate.75
4.143.
Second, Korea argues that Woori Bank and Chohung Bank's internal examination in the October 2001 Program negates the JIA's finding. These banks' internal examination indicated that they based their decisions on noncommercial factors; Korea also has not disputed the JIA's examination of internal decisions by KEB or NACF.
4.144.
Third, the only assessment by the JIA concerning banks in the December 2002 Program Korea disputes is Woori Bank's examination. Korea argues that Woori Bank critically reviewed the Deutsche Bank Report and made its own assessment. However, the "internal document" Korea presents states only that Woori Bank considered the Report to be [[BCI]] because it [[BCI]]76, which does not indicate a critical review of the Report. Rather, Woori Bank wholly accepted the Report, and based its calculation of potential losses assuming [[BCI]].77
4.145.
Fourth, Korea presents arguments based on the valuation in the Deutsche Bank Report; which contains critical errors, even admitted by Hynix, and thus is not reliable.
4.146.
Finally, Korea argues that the participation of the banks for which the JIA made no finding of entrustment or direction in the October 2001 and December 2002 Programs indicates the commercial rationality of all of the banks. Korea, however, has not disputed the finding that such banks participated upon their consideration of non-commercial factors.
4.147.
Korea argues that there is "no evidence that the [the Government of Korea] told any of the creditors what to do", without addressing any specific analysis by the JIA. However, such evidentiary standard does not exist; Article 1.1(a)(1)(iv) anti-circumvention cases will often involve an analysis of totality of facts based on circumstantial evidence78, as done by the JIA. A claim that only smoking gun evidence can show entrustment or direction amounts to a request for a de novo review.

(iv) Non-Record Evidence and Arguments

4.148.
Korea's non-record exhibits such as KOR-26 and arguments based on such exhibits are irrelevant under the standard of review of the Panel. Similarly, the JIA cannot be faulted for not examining an argument that was not presented in the investigation, and could not reasonably have considered, such as Korea's economic theory arguments. Korea's argument that the JIA should have considered the financing of others facing insolvency is belied by the refusal of the Government of Korea and other parties to submit evidence necessary for such an analysis.

(v) Conclusion

4.149.
Korea's argument is inapposite to the JIA's determination. The reality was that there was no financing available from the general commercial market for Hynix. The Government of Korea had to step in to entrust or direct the creditors.

(b) Other Errors In Korea' s Claims

(i) Benefit

4.150.
The first of the two other examples of errors in Korea's claims is its arguments on benefit. Benefit in the meaning of Articles 1.1(b) and 14 refer to a benefit to the recipient.79 However, Korea argues whether the private creditors acted in their own interest by pursuing restructuring rather than liquidation.80
4.151.
Korea also argues that banks, for which the JIA did not make any finding of entrustment or direction, should be the benchmark. However, Hynix was only in operation at the time because of subsidies, and the terms and implementation of the October 2001 and December 2002 Programs stood on such financial condition of Hynix. A benchmark other than the existing market may be used if the market was so distorted because of the government's involvement.81 In this case, the Government of Korea subsidies heavily distorted the premise and the terms and conditions of these Programs.
4.152.
In addition, the evidence indicates that the Government of Korea intervened in the content of the December 2002 Program when Hynix's creditors could not agree to the terms. Moreover, these "other" banks' decisions to participate were based on non-commercial considerations. Thus, their financing do not show usual investment practice or that their loans were commercially obtainable. The JIA reasonably found that these Programs were not from the normal commercial market and that financing by "other" banks could not serve as benchmark.
4.153.
Korea's argument that the AA Report and Deutsche Bank Report show that Hynix's going-concern value exceeded liquidation value is null. These valuations were based on Hynix's heavily distorted financial conditions, and cannot serve as a benchmark. Also, the alleged Hynix 2001 4Q going-concern value in the AA Report is an ex post calculation, incorporating the October 2001 Program's success.82 The going-concern valuation could not have been reached absent the contributions from public bodies and the entrusted or directed private bodies, which contributed over [[BCI]] and [[BCI]] per cent respectively of the debt-to-equity swaps and new loans.83 Thus, this going-concern value does not show what was obtainable without such financial contribution. The going-concern valuation in the Deutsche Bank Report84 also assumed the success of the December 2002 Program; the values were not realizable absent the public bodies' and entrusted or directed banks' participation.85 Furthermore, if the critical errors in that report were corrected, the going-concern values would [[BCI]]

(ii) Determination of the Amount of Subsidy

4.154.
The second example is Korea's claim that the October 2001 Program ceased to provide benefit as of the end of 2005. The SCM Agreement simply requires a determination of subsidy at the time of the period of the investigation, based on data available therein, not a re-determination as of the time of duty imposition. The allocation period of non-recurring subsidy is just a part of the duty rate calculation as of the period of investigation, not a determination of benefit expiry. The JIA based this allocation period on the useful life of Hynix's assets, which may subsequently change.86 The matters concerning the existence or amount of subsidy that can be discerned post-investigation period is to be reviewed under Articles 21.2 and 21.3 of the SCM Agreement; Japan does have a review mechanism that fully reflects the principles of Articles 19.4 and 21.

2. Closing Statement of Japan at the First Meeting of the Panel

4.155.
First, in both its First Written Submission and its Oral Statement at the first meeting of the Panel, Korea referred to what it called the "syllogism." Korea summarized its position at the first meeting of the Panel by arguing that the determination of entrustment or direction by Japan was based on the findings that:

· 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

4.156.
The Panel should take careful note that in response to a question from Japan at the first meeting with the Panel, Korea confirmed that its claim was limited to these three elements. This answer by Korea is highly significant.
4.157.
As Japan explained in its First Written Submission, Korea is wrong when it asserts that the full overview of the Investigating Authority's determination can somehow be captured in these three points.
4.158.
Korea's translation of this section of the Final Determination also was incorrect. Yet leaving aside translation issues, Korea has misinterpreted the findings of the Investigating Authority. With respect to the first element of the supposed syllogism, the record evidence, discussed at length in Japan's submission, showed that the Government of Korea not only had the clear intent to save Hynix, but exercised its authority over the banks to bail out Hynix through the October 2001 Program and the December 2002 Program. As for the second and third elements of the alleged syllogism, the Investigating Authority did not rely on "assumptions", but rather reviewed various factors on a bank-specific and program-specific basis. Based on this record evidence, the Investigating Authority found that non-commercial factors underlay the decision of the banks to participate in the October 2001 and December 2002 Program rescue programs.
4.159.
The important point to stress here is that Korea's claim against entrustment and direction is limited to the three claims set out in its "syllogism." If Japan demonstrates that the "syllogism" does not accurately state the basis on which the investigating authority made its determination, then Korea's "entrustment or direction" claim must, of necessity, be dismissed. Japan mentioned that it will return to this issue in its Second Written Submission.
4.160.
The other issue to discuss relates to the Panel's terms of reference. Japan has sustained – and continues to sustain – significant prejudice as a result of Korea's failure to comply with its binding obligations under DSU Article 6.2.
4.161.
It is important to recall that Korea's failure to state its claims clearly is not some minor, procedural breach, but rather infringes the fundamental due process rights of Japan, as a responding party, to know the nature of the claims being made against it. The Appellate Body has articulated this obligation in unambiguous terms:

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

4.162.
Unfortunately, in the present case, Japan has been left "wondering what specific claims have been made against it" by Korea. The situation in the present case is similar to that in Thailand – H-Beams, where the Panel found that the "prejudice to Thailand's ability to defend itself was a function of the fact that the precise nature and scope of the claims…remained unclear and confusing to Thailand -- and to us – even following Poland's first written submission."89 As in that dispute, Japan's ability to defend itself is a function of the fact that the "precise nature and scope" of Korea's claims remain unclear and confusing to Japan – and doubtless to the Panel – even following Korea's First Written Submission. For example, for Korea to make broad sweeping claims, without bothering to provide any specificity as to the nature of its complaint, renders the due process requirements of DSU Article 6.2 essentially meaningless. Two examples will illustrate the problem.
4.163.
First, as Japan has previously argued, Korea's Claim 15 is a "catch-all" claim of violation 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." This vague and expansive claim falls far short of the Appellate Body's admonition that responding parties and third parties must be made aware of the "specific" claims being made, as well as their "dimensions." Stating claims in this manner deprives Japan of its due process rights to have an "adequate opportunity to address and respond" to the claims against it.
4.164.
Second, in its Opening Statement, Korea used formulations such as the following:

· 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.

4.165.
Accordingly, Korea's breach of DSU Article 6.2 has fundamentally prejudiced Japan's rights as a responding party in WTO dispute settlement. Japan respectfully requests this Panel to remedy this violation by placing the illegal claims identified by Japan outside its Terms of Reference.

E. SECOND WRITTEN SUBMISSION OF KOREA

4.166.
The following summarizes Korea's arguments in its second written submission.

1. Japan's Imposition of Countervailing Duties was based on a Fundamentally Flawed Assumption

4.167.
In its oral statement during the first panel meeting, Japan claimed that the finding of subsidies by the Japanese Investigating Authority ("JIA") was supported by the fact that Hynix was "facing dire, structural financial distress" that left it unable to pay its debts. Japan asserted that this severe financial distress meant that "Hynix would have gone bankrupt" and "could not have survived" without government help.92 According to Japan, the "Government of Korea had to step in to entrust or direct the creditors" in order "to save Hynix."93
4.168.
This assumption – that a company "facing dire, structural financial distress" could only have been saved by government intervention – underlay the JIA's entire analysis. But that assumption is demonstrably false. The debts of insolvent debtors – of companies "facing dire, structural financial distress" – are restructured by their creditors all the time, as long as the going-concern value of the company exceeds its liquidation value.
4.169.
Japan and some of the third parties have attempted to confuse the issue by referring to different economic theories about the manner in which investors make their investment decisions. But the rationale for restructuring the debts of an insolvent debtor is simple arithmetic: Where the insolvent company's going-concern value exceeds its liquidation value, the creditors holding the company's debts can earn a higher return if they agree to restructure the debts through, inter alia, the provision of new loans, the modification of the terms of existing loans, or the exchange of debts into equity. The arithmetic is indisputable. And, it is borne out by actual real-world experience, in which the debts of insolvent companies are restructured, both in formal bankruptcy proceedings and informal workouts, in every market (including Japan).
4.170.
The Appellate Body has cautioned that "[a]n investigating authority that uses a methodology premised on unsubstantiated assumptions does not conduct an examination based on positive evidence." And, it clarified that "[a]n assumption is not properly substantiated when the investigating authority does not explain why it would be appropriate to use it in the analysis."94 It is difficult to imagine a more apt description of the basic flaw in the JIA's determination. Unless the Panel believes that insolvent companies must always be liquidated in the absence of government subsidies, the JIA's determination cannot be upheld.

2. Japan's Investigation Was Procedurally Flawed and Legally Invalid

(a) Failure to Promulgate Benefit Calculation Methods

4.171.
In Korea's first submission, it demonstrated that the JIA's determination used benefit calculations that were not provided for in Japan's national legislation or implementing regulations, in contravention of the explicit requirement of the first sentence of Article 14 of the SCM Agreement. In response, Japan has asserted that the formulas and methodologies used in its determination were not "methods" within the ordinary meaning of that term. According to Japan, a "method" refers to "a mode of procedure; a (defined or systematic) way of doing a thing."95
4.172.
But the formulas and methodologies used by Japan clearly meet that definition: The legal fictions adopted by the JIA to justify treating loan maturity extensions as loans and debt-equity swaps as equity infusions, the policy of allocating the benefits from equity infusions and debt forgiveness over a period of years, the formula used to allocate subsidy benefits, the adoption of the "useful life" from Korea's tax laws as the allocation period in that formula, the formula used to calculate the discount interest rate for non-creditworthy borrowers – all of these constitute "mode[s] of procedure; a (defined or systematic) way of doing a thing."
4.173.
Japan has also contended that the argument presented in Korea's first submission was an improper "as such" claim that lacked the proper foundation. That claim is, however, incorrect. Korea is objecting to the methods used by the JIA in this particular case. Because those methods were not provided for in Japan's legislation or implementing regulations, the JIA's finding of a benefit is invalid and its imposition of countervailing duties must be rescinded.

(b) Improper Reliance on Assumptions and Reversal of Burden of Proof

4.174.
In Korea's first submission, it noted that the JIA's determination was based on a number of assumptions. In response, Japan's first submission denied that any assumptions had been made.96 According to Japan, all of the JIA's findings were direct inferences from evidence. A careful review of the JIA's determination confirms that the following assumptions, among others, were critical to its analysis:

· 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

4.175.
That view is, however, plainly incorrect. The Appellate Body has clarified that, in applying the standard of review set forth in Article 11 of the DSU, panels must undertake a "critical and searching, "in-depth" examination to "test whether the reasoning of the authority is coherent and internally consistent," and to ensure that "there was positive evidence before [the investigating authority] to support the inferences made and conclusions reached by it."99 Furthermore, "a panel can assess whether an authority's explanation for its determination is reasoned and adequate only if the panel critically examines that explanation in the light of the facts and the alternative explanations that were before that authority."100 And, perhaps most importantly, the Appellate Body has clarified that "[a]n investigating authority that uses a methodology premised on unsubstantiated assumptions does not conduct an examination based on positive evidence."101
4.176.
Japan has asked the Panel to declare "inadmissible" the various academic publications that were cited in Korea's first written submission.102 However, Japan has not asked the panel to disregard the logical arguments set forth in Korea's first submission. Those arguments are, by themselves, sufficient to show that the JIA's assumptions were "unsupported." Under the standard of review described by the Appellate Body, the JIA's decision cannot be sustained.

(c) Improper Identification of "Interested Parties"

4.177.
As explained in Korea's first submission, the text and context of the SCM Agreement indicate that an investigating authority may only designate as "interested parties" those entities that have an interest in the outcome of the proceeding. Japan and the United States have argued that the provisions in Article 23 – which addresses the right to appeal administrative determinations – can be read to indicate that the term "interested parties" may encompass entities that "are not directly and individually affected by the administrative action." But the recognition that some entities may only be indirectly affected by the administrative action – such as labour unions representing domestic workers or trade associations made up of domestic producers – does not mean that entities that have no interest in the outcome of the proceeding can be classified as "interested parties."
4.178.
Under the SCM Agreement, an investigating authority is permitted to base its decision on "facts available" only when an "interested party" fails to provide necessary information. An investigating authority is not permitted to rely on "facts available" when an entity that is not an "interested party" does not respond. Instead, the investigating authority must in such cases base its determination on evidence that relates directly to the specific factual issue.
4.179.
In this case, the JIA failed to comply with that obligation. It based its decision on assumptions – using "facts available" to find that creditors for which it had no information acted in a non-commercial manner based solely on evidence relating to other banks. Such an approach is permitted under the SCM Agreement only if the creditors for which the JIA had no information were properly designated as "interested parties," and only if those creditors failed to provide necessary information that had been requested from them. Because the JIA did not establish a factual foundation for concluding that any of those creditors was an "interested party," its use of "facts available" for them cannot be sustained.

3. Improper Finding that Hynix Received Financial Contributions

(a) Improper Classification of Transactions that Did Not Involve Any Transfer of Funds as "Direct Transfers of Funds"

4.180.
As explained in Korea's first submission, the JIA's determination improperly classified transactions that did not involve any transfer of funds as "direct transfers of funds" under sub-paragraph (i) of Article 1.1(a)(1) of the SCM Agreement. In response, Japan contends that the term "funds" is broader than mere "cash." But Korea never claimed that "funds" was limited" to coins and "legal tender" paper notes. Instead, Korea argued that a "transfer of funds" requires a conveyance of monetary assets to the alleged subsidy recipient. While the original loan from a creditor to a borrower would involve a conveyance of monetary assets to the recipient, the subsequent modification of the terms of the loan (either through extensions of the loan maturities or the swapping of the debts into equity) does not.
4.181.
Japan also claims that an expansive interpretation of the term "transfer of funds" is needed to prevent circumvention of the SCM Agreement's disciplines on subsidies. But there is no need to do violence to the language of the SCM Agreement. In reality, extensions of loan maturities and debt-equity swaps that provide a "financial contribution" to the recipient can be classified as "foregone revenue" within the meaning of sub-paragraph (ii) of Article 1.1(a)(1).
4.182.
The problem in this case is that the JIA failed to undertake the factual analysis necessary to show that the creditors actually did forego revenue as a result of the restructuring transactions. It failed to make the required "comparison between the revenues due under the contested measure and revenues that would be due in some other situation" that the Appellate Body has required.103 As a result, the JIA's finding of a financial contribution is not consistent with the requirements of Article 1.1(a)(1) of the SCM Agreement.

(b) Improper Finding of "Entrustment or Direction" of Hynix's Private Creditors

4.183.
The JIA's analysis of entrustment or direction was also based on flawed assumptions and biased analysis. In order to reach its conclusion, the JIA had to assume that creditors of insolvent companies would never agree to restructure the company's debts – despite the obvious point that such restructurings occur all the time in every market in the world. The JIA had to assume that the creditors did not conduct reasonable analyses of the restructurings, despite the evidence showing that the restructurings were in the creditors' interests, and that the creditors were aware of that fact. The JIA had to assume that creditors that it had never examined or even contacted were not acting in accordance with normal commercial considerations. And, it had to assume that the Korean government had an intent to save Hynix, even though the evidence as a whole showed nothing more than normal prudential concerns about the effect of uncertainty on the Korean financial system, and a desire to see Hynix's creditors resolve the situation one way or another as quickly and efficiently as possible.
4.184.
An unbiased and objective analysis would, of course, have seen that each of the JIA's assumptions was flawed. In apparent recognition of the flaws in the JIA's analysis, Japan has now contended that a decision that made no sense in its details can nevertheless be upheld based on the totality of the evidence. But the totality of the evidence standard does not absolve an investigating authority of the requirement to draw reasoned and adequate conclusions from evidence without relying on unsubstantiated assumptions. The JIA's finding of entrustment or direction cannot, therefore, be sustained.

4. Improper Finding that Hynix Received a Benefit from the Alleged Financial Contributions

4.185.
The JIA's finding of a benefit from the restructuring transactions was also contrary to the requirements of the SCM Agreement. Because Hynix's going-concern value was higher than its liquidation value at all relevant times, any rational actor in the position of Hynix's creditors who was following usual market practices would have agreed to the restructurings in order to unlock the higher going-concern value. In fact, the evidence indicates that a number of banks and financial institutions that were not found to be entrusted or directed by the Korean government engaged in the same transactions on the same terms as the allegedly entrusted or directed banks. The obvious conclusion is that the alleged government involvement in the restructurings did not confer any benefit on Hynix, because Hynix could have obtained the same terms in the absence of any alleged government action.
4.186.
In order to avoid this obvious conclusion, the JIA engaged in a results-oriented analysis designed to find a benefit where none existed. Thus, the JIA did not compare the alleged financial contributions – i.e., the restructuring transactions agreed to by Hynix's creditors – with a market benchmark based on the usual practices for similar transactions. Instead, it compared the alleged financial contributions with a market benchmark for completely different transactions (involving an initial full repayment of debts by Hynix followed by a subsequent transfer of new funds from the creditors to Hynix) that never occurred and that, under the JIA's findings, never could have occurred.
4.187.
Furthermore, the JIA disparaged the analyses of Hynix's going-concern and liquidation values by respected financial services firms on completely frivolous grounds. The JIA's complaints about the analyses undertaken for the October 2001 restructuring show a complete misunderstanding of basic financial analysis. Its complaints about the analysis undertaken for the December 2002 raise nitpicking to an art form. A fair assessment confirms what an unbiased observer would have surmised – that it was the JIA officials, and not the experienced financial professionals who prepared the reports, who were mistaken.
4.188.
The JIA's benefit analysis was, therefore, inherently and fundamentally flawed. It was not consistent with the requirements of Article 1.1(b) or the guidelines set forth in Article 14 of the SCM Agreement. And, it was not consistent with the fair and unbiased analysis that is always required in countervailing duty cases. In these circumstances, the JIA's determination that the alleged financial contributions conferred a benefit on Hynix cannot be sustained.

5. Improper Finding that the Alleged Subsidies Were Specific to Hynix

4.189.
In order to make a proper finding of specificity under Article 2 of the SCM Agreement, the JIA was required to "clearly substantiate," based on "positive evidence," that the restructuring transactions were specific either in law or in fact. The conclusory statements made by the JIA – that the restructurings were specific because they were "specific to a specific corporation" – do not meet that requirement.
4.190.
Japan has argued that the JIA's determination can be defended because it considered the restructurings, and not the CRPA, to be the relevant program for purposes of the specificity analysis. But neither Japan nor the JIA presented "positive evidence" demonstrating why the restructurings, and not the CRPA, constituted the relevant program. If the restructuring programs reflected only the normal operation of the CRPA, then the JIA should have considered the CRPA, and not the restructurings, as the relevant program. By focusing on the specific restructurings to find specificity, the JIA assumed what it was supposed to "substantiate" with "positive evidence.

6. Improperly Failure to Consider the Impact of Changes in the Ownership of Hynix

4.191.
The Appellate Body has held that, when there is a change in the ownership of a company at fair market value, the investigating authorities must consider whether the subsidies received before the change in ownership continue to provide a benefit after the ownership change. It has also held that such a change in ownership creates, at a minimum, a rebuttable presumption that the benefits of the subsidy have been extinguished.104 And, it has found that the failure of investigating authorities to comply with that obligation is inconsistent with Articles 10, 14, 19, and 21 of the SCM Agreement.
4.192.
Japan claims that Korea has failed to "present any evidence or argument that there has been a 'change in ownership' as defined by the Appellate Body."105 It appears that Japan reads the Appellate Body's past decisions to require the sale of 100 per cent of the outstanding shares of the company. But the relevant Appellate Body decision distinguishes only between situations in which the seller retains a controlling interest in the company and those in which it does not. Indeed, the Appellate Body specifically stated that its analysis applied as long as the seller transferred "substantially all" of its interest.106
4.193.
Finally, Japan also contended that the analysis set forth in the Appellate Body's past decision is inapplicable because Hynix's creditors did not pay fair market value for its shares. But Japan cannot seem to decide what it is arguing. It claims that Hynix's creditors paid both more and less than the fair market value for those shares.107
4.194.
To the extent that Japan is asserting that Hynix's creditors paid too much for Hynix's shares, its arguments concerning the applicability of the past Appellate Body decision are plainly without merit. As the Appellate Body noted, the reason that a change in ownership "extinguishes" past subsidies is that the price that the new owners paid already includes the value of any past subsidies.108 If the new owners paid too much for the shares, then the price they paid still includes the value of any past subsidies – but it also includes an additional amount. In either case, the result should be the same – because in both cases the price paid fully reflects the value of the past subsidies.

7. Improper Imposition of Duties on Imports after the Benefit of the Alleged Subsidies had Expired

4.195.
The period of investigation chosen by the JIA was calendar year 2003. Significantly, none of the restructuring transactions and none of the other alleged subsidy programs occurred during that period. Instead, the restructuring transactions and other alleged programs analyzed by the JIA all occurred in 2000, 2001 and 2002. The JIA found subsidies during the 2003 investigation period only because it chose to "allocate" the benefit of subsidies allegedly received in earlier years to that period.
4.196.
The JIA's own amortization – which was necessary to the JIA's finding of subsidies in 2003 – clearly indicated that the benefit from the October 2001 restructuring ended in 2005. Thus, the JIA's determination that a subsidy existed in 2003 necessarily implied that there was no continuing subsidy from the October 2001 restructuring transaction when the JIA issued its final determination in 2006.
4.197.
Article 19.4 of the SCM Agreement provides that the countervailing duty imposed may not exceed the amount of the subsidy found "to exist" – and thus does not permit duties to be imposed based on past subsidies that no longer "exist." Article 21.1 makes this requirement explicit, providing that: "[a] countervailing duty shall remain in force only as long as and to the extent necessary to counteract subsidization which is causing injury." The JIA's continued imposition of duties in 2006 when it knew that the benefit of the October 2001 restructuring had already expired cannot be reconciled with these provisions.
4.198.
Japan has contended that the provisions of Article 21 do nothing more than establish the requirements for reviews of outstanding countervailing duty orders.109 But, the very heading of Article 21 – which refers to the "Duration and Review of Countervailing Duties and Undertakings" – indicates that its content is not limited to reviews. Furthermore Article 21.1 (which sets forth the limitation on the duration of duties) does not mention the word review at all.
4.199.
Japan also contends that the imposition of countervailing duties even after the benefit had expired is consistent with language in the Appellate Body's decisions in two antidumping cases (the EC – Bed Linens case and the Mexico – Rice case). But the issues addressed in those cases were entirely different – concerning the relationship between the finding of dumping for particular exporters in a particular period and the determination that dumped imports from all exporters had caused injury in what might be a different period.110
4.200.
Furthermore, Japan's arguments ignore the fundamental differences between antidumping and countervailing duty proceedings. There are important textual differences between Article 9.3 of the Antidumping Agreement (which limits antidumping duties to a specific calculation undertaken pursuant to Article 2) and Article 19.4 of the SCM Agreement (which limits countervailing duties to "subsidies found to exist"). Furthermore, there is nothing in the Antidumping Agreement corresponding to Article 19.1 of the SCM Agreement (which prohibits the imposition of countervailing duties, even after the investigation has been completed, when the subsidies are "withdrawn"). And, finally, there is nothing in the Antidumping Agreement that permits the amortization of dumping from a period before the investigation period to find dumping in the investigation period and in future periods.
4.201.
Finally, the imposition of duties after the benefit has expired would be contrary to the purpose of the SCM Agreement – which is simply to "offset" subsidies.111 At the time it made its determination in this case, the JIA knew with certainty that the benefits from the October 2001 restructuring extended only until 2005, and did not exist in 2006. In such circumstances, the imposition of duties in 2006 could not "offset" the subsidies from the October 2001 restructuring, because those subsidies no longer existed.

8. Japan's Finding that the Subsidized Imports Were Causing Injury Was Inconsistent with the Requirements of the SCM Agreement

4.202.
The text of Articles 15.5 and 19.1 require a determination that the injury caused by the subsidized imports occur "through the effects of the subsidy." Under these provisions, it is not enough that the imports which happen to be subsidized are causing injury. Instead, it must also be demonstrated that the injury is occurring "through the effects of the subsidy".
4.203.
Japan and the United States assert that a footnote to Article 15.5 (footnote 47) defines the phrase "effect of the subsidy" to mean the price and volume effects, and the consequent impact on the domestic industry, described in Articles 15.2 and 15.4. But the footnote in question is placed immediately after the word "effects" and thus serves only to define that word. It does not define the entire phrase "through the effects of the subsidy." Indeed, a contrary interpretation would render the reference to the effects "of the subsidy" inutile.
4.204.
Japan and the United States also contend that the Panel should follow the decision by a GATT Panel in the Norwegian Salmon cases.112 But Japan itself severely criticized the Norwegian Salmon decision "subverted the rule" in the Tokyo Round Subsidies Code and "denied the true meaning" of the phrase "through effects of the subsidy."113 The GATT Panel report was adopted only in light of the statement by the Chairman of the Committee on Subsidies and Countervailing Measures that the "Panel Report did not create obligations on parties that were not parties to the specific dispute addressed by the Panel Report, nor did it represent binding legal precedent applicable to other disputes."114 Because the Norwegian Salmon decision is not consistent with the ordinary meaning and context of the relevant provision, its holding should not in any way bind the Panel in this case.
4.205.
Finally, it should be noted that the JIA, in this case, apparently agreed that it was necessary to demonstrate that the injury occurred "through the effects of the subsidy." But, the JIA concluded that any harm caused by Hynix's exports was necessarily a result of the subsidy, because Hynix would not have been in operation, and thus would not have been able to export, in the absence of subsidies.115 As noted in Korea's first submission, that conclusion is based on a fundamental legal error. "Bankruptcy" is a legal process, which affords a debtor protection from its creditors while the debtor's future is being determined. Under the Korean bankruptcy laws, the "bankruptcy" of Hynix would have led to debt restructuring, not liquidation. Thus, the JIA's equation of bankruptcy with liquidation has no basis.

9. Failure to Comply with the Substantive and Procedural Requirements of the SCM Agreement

4.206.
As discussed above, the JIA's imposition of countervailing duties in this investigation failed to comply with the procedural and substantive requirements of the SCM Agreement and the GATT 1994. Consequently, the imposition of those duties was inconsistent with the requirements of Articles 10 and 32.1 of the SCM Agreement.

F. SECOND WRITTEN SUBMISSION OF JAPAN

4.207.
The following summarizes Japan's arguments in its second written submission.

1. Standard of Review and Burden of Proof

(a) Standard of Review

4.208.
Article 11 of the DSU provides the proper standard of review to be applied by panels examining the subsidy determinations of WTO Members:116 an objective assessment of the matter, including "an objective assessment of the facts of the case and the applicability of and conformity with the relevant covered agreements."117 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. Rather, a panel should, on the basis of the record evidence before it, "inquire whether the evidence and explanation relied on by the investigating authority reasonably supports its conclusions."118 A panel should "examine the evidence in the light of the investigating authority's methodology", and in order to do so, a panel should "identify the inference drawn by the agency from the evidence, and then consider whether the evidence could sustain that inference."119 An impermissible de novo review would occur "[w]here 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 "120
4.209.
Where an investigating authority relies on the totality of circumstantial evidence in finding entrustment or direction, "this imposes upon a panel the obligation to consider, in the context of the totality of the evidence, how the interaction of certain pieces of evidence may justify certain inferences that could not have been justified by a review of the individual pieces of evidence in isolation."121

(b) Burden of Proof

4.210.
Two fundamental principles of the WTO dispute settlement procedures are of particular relevance to this case: (1) "[T]he burden of proof rests upon the party…who asserts the affirmative of a particular claim…."122; and (2) A "responding Member's law will be treated as WTO-consistent until proven otherwise."123 The determination of the investigating authority in the present case must be assumed to be WTO-consistent in its entirety, and the burden rests on Korea to prove otherwise.

2. Korea's Claims of Error

(a) Japan's Guidelines

(i) The Limited Scope of Korea's Claim

4.211.
Korea has limited its claim under Article 14 of the SCM Agreement to whether the method used by the JIA in the benefit calculation was "provided for" in Japan's national legislation or implementing regulations.

(ii) The JIA's Benefit Calculation Methodology Was Provided for in Japan's Law

· The Panel should reject Korea's "as such" claim
4.212.
A claim that the calculation methodology has not been provided for in Japan's "national legislation or implementing regulations" is by definition an "as such" challenge but Korea's claim falls far short of the standard for "as such" challenges. Korea did not claim that the application of benefit calculation formulae in the Final Determination caused any impairment of procedural rights of interested parties during the investigation, that the formulae are inconsistent with methods set forth in the Guidelines, or that the formulae in the Final Determination were themselves inconsistent with Article 14 of the SCM Agreement.

· Korea continues to confuse method with application

4.213.
The chapeau of Article 14 clearly delineates between the method used by the investigating authority to calculate benefit, which must be provided for in national legislation or implementing regulations and the application of that method to each particular case, which must be transparent and adequately explained. The method the JIA used to calculate benefit was provided for in Japan's Guidelines. Its application was set out in the Final Determination. The application of a method will inevitably be more detailed than the Guidelines upon which any investigating authority will rely.

· Article 14 does not prescribe how WTO Members must apply their Guidelines

4.214.
Article 14 does not prescribe any particular methodology that Members must adopt, but provides "considerable leeway in adopting a reasonable methodology."124 Paragraphs (a) through (d) of Article 14 should not be interpreted as "rigid rules that purport to contemplate every conceivable factual circumstance".125 However, Korea urges the Panel to adopt such an interpretation. Such argument negates the discretion accorded to each WTO Member as explained by the Appellate Body and the panel. Japan's Guidelines set its benefit calculation methods as required under the chapeau of Article 14. The Guidelines are sufficiently detailed and in compliance with Article 14. The Guidelines left the application of the methods to individual cases.

· The Panel should reject Korea's argument that any failure to comply with Article 14 renders the countervailing duty order invalid

4.215.
When a breach is found through a WTO dispute settlement procedure, under the general principle pursuant to Article 19.1 of the DSU, the Member concerned receives a recommendation to bring its measures into conformity and will have the discretion to determine the means of implementation and a reasonable period of time for doing so.126 The countervailing duty as a whole would not be considered to be invalid.

(b) The Record Evidence

4.216.
There is "no basis in the SCM Agreement or in the DSU to impose upon an investigating authority a particular standard for the evidence supporting its finding of entrustment or direction".127 The SCM Agreement requires "positive evidence" only with respect to specificity under Article 2 and injury under Article 15.128 The use of circumstantial evidence has been recognized by the Appellate Body129, which has found that Article 1.1(a)(1)(iv) is, in essence, an anti-circumvention provision"130 and that indirect or circumstantial evidence play an especially important role. Korea's premise, that only "positive evidence", "smoking gun" or "direct evidence" qualify as evidence in a subsidy investigation, in arguing that the JIA "shifted the burden of proof" is wrong.
4.217.
The JIA conducted a reasonable and objective examination of the extensive evidence on the record and made its determination on the basis of evidence viewed in its totality. It also addressed alternative explanations regarding such evidence given from interested parties in the course of the investigation. When it disregarded such alternative explanations, it explained the reasons why it chose to discount such alternatives in reaching its conclusions.

(c) Designation of Certain Financial Institution as "Interested Parties"

4.218.
Korea has not made any persuasive argument that financial institutions cannot be included as "interested parties" under the SCM Agreement and fails to establish a prima facie case.

(d) Financial Contribution

(i) The JIA Correctly Found a Transfer of "Funds"

4.219.
The ordinary meaning of the term "funds" in the context of Article 1.1(a)(1)(i) of the SCM Agreement in light of its object and purpose encompasses debt-to-equity swaps and the extension of maturities of loans. The ordinary meaning of the word "funds" encompasses more than just "money" and includes as well all financial resources, which have monetary or exchangeable value or provide financial gains.131 As a consequence, Korea's claim regarding "government revenue that is otherwise foregone" is irrelevant and should be rejected.

(ii) The JIA Correctly Determined that the Private Creditors Were Entrusted or Directed

· Summary of argument and general approach
4.220.
"Entrustment or direction" occurs when a government "gives responsibility to" or "exercises its authority over" a private body.132 The SCM Agreement imposes no particular evidentiary standard for the evidence for the determination of entrustment or direction.133 In light of the anti-circumventive nature of an "entrustment or direction" case, circumstantial evidence may play a key role in a determination under Article 1.1(a)(1) of the SCM Agreement. The JIA found, based on the totality of the evidence before it, that the Government of Korea's involvement in the bailout programs for Hynix was not a mere facilitation for such programs, and the bailout programs were not an "inadvertent or a mere by-product of governmental regulation".134 A review of the JIA's analysis of the individual pieces of circumstantial evidence in conjunction with other pieces of evidence, as the JIA did, as well as the accuracy of the individual pieces of evidence, and an assessment whether the intermediate findings of fact made by the JIA on the basis of these evidence, and the overall conclusion based on these intermediate findings, demonstrates that the JIA's determination provided a reasoned and adequate explanation.

· Rebuttal to Korea's arguments

4.221.
Korea's argument that the JIA's finding of entrustment or direction rests solely on a three-prong "syllogism" misstates the JIA's determination and overlooks the fact that the JIA considered other factors (e.g., the Government of Korea's power to control the private bodies, the Government of Korea's intervention into the progress of the October 2001 and December 2002 Programs).135

- The Government of Korea's intent

4.222.
The JIA had abundant evidence before it that the Government of Korea had expressed a clear intent to save Hynix.136 As clarified by the Appellate Body, in some circumstances, "guidance" can constitute entrustment or direction.137 Whether the government's action is ultimately not inconsistent with the private bodies' own interests is not a factor that needs to be considered in assessing the government's action of entrustment or direction.138
4.223.
Contrary to Korea's allegation, the JIA did not ignore the newspaper article cited by Korea, but rather addressed it and explained the weight it was given.139 The JIA sufficiently discussed other evidence related to the Government of Korea's actions related to the October 2001 Program.140 The JIA fulfilled its responsibility to provide reasoned explanation on its determination under the SCM Agreement. In assessing the accuracy and adequacy of any statements by interested parties during the investigation, it was reasonable for the JIA to consider whether, in light of the totality of the evidence before it, such statements were accurate and adequate, and if the evidence demonstrated that they were not, to reach a finding that such statements are not reliable.

- Lack of investors and the lack of sufficient analysis by participating banks

4.224.
As a premise, the JIA focused on the commercial reasonableness of the participating banks' decisions and decision making process, and the JIA's conclusion that the banks acted in a non-commercial manner sheds light on some of the other evidence on the record, as the Panel in EC – Countervailing Measures on DRAM Chips acknowledged that "such non-commercial behaviour may well be seen as an indication of possible government entrustment or direction".141
4.225.
Next, with respect to the creditor banks for which the JIA did not make finding on whether entrustment or direction was made, it should be noted that the JIA had sent questionnaires to these banks and asked them to provide information concerning their decisions to participate in the Hynix bailout programs, but only one responded. Thus, the JIA relied on the facts that were otherwise available, including those provided by responsive bank. Also, the fact that the JIA did not make such finding does not suggest that the banks acted in commercial manner.

- Korea's Specific Arguments on the JIA's Assessment of the Lack of Investors Willing to Participate in the Bailout Programs

4.226.
The JIA's finding was based on abundant of evidence that there existed no investors, either new or existing creditors, in the general commercial market who would have invested in or provided loans to Hynix from a normal commercial perspective such as views of investment analysts, investment trust companies, and purchasers of the GDRs, i.e., an outsider's point of view.142 The JIA further examined the commercial reasonableness for existing creditors to provide additional financing to Hynix even where no investors in the general commercial market would provide any financing.143 The JIA followed the same process in examining banks' financing decisions in the October 2001 Program144 and the December 2002 Program145 on the premise that existing creditors would possibly provide additional funding in order to maximize the recovery of credit.146
4.227.
The Arthur Andersen Report, which all the banks alleged to have formed the basis for their decision to participate in the October 2001 Program, was not ready until more than a month after the conclusion of the October 2001 Program. With respect to the December 2002 Program and the Deutsche Bank Report, the JIA examined the accuracy and adequacy of the Deutsche Bank Report. However, the JIA found it was not an objective third party analysis as the Deutsche Bank [[BCI]].147 There also was evidence on the record that the government intervened in the preparation of the Deutsche Bank Report148, as acknowledged by NACF.149 In addition, KEB and Woori Bank refused to submit minutes of Special Committee for Corporate Restructuring irrespective of the JIA's request. Thus, it did not have sufficient third party character to substantiate a commercial judgment, given Hynix's serious financial situation.150
4.228.
The JIA also pointed to a number of anomalies in this Report for which no satisfactory explanation was provided.151 Equally important is the fact that all the creditors seemed to have ignored these anomalies and that they went ahead with the excessively risky investment in Hynix based on this unreliable Report, casting doubt on the general claim by the creditors that they based their decision on the Deutsche Bank Report and that this decision was therefore commercially reasonable.
4.229.
The offer made by Micron in April 2002 cannot be evidence of the situation in December 2002 and the Memorandum of Understanding between Hynix and Micron was not submitted to the JIA at the time of the investigation.152 None of the Korean banks stated that it relied on the Micron offer in evaluating the value of Hynix.

- Korea's Specific Arguments concerning the Lack of Analysis by Participating Banks

4.230.
Exhibits KOR-27 and KOR-29 confirm a number of the JIA's findings on Woori Bank. With respect to the October 2001 Program, KOR-27 shows that the Bank [[BCI]]; that the Arthur Andersen report [[BCI]] in the October 2001 Program; and that Woori Bank took into account the [[BCI]]. With respect to the December 2002 Program, KOR-29 shows that Woori Bank accepted the Deutsche Bank Report at face value, despite of the many shortcomings both from a procedural and substantive point of view and its own admission that the Deutsche Bank was[[BCI]].

(e) The Determination of Benefit

(i) Introduction and Overview of Japan's Argument

4.231.
The JIA's conclusion that Hynix could not raise funds on the commercial market comparable to those raised through the October 2001 Program and the December 2002 Program was reasonable and is supported by facts on record.153 Participation in these Programs by financial institutions, for which the JIA did not make any finding whether they were entrusted or directed by the Government of Korea, cannot be the benchmark to determine the benefit as these financial institutions also acted in consideration of non-commercial factors.
4.232.
The terms and conditions of the October 2001 and the December 2002 Programs were so heavily distorted by past subsidies, as well as the concurrent government entrustment or direction for the particular subsidy, that they were not obtained from the commercial market. The evidence on the record also established, inter alia, that the Government of Korea intervened into the contents of the Deutsche Bank Report154, which provided the financial terms of the December 2002 Program.

(ii) Rebuttal to Korea's Arguments

· Korea's flawed argument based on the going concern value
4.233.
The assertion that the going concern value was higher than the liquidation value and thus the banks' participation reflected market benchmark is erroneous and unsubstantiated.155 The Arthur Andersen Report was only finalized after the decisions to participate had already been taken and its going-concern value was based on Hynix's financial conditions after its receipts of the actual financings as executed under the October 2001 Program.156 For the Deutsche Bank Report, the estimated recovery rates in case of turnaround scenarios, i.e., its going-concern values for creditors, contain errors and various other deficiencies.
4.234.
Neither Article 1.1(b) nor Article 14 provides any particular methodology that an investigating authority should use where no commercial benchmarks from the actual market are available as an "investigating authority is entitled to considerable leeway in adopting a reasonable methodology."157
4.235.
With respect to the assertion that the JIA did not examine the normal practice of participants in transactions of the same type, Korea disregards the fact that the Government of Korea and other interested parties refused to submit information of the financings provided to other companies subject to the CRPA during the investigation, despite the request of the JIA. Thus, the JIA was precluded from considering such potential market benchmarks.158

· Korea's flawed argument using the banks - for which the JIA made no finding of whether they have been entrusted or directed - as benchmarks

4.236.
In light of the fact that the banks, to which the JIA sent questionnaires, were the major creditors to Hynix, selected based on the response of the Government of Korea on this point, and the response of KEB, the lead bank in Hynix's Creditors Council (i.e., that the credit of such other banks "is small" and that KEB does not "think this information is necessary for the countervailing duty investigation procedure"), the JIA's selection of banks to investigate was reasonable.
4.237.
Article 14 does not require an investigating authority to accept as a benchmark a market so distorted by the government's intervention that the trade-distorting potential of the subsidy would not be properly recognized.159 To require use of such a distorted benchmark would lead to an underestimation of the trade-distorting potential of the subsidy.
4.238.
The "market" in this case is the financing by private entities that is commercially available to Hynix. If the government is heavily subsidizing a company, then private entities would construct their financial arrangements to the company based on its subsidy-distorted financial conditions. It is therefore clear that the government's intervention is distorting "the market" available to the company. In some cases, such as this one, the scale and timing of the subsidies is such that it is not just a question of impacting on the terms of the financing, but actually creates the existence of such financing itself. At the time of the October 2001 Program and the December 2002 Program, no commercial investment was available to Hynix160 and it was well recognized that it would go bankrupt without a new financial infusion.161
4.239.
In the case at hand, the JIA did not make any finding of whether certain banks were entrusted or directed, but this does not mean that such banks necessarily constitute a market benchmark. These other creditors had not acted in a commercially reasonable manner. Apart from Kookmin Bank, none of these other banks provided responses to the JIA's questionnaires, forcing the JIA to rely on the facts available.162 With respect to the December 2002 Program, the JIA had no choice but to base its fact finding on the information from those banks that replied.
4.240.
Subsidies such as the D/A financing, the KDB program and the May 2001 Program were not granted in the distant past. They remained in effect and enabled Hynix to survive until the October 2001 Program, which in turn enabled Hynix to stay in business until the December 2002 Program. Given the extent of the subsidies provided, it is evident that the terms and conditions of these banks' financings in the October 2001 and December 2002 Programs were affected and distorted by the earlier bail-out programs.
4.241.
In the case at hand, the government's role in the restructuring of Hynix through public bodies and entrusted or directed private bodies was so predominant both prior to and at the time of the actual programs that were countervailed, that a comparison with a distorted private market would become completely circular.

(f) Imposition of a Countervailing Duty on Imports Found to Have Been Subsidized during the Period of Investigation

(i) The Limited Nature of Korea's Claim

4.242.
Korea's claim under "Articles 19 and 21" has been narrowed down to its arguments based on Articles 19.4 and 21.1.

(ii) The Determination was Fully Consistent with Article 19.4

4.243.
Article 19.4 of the SCM Agreement explicitly references the amount of the subsidy "found to exist", i.e., using the past tense of "find," was made. A subsidy can only be "found" to exist during the period of investigation. If Korea's interpretation of Article 19.4 is accepted, investigating authorities would not be able to complete the investigation, as they would be forced to examine the amount of benefit concurrently with the imposition of a countervailing duty.

(iii) The Determination was Fully Consistent with Article 21.1

4.244.
Article 21 covers "Duration and Review of Countervailing Duties…." Article 21 is inapplicable in a dispute over the imposition of countervailing duties in accordance with the final determination of an investigation. Korea's interpretation would negate the clear intent of the drafters, who chose to place Article 21.1 under the provision dealing with reviews, rather than under Article 19, which imposes disciplines with respect to investigations.

(iv) Article VI of the GATT 1994, and the Provisions of the SCM Agreement Provide Incontrovertible Textual Support for Japan's Position

4.245.
Article VI of GATT 1994 and the provisions of the SCM Agreement provide vital textual support for use of a period of investigating ("POI") to determine the amount of the subsidy. Article VI:3 of GATT 1994 provides, in part, that the subsidy is that "determined to have been granted." The drafters have used the past perfect tense (referring to a subsidy "determined to have been granted") rather than the present tense (a subsidy "being granted"). The countervailing duty may be imposed on the basis of a subsidy "determined to have been granted" prior to the imposition of the duty, i.e., during the POI.
4.246.
Under Articles 10 and 11.1 of the SCM Agreement, the investigating authority determines the existence of the subsidy (i.e., subsidization), as well as the degree of the subsidy (i.e., the amount of subsidy) as of the time as alleged in the application. Article 15 provides that the determination of subsidy must precede the investigating authority's examination of injury. Consequently, the determination of the amount of subsidies, which constitutes the basis to determine the existence of subsidization, must also be made on the past data as of the time contemporaneous with the period of time in which the injury is determined. These provisions inform Article 19 that a final determination must be made based on the evidence on the record which relates to the POI. Article 19.4, in turn, authorizes imposition of countervailing duties where a subsidy has been "found" to exist during the POI. Nothing in the SCM Agreement requires a redetermination of subsidy at the time of imposition of the duties.

(v) Korea Wrongly Assumes that the Investigating Authority "Fully Allocated" the Subsidies to the 2001-2005 Period

4.247.
The JIA did not make any finding on the expiry date of the effects of the non-recurring subsidy granted in the October 2001 Program but determined only that the amount of the subsidy to be allocated to the POI was one-fifth of the originally granted amount of the non-recurring subsidy. This determination was a finding of the subsidy allocation for 2003 and does not represent a finding that the appropriate amount of the subsidy to be allocated to 2004 or 2005 would necessarily be one-fifth of the total amount of the subsidy.163
4.248.
The issue of the allocation of subsidies in later years must be determined upon review of relevant facts for those years in a review proceeding under Article 21 of the SCM Agreement. The JIA made no findings with respect to the amount of benefit that might be allocated to the period after the POI or how such amount would be allocated. Such a finding cannot be made concurrently with the imposition of a countervailing duty, because, inter alia, the allocation factor to be used in the calculation of the amount of benefit for the relevant subsequent periods and the residual amount of the subsidy may also change.164

(vi) Korea's Claim Disregards Relevant Findings by the Appellate Body

4.249.
Japan cited a number of WTO precedents165 that directly supported Japan's argument, and negated Korea's claim. Korea has not commented on the merits of these rulings. Furthermore, similarities of the characteristics of the Anti-Dumping Agreement and the SCM Agreement lead to the logical conclusion that both Agreements should be interpreted similarly, where possible. There is no obligation either under the Anti-Dumping Agreement or the SCM Agreement that the investigating authority must re-calculate the anti-dumping or countervailing duty rate absent an affirmative act.

(g) Effects of Subsidies in Injury Determination

(i) Causal Link between the Subsidized Imports and Injury

4.250.
Article 15.5 of the SCM Agreement requires an investigating authority only to demonstrate a "causal relationship between the subsidized imports and the injury to the domestic industry" and to conduct a non-attribution analysis in which the investigating authority examines "known factors other than the subsidized imports" to ensure that any injury caused by such known factors is not attributed to the subsidized imports. The "effects" are those set forth in Articles 15.2 and 15.4. Article 15.5 contains no additional requirement for an independent assessment of the effect of the subsidy itself.
4.251.
Because "serious prejudice" under Article 6.3 of the SCM Agreement is an "entirely different concept from injury" under Article 15, Article 6.3 does not create any requirements under Article 15. The guidance provided by the Appellate Body that the parallel injury causation provisions in the Anti-Dumping Agreement do not specify particular analytical methodologies or approaches.166 The provisions of the Anti-Dumping Agreement that correspond to Articles 15.1 and 15.2 of the SCM Agreement "do not set out a specific methodology."167 The "particular methods and approaches" for non-attribution analyses under Article 15.5 "are not prescribed"168 and "Article 15.5 does not impose any particular methodology when conducting the causation analysis set forth therein".169

(ii) The JIA Correctly Found that Hynix's Exports Were through the Effects of Subsidies Causing Injury to the Domestic Industry

4.252.
Even assuming arguendo that Article 15.5 requires an investigating authority to examine causation between the effects of subsidies and the injury, the JIA still is in compliance with Article 15.5 as it found that the subsidized imports injured the domestic industry through the effects of subsidies as the subsidies themselves allowed the importation of the subsidized imports, thereby causing injury to the domestic industry. As a matter of fact, Hynix was able to continue its business, including exports of its DRAMs to Japan only because of subsidies.

G. SECOND ORAL STATEMENTS OF KOREA

4.253.
The following summarizes Korea's arguments in its second oral statements.

1. Opening Statement of Korea at the Second Meeting of the Panel

(a) Introduction

4.254.
Korea's opening presentation at the second panel meeting focuses on four issues: (1) the proper understanding of the panel's task in this proceeding, (2) the appropriate method for determining whether an allegedly government-directed debt restructuring confers a benefit on the recipient, (3) the relationship between the amortization of a subsidy benefit and the duration of the countervailing duty, and (4) the requirement that there be a finding that the subsidized imports are, through the effects of the subsidy, causing injury to the domestic industry.

(b) The Panel's Task in this Proceeding

(i) The Interpretation of the Relevant Agreements

4.255.
Although there appears to be a vast gulf in how Korea and Japan see this case, there are certain basic rules for interpreting the terms of the WTO Agreements on which the parties should be able to agree.
4.256.
First, the panel must begin its analysis with an examination of the text of the relevant provision, giving meaning to each term. Second, the individual terms of the Agreements must 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." And, third, the panel must exercise caution in reading meaning into provisions that is not supported by the text itself.
4.257.
The application of these principles to the issues in this case should be straightforward. For example, in order to properly interpret the provisions of the SCM Agreement relating to "interested parties," it is necessary to assign some meaning to the word "interested." Japan's interpretation - which would permit an investigating authority to designate any entity that it sends a questionnaire to as an "interested party" - would render the word "interested" entirely superfluous.
4.258.
Similarly, the interpretation of the first clause of the first sentence of Article 14 must reflect the actual language of that provision — which focuses on the methods actually used by the investigating authority. An investigating authority that uses methods that are not provided for in its national legislation or implementing regulations does not act consistently with the requirements of the first clause of the first sentence of Article 14, regardless of what other methods might be described in the legislation and regulations.
4.259.
Finally, the phrase "direct transfer of funds" in sub-paragraph (i) of Article 1.1(a)(1) must be interpreted in light of the ordinary meaning of those terms — which does not encompass extensions of loan maturities or debt-equity swaps. Japan's suggestion that the SCM Agreement be read expansively cannot overcome the clear meaning of the language of the Agreement and, in particular, the phrase "transfer of funds."

(ii) The Requirement of a Prima Facie Case

4.260.
Japan has argued repeatedly that Korea has failed in a number of instances to make a prima facie case. But the use of the Latin phrase should not obscure the obligations in this case. Korea does not have an obligation to prove that there were no subsidies, or that the findings by the Japanese Investigating Authority ("JIA") were factually wrong. Instead, Korea only needs to show that the JIA failed to comply with the requirements of the SCM Agreement. There are a number of ways for Korea to meet that obligation - for example, by identifying instances in which the JIA ignored evidence, failed to consider alternative explanations, imposed improper burdens of proof, improperly resorted to facts available instead of creditor-specific information, or based its determination on unsupported assumptions. If Korea demonstrates that there were such errors, then it has established that the JIA's decision was inconsistent with the obligations of the SCM Agreement - even if Korea does not prove that the JIA's assumptions were, in fact, incorrect.

(iii) Evidentiary Requirements under the SCM Agreement

4.261.
The Appellate Body has stated that the evidence relied upon by an investigating authority in a countervailing duty proceeding must "demonstrate" that the relevant subsidy criteria exist. Furthermore, the Appellate Body has clarified that, in applying the standard of review set forth in Article 11 of the DSU, panels must undertake a "critical and searching", "in-depth" examination to "test whether the reasoning of the authority is coherent and internally consistent," and to ensure that "there was positive evidence before [the investigating authority] to support the inferences made and conclusions reached by it."170 As the Appellate Body has clarified, "[a]n investigating authority that uses a methodology premised on unsubstantiated assumptions does not conduct an examination based on positive evidence."171
4.262.
The JIA's decision cannot withstand such scrutiny. Consider, for example, its treatment of loan-maturity extensions and debt-equity swaps. The JIA's Notice of Important Facts "deemed" those transactions to involve a two-step process in which Hynix first repaid its outstanding debts in full, and the creditors then used the funds received from Hynix to make new loans and equity infusions. But that assumption is illogical and completely without support: There was no evidence that Hynix, its creditors, or any lender or investor in Korea actually considered the loan-maturity extensions and debt-equity swaps to be equivalent to full repayments followed by new loans and new equity infusions - especially in light of Hynix's insolvency.
4.263.
A similar problem can be seen with the JIA's finding of entrustment or direction. The JIA's analysis of "entrustment or direction" began with the 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, there was no evidence to support that assumption. In reality, private creditors acting solely from a "normal commercial perspective" routinely engage in restructuring transactions with insolvent debtors whose finances are deteriorating.
4.264.
Japan has attempted to distract the Panel from the unsupported assumptions, unreasonable inferences and other obvious flaws in the JIA's analysis by invoking the concept of the "totality of the evidence." But Japan's interpretation is fundamentally illogical. When an investigating authority invokes the "totality of the evidence" to support its findings, it is necessarily adopting the position that all of the evidence identified as supporting its conclusion was relied upon to reach the conclusion. After all, if some of that evidence that the investigating authority relied upon turns out to be incorrect, or to have been analyzed incorrectly, then the logic of the investigating authority's initial decision - which was based on a consideration of all of the evidence - can no longer hold.
4.265.
In Korea's view, the evidence cited by the JIA is insufficient on its face to support a finding of entrustment or direction. But even if there were doubt, the Panel cannot uphold a decision that purports to be based on the "totality of the evidence," when some of the evidence relied upon by the investigating authority turns out to be incorrect or inconsistent with the investigating authority's interpretation.

(c) The Benefit Determination

(i) The Appropriate Benchmark

4.266.
As mentioned, the JIA's benefit analysis "deemed" the restructuring transactions to be new loans and new equity investments by creditors whose pre-existing claims had already been repaid in full. The JIA therefore used the practices of investors considering "new" loans and investments as the benchmark for its benefit analysis. But that analysis is fundamentally inconsistent with the JIA's factual findings that Hynix was unable to repay its existing debts at the time of the restructuring transactions.
4.267.
The problem for Hynix's creditors was that they could not get their money back from Hynix, because Hynix was insolvent. The creditors had, therefore, to try to maximize their returns given the fact that they had already committed their money to Hynix. The creditors did not have the option of taking back their money in full and investing it somewhere else. The behaviour of persons who did have that option is, therefore, irrelevant to the analysis of the options available to Hynix's creditors.
4.268.
Japan has admitted that the JIA never considered the normal market practices of creditors of insolvent companies. Japan has also admitted that the JIA never made any findings regarding Hynix's going-concern and liquidation values at the time of the restructurings — even though those figures would have been critically important to creditors of insolvent companies acting in accordance with usual market practice. In the absence of such findings, there was no evidentiary basis for the JIA's conclusion that the restructurings were inconsistent with market benchmarks.

(ii) The Evidence Concerning Hynix's Going-Concern and Liquidation Values

4.269.
The evidence before the JIA included reports from various financial advisors and industry experts, as well as analyses from the creditors themselves, confirming that Hynix's going-concern value was higher than its liquidation value at the time of the October 2001 restructuring and at the time of the December 2002 restructuring.
4.270.
In its analysis of the October 2001 restructuring, the JIA disregarded the valuation analyses performed by outside consultants, because the final versions of the reports were not completed until after the restructuring had been approved. But, even if the JIA were correct about the timing of those reports, it would not affect the benefit analysis. As Japan has conceded, creditors acting in accordance with the usual market practices would have obtained similar valuation analyses. And, when presented with such figures, creditors acting in accordance with usual market practices would have agreed to restructure Hynix's debts. Consequently, there was no benefit to Hynix from the alleged government entrustment or direction.
4.271.
The JIA's analysis of the December 2002 restructuring took a different approach: It claimed that the report by the outside consultant was so obviously flawed that no creditor acting under usual market practices would have relied on it. But the JIA reached that conclusion by taking statements out of context and portraying minor disagreements about presentation as evidence of error. In reality, its criticisms were without merit. An objective and unbiased analysis would have found that the financial consultant's report relating to the December 2002 restructuring was consistent with the normal practices of financial advisors assisting creditors in figuring out what to do with an insolvent debtor, and that the creditors' reliance on that report was consistent with normal market practices.
4.272.
On the whole, there was no evidence to support the JIA's assertion that the restructurings were inconsistent with normal market practices. Consequently, the JIA's finding of a benefit to Hynix from the October 2001 and December 2002 restructurings was inconsistent with the requirements of the SCM Agreement.

(iii) Participation of Non-Entrusted or-Directed Creditors

4.273.
Only four of the banks that participated in the restructurings were found by the JIA to have been entrusted or directed by the Korean government. The JIA did not find entrustment or direction of any of the more than one hundred other financial institutions that participated in the restructuring on the same terms. Indeed, the JIA did not even contact most of these institutions - even though many of them held a higher share of Hynix's debt than some of the banks the JIA did investigate.
4.274.
Japan has asserted that the JIA was justified in ignoring the behaviour of the financial institutions it never contacted, because Hynix's financial condition at the time of the restructurings was distorted by past subsidies. But Japan's arguments concerning the relevance of past subsidies are inconsistent with the provisions of Article 14 of the SCM Agreement. Article 14 provides that the benefit of a subsidy is to be measured solely by the difference between the terms of the subsidized transaction and the terms of an equivalent market benchmark transaction. By contrast, Japan's proposed approach would define the benefit from subsidies to include not only the difference between the subsidized financing and the market benchmarks, but also any future financing, even if that future financing is fully consistent with market benchmarks.
4.275.
As Korea has demonstrated, Japan's interpretation would also lead to absurd results, where two identical companies with identical subsidies in a prior period and identical financing in the investigation period might nevertheless be subjected to drastically different countervailing duties. Such an interpretation of the SCM Agreement cannot be correct.

(d) Imposition of Duties Beyond the Amortization Period

4.276.
It is undisputed that the alleged subsidy benefit from the October 2001 restructuring was fully allocated to the period from 2001 to 2005 by the methods adopted in the JIA's determination. Because the transaction in question was found by Japan to be a non-recurring subsidy, there is no basis for assuming that it might somehow be resuscitated to provide a new subsidy and new benefits in the future.
4.277.
Japan has suggested that there might have been uncertainty about the subsidy rate in 2006, because the volume of sales or production used as the denominator for the calculation of the duty rate in 2006 was unknown at the time of the JIA's decision. But, no matter what Hynix's sales were in 2006, the duty rate relating to the October 2001 restructuring would have been zero - because a subsidy benefit of zero divided by any number results in a rate of zero.
4.278.
Japan also contends that it was possible that the subsidy amortization period might have changed after the JIA's determination — if, for example, the estimated useful lives of Hynix's assets, and thus the subsidy amortization period, were modified. But, this issue is also irrelevant: The estimated useful lives of Hynix's assets during the entire amortization period was already known at the time the JIA made its final determination in January 2006, because the amortization period had ended in December 2005.
4.279.
In this case, the JIA knew at the time that it made its decision in January 2006 that there was no continuing benefit from the October 2001 restructuring. It knew that the duty was no longer necessary to counteract any alleged subsidization arising from the October 2001 restructuring. Consequently, the imposition of duties is inconsistent with the provisions of Article 21.1 of the SCM Agreement, which specifically states that "A countervailing duty shall remain in force only as long as and to the extent necessary to counteract subsidization which is causing injury." In addition, it is also inconsistent with the requirements of Article 19.4, which provides that "No countervailing duty shall be levied on any imported product in excess of the amount of the subsidy found to exist...."

(e) Causation of Injury "Through the Effects of Subsidies"

4.280.
Japan contends that the phrase "through the effects of subsidies" in the first sentence of Article 15.5 has no distinct meaning, and that the only purpose of the first sentence of Article 15.5 is to introduce the remaining sentences of Article 15.5. But Japan's interpretation cannot be correct, because it would not give meaning to every word in the first sentence of Article 15.5 — or, indeed, to the first sentence of Article 15.5 as a whole.
4.281.
In its determination in this case, the JIA never stated that it was unnecessary to show that the injury had occurred "through the effects of the subsidy." Instead, the JIA claimed that the evidence showed that the injury had occurred "through the effects of the subsidy," because the mere fact that Hynix was still in operation, and able to export, reflected the fact that the alleged subsidies had saved Hynix from bankruptcy. But, as Korea has shown, this conclusion makes no sense. Under the Korean bankruptcy laws, the "bankruptcy" of Hynix would have led to debt restructuring, not liquidation, as long as Hynix's going concern value was higher than its liquidation value. There is no basis for the JIA's assumption that Hynix would have been liquidated in the absence of the alleged subsidies.
4.282.
Japan has responded that there is nothing in the SCM Agreement that required the JIA to make findings about the operation of the Korean bankruptcy laws. But, it was the JIA (and not Korea) that chose to base the causation analysis on an assumption about how bankruptcy would have affected Hynix's production and exports. It was the JIA that asserted, without any evidence to support it, that bankruptcy would have necessarily required Hynix to cease production and export. Because the JIA's assertion was just unsupported (and, indeed, flatly wrong), the JIA's determination cannot be upheld under the relevant standard of review.

(f) Conclusion

4.283.
The logic that led the JIA to find government "entrustment or direction" and to conclude that Hynix benefited from that alleged government action is flawed. The creditors acted in accordance with their rational self-interest, and the debt restructurings they adopted were consistent with the usual market practices of creditors of insolvent companies. Consequently, there was no reason to assume, as the JIA did, that there must have been government interference, and there is no reason to conclude that the alleged entrustment or direction made Hynix "better off." Because the JIA's determination was inconsistent with basic logic, everyday experience, and the requirements of the SCM Agreement, it cannot be upheld by the Panel.

2. Closing Statement of Korea at the Second Meeting of the Panel

4.284.
Korea has engaged in a great deal of discussion at its meetings with the Panel and in its past written submissions about the circumstances of the Hynix restructurings that are at the heart of this case. As noted, there is no doubt that Hynix was in financial distress and unable to pay its debts in full at the time of the restructurings. But, contrary to Japan's apparent view, Hynix's difficult financial situation is not the end of the analysis. Instead, it is only the beginning.
4.285.
Korea has presented arguments - based on the evidence and the JIA's own determinations - which in Korea's view compel the conclusion that there was no entrustment or direction, that there was no benefit, and that there was no injury through the effects of the subsidies. Korea believes that it is clear that Hynix's condition left the creditors with no real options other than to restructure Hynix's debts. Japan, it seems, wants to outlaw bankruptcy and informal debt workouts. The answer is clear: The restructuring of Hynix's debts was not the result of government entrustment or direction that made Hynix better off than the market alternatives, but was, instead, the expected outcome of rational creditors following the usual market practices.
4.286.
Nevertheless, as noted previously, it is not Korea's obligation in this proceeding to prove that there were no subsidies. Instead, Korea is required only to show that the JIA failed to live up to its obligations under the SCM Agreement.
4.287.
Japan has repeatedly accused Korea of failing to present a prima facie case. Consider, for example, paragraph 27 of Japan's response to Korea's questions, where Japan stated:

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.

4.288.
In examining whether the JIA complied with those requirements, it may be useful to pause, for a moment, to consider some of the things that Japan has admitted the JIA did not do. Among other things, in its response to Korea's questions, Japan admitted that the JIA made no findings as to what Hynix's going concern or liquidation value might have been at the time of the restructurings.172 And, in its statement at the second meeting of the Panel, Japan admitted that the JIA made no findings as to what Hynix's creditors — or what other private actors in the position of Hynix's creditors making decisions in accordance with usual market practices — would have done in the absence of the alleged entrustment or direction.
4.289.
This can be seen plainly in paragraphs 33 to 36 of Japan's Opening Statement. In paragraph 33, Japan stated explicitly that "Hynix would have been unable to continue its business if the situation had been left untouched, i.e., if Hynix's creditors would not have taken actions to allow Hynix to continue its business." But, in the very next sentence, Japan went on to clarify that:

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.

4.290.
As the Appellate Body has made clear, a finding of a benefit under Articles 1 and 14 requires a determination that the recipient has been made "better off" than the alternatives available in the relevant market.174 Now, Japan has admitted that the JIA made no findings as to the alternatives that were available in the relevant market if the alleged entrustment or direction had not occurred. Japan has, therefore, conceded that the JIA made no finding as to whether the alleged entrustment or direction made Hynix "better off."
4.291.
In case there were any doubt about what Japan meant, Japan continued on to repeat twice more that the JIA failed to examine what would have happened without the alleged subsidies. According to Japan, "Whether or not any other theoretical restructuring would have saved Hynix, if the subsidies had not been granted, is an irrelevant question."175 Japan admits the JIA did not look at what would happen in a market-based restructuring because that is not what happened; according to Japan subsidies are what happened. In Japan's view looking at "other potential bailout plans" would be "pointless."176
4.292.
Under the SCM Agreement, however, looking at the "other potential bailout plans" that would have been available from the market is not "pointless." It is, instead, the entire point. A government financial contribution is not a subsidy unless it confers a benefit on the recipient, and it only confers a benefit on the recipient if it makes the recipient "better off" than the available market alternatives. By declaring an analysis of the available market alternatives "pointless", Japan has simply read the benefit requirement out of the Agreement. The Panel obviously cannot uphold that result.
4.293.
Korea has plainly met its burden of proof in this proceeding: In its submissions, it has identified instances in which the JIA ignored evidence, failed to consider alternative explanations, imposed improper burdens of proof, improperly resorted to facts available instead of creditor-specific information, and based its determination on unsupported assumptions. As a result, Korea has established that the JIA's decision was inconsistent with the obligations of the SCM Agreement. In its statement at the Second Substantive meeting of the Panel, Japan has admitted that Korea are right.

H. SECOND ORAL STATEMENTS BY JAPAN

4.294.
The following summarizes Japan's arguments in its second oral statements.

1. Opening Statement of Japan at the Second Meeting of the Panel

(a) Korea's Economic Theories Arguments are Irrelevant

4.295.
In light of the irrelevance of its argument and the Panel's standard of review, Korea's economic theories argument cannot serve as the basis for the Panel to make any assessment of the JIA's determination.

(b) Japan's Provision of Methods is Consistent with Article 14

4.296.
The application of the method under Article 14 need only fall within the umbrella of the methods "provided for". Beyond the "provided for" requirement, Article 14 does not specify a particular level of detail.177

(c) The "Assumptions" Alleged by Korea

(i) The First Category of an "Assumption" Alleged by Korea is Based on an Incorrect Understanding of the JIA's Determination178

4.297.
The JIA first made a finding that there was no financing available from the viewpoint of outside investors. The JIA then examined the existing creditors "on the premise that existing creditors would possibly provide additional funding in order to maximize the recovery of credit."179 The JIA examined the actual decisions made by the existing creditors by reviewing the processes and materials actually considered by the creditors.

(ii) The Second Category of an "Assumption" Alleged by Korea Is in Fact a Factual Finding Based on the Evidence on the Record180

4.298.
Korea's second category of an alleged "assumption" is not an assumption, but a finding of fact that the Government of Korea in fact had intervened in the existing creditors' preparation of the Hynix bailout programs and in individual banks' decision making to provide financing to Hynix181.

(iii) The Third Category of an "Assumption" Alleged by Korea is Based on an Incorrect Understanding of the JIA's Findings and the Evidence182

4.299.
The third category of Korea's alleged "assumptions" is made regarding the JIA's injury finding. The JIA did not assume, but found, that Hynix was able to continue production and export because of the Government of Korea' subsidies.183

(iv) The Fourth Category of an "Assumption" Alleged by Korea Is in Fact a Factual Finding Based on the Evidence on the Record 184

4.300.
The fourth category of an alleged "assumption" is contradicted by the Final Determination. Korea has not identified any failure to consider the Government of Korea and the other interested parties' arguments and has not identified any specific evidence on the record in support of its assertion.

(d) Positive Evidence and Standard of Review

(i) Korea's Erroneous Application of a "Positive Evidence" Standard

4.301.
The Appellate Body's findings cited by Korea185 concern only injury determinations under Article 3 of the AD Agreement and Article 15 of the SCM Agreement.

(ii) Non-Record Evidence Should Not Be Examined

4.302.
Regardless of how Korea tries to characterize the non-record evidence it submits, in light of Article 12.2 and the Panel's standard of review, it is obvious that the fact that the JIA did not consider such evidence and argument based thereon presented to the JIA does not affect the reasonableness of the JIA's determination. KOR-34, 42, 43 and 44 should also be excluded from the Panel's consideration.

(e) Interested Parties

(i) Korea's Argument on the Scope of Interested Parties Is Without Merit

4.303.
Korea's argument on the scope of interested parties under Article 12.9 of the SCM Agreement is inconsistent with Articles 12.9 and 23 of the SCM Agreement.

(ii) Korea's "Adverse Facts Available" Argument Is Without Merit

4.304.
The JIA has not applied "adverse facts available", and Korea fails to identify how any of the examples it raises can be viewed as "adverse facts available."

(f) Revenue Foregone/Transfer of Funds

(i) Korea's Interpretation of "Transfer of Funds" Is Erroneous

4.305.
Korea's argument that a "transfer of funds" only means that "money must change hands" is unsubstantiated.

(ii) The Extension of Maturity of Loans and Debt-to-Equity Swap

4.306.
The JIA considered that an extension of a loan maturity consists of two elements (i.e,. the original loan is repaid and a new loan is granted) and that the debt-to-equity swap consists of two elements (i.e., the existing loan is satisfied and equity is issued). These interpretations are reasonable and entirely consistent with the nature of these transactions.

(g) Financial Contribution

(i) The "Syllogism" Korea Asserts Is an Erroneous Understanding

4.307.
Korea's argument on a "syllogism" is based on either a misunderstanding or a misstatement of the JIA's actual finding on financial contribution.

(ii) The Decisions of Woori Bank and Chohung Bank

4.308.
An examination of the relevant evidence in its totality indicates that the decisions by these banks were not made from a commercial viewpoint.

(iii) The JIA's Finding on Government Intent Was Reasonable

4.309.
The JIA considered all record evidence, examined such evidence, and made findings as to the weight and credibility of such evidence in light of the other evidence and facts.

(iv) Prime Minister's Decree No. 408 Does Not Prohibit Government Intervention

4.310.
Contrary to Korea's assertion, Article 5 of the Decree permits the Financial Services Agencies to "request cooperation or assistance of Financial Institutions, etc. for the purpose of stability of the financial market…" and provided the power to make such request to the Government of Korea.

(h) Benefit

(i) Korea's Argument that Hynix's Debts Were Worthless Is Without Merit

4.311.
The record evidence shows that loans were swapped at their full principal amount.186

(ii) Korea's Going-Concern Value Argument Is Without Merit

· Korea's Arguments are Based on Assumptions Without Any Evidence
4.312.
Even assuming, arguendo, that the going-concern value was higher than its liquidation value, the evidence contradicts an assumption that consequently creditors would always participate in a restructuring.187
4.313.
The JIA examined the evidence of the actual decision-making of individual banks taking into account the possibility that they may participate even when no investors from an outsiders' commercial view point would, but found that the financial institutions participated upon consideration of non-commercial factors.188 The JIA concluded that these Programs were not obtained on a commercial basis and accordingly could not be the benchmark to determine the benefit.189 The JIA also established that the terms and conditions of the Programs stood on Hynix's financial condition that was heavily distorted by subsidies.190 These facts demonstrate that such terms and conditions were achieved because of the Government of Korea.

· The JIA's Findings on The October 2001 Program Were Reasonable

4.314.
The evidence on the record shows that Woori Bank and Chohung Bank did not evaluate the available options in deciding participation in the October 2001 Program, contrary to Korea's acknowledgement that "any creditor" considering options "would require an analysis showing the effect of choosing each of those options."191 Other Hynix creditors decided to participate without reviewing the Arthur Andersen Report valuation.

· The JIA's Findings on The December 2002 Program Were Reasonable

4.315.
The Deutsche Bank Report was hardly an independent third party report, and was prepared under the scrutiny and intervention by the Government of Korea, which had requested Deutsche Bank to revise the Report after reviewing the draft.192
4.316.
Korea ignores the going-concern values calculated under all of the [[BCI]]. The JIA reasonably found that the lack of analysis on [[BCI]]193 is strange. Deutsche Bank's consideration of the [[BCI]] necessitates an examination of the details of the feasibility of such, [[BCI]].
4.317.
The JIA pointed out that the Deutsche Bank Report did not explain why it relied on a recovery rate of [[BCI]] per cent to assess the validity of liquidation value instead of the rate of [[BCI]] per cent. For creditors, these recovery rates would be the material issue to examine whether they would be better off, but the Deutsche Bank Report failed to mention such material fact. The JIA correctly found that the recovery rate calculations under the [[BCI]] in the Deutsche Bank Report would have [[BCI]]194 Hynix admitted that an error was made in the Report.195

· The JIA's Treatment of Other Creditors Was Reasonable

4.318.
The JIA reasonably identified the financial institutions which should be investigated and found that the Other Creditors participated in the bailout programs for non-commercial reasons.

· The Distortion to the Market Caused by Past Subsidies

4.319.
The JIA found that Hynix was able to obtain financing under the terms and conditions of the Programs because of prior subsidies, and therefore, their terms and conditions were not those obtainable from the commercial market.196 This finding is separate from the finding that Other Creditors made their decisions to participate based on non-commercial considerations.
4.320.
The issue is the government's role in structuring the prices in the market. The Government of Korea's subsidies played a predominant role in creating the terms and conditions of the Programs. In light of the JIA's discretion in calculating benefit197, the JIA's calculation of the benefit where there was no comparable market benchmark is reasonable.

· The JIA Reasonably Found that Past Subsidies Caused a Distortion

4.321.
Korea erroneously assumes that Hynix could have repurchased its debt at discounted value, disregarding the evidence on the record to the contrary.
4.322.
To determine the available commercial loans, the JIA examined the interest rate that would be available to Hynix, based on the information with respect to similarly situated companies. Korea's argument that the JIA should have used the "usual practice" of creditors is baseless.

(i) Specificity

4.323.
The relevant Programs were designed and executed solely for Hynix, and thus de jure specific to Hynix.

(j) Change in Ownership

4.324.
The Hynix bailout programs can not be evaluated as a "change in ownership" in the meaning of the Appellate Body's findings.198

(k) Allocation of Subsidies

4.325.
Article 21 of the SCM Agreement concerns circumstances after the imposition of a countervailing duty and thus does not apply to an original investigation.199 As Korea agreed, a "withdrawal" of a subsidy in Article 19.1 requires an affirmative action by the government or recipient, which has not occurred. Neither Article 19.1 nor Article 21 supports Korea's argument.

(l) Injury Determination

4.326.
Korea's argument that the SCM Agreement's use the same terms ("the effect of the subsidy") for both serious prejudice and material injury necessitates an identical analysis ignores the different provision in which the term was used.

2. Closing Statement of Japan at the Second Meeting of the Panel

(a) Introduction

4.327.
Japan would like to address certain significant issues that Korea argues in its Opening Statement.

(b) Korea's Erroneous Understanding of its own Obligation to Establish a Prima Facie Case

4.328.
Korea's argument concerning a prima facie case200 is entirely erroneous. As Japan has already explained201, "a prima facie case must be based on 'evidence and legal argument' put forward by the complaining party in relation to each of the elements of the claim."202 Thus, Korea's argument that "[to establish a prima facie case means nothing more than that Korea] must present arguments that are sufficient to persuade the Panel"203 is wrong – such argument must be based on evidence. Furthermore, the examples Korea raises as instances of Korea's failure to establish a prima facie case204, as pointed out by Japan, are all instances in which Korea first made a claim, or tried to make a claim, to which Japan rebutted by pointing out that Korea failed to establish a prima facie case in forwarding the particular claim. For example, in response to Korea's argument that there was no rational basis for the JIA's finding that the Hynix shares had no value, Japan first demonstrated that in paragraphs 414 to 415 of Japan's FWS that there had been a reasonable basis for the JIA's determination, then pointed out, in paragraph 416 therein which Korea cited, that Korea failed to establish a prima facie case to contradict the reasonableness of the JIA's finding. Japan has not once in this panel proceeding requested that Korea establish a prima facie case that the Government of Korea did not provide subsidy to Hynix. Each of Japan's indication of Korea's failure of establishing a prima facie case point to Korea's failure to establish a prima facie case of its claim that alleges that the JIA's investigation and determination had been inconsistent with the requirements of the SCM Agreement.

(c) Submission of an "Argument" in a Panel

4.329.
Japan would like to further clarify its view on the example Korea raised concerning the admissibility of a mathematical proof in the second meeting of the Panel. If such mathematical proof is relevant to the dispute before a panel, it may be subject to examination by a panel. In such instance, Appendix 4 of the DSU may become relevant. However, if a mathematical proof is irrelevant to the matter before the panel, any argument based on such proof similarly would be irrelevant. This is a matter of relevance, not admissibility. As a separate matter, in a case where the issue is whether an investigating agency should have considered a particular mathematical proof, unless the evidence and the arguments on the record of the investigation demonstrates that the particular mathematical proof was before the investigating agency, an ex post submission of evidence or presentation of argument of such mathematical proof is inadmissible in light of the standard of review of a panel.205

(d) Korea's Argument on the Interpretation of the Extension of the Maturity of Loans and the Debt-To-Equity Swap has no Merit

4.330.
Korea's argument on the extension of the maturity of loans and debt-to-equity swaps in its Opening Statement shows that its argument is based on a distorted understanding of the JIA's finding and Japan's statements. Japan does not argue, nor did the JIA find, that "Hynix first repaid its outstanding debts in full, which funds that the creditors then used to make new and equity infusions" as alleged by Korea.206 The JIA's statements on the nature of these transactions, as stated in paragraphs 103 and 104 of the Essential Facts, are the JIA's reasonable interpretation of facts, not the facts themselves. It is not an issue of substituting a finding based on evidence with an assumption as Korea alleges. The issue of the interpretation must be distinguished from the issue of fact-finding.
4.331.
Korea's attempt to separate a debt-to-equity swap into debt forgiveness and issuance of the equity does not comport to the clear designation of "equity infusion" as a direct transfer of funds in Article 1.1(a)(1)(i). Korea argues that a debt-to-equity swap is a type of debt forgiveness, which must be classified in Article 1.1(a)(1)(ii). However, where certain monetary value is given to the equity-issuing company in exchange for the equity, such transaction is the equity infusion. Korea has not provided any explanation of this apparent discrepancy between its interpretation and the nature of the transaction.

(e) Korea's Argument on Individual Banks' Analysis was based on an Isolated Portion of Evidence and Failed to Address other Relevant Evidence

4.332.
Korea again argues in its Opening Statement that Woori Bank considered the expected loss, Hynix's going concern value, and liquidation value in the October 2001 Program.207 Korea again considered in isolation only a part of the evidence, ignoring the other evidence – unlike the JIA, which assessed the evidence in its totality. In the October 2001 Program, Woori Bank did not consider all options available, as discussed in Japan's Opening Statement.208 In addition, Woori Bank repeatedly emphasized public interest concerns, such as [[BCI]].209 Furthermore, Woori Bank's President stated even before the October 2001 Program was prepared, "If the Council for Creditor Financial Institutions agrees to support Hynix, we can change the current debt of Hynix into investment. We can also provide more financial aid,"210 indicating that Woori Bank prioritized certain interests to save Hynix over its own economic interests.
4.333.
As this example shows, Korea's allegations on the analysis of individual banks are based on a highly selective presentation of a portion of the evidence, and failed to consider the entire record of evidence, ignoring the JIA's determination, thus making the request of the de novo review to the Panel.

(f) Korea Now Admits that Deutsche Bank Prepared the Report in its Capacity as Financial Advisor to Hynix

4.334.
Although Korea previously questioned the JIA's finding that the contractual relationship between Hynix and Deutsche Bank called into question neutral, external nature of Deutsche Bank Report211, Korea recognize that Deutsche Bank was "Hynix's financial advisor"212 and thereby admitted that the financial advisor was not exclusively representing Hynix's creditors. The fact that Deutsche Bank was one of Hynix's financial advisors is a fact, which the JIA considered in relation to the other relevant facts.

(g) The Deutsche Bank Report is not Immune from Review

4.335.
Korea suggests that the JIA should have been deferential to Deutsche Bank Report because it "was prepared by one of the world's leading financial services firms."213 However, it is not axiomatic that the brand name of a financial advisor necessitates the reliability of its work. Indeed, the Government of Korea itself has recognized that the objectivity of highly-esteemed financial advisors may be compromised.214 In the context of the October 2001 Program, for example, Korea's Minister of Finance and Economy acknowledged before the National Assembly that "the creditor banks do not consider that the [Salomon Smith Barney] Report is reliable, and it is expected that a different, objective organization will carry out the evaluation."215 Like Deutsche Bank, Salomon Smith Barney was the one of the world leading firms. Korea's suggestion of brand name reliability in this dispute does not square with the Government of Korea's intervention into the Deutsche Bank Report. Korea completely ignores the record evidence that the Government of Korea "request[ed Deutsche Bank] to revise its contents... [breaking] its promise... not to interfere with inspections made by... Deutsche Bank" and that the Government of Korea "requested Deutsche Bank to review the plan."216

(h) Korea's Alleged Scope of Entrustment or Direction Based on its own Economic Theory is Contrary to the Scope under the SCM Agreement

4.336.
Korea alleges that the Government of Korea's entrustment or direction is irrelevant because creditors had no options other than further financing to Hynix.217 According to Korea, creditors had no choice but to "make new investments needed … when the company's going-concern value exceeds the liquidation value."218 This argument is flawed legally, factually, and theoretically.
4.337.
Legally, the government's "twist[ing]" of the arms of creditors can be an example of the government's entrustment or direction, and is quite relevant to an entrustment or direction under Article 1.1(a)(1)(iv). Entrustment or direction by the government may be found where the government's entrustment or direction is one of the factors influencing the decision of the creditors to finance the debtor. Korea's interpretation that creditors would never be subject to government entrustment or direction whenever the going-concern value is higher than the liquidation value, regardless of the manner in which the government intervenes, is erroneous interpretation of the SCM Agreement. It does not have to be the sole basis for their decision to provide financing.
4.338.
Factually, Hynix's creditors could not reach the terms and conditions of the October 2001 Program and the December 2002 Program until the Government of Korea intervened. The October 2001 Program then offered three options for creditors to choose from. In this case, therefore, there were options for banks to choose from, and there was room for the Government of Korea to entrust or direct creditors to provide financing to Hynix.
4.339.
Theoretically, creditors always have choices to remain as creditors of a troubled company or to cash out and leave the company. A going concern value is always based on the prediction of the future. Accordingly, such prediction always involves a certain amount of uncertainty. Creditors usually assess risk of potential failure of the prediction or predictions. The result of the assessment may vary by creditors. For example, an additional investment if it failed could threaten the very existence of the creditor. Depending on the situation of the debtor and individual creditors, it is not commercially reasonable for a creditor to extend financing blindly even when going concern value exceeds liquidation value. In this context, what becomes relevant is the creditors' assessment of the risk. An economic theory on creditors' behaviour by no means dictates what a particular creditor will do according to a theory given the particular situation. Korea's argument is simply misuse of a theory. A theory does not decide reality.

(i) The JIA's Investigation Sufficiently Covered Hynix's Representative Financial Institutions

4.340.
Regarding the JIA's selection of Hynix's creditor financial institutions, Korea ignores evidence that Hynix did submit during the investigation.219 The lists submitted by Hynix in the investigation confirm that the JIA's investigation sufficiently covers Hynix's representative creditor financial institutions, as the JIA sent its questionnaires to 18 financial institutions, or [[BCI]] per cent of Hynix's total debts out of 19 financial institutions or [[BCI]] per cent thereof identified in the list as of October 2001, and 8 financial institutions, or [[BCI]] per cent of the total debts out of 10 financial institutions or [[BCI]] per cent thereof identified in the other list as of December 2002. In addition, the KEB, the main bank of Hynix and chair of the Hynix's Creditor Financial Institutions Council, also responded that "we decided to omit the full 114 name of companies because their amount of credit is small," and "we do not think this information is necessary for the countervailing duty investigation procedure."220 Therefore, the Investigating Authority reasonably found that it had sufficiently covered Hynix's representative creditor financial institutions.

(j) Korea's Interpretation of EC Regulations is Incorrect; EC's Regulations in fact Support Japan's View

4.341.
Korea's citation of Article 15(1) of the EC's anti-subsidy regulations does not support Korea's argument concerning the relationship between an amortization period and countervailing duties.221 The provision that "unless…it has been demonstrated that the subsidies no longer confer any benefit" supports Japan's point that a determination of whether a subsidy no longer confers any benefit subsequent to the POI necessitates a new investigation which demonstrates such fact. There was no such "demonstration" in this case.

(k) Korea's Interpretation of "Found to Exist" is out of Context of the SCM Agreement

4.342.
Korea's ad hoc comment at the second meeting of the Panel on the term "found" in Article 19.4, while informative on grammatical terms, did nothing to undermine Japan's interpretation, which is amply supported by the text of this Article and the context of other Articles of the SCM Agreement and Article V:3 of the GATT, as clarified by the Appellate Body reports in Mexico – Antidumping Measures on Rice222 and EC-Bed Linens (Article 21.5 – EC)223 and the panel reports in US-Lead and Bismuth Steel and US-Lead and Bismuth II.224

(l) Conclusion

4.343.
In conclusion, Japan would like to recall its obligations under the SCM Agreement. The Agreement gives investigating authorities certain obligations: to request information, to accept information and argument, to consider such, to reach reasoned conclusions, and to explain their conclusions. Japan's investigating authority did just that and did so reasonably. Thus, in applying its standard of review, which is to examine whether the JIA acted reasonably, the Panel should find that Japan fulfilled its obligations under the SCM Agreement. Japan would like to thank the Panel for its careful consideration and efforts in this dispute.

V. ARGUMENTS OF THE THIRD PARTIES

5.1.
The arguments of the third parties, China, the European Communities and the United States, are set out in their written submissions and oral statements to the Panel, and in their answers to questions. The third parties' arguments as presented in their written submissions and oral statements are summarized in this section.

A. THIRD PARTY WRITTEN SUBMISSION OF CHINA

5.2.
The following summarizes China's arguments in its third party written submission

1. Introduction

5.3.
In its third party submission, China presents its views on two key issues involved in this dispute: (i) whether the effect of past subsidies could be a proper ground for rejecting a primary market benchmark; and (ii) for non-recurring subsidies that are allocated over time, whether the imposition period of the CVDs against such subsidies may extend beyond the allocation period established by the investigating authority.

2. Effects of Past Subsidies over the Primary Market Benchmark

5.4.
In the investigation carried out by the JIA, it was ruled that the investment decisions by private entities were influenced by Hynix's financial situation enhanced by past subsidies, and for this and other reasons, the JIA refused to deem such investment decisions as market benchmark.
5.5.
Firstly, China observes that the threshold for abandoning a primary benchmark is very high. In accordance with Article 14 (a) and (b) of the SCM Agreement, the market benchmark for government provision of equity capital is the usual investment practice of private investors in the territory of that Member while the benchmark for government loans is the amount the firm would pay on a comparable commercial loan which the firm could actually obtain on the market. In China's view, both the words "usual" and "actually" imply that the benchmarks contemplated under Article 14 point to the actions of private entities in the marketplace. Thus, in this dispute, the decisions by those private financial institutions, which had not been found to be entrusted or directed by the Government of Korea, to participate in the restructurings at issue obviously represent the usual and actual practice of private investors, and thus constitute a primary market benchmark for measuring the benefits conferred by the alleged subsidies by the Government of Korea.
5.6.
By reference to the holdings of the Appellate Body in US – Softwood Lumber IV which relates to paragraph (d) of Article 14, China submits that in order to abandon a primary benchmark, the investigating authority must meet the high threshold, which, in that particular dispute, is that the private prices are aligned with those of the government-provided goods such that both prices have no noticeable differences. China submits that such high threshold should apply to the present dispute involving paragraphs (a) and (b) of Article 14.
5.7.
In China's view, the actions of private financial institutions in this dispute represent the actual market reaction with respect to the same target company and under the particular circumstances surrounding the company and the transactions at issue. Such actions are more persuasive than those terms and conditions that the recipient "could" obtain from the market.
5.8.
Therefore, China believes that unless the investigating authority has sufficient evidence on the record that shows the investment decisions by the private entities are so distorted as to fail to reflect the actual market situation, such decisions as primary market benchmark should not be disregarded lightly.
5.9.
Secondly, China does not consider appropriate the JIA's reliance on the effect and influence of the previous subsidies as one of the factors that justify the disregard of the primary benchmark.
5.10.
In China's view, a rationale private investor will undoubtedly take into account the financial situation of the target company before making an investment decision. However, whether such financial situation is enhanced by the effects of previous subsidies is out of the concern of the investor. Based on China's understanding of the position of the Appellate Body in Canada – Aircraft, the market benchmark shall be the terms and conditions available to the recipient at the time of the transaction and under the particular situation of the recipient. This market benchmark does not bear any qualification to the effect that the recipient must not have received any previous subsidies.
5.11.
In addition, China submits that in case of a CVD investigation targeting multiple subsidies, the existence and amount of benefit of each individual financial contribution should be assessed independently. However, in this dispute, China notes that although such an approach was adopted by the JIA, it was finally ruled that the previous subsidies enhanced Hynix's situation and therefore, the investment decisions made by the private financial institutions were distorted by the previous subsidies. China believes such a position held by the JIA would be problematic for a CVD investigation involving multiple subsidy programs in that it would mean that once a previous subsidy is found, the subsequent action of the private investor would always be tainted by the previous subsidy. According to the JIA's approach, this may probably rendered the primary market benchmark unusable and meaningless. In China's view, such a position would undermine the basic concept of benefit and the guidelines provided for in Article 14 of the SCM Agreement.
5.12.
In summary, in China's view, in consideration of the high threshold of rejecting a primary benchmark, the effect of past subsidies on the financial situation of the company at issue cannot be a proper factor that justifies the rejection of the actions of private investors as market benchmark.

3. Imposition Period v.s. Allocation Period

5.13.
The second issue that China comments on is whether, for non-recurring subsidies allocated over time, the imposition period of CVDs against such subsidies can extend beyond the allocation period established by the investigating authority.
5.14.
Firstly, China finds no clear guideline under the SCM Agreement as to how to allocate subsidies in a CVD investigation, but certain disciplines do exist between the lines of the SCM Agreement. China recalls that the word "offsetting" under Article VI:3 of GATT 1994 informs the purpose of CVDs, i.e. to offset (or counteract) subsidies, which is also echoed by Article 19.4 and Article 21.1 of the SCM Agreement which respectively require that CVDs may not exceed the amount of subsidy found to exist and CVDs may only exist as long as and to the extent necessary to counteract subsidization.
5.15.
In China's view, in case of non-recurring subsidies allocated over time, once the investigation authority establishes the total amount of the subsidies and the relevant allocation period, two things have become definite: (i) the amount of benefit allocated to a specific year; and (ii) the period of existence of the subsidy. By way of allocation, the one-time subsidies are deemed to be granted repeatedly during each year within the allocation period and in the amount equal to the allocated amount.
5.16.
Having said that, if the investigating authority imposes a CVD order with duration beyond the allocation period, the order that remains in effect after the allocation period would be offsetting a subsidy that is not deemed to exist at that time. Thus, such an order would contradict the underlying purpose of a CVD measure as provided in Article VI:3 of GATT 1994.
5.17.
In the investigation at issue, when the JIA made the final determination, the JIA was clearly aware that the benefit accruing from the October 2001 Restructuring had been allocated within the fixed period of five years which ended in 2005. Nevertheless, the JIA imposed the CVD order of 18.1 per cent which would remain in effect from 2006 until 2010. Therefore, such an order is offsetting a subsidy that does not exist as of 2006 and is inconsistent with Article 21.1 of the SCM Agreement because it fails to remain in force only as long as and to the extent necessary to counteract subsidization.
5.18.
Secondly, China does not agree to the reasoning of Japan that, like an anti-dumping investigation, in case of a CVD investigation, the investigating authority also needs to rely on the historical data for the investigation period and may disregard the fact that a subsidy may cease to exist after such period.
5.19.
In accordance with Article 18.1 of the SCM Agreement, no CVD shall be imposed if the subsidy is eliminated. This provision also supports the view that even if a subsidy is found to exist during the period of investigation, a CVD still cannot be imposed so long as it has be established during the investigation that the subsidy at issue will cease to exist after the investigation period. This understanding is in line with Article VI:3 of GATT 1994 regarding the purpose of CVD as well as Article 21.1 of the SCM Agreement discussed above.
5.20.
Furthermore, in China's view, for the particular issue under discussion, it is not appropriate to refer to the "parallel provision" in the AD Agreement due to the different nature of AD and CVD investigations.
5.21.
In case of AD investigations, the investigating authority when concluding the investigation can only make sure whether dumping occurred during the period of the investigation and is not aware whether dumping will continue. This is true because: (i) dumping margin can only be calculated based on the transaction and cost data available to the investigating authority at the time of investigation and such data is related to the actual situation during a past period of time (i.e. investigation period); and (ii) dumping is an act by the exporter and it may be changed by the exporter at its own discretion. Therefore, it is reasonable to deem a finding of dumping during a recent past period of investigation as a finding of "present" dumping in the context of Article 11.1 of the AD Agreement.
5.22.
In contrast, in case of CVD investigations, the investigating authority, in most cases, is able to ascertain whether the subsidy will continue to exist after the investigation. For example, in case of recurring subsidies having a definite term, the investigating authority may establish the exact date of expiry of such subsidies. In case of non-recurring subsidies allocated over time, as discussed above, the investigating authority may also establish the period of existence of the subsidies once it determines the period of allocation.
5.23.
In China's view, so long as the investigating authority establishes that the subsidy exists in a fixed period of time, the presence of subsidies during a past investigation period cannot be simply regarded as "present" subsidization for the purpose of Article 21.1 of the SCM Agreement. Thus, China submits that Japan's argument based on the AD Agreement does not support its view that the JIA has properly imposed a CVD with duration beyond the relevant allocation period against a subsidy the benefit of which had been fully allocated.
5.24.
In summary, given the above understanding of the provisions in the SCM Agreement and GATT 1994, China submits that in case of non-recurring subsidies that are allocated over time, the imposition period of CVDs that relate to such subsidies shall not extend beyond the allocation period as established by the investigating authorities.

4. Conclusion

5.25.
In conclusion, China is of the following views on the key issues discussed above:

· 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.

B. THIRD PARTY ORAL STATEMENT OF CHINA

5.26.
The following summarizes China's arguments in its third party oral statement.

1. Effects Of Past Subsidies Over The Primary Market Benchmark

5.27.
The first legal issue China would like to address is whether the effect of past subsidies could be a proper ground for rejecting a primary market benchmark.
5.28.
In the investigation carried out by the JIA, it was ruled that Hynix's financial situation had been enhanced by past subsidies, and consequently the investment decisions by the private financial institutions were influenced by such financial situation. For this and other reasons, the JIA refused to deem the investment decisions as market benchmark. In this respect, China submits the following views.
5.29.
First, China observes that the threshold for abandoning a primary market benchmark is very high. In accordance with Article 14 (a) and (b) of the SCM Agreement, the market benchmark for government provision of equity capital is the usual investment practice of private investors in the territory of that Member. And the market benchmark for government loans is the amount the firm would pay on a comparable commercial loan which the firm could actually obtain on the market. In China's view, both the words "usual" and "actually" imply that the benchmarks contemplated under Article 14 point to the actions of private entities in the marketplace. In this dispute, the decisions by those private financial institutions not found to be entrusted or directed by the Government of Korea obviously represent the usual and actual practice of private investors. Such decisions should constitute a primary market benchmark for calculating the benefits of the alleged subsidies.
5.30.
Meanwhile, considering the Appellate Body's holdings in US – Softwood Lumber IV in respect of paragraph (d) of Article 14, China believes that the investigating authority must meet very high threshold before it can reject the primary benchmark. China submits that such high threshold should also apply to the present dispute involving paragraphs (a) and (b) of Article 14. Furthermore, since the private investors decided to invest in the same target company under the same conditions, such decisions are more persuasive than those terms and conditions that the recipient "could" obtain in the market.
5.31.
Therefore, China believes that, unless the JIA has sufficient evidence on the record showing that, the private investment decisions are so distorted as to fail to reflect the actual market situation, such decisions as primary market benchmark should not be disregarded lightly.
5.32.
Second, the JIA relied on the effect and influence of previous subsidies as one of the basis for disregarding the primary market benchmark. China does not think it appropriate to do so.
5.33.
In China's view, before making an investment decision on a target company, a rationale private investor will certainly take into account the financial situation of that company. However, whether such financial situation is enhanced by the effects of previous subsidies is out of the concern of the investor. As the Appellate Body ruled in Canada – Aircraft, the market benchmark shall be the terms and conditions available to the recipient at the time of the transaction and under the particular situation of the recipient. There is no such requirement on the market benchmark that the recipient must not have received any subsidy previously.
5.34.
In addition, China submits that the JIA's approach would be problematic in a countervailing investigation involving multiple subsidies. The JIA's position would mean that once a previous subsidy is found, the subsequent action of the private investor would always be tainted by the previous subsidy. In China's view, such a position undermines the concept of benefit and the guidelines under Article 14 of the SCM Agreement, and would probably render the primary market benchmark unusable and meaningless.
5.35.
In summary, taking into account the high threshold of rejecting a primary benchmark, China submits that the effect of past subsidies on the current financial situation of the subject company is NOT such a proper factor that can justify the disregard of the actions of private investors as market benchmark.

2. Imposition Period v.s. Allocation Period

5.36.
The second issue China would like to address is whether, for non-recurring subsidies allocated over time, the imposition period of countervailing duties against such subsidies can extend beyond the allocation period established by the investigating authority.
5.37.
First, China observes that certain disciplines on allocation of subsidies do exist between the lines of the SCM Agreement. China recalls that the word "offsetting" under Article VI:3 of GATT 1994 informs the purpose of a countervailing duty, namely, to offset subsidies. Such purpose is echoed by two provisions in the SCM Agreement. Article 19.4 provides that countervailing duties may not exceed the amount of subsidy found to exist while Article 21.1 requires that countervailing duties may only exist as long as and to the extent necessary to counteract subsidization.
5.38.
In China's view, in the case of non-recurring subsidies allocated over time, by way of allocation, the one-time subsidies are deemed to be granted repeatedly during each year within the allocation period and in an amount equal to the allocated amount. Therefore, if the investigating authority imposes a countervailing duty with duration beyond the allocation period, the duty existing after the allocation period would be offsetting a subsidy that is not there. Thus, such a duty would contradict the purpose of countervailing measures.
5.39.
Turning to this investigation at issue, when making the final determination, the JIA was clearly aware that the benefit of the October 2001 Restructuring had been allocated within five years until 2005. Nevertheless, the JIA decided to impose the countervailing duty of 18.1 per cent from 2006 until 2010. Accordingly, such a duty is offsetting a subsidy that does not exist as of 2006. It thus violates Article 21.1 of the SCM Agreement as it fails to remain in force only as long as and to the extent necessary to counteract subsidization.
5.40.
Second, China does not agree to Japan's position that the investigating authority may disregard the fact that a subsidy may cease to exist after the investigation period.
5.41.
Under Article 18.1 of the SCM Agreement, no countervailing duty shall be imposed if the subsidy is eliminated. This provision supports the view that even if a subsidy is found to exist during the period of investigation, a countervailing duty still cannot be imposed, so long as it has be established that the subsidy at issue will cease to exist after the investigation period.
5.42.
Furthermore, for the particular issue under discussion, China does not consider it appropriate to refer to the "parallel provision" in the AD Agreement due to the different nature of anti-dumping and countervailing investigations.
5.43.
In the case of anti-dumping investigations, when concluding the investigation, the investigating authority can only establish whether dumping occurred during the period of the investigation while is not aware whether dumping will continue. This is so because dumping margin can only be calculated based on historical data available to the investigating authority at the time of investigation. In addition, dumping is an act by exporters and may be changed by exporters at their own discretions. Therefore, it is reasonable to deem a finding of dumping during a recent past period of investigation as a finding of "present" dumping in the context of Article 11.1 of the AD Agreement.
5.44.
By contrast, in the case of countervailing investigations, the investigating authority, in most cases, is able to ascertain whether the subsidy will continue to exist after the investigation. A vivid example is the case of non-recurring subsidies allocated over time. As discussed above, the investigating authority may establish the period of existence once it determines the period of allocation.
5.45.
In China's view, so long as the investigating authority establishes that the subsidy only exists in a fixed period of time, the presence of subsidies during a past investigation period cannot be simply regarded as "present" subsidization for the purpose of Article 21.1 of the SCM Agreement.
5.46.
Therefore, given the above understanding of the provisions in the SCM Agreement and GATT 1994, China submits that in the case of non-recurring subsidies allocated over time, the imposition period of countervailing duties against such subsidies shall not extend beyond the allocation period established by the investigating authorities.

C. THIRD PARTY WRITTEN SUBMISSION OF THE EUROPEAN COMMUNITIES

5.47.
The following summarizes the European Communities arguments in its third party written submission.

1. Article 6.2 of the DSU

5.48.
In Korea – Dairy the Appellate Body set out a four stage test for fulfilling the requirements of Article 6.2 DSU. As regards the fourth requirement, the Appellate Body considered that Article 6.2 demands only a brief summary of the legal basis of the complaint, but the summary must, in any event, be one that is "sufficient to present the problem clearly". In other words, it is not enough that the legal basis of the complaint is summarily identified; the identification must "present the problem clearly".
5.49.
In EC – Bananas the Appellate Body stated that there are two important reasons for insisting on precision in the request for a panel. First, it often forms the basis for the terms of reference of the panel pursuant to Article 7 of the DSU; and, second, it informs the defending party and the third parties of the legal basis of the complaint. These reasons were further described by the Appellate Body in Brazil – Desiccated Coconut. In view of Japan's arguments in section II of its first written submission, it is in particular the reason relating to the rights of defence or "due process" that is at stake in this case.
5.50.
In this respect the Appellate Body found in Thailand – H-Beams that :

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.

5.51.
In US – OCTC Sunset Reviews the Appellate Body specified further that for a panel request to "present the problem clearly", it must plainly connect the challenged measure(s) with the provision(s) of the covered agreements claimed to have been infringed. In EC-Bananas the Appellate Body considered that there is a significant difference between the claims identified in the request for the establishment of a panel, which establishes the panel's terms of reference under Article 7 of the DSU, and the arguments supporting those claims. However, in Korea –Dairy the Appellate Body considered whether the listing of articles of an agreement is generally sufficient to meet the standard of Article 6.2 DSU. Therefore, the analysis must be made on a case-by-case basis.
5.52.
The Panel should first examine whether Korea has presented claims that are not based on the legal bases identified in its panel request. In the second stage the Panel should examine on a case by case basis whether the mere listing of treaty articles is sufficient. It would appear that for the second stage analysis the Panel has some discretion in order to assess whether the ability of the respondent to defend itself was prejudiced.

2. Burden of Proof and Standard of Review

5.53.
Any investigation involves an enquiry into facts, evidence, law and legal characterisation of the facts. Some degree of factual inference is inevitable in all investigations. If there is significant factual inference, such a situation is sometimes described as one in which there is "circumstantial evidence", although what really characterises such cases is the degree of factual inference. In such cases the authority may particularly look at the totality of the facts and evidence when reaching its determinations. Where it appears that necessary facts or evidence are being withheld, the procedures set out in Article 12.7.
5.54.
The SCM Agreement does not expressly impose on Members obligations regarding burden of proof rules to be applied by authorities in investigations. Article 1 uses the term "shall be deemed to exist", supporting the view that inference may be appropriate or necessary when determining the existence of a subsidy, and particularly the imputation of the measure to a government. Past panels and the Appellate Body have confirmed this. This is consistent with the fact that a subsidy investigation, unlike a dumping investigation, enquires into the behaviour of governments. Whilst governments are subject to the same or an even higher obligation of co-operation as companies, there may be practical differences between the investigation of companies and the investigation of governments. For this and other reasons, in practice it is likely to be more difficult for an investigating authority to conduct effective verifications on government premises. This situation also has implications for the Panel's standard of review.

3. Interested Parties

5.55.
Article 12.7 refers to any interested Member or interested party. The term "Member" includes "government" as that term is first used in Article 1.1(a)(1). The term "government" is then used a second time in Article 1.1(a)(1), being defined as "a government or any public body within the territory of a Member". It follows that a bank that is a "public body" that is alleged to have made a financial contribution is necessarily to be identified with "government" and in turn with "Member"; thus being in turn an interested Member or party within the meaning of Article 12.7. Article 1.1(a)(1) then refers to "a private body" that is entrusted or directed by government to carry out one or more of the functions illustrated, which would normally be vested in the government, and the practice in no real sense differs from practices normally followed by governments. It follows that a bank that is a "private body" that is alleged to have been entrusted or directed is also an interested Member or party within the meaning of Article 12.7.

4. Financial Contribution

Direct transfer of funds
5.56.
Article 1.1(a)(1)(i) of the SCM Agreement does not provide that a subsidy is deemed to exist if there is a direct transfer of funds. Rather, it provides that a subsidy is deemed to exist if "a government practice involves a direct transfer of funds". This wording reflects the well established principle that the analysis is conducted on an accrual basis, rather than a payment basis. A subsidy exists at the moment it is granted, even if there has not yet been a direct transfer of funds. The subsidy does not only come into existence at some later date when, for example, an amount of money is actually paid to the recipient pursuant to the terms of the grant. Thus, all that is required is that there is a "government practice" (such as a grant) that "involves" "a direct transfer of funds" (a grant involves now or in the future a direct transfer of funds).
5.57.
It follows that whenever the terms of the "government practice" (be it a grant, loan or equity infusion) are modified, and particularly in any manner that is more favourable to the recipient, then there is a new "government practice" within the meaning of Article 1.1(a)(1)(i) which "involves" (now or in the future) "a direct transfer of funds". There is no doubt that the extension of the maturities of existing loans and a debt-to-equity swap qualify as "government practice" that "involves" (now or in the future) "a direct transfer of funds", thus triggering the application of Article 1.1(a)(1)(i) of the SCM Agreement.

Revenue foregone

5.58.
In the light of the preceding observations, the EC agrees with Japan that Korea's submissions with respect to revenue foregone are irrelevant.

Entrustment or direction

5.59.
The EC generally agrees with the submissions of Japan rather than those of Korea. The EC believes that these issues have already been extensively discussed in the Panel Report in EC-DRAMs, and subsequently in the Appellate Body Report in US-DRAMs, and the EC concurs with those findings. The EC respectfully invites this Panel to follow the same approach in these Panel proceedings. The EC reserves the right to re-visit this issue in its oral statement.

5. Benefit

Any method used to calculate benefit to the recipient must be provided for in legislation or implementing regulations
5.60.
The first obligation in the chapeau of Article 14 requires that any method used by the investigating authority to calculate the benefit to the recipient is provided for in the national legislation or implementing regulations. The EC disagrees with Korea's assertion that if there is an inconsistency with the first obligation in the chapeau of Article 14, it necessarily follows that the measure imposing countervailing duties "cannot be sustained" or is "invalid". Japan's municipal law is, at least in part, entitled "Guidelines …", whereas the chapeau of Article 14 refers to "legislation" and "implementing regulations". The EC believes that as a general matter in the municipal laws of WTO Members the terms "legislation" and "regulation" would generally suggest measures having binding force, whereas the term "guidelines" might not. Notwithstanding this the use by Japan of "Guidelines" should be considered capable of being consistent with the chapeau of Article 14.
5.61.
There is a distinction between the "method" and its application in specific cases. The fact that, when applying a method in a specific case, it is necessary to elaborate it, does not automatically mean that there is an inconsistency with the first obligation in the chapeau of Article 14. The dictionary meanings (which are relevant to although not determinative of the meaning) of the term "method" include: "procedure for attaining an object; systematic arrangement, order." The term "method" thus indicates something that can be described in relatively abstract and brief terms. The use of the term "provided for" is significant. The relevant obligation does not require, for example, that the method be "exhaustively set out"; but merely "provided for". The use of this term simply indicates something that is "foreseen".

Any such method used to calculate benefit to the recipient must be consistent with the guidelines in Article 14, paragraphs (a) to (d)

5.62.
What must be consistent with the guidelines set out in paragraphs (a) to (d) of Article 14 is both the method set out in the national legislation or implementing regulations; and the method used in the measure imposing the countervailing duty. Korea has failed to precisely explain exactly which part of Japan's legislation or regulations (including Japan's Guidelines) is supposed to be inconsistent with paragraphs (a) to (d) of Article 14, and why. "Extensions of loan maturities" are capable of falling within, for example, paragraph (b) of Article 14; and thus within the corresponding provisions of Japan's legislation and regulations (including Japan's Guidelines). The fact that the measure imposing countervailing duties calculates an amount of benefit with respect to such instruments does not indicate any inconsistency with the SCM Agreement. The position is the same with respect to debt-equity swaps.

6. Specificity

5.63.
These issues have already been extensively discussed in the Panel Report in EC-DRAMs, and the EC concurs with the Panel in that case on this matter. The EC invites this Panel to follow the same approach in these Panel proceedings.

7. Imposition of countervailing duties

5.64.
Countervailing duties are levied on imported products, calculated in terms of subsidization per unit of the subsidized and exported product, typically at an ad valorem rate. The ad valorem rate is determined by expressing the amount of the subsidy as a percentage of the total value of the relevant sales of the firm in question. There is no other basis on which the ad valorem rate could be calculated. The calculation can only be made on the basis of data relating to the investigation period. The amount of the subsidy will therefore be the amount of the subsidy granted during the investigation period (or allocated to the investigation period, if the subsidy pre-dates the investigation period). As will the value of the relevant sales. It is permissible to allocate large "non-recurring" subsidies over a period of time, starting with the year in which the subsidy is granted. This approach reflects the duration of the economic "benefit" to the recipient of such subsidies and ensures that such large non-recurring subsidies do not escape from an appropriate remedy. After the end of year five, and in the context of assessment or refund proceedings based on a period of investigation or review contemporaneous with the exports for which final liability is being established, and with reference to year six or later, the amount of the subsidy, and thus the duty, would be zero.
5.65.
The starting date for the period of allocation must be the year in which the subsidy is granted. The EC sees no basis on which the starting date could be deferred. That would be to dissociate the date on which the subsidy was granted from the remedy, in a manner that would be inconsistent with the SCM Agreement. Once the allocation period had ended, there is no further subsidy, and therefore no further remedy under the SCM Agreement. Where the allocation period ends after the date on which final measures are imposed, the final measure may nevertheless potentially remain in force for the five years provided for in Article 21.3, subject always to the possibility of assessment or refund proceedings, or changed circumstances proceedings under Article 21.2 of the SCM Agreement. The expiry of the allocation period does not trigger an automatic termination of the countervailing duty. Even if such a termination is requested by the exporting country, due process must be respected and the investigating authority has the right to investigate, for example, any new allegations of subsidy, before deciding whether to continue the measure.
5.66.
The Panel should reject Korea's claim under Article 19.4. The subsidy is always found to have "existed" during the investigation period, as a proxy for present subsidy. It is never found to exist on the date on which the countervailing duty is levied. The allocation period is used merely for calculating the ad valorem rate of the countervailing duty. The rule in Article 19.4 might operate during assessment or refund proceedings. It has no relevance to the facts of the present case. The position with respect to Korea's claim under Article 19.1 is less clear. There is a distinction between a subsidy being "withdrawn" (such as, for example, the repayment of a grant); and a notional allocation period expiring. On the other hand, Korea argues that it is not justified for a Member to decide to impose a remedy, even in circumstances where that Member has itself effectively recognised that the subsidy is no longer having any effects – a point with which one might at first sight have some sympathy. That might also be seen as a point under Article 15, and here too the question(s) of causation and non-attribution are resolved by reference to the injury investigation period, and not the date of the final measure.
5.67.
No equivalent to the phrase in question "unless the subsidy or subsidies are withdrawn" appears in the Anti-Dumping Agreement. That is presumably because dumping is in essence a matter of behaviour over time. Whereas a subsidy is granted at a specific moment or moments of time, even if it may have its effects over an extended period of time. This suggests that the phrase is concerned with the punctual question of grant/withdrawal, rather than economic effects over time.

8. Causation

5.68.
Once a subsidy to a company has been allocated to a specific product, it may be determined that the subsidy has had the effect of lowering the price of that product. In an environment of continuous subsidisation there may be no historical trend of higher prices, but the application of straightforward economic reasoning nevertheless dictates such a conclusion. The position under Part III of the SCM Agreement is not fundamentally different, even if, under Part V of the SCM Agreement the particular focus is on imports, given the nature of the remedy to be imposed.

D. THIRD PARTY ORAL STATEMENT OF THE EUROPEAN COMMUNITIES

5.69.
The following summarizes the European Communities arguments in its third party oral statement.

Introduction

5.70.
The European Communities makes its third party oral statement because of its systemic interest in the correct interpretation of the SCM Agreement. There are six issues to comment on, and they are:

· 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.

1. Article 6.2 of the DSU

5.71.
In view of its systemic interest in this case the European Communities did not enter into details in its written submission on whether or not certain items on Korea's panel request "presented the problem clearly" in accordance with Article 6.2 of the DSU. The United States has in its written submission addressed two of these items in more detail.
5.72.
The European Communities would like to echo the concerns that the United States has presented in particular on item 15. Under this item Korea generally listed seven different articles of the SCM Agreement and two articles of the GATT. Korea claimed that these provisions have been breached because Japan "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".
5.73.
The European Communities is of the view that item 15 is a prime example of a claim that does not present a problem clearly. A number of provisions are cited generally although some of them contain multiple obligations. In addition, these provisions are connected with an alleged omission and reference is just made to the breach of "fundamental substantive and procedural requirements".
5.74.
The European Communities is of the view that such a presentation of the problem breaches the due process rights of the defendant.

2. The market benchmark for determining the existence and amount of a benefit is the market of the granting member, provided that it has not itself been distorted by government subsidies

5.75.
When determining whether or not a financial contribution confers a benefit, and when determining what the amount of any such benefit may be, it may be necessary to compare the actions of the government with a market benchmark. Article 14(d) of the SCM Agreement refers, in the case of the provision of goods or services or the purchase of goods by a government, to the prevailing market conditions for the good or service in question in the country of provision or purchase. The other provisions of Article 14 do not contain the same language.
5.76.
Thus, in the case of Article 14(d), the market benchmark relates to the Member, rather than the markets of other Members or the international market. The different market benchmarks could be different, depending, for example, on prevailing interest rates and currency exchange rates. In these circumstances, the correct benchmark is the market of the Member.
5.77.
However, the situation prevailing on the territory of the Member must nevertheless be capable of falling within the term "prevailing market conditions", meaning market conditions that have not been predominantly distorted by government subsidy or intervention. If, as would appear to be the case, the capital markets in Korea were distorted during the relevant period by government subsidy or intervention, then it may be the case that there is, in fact, no "market" as such on the territory of the granting Member suitable for use as a benchmark. In such circumstances, the investigating authority may determine that there are no reliable market benchmarks in the granting Member, and rely instead on suitable alternatives.225

3. The market benchmark for determining the existence and amount of benefit is that of an outside not an inside investor

5.78.
The European Communities then turned to a related but different question, namely that of whether the market benchmark for determining the existence and amount of benefit is that of an outside investor (that is, one that has no existing exposure to the beneficiary) or an inside investor (that is, one that has an existing exposure to the beneficiary). The European Communities considers that the market benchmark is that of an outside investor, not an inside investor. That is especially the case in circumstances where the existing exposure of the inside investor has been created as a result of past government action. That is, when the government has previously entrusted or directed a private bank to take or maintain positions in Hynix other than on market terms, as would appear to be the case.
5.79.
Parties attempting to minimise or eliminate the amount of benefit sometimes argue for an inside investor perspective. They do so because they believe that a "market" benchmark based on the existing position of an inside investor may be lower. That is based in turn on a rejection of the "expected utility model" of investment, according to which rational investors do not let the value of past investments affect present or future investment decisions; in favour of the so-called "prospect theory", according to which investors will continue to make investments in a particular project or entity in the hopes of minimizing past losses, even if the investment would not be justified based only on the potential for future return.
5.80.
The European Communities considers that the SCM Agreement is based on a fundamental distinction between government on the one hand and markets on the other hand; and that any measurement of benefit must be made by reference to an objective market benchmark, that being one that does not depend on the subjective position of an existing stakeholder in the company.226

4. Distinction between the existence of a subsidy and the grant of a subsidy

5.81.
The next point on which the European Communities would like to briefly comment relates to the distinction between the existence of a subsidy within the meaning of Article 1.1 of the SCM Agreement, and the moment at which a subsidy becomes available or is granted.
5.82.
Some subsidies may be unconditional from the moment they exist, in which case the moment of existence is the same as the moment of granting. This explains why it may not always be necessary to distinguish precisely between the two, and why the term "granting" may be used to refer to the same moment as the moment of existence.
5.83.
Other types of subsidies may be contingent on future events. Thus, the moment of existence and the moment of granting (when the contingency is fulfilled) are, by definition, not the same, the moment of granting being after the moment of existence. In such cases it is necessary to distinguish between the existence of the subsidy, and the subsequent granting, when the contingency is fulfilled.
5.84.
This view is confirmed by the consistent manner (at least 15 times) in which the word "exist" is used in the SCM Agreement to refer to the moment at which a subsidy is deemed to exist within the meaning of Article 1.1.227 The distinction between the existence of a subsidy and the granting of a subsidy was also confirmed by the Appellate Body in the Brazil – Aircraft case.228 The Appellate Body also confirmed in the same case that "granting" occurs when all the legal conditions have been fulfilled that entitle the beneficiary to receive the subsidies, which is not the case if the exports in question have not yet occurred.229 Consistent with this approach, the Appellate Body found in the Canada – Automotive Industry case that it is the "underlying legal instrument" that must provide expressly or by necessary implication that "the subsidy is available [or granted] only upon fulfilment of the condition of export performance".230
5.85.
Thus, whilst the European Communities agrees with Japan that an actual "transfer of funds" is not essential in order for a subsidy to exist within the meaning of Article 1.1 of the SCM Agreement, in making that point the European Communities wishes to make it clear that there are circumstances in which a distinction must be drawn between existence and grant, and these should not be considered to occur at the same moment in all cases.

5. Point at which a subsidy may be deemed to exist within the meaning of Article 1.1 of the SCM Agreement

5.86.
The European Communities made a penultimate point relating to the moment at which a subsidy may be deemed to exist within the meaning of Article 1.1 of the SCM Agreement. In this respect, the European Communities is of the view that a subsidy cannot be said to exist within the meaning of Article 1.1 until each of the relevant requirements set out in that provision has been fulfilled. Thus, in the case of a grant, for example, it would normally be necessary to identify such matters as the identity of the granting authority; the identity of the beneficiaries; the form, amount and terms and conditions of the grant; the time at which the grant would be made; the purpose of the grant; and so forth. Prior to the requirements of Article 1.1 being met, it is not the case that all and any government action or omission, even if relating to the eventual beneficiary, are sufficient for there to be a subsidy within the meaning of Article 1.1.
5.87.
Thus, whilst the European Communities agrees with Japan that an actual "transfer of funds" is not essential in order for a subsidy to exist within the meaning of Article 1.1 of the SCM Agreement, in making that point the European Communities wishes to make it clear that a subsidy cannot be said to exist within the meaning of Article 1.1 until such time as each of the relevant requirements set out therein has been demonstrated to be met.

6. The relevance of the change of ownership case law does not depend on privatisation

5.88.
Finally, the European Communities would like to comment on the assertion made in the third party written submission of the United States that the change of ownership case law is not relevant to this case.231 The European Communities disagrees in principle with the United States suggestion that the case law should be so restricted. In particular, the European Communities disagrees that the change of ownership case law is irrelevant, unless there is a privatisation. The Appellate Body has expressly stated otherwise.232

E. THIRD PARTY WRITTEN SUBMISSION OF THE UNITED STATES

5.89.
The following summarizes the United States arguments in its third party written submission.

1. Procedural Issues

5.90.
Claims 10 and 15 of Korea's Panel Request. In Item 10, Korea's panel request refers to Article 15 of the SCM Agreement in its entirety; likewise, Item 15 is exceedingly vague, cites to a number of articles containing multiple obligations, and provides no indication of the "problem" that is the subject of the dispute. Insofar as the articles referenced therein contain multiple obligations, those aspects of Item 15 do not meet the standard established under Article 6.2 and, like Item 10, should be considered outside of the Panel's terms of reference.
5.91.
Analysis of "Prejudice" to the Respondent. Korea incorrectly asserts that "'prejudice' to the responding party from alleged insufficiency of a panel request can only be established by a consideration of the 'actual course of panel proceedings'" and therefore "a panel cannot rule on a respondent's claim under Article 6.2 until the end of the process."233 While panels are not required in all cases to make findings prior to the conclusion of the proceedings, evaluation of prejudice to the respondent does not preclude them from doing so, and panels have in the past issued preliminary rulings regarding DSU Article 6.2 well before the proceedings have concluded. Korea's argument appears to rest upon a mischaracterization of references by certain panels and the Appellate Body to the "course of the panel proceedings" in analyzing compliance with DSU Article 6.2, and would substantially compromise the ability of respondents and third parties to participate effectively in panel proceedings where a complaining party has made a number of vague assertions of breaches of WTO obligations.

2. Burden of Proof, Standard of Review, and Evidence

5.92.
Burden of Proof. In its submission, Korea often appears to advance facts and arguments without specifying the legal obligations that it asserts are breached as a result, or identifies legal obligations it claims have been breached without indicating the arguments that support its conclusion. As the Appellate Body noted in US – Gambling, "A complaining party may not simply submit evidence and expect the panel to divine from it a claim of WTO-inconsistency. Nor may a complaining party simply allege facts without relating them to its legal arguments."234 Absent such an analysis with respect to these claims, the United States submits that Korea has not established a prima facie case.
5.93.
Standard of Review. Certain aspects of Korea's arguments suggest that it misunderstands the proper standard of review that a panel should apply when reviewing the WTO-consistency of an investigating authority's countervailing duty determination. It is well established that a panel may not conduct a de novo review of the evidence before the investigating authority or substitute its own judgment for that of the investigating authority. The SCM Agreement does not require an investigating authority to take into consideration economic theories that are not on the record of the proceedings in making its decision. Furthermore, as the Appellate Body noted in US – Lamb Meat, a panel may not conclude that a decision is "not reasoned" simply because an alternative explanation is found to be "plausible." Rather, the explanation under review must be found not "adequate in the light of that alternative explanation."235
5.94.
Evidence. Korea makes a number of incorrect assertions regarding the nature of the evidence that an investigating authority must identify and how it must analyze that evidence in making its determination. In particular, throughout its submission, Korea claims that there exists a general obligation for an investigating authority to identify "positive evidence demonstrating the existence of each element required for the imposition of antidumping or countervailing duties."236 Beyond where expressly provided, the SCM Agreement does not contain specific standards regarding the evidence that investigating authorities must use to support their determinations.

3. Subsidy Determination

5.95.
JIA's Treatment of Several Banks as "Interested Parties". Korea claims that the JIA improperly treated various financial institutions as "interested parties" and inappropriately applied facts available when these financial institutions failed to respond to requests for information.237 Korea's narrow interpretation of "interested party" is contradicted by the text of Article 12.9 of the SCM Agreement, which provides that "interested parties" "shall" include certain entities, such as foreign exporters or producers of the product under investigation, but then specifies that "This list shall not preclude Members from allowing domestic or foreign parties other than those mentioned above to be included as interested parties." Furthermore, the ordinary meaning of the term "interested" supports the conclusion that an entrusted or directed entity may be considered an "interested party" under the SCM Agreement. Korea's narrow reading of Article 12.9 is also at odds with how the term "interested party" is used elsewhere in the SCM Agreement, and the panel's findings in EC– DRAMS support the conclusion that an investigating authority may apply facts available when a third party entity fails to cooperate with an investigation.238
5.96.
Korea's Interpretation of the "Entrusts or Directs" Standard. Referencing the Appellate Body report in US – DRAMS, Korea asserts that the evidence relied upon by an investigating authority in cases involving entrustment or direction must be "probative and compelling."239Neither Article 1.1(a)(1)(iv) itself nor any other provision of the WTO agreements supports the notion that a special evidentiary standard exists for purposes of determining the existence of entrustment or direction. The Appellate Body's report in US – DRAMS states that an investigating authority is not required to base its determination on a "qualitative standard higher than that contemplated by the SCM Agreement."240 Korea also argues that the determination was insufficient because "there is actually no evidence that the Korean government told any of the creditors what to do in any of the restructurings."241 Korea's argument appears to suggest that, in order to establish entrustment or direction, an investigating authority must have evidence of a "direct" or "actual" government delegation or command, an interpretation that is unsupported by the text of the SCM Agreement, as clarified by prior panel and Appellate Body findings. Furthermore, Korea appears to introduce an additional requirement of governmental "intent" or "motive" to a finding of entrustment or direction which has no support in the text of the SCM Agreement. Korea also suggests that the JIA could not reach a finding of entrustment or direction absent a finding that the Korean government intended to save Hynix "at the expense of its creditors."242 The existence of entrustment or direction under Article 1.1(a)(1)(iv) is determined by reference to the actions of the government, as well as the financial condition of the recipient firm at the time the financial contribution is made. As long as the investigating authority reasonably concludes based on the record that there is evidence that a government has entrusted or directed a body to provide a financial contribution, Article 1.1(a)(1)(iv) is satisfied. Finally, Korea proceeds to critique evidence cited in the JIA's analysis on a piecemeal basis, contrary to the holistic approach that the JIA appears to have used in its determination. Insofar as the JIA appears to have adopted a holistic approach, the Panel should evaluate whether the evidence as a whole supports the determination, and should avoid looking at individual pieces of evidence in isolation as advocated by Korea in its submission.
5.97.
Korea's Interpretation of "Financial Contribution". Korea's interpretation of the term "direct transfer of funds" is inconsistent with the provisions of Article 1.1(a)(1) and at odds with prior findings of WTO panels and the Appellate Body. Article 1.1(a)(1)(i) specifies a number of examples of instruments that may result in a direct transfer of funds, but does not suggest that Article 1.1(a)(1)(i) is limited to the enumerated instruments. Nothing in the text of the agreement supports Korea's narrow interpretation of Article 1.1(a)(1)(i), particularly Korea's suggestion that "funds" only refers to "money;" indeed, prior panels have concluded that the types of transactions that Korea claims do not constitute "direct transfers of funds" may in fact qualify as such. Korea's conclusion that the French and Spanish texts of the SCM Agreement support its "money changing hands" interpretation of "direct transfer of funds" is unsupported by the ordinary meaning of those terms. Moreover, the Korea – Commercial Vessels panel found that, contrary to what Korea now asserts, loan restructuring, debt forgiveness and debt-to-equity swaps are direct transfers of funds.Korea also incorrectly argues that modifications of existing loan terms and debt-to-equity swaps can only be defined as "revenue foregone" under Article 1.1(a)(1)(ii) of the SCM Agreement.243 Nothing in the text of Article 1.1(a)(1)(i) obligated the JIA to treat these transactions as foregone revenue under Article 1.1(a)(1)(ii). Further, in the context of Article 1.1(a), the term "revenue" refers to forms of government revenue, such as taxes, duties, or other monies collected by a government, rather than income or profit by a creditor, as Korea seems to suggest.
5.98.
Korea's Approach to the Benefit Analysis. Korea argues that the government "financial contribution" that confers a benefit is the government's action of entrustment or direction244, and that therefore the investigating authority was required to evaluate whether the action of entrustment or direction made Hynix "better off."245 Korea's emphasis on whether the "restructuring made the creditors... "better off'" is misplaced:246 in determining the existence of a benefit, the issue is the position of the recipient "but for" or "absent" the government's financial contribution. Korea misidentifies the "financial contribution" by which the existence of a benefit is determined under Article 1.1. In essence, Korea confuses the two-step financial contribution analysis required under Article 1.1(a)(1)(iv) in cases of entrustment or direction with the analysis required under Article 1.1(b) to determine the existence of a benefit. The term "financial contribution," as stated in Article 1.1(a)(1), necessarily refers to the functions of the types listed in subparagraphs (i) through (iii), irrespective of whether the case is one of government entrustment or direction. The term does not, as Korea improperly asserts, refer to the government action of entrusting or directing. Notably, in US – DRAMS, the Appellate Body found that "a finding of entrustment or direction, by itself, does not establish the existence of a financial contribution."247 Further, Korea's argument would be nearly impossible to apply: Korea's approach to the benefit analysis would involve comparing the government entrusted or directed restructuring to a hypothetical non-government entrusted or directed restructuring.
5.99.
Privatization Jurisprudence and Determination of Benefit From a Debt-to-Equity Swap. Citing the Appellate Body report in US – Countervailing Measures on Certain EC Products, Korea argues that the JIA was required to consider the effect of the change in Hynix's share ownership during the December 2002 restructuring on Hynix's benefit, and that its failure to do so was inconsistent with Articles 10, 14, 19, and 21 of the SCM Agreement.248 A debt-to-equity swap, in which creditors exchange the debt owed them for equity shares in a firm, is not the same as the privatization of a state-owned firm, and Korea has not demonstrated that a privatization occurred in this case: it has not asserted that the government owned Hynix prior to the debt-to-equity swap and that, through the swap, it transferred all or substantially all of Hynix to a new private owner, retaining no controlling interest for itself. Further, the question posed by privatization analysis is whether the privatization of a firm extinguishes the benefit received from a prior financial contribution. As Korea notes, the privatization methodology described above applies to an analysis of the benefit from subsidies "received before the change in ownership."249 Here, it is the restructuring debt-to-equity swap itself that the JIA concluded conferred the benefit. For these reasons, the Appellate Body's assessment of privatization in US – Countervailing Measures on Certain EC Products is irrelevant to the analysis of whether the December 2002 debt-to-equity swap resulted in a benefit to Hynix.

4. Injury Determination

5.100.
Articles 15.5 and 19.1 of the SCM Agreement. Korea's claim that the JIA's injury determination is inconsistent with Articles 15.5 and 19.1 of the SCM Agreement proceeds from the premise that these provisions require authorities to demonstrate a causal link between the subsidy practice(s) at issue and the material injury experienced by the domestic industry. Korea's interpretation of Articles 15.5 and 19.1 is inconsistent with their language and prior reports discussing them. The subject of both the first sentence of Article 15.5 and the third clause of Article 19.1 is the same: "the subsidized imports." Thus, under each provision, it is the "subsidized imports" that must be causing injury. This conclusion is buttressed by the second sentence of Article 15.5, which states that "[t]he demonstration of a causal relationship between the subsidized imports and the injury to the domestic industry shall be based on an examination of all relevant evidence before the authorities." The "demonstration" that the first clause of this sentence references is the same thing that "must be demonstrated" for purposes of the first sentence of Article 15.5. Additionally, footnote 47 of the SCM Agreement indicates that an authority properly conducts the assessment of "the effects of subsidies" referenced in the first sentence of Article 15.5 by examining the volume, price effects, and impact of the subsidized imports. It does not require an authority to conduct a separate or independent examination of subsidy practices. In United States – Imposition of Countervailing Duties on Imports of Fresh and Chilled Atlantic Salmon from Norway, the panel rejected the same argument that Korea raises here.250 Contrary to Korea's assertion, WTO panel and Appellate Body reports reinforce the notion that the Atlantic Salmon panel's interpretation of Article 6:4 of the Tokyo Round Subsidies Code is fully applicable with respect to the nearly identical wording of Article 15.5 of the SCM Agreement. This reading is further supported by the two previous panel reports addressing Korean challenges to countervailing duty measures on DRAMs. In both reports, the panels considered injury caused by the subsidized imports to be the focus of Article 15.5251.

F. THIRD PARTY ORAL STATEMENT OF THE UNITED STATES

5.101.
The following summarizes the United States' arguments in its third party oral statement.
5.102.
The United States made a few brief points on the following topics: (1) the preliminary ruling requests of Japan; (2) certain threshold issues regarding burden of proof, standard of review, and evidence; (3) two issues regarding the subsidy determination of the Japanese investigating authority (or "JIA"); and (4) the JIA's injury determination.

1. Preliminary Ruling Requests

5.103.
Regarding Japan's preliminary ruling requests, a panel must evaluate the consistency of a panel request with DSU Article 6.2 based on the terms of the request itself. Contrary to Korea's assertion in its December 1 submission, "information reasonably available to the responding parties at the time they received the panel request", but that was not included in the request, is not relevant to an assessment of whether the panel request complies with Article 6.2.252 Korea asserts that information submitted to the JIA could be deemed "reasonably available" such that Japan would not be prejudiced by a defective panel request. The United States believes that this assertion is legally irrelevant and factually doubtful. However, even if it were correct, Korea ignores the fact that such information was not "reasonably available" to other WTO Members, including the third parties to this proceeding.
5.104.
DSU Article 6.2 establishes a standard that is no different for claims relating to antidumping and countervailing duty determinations than for claims relating to other types of measures. In all instances, a panel request must "identify the specific measures at issue and present a brief summary of the legal basis of the complaint sufficient to present the problem clearly." With respect to Items 10 and 15 of Korea's panel request, the United States agrees with Japan that, to the extent they reference articles containing multiple obligations without specifying the particular subprovision at issue, Items 10 and 15 do not satisfy the requirements of DSU Article 6.2, and the Panel should find them to be outside the Panel's terms of reference. Korea's arguments to the contrary do not accord with the text of Article 6.2, and, if accepted, would substantially compromise the ability of both third parties and responding Members to participate effectively in panel proceedings.

2. Burden of Proof, Standard of Review, and Evidentiary Standards

5.105.
Turning to a different topic, as the United States discussed in its written submission, Korea's first submission fails to make a prima facie case with respect to certain claims, suggests an incorrect standard of review in analyzing others, and mischaracterizes how the Panel should properly assess the evidence before the JIA in evaluating Korea's claims.
5.106.
For example, in its five paragraphs challenging Japan's specificity determination, Korea does not cite once to Article 2 of the Agreement on Subsidies and Countervailing Measures ("SCM Agreement"), much less a particular provision or obligation of that Article.253 Korea simply has not met its burden of putting forth both evidence and legal argument to support each element of its claim.254 Korea cannot expect the Panel to make its case for it, by choosing which particular provisions of the SCM Agreement might be implicated and how Japan might have breached its obligations under those provisions. In the United States' submission, several other areas in which Korea's submission appears to have failed to set forth a prima facie case were noted.255
5.107.
In addition to asking the Panel to make its case for it, Korea would have the Panel engage in a de novo review of Japan's subsidy determination. Korea advances an alternative theory to the JIA's analysis of entrustment or direction, based upon economic and corporate workout theories.256 However, it appears that the evidence upon which this theory is based was not on the record before the investigating authority. As the Appellate Body noted in US – DRAMS, a panel's findings may not be based on facts that were not before the investigating authority at the time it made its determination.257 Moreover, and just as importantly, as the Appellate Body noted in US– Lamb Meat, the question before the Panel is not whether an alternative explanation advanced by Korea is "plausible." Instead, the question is whether the JIA provided a reasoned and adequate explanation of how the evidence on the record supported its findings, and how those findings supported its overall determination.
5.108.
Additionally, in several portions of its submission, Korea erroneously urges the Panel to impose an evidentiary standard on an investigating authority not contemplated by the SCM Agreement. Other than where expressly stated, the SCM Agreement does not require an investigating authority to support a subsidy determination with "positive evidence," and the Agreement contains no requirement that evidence of entrustment or direction be "probative and compelling."258
5.109.
Thus, Korea's first submission rests on a number of incorrect characterizations regarding the burden of proof, standard of review, and evidentiary standards to be applied in evaluating the claims raised in this proceeding. The Panel should decline Korea's invitation to make its case for it, based upon a de novo review of the evidence and economic theories not on the record in the investigation, using evidentiary standards not contemplated by the SCM Agreement.

3. Rejection of Private Benchmarks

5.110.
Turning to the JIA's benchmark analysis, the United States addressed Korea's arguments in the United States' written submission. The United States would like to address the assertion by China in its own third party submission that there is a "very high threshold" for rejecting as benchmarks investments or loans made by private entities that were not entrusted or directed.259 Contrary to China's assertion, the SCM Agreement does not impose a special standard on investigating authorities in selecting a benchmark. Therefore, consistent with SCM Agreement Article 12.2, the task for the Panel is to evaluate whether a reasonable, objective decisionmaker, looking at all the evidence on the investigation record, could have concluded that the benchmark selected by the JIA was appropriate.
5.111.
A number of factors may render a private entity's loan or investment an inappropriate benchmark, and the text of Article 14(a) and (b) does not impose a higher burden on an investigating authority in making such a determination. For example, as the panel in EC – DRAMS noted, the nature of a private entity's relationship with the recipient of the financial contribution as well as with the government, and the particular characteristics of the private entity's investment or loan in relation to the financial contribution at issue, may make it an inappropriate benchmark for purposes of an investigating authority's analysis.260 In such circumstances, an investigating authority may properly disregard investments or loans of those entities insofar as, consistent with SCM Agreement Article 14(a) or (b), they do not reflect "the usual investment practice... of private investors in the territory" or a "comparable commercial loan," respectively. Likewise, circumstances may exist in which the government's financial contribution affects the terms on which private entities invest in, or lend to, a particular industry or company, such that private investments in, or loans to, the subsidy recipient would not be appropriate benchmarks.
5.112.
Furthermore, the United States disagrees with China's assertion that the threshold is "even higher if certain private entities also participate in the same transactions that are alleged to be subsidies."261 In fact, in such circumstances, the private loan or investment may be even less likely to reflect "the usual investment practice... of private investors" or a "comparable commercial loan," insofar as the terms on which the loan or investment was made may be influenced by the government's financial contribution. Accordingly, an investigating authority may properly reject such loans or investments as benchmarks.
5.113.
Finally, China's reliance on the Appellate Body's findings in Softwood Lumber is misplaced. As China concedes, the Appellate Body in that case was analyzing the language of Article 14(d), not Article 14(a) or (b). Furthermore, the Appellate Body acknowledged that private benchmarks may be inappropriate if they are affected by extensive government involvement in the market262, explaining that private market prices may be inappropriate as benchmarks if the extensive government involvement in the market indirectly affects those prices. Similarly, if a government intervenes in the market to support a particular industry or company, through grants, loans, or investments, this government support could influence the decisions of private entities to invest in, or lend to, an industry or company. In such circumstances, grants, loans, or investments by these entities may not be appropriate benchmarks, even if the entities have not been entrusted or directed by the government.

4. The Chapeau of Article 14

5.114.
With respect to Korea's assertion that Japan breached its obligation under the chapeau of Article 14 to provide in its national legislation or regulations for any method used to calculate the benefit, the United States does not offer a view on the particular facts. However, the United States agrees with the EC that, even if the Panel finds that Japan breached this obligation, such a finding does not necessarily mean that the countervailing duty determination itself is invalid.263 Nothing in the text of the chapeau so provides, and Korea does not identify any obligation in the WTO Agreements that requires such a result. If the Panel finds that Japan acted inconsistently with the chapeau, then – consistent with DSU Article 19.1 – any recommendation to Japan to bring its measures into conformity with the Agreement should leave it to Japan to decide precisely how it does so.

5. Injury Determination

5.115.
With respect to the JIA's injury determination, the United States disagrees with Korea's contention that Articles 15.5 and 19.1 of the SCM Agreement require authorities to demonstrate a causal link between the subsidy practice(s) at issue and the material injury experienced by the domestic industry.
5.116.
With respect to the text of the pertinent provisions, the subject of both the first sentence of Article 15.5 and the third clause of Article 19.1 is the same: "the subsidized imports." Under each provision, it is the "subsidized imports" that must be causing injury.
5.117.
The first sentence of Article 15.5 further states that an authority must demonstrate that the subsidized imports are causing injury "through the effects of subsidies." This phrase does not appear in the text in isolation. Instead, its meaning is explained by footnote 47 of the SCM Agreement. Footnote 47 indicates that the pertinent "effects of subsidies" are those set forth in Articles 15.2 and 15.4.
5.118.
In turn, both Articles 15.2 and 15.4 of the SCM Agreement concern the "subsidized imports." Neither provision requires an authority to make an independent assessment of the effects of the subsidy itself. Rather, Article 15.2 requires the authority to consider "the volume of the subsidized imports" and "the effects of subsidized imports on prices." Article 15.4 concerns examination of "the impact of the subsidized imports on the domestic industry."
5.119.
Consequently, footnote 47 to the SCM Agreement indicates that an authority properly conducts the assessment of the "effects of subsidies" referenced in the first sentence of Article 15.5 by examining the volume, price effects, and impact of the subsidized imports. Thus, the first sentence of Article 15.5, along with its footnote, directs an authority to ascertain that the subsidized imports are causing injury. It does not require the authority to conduct a separate or independent examination of the effects of subsidy practices.
5.120.
This interpretation of Article 15.5 finds support in the Atlantic Salmon GATT panel's interpretation of virtually identical language in Article 6:4 of the Tokyo Round Subsidies Code.264 It is also consistent with numerous dispute panel and Appellate Body reports. Indeed, each of the two previous panel reports addressing Korea's challenges to countervailing duty measures on DRAMs considered injury caused by the subsidized imports to be the focus of Article 15.5.265
5.121.
Finally, the Korea – Commercial Vessels panel report on which Korea relies does not purport to address injury or causation standards in countervailing duty investigations. Instead, it addresses the unrelated "serious prejudice" provisions of Article 6.3(c) of the SCM Agreement. The Panel's conclusion in Commercial Vessels was dependent on the distinctive textual structure of Article 6.3 – one that is not shared by Article 15.5. Indeed, in its submissions to the panel in Commercial Vessels, Korea argued that the causation standards for "serious prejudice" inquiries under Article 6 were different from those for countervailing duty investigations under Article 15. Korea was correct at the time in drawing a distinction between the provisions in Articles 6 and 15. The Panel should draw the same distinction for purposes of this dispute.

VI. INTERIM REVIEW

6.1.
On 16 April 2007, we submitted the Interim Report to the parties. Both parties submitted written requests for the review of precise aspects of the Interim Report. Parties also submitted written comments on the other party's comments. Neither party requested an interim review meeting. We have briefly outlined our reaction to the parties' comments below.

A. COMMENTS BY KOREA

6.3.
Regarding our finding at para. 6.91 of the Interim Report (para. 7.91 of this Report), Korea doubts our assessment of the JIA's use of the word "therefore". We have reviewed Korea's arguments, but see no need to amend our findings. We remain of the view that the JIA's conclusion was based on findings of fact, rather than abstract economic theory.
6.4.
Regarding para. 6,275 of the Interim Report (para. 7,276 of this Report), Korea expresses concern that the Interim Report appears to accept the proposition that a benefit may be found solely on evidence that the creditors failed to undertake a sufficient analysis of the restructuring. We have included note 475 to this Report in order to provide some clarification of our finding. We remain of the view that evidence of reliance on non-commercial considerations indicates terms more favourable than those available from the market.
6.5.
Regarding paras 6,288 to 6,289 of the Interim Report (paras 7,289 to 7,290 of this Report), Korea claims that there is no basis in the SCM Agreement for applying "facts available" when creditors that were never contacted do not provide information that they were never asked to submit. Notes 484 and 485 to this Report make it clear that the JIA only applied facts available in respect of "interested parties", and only treated Other Creditors to which it sent questionnaires as "interested parties". Accordingly, there is no factual basis for Korea's allegation that we found that the JIA was entitled to use facts available in respect of Other Creditors that did not provide information that they were never asked to submit. We therefore see no need to change our findings in light of Korea's comment.
6.6.
Regarding para. 6,392 of the Interim Report (para. 7,393 of this Report), Korea asserts that an investigating authority should not be allowed to base its decision on "facts available" whenever needed information is lacking from the record, in light of the investigating authority's need to complete its investigation. Korea asserts that such an approach in the present case led to Hynix being "punished for the actions of third parties that it could not control". It is a practical reality that an investigating authority must in all circumstances be able to complete its investigation on the basis of facts, even if interested parties and third parties are non-responsive. However, this does not necessarily mean that respondents will be "punished" as a result of the non-responsiveness of some third party, since the investigating authority is simply completing its investigation on the basis of facts. Korea has failed to demonstrate that Hynix was "punished" in the present case. In particular, Korea failed to establish that the JIA made any adverse inferences against Hynix. We therefore see no need to amend our findings in light of Korea's comment.
6.7.
Regarding paras 6,441 to 6,443 of the Interim Report (paras 7,442 to 7,444 of this Report), Korea claims that the Panel ignored the normal usage of the term "transfer of funds". Korea suggests that we did so "out of a concern that a finding that extensions of loan maturities and debt-equity swaps were not 'direct transfers of funds' would mean that those transactions could [not] be classified as 'financial contributions' under the SCM Agreement". This, however, was not a concern that motivated our findings. Instead, we were concerned to interpret the term "transfer of funds" in accordance with the requirements of Article 3.2 of the DSU. We stand by that interpretation, and see no need to amend our findings in light of Korea's comments.
6.8.
Regarding our findings on Korea's Causation of Injury claim, Korea takes issue with our treatment of (i) the relationship between Article 15.5 of the SCM Agreement and Article VI of the GATT 1994, (ii) the relevance of the Article 6 serious prejudice causal standard, and (iii) the relevance of Article 11.2. We considered these issues carefully in reaching our interim findings, and see no need to amend our findings in light of Korea's comments.

B. COMMENTS BY JAPAN

6.9.
Japan made a number of comments regarding typographical and clerical errors contained in our Interim Report. We are grateful for those comments, and have made the necessary corrections. Japan also requested certain changes to avoid suggestions that the Panel was implicitly criticizing Japan, and to clarify the arguments made by Japan. We have modified certain of our findings in line with these requests. In addition, Japan made certain substantive comments, to which we respond below.
6.10.
Regarding para. 6,166 of the Interim Report (para. 7,166 of this Report), Japan made a number of comments regarding the Panel's findings on the JIA's treatment of the contractual relationship between Deutsche Bank and Hynix. We have made a number of changes to clarify our findings in this regard. In doing so, we stand by our conclusion that the JIA could not properly have called into question the independence of the Deutsche Bank Report on the basis of Deutsche Bank's contractual relationship with Hynix.
6.11.
Regarding paras 6,167 and 6,168 of the Interim Report (paras 7,167 and 7,168 of this Report), Japan requested a number of changes regarding the implications of the appointment of Morgan Stanley Dean Witter Asia Ltd. as a joint financial adviser with Deutsche Bank. According to Japan, the JIA found that Morgan Stanley disagreed with Deutsche Bank's conclusions, and in any event only played a supplementary role in the process. Japan also asserts that Korea did not make any arguments regarding the role of Morgan Stanley in the review of the December 2002 restructuring. First, we do not consider that the scope of our findings should necessarily be limited to the arguments of the parties. Provided we remain within our terms of reference, we consider that we have discretion to apply our own legal reasoning to the matter before us. Second, the facts that Morgan Stanley may have disagreed with Deutsche Bank, or may only have played a supplementary role in the review of the restructuring, do not negate our view that the presence of Morgan Stanley would have limited Deutsche Bank's ability to favour the interests of Hynix over those of its creditors. We therefore see no need to make any of the changes requested by Japan.
6.12.
Regarding note 399 to the Interim Report (note 401 to this Report), Japan submits that there was sufficient evidence on the JIA's record indicating that the "normalization plan" was actually the Deutsche Bank Report. However, none of the evidence referred to by Japan actually refers to the Deutsche Bank Report as the "normalization plan". Furthermore, our findings proceed on the basis that the Deutsche Bank Report and "normalization plan" are one and the same thing. There is therefore no need to make any change to our findings on the basis of Japan's comment.
6.13.
Regarding para. 6,209 and note 431 to the Interim Report (para. 7,215 and note 435 to this Report), Japan submits that there is no evidence to suggest that the creditors actually obtained the relevant legal opinion. We have deleted the last sentence of para. 6,209 of the Interim Report pursuant to Japan's request. However, we do not consider it necessary to delete note 437 of this Report, as Japan's Interim Review arguments still fail to establish that the JIA found "that the legal opinion had not been made available to the creditors".
6.14.
Regarding paras 6,214 and 6,218 of the Interim Report (paras 7,220 and 7,224 of this Report), Japan asks the Panel to indicate whether it agrees with Japan that a particular calculation error was made in the Deutsche Bank Report. We have already concluded that the JIA failed to find that the Deutsche Bank Report contained the relevant calculation error. There is nothing in Japan's Interim Review comments that leads us to change this conclusion. Absent any appropriate finding by the JIA, there is no basis for us to conclude that the alleged error existed.
6.15.
Regarding paras 6,233 and 6,238 of the Interim Report (paras 7,239 and 7,244 of this Report), Japan complains that the Panel failed to address the substance of a particular error that the JIA did find to exist. We have concluded that the JIA did not have a proper basis for finding that the Deutsche Bank Report contained the relevant calculation error, in the sense that it improperly found that Hynix had acknowledged the existence of such error. There is nothing in Japan's Interim Review comments to lead us to change this conclusion.
6.16.
Regarding paras 6,236 and 6,237 of the Interim Report (paras 7,242 and 7,243 of this Report), Japan asserts that the Panel incorrectly attributed the JIA's summary of arguments made by Hynix to the JIA. We have amended the text to clarify that the phrase we quote is the JIA's summary of Hynix's argument. However, since the Final Determination sets forth the JIA's summary of Hynix's argument, technically it is correct to attribute these words to the JIA.
6.17.
Japan takes issue with the Panel's treatment, in the Interim Report, of an alleged admission by NACF that the Government of Korea intervened in the preparation of the Deutsche Bank Report. We have made a number of changes to our findings regarding this matter. However, we remain of the view that the alleged admission by NACF does not impugn the independence of Deutsche Bank or the commercial reliability of the Deutsche Bank Report.
6.18.
Regarding paras 6,250, 6,290 and 6,297 of the Interim Report (paras 7,251, 7,291 and 7,298 of this Report), Japan objects to the Panel's reference to "direct" and "indirect" evidence. Japan suggests that the term "direct" evidence might be inconsistent with the Panel's observation that the JIA based its finding of entrustment or direction on circumstantial (and therefore "indirect") evidence. We have amended our findings accordingly.
6.19.
Regarding note 489 to para. 6,292 of the Interim Report (see para. 7,292 of this Report), Japan objects to a finding by the Panel regarding the JIA's use of the term "bankruptcy". Since this finding is not essential for our principal findings, we have deleted the relevant footnote.
6.20.
Regarding note 495 to para. 6,295 of the Interim Report (note 494 to para. 7,296 of this Report), Japan objects to the Panel's finding that the JIA failed to make any findings on the existence or role of "contemporaneous" subsidies. We stand by our finding that Japan's arguments regarding this matter constitute ex post rationalization. We note that Japan has only referred to an ex post submission (i.e., its response to Question 37 from the Panel) in support of its position (see para. 55 of Japan's comments on the Interim Report). Japan still fails to identify where this issue was addressed by the JIA. In light of these considerations, we see no need to change our findings in this regard.
6.21.
Regarding para. 6,312 of the Interim Report (para. 7,313 of this Report), Japan submits that the Panel has made findings on a matter not presented to the Panel by Korea. We disagree. First, we note that Japan does not assert that this matter falls outside our terms of reference. Second, we do not consider that the scope of our findings should necessarily be limited by the arguments developed by the parties, since we are entitled to apply our own legal reasoning to the matter before us. Third, we consider that Korea did in fact make the argument that we address at para. 6,312 of the Interim Report, for Korea argues (at para. 234 of its First Written Submission) that "[a] proper analysis of these transactions requires consideration of all parts of the exchanges — not only the value of whatever the recipient received, but also the value of whatever the recipient gave in return." In doing so, Korea cited para. 7,212 of the report of the panel in EC – Countervailing Measures on DRAM Chips. Our finding, in turn, refers to para. 7,213 of that panel's report, which is an obvious extension of the reasoning (referred to by Korea) set forth in para. 7,212. For these reasons, we see no need to amend our findings in line with Japan's comment.
6.22.
Regarding para. 6,313 of the Interim Report (para. 7,314 of this Report), Japan asks the Panel to make a factual finding that certain interested parties refused to submit particular information to the JIA. Since Japan has failed to identify any basis in the JIA's Final Determination for such a finding of fact, we decline Japan's request.
6.23.
Regarding note 543 to para. 6,348 of the Interim Report (note 542 to para. 7,349 of this Report), Japan claims that the Panel erred in finding that loans and loan maturity extensions constitute non-recurring subsidies. Japan also submits that the scope of the Panel's findings exceed the scope of Korea's claim, which was limited to those non-recurring subsidies whose benefit was allocated by the JIA from 2001 to 2005. We stand by our statement that "one-off loans are more properly treated as non-recurring subsidies". However, we note that our findings are based in large part on the JIA's allocation of benefit from the period 2001 to 2005. We have therefore limited our findings to those non-recurring subsidies whose benefit was allocated by the JIA in this way.

VII. FINDINGS

7.1.
We shall begin by evaluating Korea's claim regarding the JIA's determination of entrustment or direction, after we have addressed the general issues of standard of review, burden of proof, and the rules of treaty interpretation. Before turning to those general issues, though, we must first consider two requests by Japan for preliminary rulings.

A. REQUESTS FOR PRELIMINARY RULINGS

7.2.
On 5 September 2006, Japan filed a request for a preliminary ruling pursuant to DSU Article 6.2, which provides:

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.

7.3.
Japan's 5 September request is based on the second sentence of that provision. Japan requests a preliminary ruling that items 9, 10 and 15 of Korea's Request for the Establishment of a Panel266 (hereinafter "Request for Establishment") failed to "provide a brief summary of the legal basis of the complaint sufficient to present the problem clearly."
7.4.
Japan included an additional request for preliminary rulings in its First Written Submission.267 The Panel addressed a number of written268 and oral questions to Japan on this subject. In light of Japan's replies to these questions, we understand Japan to argue that:

· 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.

1. Japan's 5 September Request

7.11.
Japan's 5 September request concerns items 9, 10 and 15 of Korea's Request for Establishment.

(a) Item 9

7.12.
Item 9 of Korea's Request for Establishment alleges a violation of:

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.

7.13.
According to Japan, item 9 fails to comply with Korea's obligations under DSU Article 6.2 for two reasons. First, Article 14 establishes "not one single, distinct obligation, but rather multiple obligations,"272 and "[i]n such a situation, the listing of articles of an agreement, in and of itself, may fall short of the standard of Article 6.2."273 Second, Japan asserts that Korea provides no indication of the "principles of the SCM Agreement" Japan is alleged to have violated.
7.14.
Korea submits that item 9 is not a "mere listing" of articles of treaties. Instead, it contains a narrative description of the "problem". Korea also notes that Article 14 is one of the few provisions of the SCM Agreement that does not contain separate paragraphs — there is no Article 14.1 or 14.2 or 14.3. In addition, Article 19.4 (the other provision cited by this claim) contains only a single obligation (limiting the amount of countervailing duties imposed to the amount of the subsidy found to exist). Korea asserts that, when Articles 14 and 19.4 of the SCM Agreement are read together and in the context of Article VI:3 of the GATT 1994 and of Korea's other claims under Article 14, the meaning of item 9 should be clear: Korea is objecting to the imposition of duties in excess of the amount of the benefit that may permissibly be calculated under the provisions of Article 14 (and, in particular, the provisions of Article 14 addressing the calculation of subsidy benefits).
7.15.
We recall that, although DSU Article 6.2 requires that requests for establishment must be "sufficient to present the problem clearly", they need only provide a "brief summary" of the legal basis of the complaint. We consider that item 9 satisfies that standard, since it requires very little effort on the part of the reader274 to identify the "problem" described in all the elements of that item: it is that Japan violated Article 14 because it failed to calculate the amount of benefit in conformity with the guidelines set forth in that provision, and thereby collected countervailing duties in excess of the amount of the subsidy found to exist, or the amount equal to the estimated bounty or subsidy determined to have been granted, contrary to Article 19.4 of the SCM Agreement and Article VI:3 of the GATT 1994. Item 9 therefore presented the problem raised with sufficient clarity, such that Japan was able to know the case it had to answer and begin preparing its defence.

(b) Item 10

7.16.
Item 10 of Korea's Request for Establishment alleges a violation of:

Article 15 of the SCM Agreement because, inter alia, Japan improperly found material injury caused by the allegedly subsidized imports without proper evidentiary or legal foundations.

7.17.
Korea also made a claim regarding Article 15.5 of the SCM Agreement in item 11 of its Request for Establishment. Korea confirmed at the Panel's first substantive meeting with the parties that it was not pursuing any Article 15 claim other than that covered by item 11.275 Since Korea has not pursued any other claim under Article 15, there is no need for us to address Japan's request for a preliminary ruling regarding item 10 of Korea's Request for Establishment.

(c) Item 15

7.18.
Item 15 of Korea's Request for Establishment alleges a violation 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 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.

7.19.
Japan asserts that Korea does not identify for which of the multiple obligations encompassed in Articles 10, 11, 12, 14, 15, 22, and 32.1 of the SCM Agreement, or the very general obligations under Articles VI:3 and X:3 of the GATT 1994, it is alleging an inconsistency. Japan submits that there is no indication as to which aspects of these nine articles Japan allegedly breached in terms of its failure "to conduct a thorough and complete investigation" or "make determinations in accordance with fundamental substantive and procedural requirements." Japan submits that, absent greater specificity, Korea could present innumerable claims while the Panel's terms of reference would remain vague and undefined, and Japan and third parties would be denied their fundamental due process rights to defend their interests.
7.20.
Korea submits that item 15 is not a "mere listing" of articles of treaties. Instead, it contains a narrative description of the "problem" — which is that "Japan 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."
7.21.
Item 15 cites nine separate provisions of the SCM Agreement and GATT 1994. These provisions address an extremely broad variety of issues, ranging from the sufficiency of an application for countervailing relief (Article 11.2) to the conduct of on-site verifications (Article 12.6). In the context of such a multitude of diverse obligations, it is simply not possible to tell from item 15, even when read in conjunction with the remainder of Korea's Request for Establishment, what specific "problem" Korea is addressing under item 15. Accordingly, we find that item 15 did not meet the minimum requirements of DSU Article 6.2, since the language was not sufficiently clear for Japan to know the case it had to answer and begin preparing its defence.

2. Japan's Additional Request

7.22.
We recall that the first part of Japan's additional request concerns the admissibility of sub‑paragraphs (b), (c) and (e) of para. 3.1 supra, 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, by virtue of item 15 of the Request for Establishment. We have already ruled that item 15 of Korea's Request for Establishment does not meet the requirements of the second sentence of Article 6.2 of the DSU. Any claims based on item 15 therefore fall outside our terms of reference. Accordingly, we rule that any claims in sub-paragraphs (b), (c) and (e) of para. 3.1 supra,276 in so far as they are based on item 15 of Korea's Request for Establishment, are inadmissible.
7.23.
The second part of Japan's additional request concerns the consistency of items 3, 4, 5, 6, 7, 9, 12, 13, and 15 of Korea's Request for Establishment with the second sentence of Article 6.2 of the DSU. For each item, Japan asserts that Korea failed to present the problem clearly because "Korea presented the 'mere listing of the treaty articles' as the legal basis of its claims, despite the fact that these articles provide[] [for] multiple obligations."277 Korea provided detailed comments in respect of Japan's arguments concerning items 3, 4 and 9. For the remainder, Korea relied on its argument that conformity with Article 6.2 of the DSU should be assessed in light of any prejudice suffered by the respondent during the Panel proceedings.278 We shall address each item in turn, noting that we have already examined the conformity of items 9, 10 and 15 with the second sentence of Article 6.2 of the DSU in the context of Japan's 5 September request.

(a) Items 3, 4 and 9

7.24.
Items 3, 4 and 9 of Korea's Request for Establishment allege violations of:

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.

7.25.
Korea asserts that, taken together, items 3, 4 and 9 reflect a clear and concisely expressed position that the JIA's determination of benefit failed to follow the provisions of the SCM Agreement concerning the determination of benefit, and therefore led to the improper imposition of countervailing duties.
7.26.
In our view, whether taken together or individually, the above items meet the requirements of the second sentence of Article 6.2 of the DSU. Items 3 and 4 concern Articles 1.1 and 14 of the SCM Agreement. Although Article 1.1 of the SCM Agreement contains a number of sub-paragraphs, it is evident – in the context of a claim expressly referring to benefit – that the relevant provision is Article 1.1(b). That is the only provision in Article 1.1 dealing with benefit.
7.27.
Since it is now well established that the existence and amount of benefit are determined by reference to the market, Korea's reliance on Article 14 is also self-explanatory. Korea's claim under the chapeau of Article 14 is addressed at item 8 of the Request for Establishment. Accordingly, these other claims necessarily concern the remainder of Article 14, i.e., the guidelines. We do not consider that a Member need necessarily specify precisely which of the four guidelines it seeks to rely on in its Request for Establishment (especially in a case where certain of the measures at issue, such as debt- to-equity swaps, are not expressly mentioned in those guidelines).
7.28.
We have already ruled on the admissibility of item 9. We are of the view that the claim being made under Article 19.4 of the SCM Agreement and Article VI:3 of the GATT 1994 is readily apparent from the text of Korea's Request for Establishment, since item 9 refers directly to a matter expressly covered by those provisions, namely the alleged imposition of countervailing duties in excess of the amount of subsidy found to exist, or determined to have been granted.
7.29.
In short, we find that items 3, 4 and 9 of Korea's Request for Establishment met the minimum requirements of DSU Article 6.2, since the language was sufficiently clear for Japan to know the case it had to answer and begin preparing its defence.

(b) Item 5

7.30.
Item 5 of Korea's Request for Establishment alleges a violation of:

Article 2 of the SCM Agreement because, inter alia, Japan did not properly establish that all of the alleged subsidies were specific to Hynix on the basis of positive evidence.

7.31.
Japan asserts that Korea failed to specify which sub-paragraph of Article 2 it was relying on. We acknowledge that Article 2 contains a number of sub-paragraphs, dealing with different types of specificity. However, we also note that the JIA failed to indicate whether it had made a finding of de facto or de jure specificity.279 In these circumstances, it would be wholly unreasonable to expect that Korea could specify the precise sub-paragraph of Article 2 at issue in this claim. In the context of the JIA's determination of specificity, the language of item 5 was sufficiently clear for Japan to know the case it had to answer and begin preparing its defence. We therefore find that item 5 of Korea's Request for Establishment met the minimum requirements of DSU Article 6.2.

(c) Item 6

7.32.
Item 6 of Korea's Request for Establishment alleges a violation of:

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.

7.33.
Read in the context of the five preceding items, we consider that the reader could readily discern that item 6 concerns the JIA's treatment of evidence in respect of its determinations of entrustment or direction, financial contribution, benefit and specificity. Accordingly, we find that item 6 of Korea's Request for Establishment met the minimum requirements of DSU Article 6.2, since the language was sufficiently clear for Japan to know the case it had to answer and begin preparing its defence.

(d) Item 7

7.34.
Item 7 of Korea's Request for Establishment alleges a violation of:

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.

7.35.
Although item 7 does not state expressly which sub-paragraphs of Article 12 are concerned by this claim, we consider that the description of the problem is sufficiently clear for a reader to understand that the claim concerns sub-paragraphs 7 and 9 of Article 12, since those are the provisions concerning the problem described in item 7, namely the use of facts available and the definition of interested parties. Accordingly, we find that item 7 of Korea's Request for Establishment met the minimum requirements of DSU Article 6.2, since the language was sufficiently clear for Japan to know the case it had to answer and begin preparing its defence.

(e) Item 12

7.36.
Item 12 of Korea's Request for Establishment alleges a violation of:

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.

7.37.
Item 12 therefore concerns Articles 10 and 32 of the SCM Agreement. Article 10 does not contain any sub-paragraphs, and Korea has specifically identified the first sub-paragraph of Article 32. Given the text of these two provisions, and the language of item 12, we consider that the problem covered by item 12 is readily apparent to the reader. It is that Japan allegedly imposed countervailing duties contrary to the provisions of the SCM Agreement and the GATT 1994, in violation of the express terms of Articles 10 and 32.1. Accordingly, we find that item 12 of Korea's Request for Establishment met the minimum requirements of DSU Article 6.2, since the language was sufficiently clear for Japan to know the case it had to answer and begin preparing its defence.

(f) Item 13

7.38.
Item 13 of Korea's Request for Establishment alleges a violation of:

Articles 10, 14, 19, and 21 of the SCM Agreement because, inter alia, Japan imposed and maintained countervailing duties without determining whether a benefit continued to exist following changes in the ownership of Hynix.

7.39.
Item 13 refers to four provisions of the SCM Agreement.We believe that, in the context of items 3 and 4, a reference to Article 14 combined with a reference to the determination of benefit met the requirements of Article 6.2 of the DSU, given the relevance of the Article 14 guidelines for determining the existence of benefit. Furthermore, although Articles 19 and 21 contain multiple sub-provisions, the reference to the continued existence of benefit in conjunction with references to those provisions suggests strongly that Korea's claim is likely to be based on Articles 19.4 and 21.1 in particular. In addition, since Article 10 is concerned with the imposition of countervailing duties in violation of the provisions of the SCM Agreement and GATT 1994, a reference to Article 10 in the context of any claim against a determination leading to the imposition of countervailing duties would make sense to the reader. For these reasons, we find that item 13 of Korea's Request for Establishment met the minimum requirements of DSU Article 6.2, since the language was sufficiently clear for Japan to know the case it had to answer and begin preparing its defence.

3. Conclusion

7.40.
For the above reasons, we uphold Japan's request that item 15 of Korea's Request for Establishment failed to meet the requirements of the second sentence of Article 6.2 of the DSU. Claims made under that item are, therefore, inadmissible. We reject the remainder of Japan's requests for preliminary rulings.280

B. GENERAL ISSUES

1. Standard of Review

7.41.
Article 11 of the DSU sets out the applicable standard of review in proceedings under the SCM Agreement and the GATT 1994. Article 11 of the DSU states, in relevant part, that:

[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)

7.42.
In US – Countervailing Duty Investigation on DRAMS, the Appellate Body offered the following guidance regarding the application of Article 11 of the DSU in the context of reviewing an investigating authority's subsidy determination:

[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)

7.43.
We are, therefore, conscious of the fact that it is not our role to perform a de novo review of the evidence which was before the JIA at the time it made its determination. We will examine whether on the basis of the record before it, a reasonable and objective investigating authority could have reached the conclusions that the JIA reached. Our task is first to understand what the JIA decided and how it came to those decisions. Our examination of those decisions will be informed by whether the JIA provided a reasoned and adequate explanation as to: (i) how the evidence on the record supported its factual findings; and (ii) how those factual findings supported the overall subsidy determination. At the same time, we believe that our examination of the JIA's conclusions must be critical and searching, and that we would not be fulfilling our function if we were to simply defer to the conclusions of the JIA.282

2. Burden of Proof

7.44.
We recall the general principles applicable to burden of proof in WTO dispute settlement, which require that a party claiming a violation of a provision of a covered agreement by another Member must assert and prove its claim.283 In this dispute, Korea, which has claimed that Japan acted inconsistently with the SCM Agreement and the GATT 1994, thus bears the burden of demonstrating that Japan acted inconsistently with the relevant provisions of those covered agreements. In addition, it is generally for each party asserting a fact to provide proof thereof.284 We note in addition that a prima facie case is one which, in the absence of effective refutation by the other party, requires a panel, as a matter of law, to rule in favour of the party presenting the prima facie case.

3. Treaty Interpretation

7.45.
Article 3.2 of the DSU directs panels to clarify the existing provisions of the covered agreements "in accordance with customary rules of interpretation of public international law". It is well settled in WTO case law that the principles codified in Articles 31, 32 and 33 of the Vienna Convention are such customary rules. These provisions read as follows:

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.

7.46.
We shall apply these principles in interpreting the relevant provisions of the covered agreements.

C. ALLEGED REVERSAL OF THE BURDEN OF PROOF

7.47.
Korea claims that the Japan acted inconsistently with Articles 1 and 2 of the SCM Agreement, on the basis that the JIA reversed the burden of proof in the countervailing duty proceeding by basing its subsidy determination on the absence of evidence disproving the existence of subsidies. Japan submits that the Panel should reject Korea's claim and argument.
7.48.
This claim is concerned with the treatment of evidence by the JIA. Since we consider Korea's arguments regarding the treatment of evidence as part of our broader analysis of Korea's substantive claims under Articles 1 and 2 of the SCM Agreement, we see no need to rule on this claim in the abstract.

D. THE JIA'S DETERMINATION OF ENTRUSTMENT OR DIRECTION OF CERTAIN PRIVATE BODIES

1. Introduction

7.49.
Hynix's creditors comprised both public and private bodies.285 Ordinarily, measures taken by private bodies may not be treated as subsidies. This is because Article 1.1(a)(1) of the SCM Agreement defines a "subsidy" as a "financial contribution" that confers a "benefit" and, in general, only government, or public body, actions may constitute "financial contributions". Thus, 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)(1) of the SCM Agreement. If a private body undertakes the same action, there is generally no financial contribution in the sense of Article 1.1(a)(1) of the SCM Agreement. However, Article 1.1(a)(1)(iv) of the SCM Agreement provides that measures taken by private bodies may be treated as "financial contributions" if such measures are taken pursuant to government entrustment or direction. Thus, if it were established that a private body was entrusted or directed by the government to carry out one of the functions illustrated in subparagraphs (i) to (iii), that private body action would constitute a financial contribution in the sense of Article 1.1(a)(1) of the SCM Agreement.
7.51.
In a nutshell, the JIA found that the decisions of the Four Creditors to participate in the restructurings were not commercially reasonable, and could therefore only be explained by some external, non-commercial factor, namely the involvement in the restructurings of the Government of Korea. To support this explanation various statements by Government ministers, officials and others, and non-attributed statements, and various circumstances relating to the restructurings, were referred to in the JIA's determination as circumstantial evidence of entrustment or direction. It was the totality of this evidence that was the basis for the JIA's finding.

2. The Claim

7.52.
Korea claims that Japan acted inconsistently with its obligations under Article 1.1(a) of the SCM Agreement, on the basis that the JIA did not have a proper basis for its finding that the Government of Korea "entrusted or directed" the Four Creditors to participate in the October 2001 and December 2002 debt restructurings.
7.53.
Japan submits that the Panel should reject Korea's claim and argument.

3. Applicable Provisions

7.54.
Korea's claim pertains to paragraph (iv) of Article 1.1(a)(1) of the SCM Agreement. Article 1.1(a)(1) of the SCM Agreement provides in its totality that:

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)

4. The JIA's Determination

7.56.
The JIA summarised its finding of entrustment or direction in respect of the December 2002 restructuring in very similar terms.288

5. Main Arguments of Korea

7.57.
Korea asserts that the JIA's finding of "entrustment or direction" was based on a syllogism comprised of the following three premises:

(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.

7.58.
According to Korea, the conclusion of the syllogism was that the actions of Hynix's creditors could, in the JIA's view, only be explained by Korean government pressure to save Hynix.
7.59.
Korea submits that each of the premises of the JIA's syllogism was flawed, because they were based on presumptions rather than evidence. Korea submits that (a) the JIA's analysis of the Government of Korea's alleged intent was biased and inconsistent with the evidence, as none of the evidence cited by the JIA demonstrated a government desire to save Hynix at the expense of its creditors; (b) the JIA's inference of entrustment or direction incorrectly assumed that creditors will never agree to restructure the debts of insolvent corporations without government intervention; (c) the JIA's analysis of the internal examinations of the restructuring transactions by the creditor banks does not support its conclusions, since the evidence submitted by the individual creditors established that they had conducted a sufficient analysis of the various transactions before entering into them; and (d) the willingness of Other Creditors to enter into the same transactions on the same terms confirms that the transactions were based on commercial considerations.

6. Main Arguments of Japan

7.60.
Japan submits that Korea's syllogism argument fails to correctly identify all of the elements underpinning the JIA's determination of entrustment or direction. Japan rejects Korea's argument that none of the press reports or stories cited by the JIA reported a government desire to save Hynix at the expense of its creditors. Japan also denies that the JIA arrived at its finding of entrustment or direction on the basis of an assumption that no rational investor would have entered into the restructuring transactions. Furthermore, Japan rejects Korea's argument that the evidence submitted by the individual creditors showed that the creditors had conducted a sufficient analysis of the various transactions before entering into them. Finally, Japan denies that the willingness of Other Creditors to enter into the same transactions on the same terms confirms that the transactions were based on commercial considerations.

7. Evaluation by the Panel

7.61.
Korea's arguments raise four substantive issues regarding the JIA's determination of entrustment or direction: (1) the alleged presumption that no rational creditor would have restructured Hynix; (2) the determination of the Government of Korea's intent to save Hynix; (3) the JIA's analysis of the commercial reasonableness of the participation of the Four Creditors in the restructurings; and (4) the participation of Other Creditors in the restructurings. In making these arguments, Korea does not challenge the basic methodological approach adopted by the JIA, i.e., a conclusion of entrustment or direction based on intermediate factual conclusions regarding the actions and intent of the Government of Korea, and the commercial reasonableness of the restructurings etc. Instead, Korea challenges the validity of a number of the intermediate factual conclusions reached by the JIA. Before examining the four substantive issues raised by Korea's arguments, we shall first address certain legal, interpretational, and evidentiary issues raised by the parties' arguments.

(a) Legal, Interpretational, and Evidentiary Issues

(i) General Considerations

7.62.
The concept of "entrustment or direction" is not defined in the SCM Agreement. However, its meaning has gradually been distilled through four WTO cases: US – Export Restraints; Korea – Commercial Vessels; US – Countervailing Duty Investigation on DRAMS; and EC – Countervailing Measures on DRAM Chips. Only one of these cases was appealed to the Appellate Body. In reviewing the interpretation applied by the panel in US – Countervailing Duty Investigation on DRAMS, the Appellate Body found that "[a] finding of entrustment or direction... 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".289 In particular, the Appellate Body found:

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)

7.63.
We consider that the above findings of the Appellate Body provide important guidance for interpreting and applying Article 1.1(a)(1)(iv) in the present case.

(ii) In the Creditors' Own Interests

7.64.
On several occasions in its First Written Submission, Korea suggested that the JIA could not find entrustment or direction absent a finding that Hynix's creditors were forced to enter into transactions that were not "in their own interests". At para. 20, for example, Korea asserted that "[t]here is no indication whatsoever that the government attempted to intervene to force the creditors to enter into transactions that were not in their own interests".
7.65.
Japan responded that there is no requirement in Article 1.1(a)(1)(iv) that the alleged entrustment or direction must require private bodies to act contrary to their own interests.
7.66.
In response to Question 64290 from the Panel, Korea asserted that:

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.

7.67.
We therefore understand Korea to accept, as a legal matter, that an investigating authority may find the existence of a financial contribution on the basis of entrustment or direction of private bodies, even if those private bodies are not required to act contrary to their own interests.
7.68.
As an evidentiary matter, though, Korea argued that:

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.

7.69.
Japan stated that a private body's action contrary to its own interests would be evidence indicating that the private body would have acted pursuant to certain external factors, including inter alia government entrustment or direction. We note that the JIA's determination of entrustment or direction is in large part premised on a finding that the relevant creditors acted on non-commercial terms, and therefore contrary to their own (commercial) interests. Furthermore, we note that Japan asserted at para. 311 of its First Written Submission that "a creditor's provision of financing to a company against the creditor's interests would be an element that might indicate the government's intervention".
7.70.
In principle, we agree with the parties that conduct which is contrary to a private body's commercial interests might be indicative of government entrustment or direction. In the Panel's view it could not be determinative of itself, because it says nothing about the conduct of the government concerned. Evidence of non-commercial conduct would therefore need to be coupled with other evidence having sufficient probative value in order to arrive at a finding of entrustment or direction.

(iii) Direct / Circumstantial Evidence

7.71.
In its First Written Submission, Korea argued that the JIA's finding of entrustment or direction was invalid because "there is actually no evidence that the Korean government told any of the creditors what to do in any of the restructurings".291
7.72.
This statement might suggest that, in Korea's view, an investigating authority may not properly find entrustment or direction in the absence of direct and conclusive evidence, or a "smoking gun",292 that demonstrates a government had explicitly "told" a private body to provide financial contribution. Japan rejects such an interpretation.293 Subsequently, and pursuant to Japan's rejection of this argument, Korea clarified that, in its view "a finding of 'entrustment or direction' based on circumstantial evidence does not require a 'smoking gun.'"294 Accordingly, there is no dispute between the parties on this issue.
7.73.
We agree with the parties' view on this matter, since the entrustment or direction of a private body will rarely be formal, or explicit. For this reason, allegations of government entrustment or direction are likely to be based on pieces of circumstantial evidence, as was the case in the investigation at hand. The JIA made its findings on the basis of intermediate factual conclusions drawn from the totality of the evidence it reviewed.295 In assessing Korea's claims regarding the JIA's treatment of record evidence in its totality, we shall be guided by the following statement of the Appellate Body in US – Countervailing Duty Investigation on DRAMS:

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)

7.74.
We add that in the assessment of circumstantial evidence, which could be taken to suggest entrustment or direction, an investigating authority must also take into account evidence, circumstantial or otherwise, which is contrary to that suggestion. This is the very nature of an investigating authority's obligation to evaluate the evidence before it in order properly to arrive at its conclusions.

(iv) Probative and Compelling Evidence

7.75.
At para. 196 of its First Written Submission, Korea argues that the Appellate Body clarified in the US – Countervailing Duty Investigation on DRAMS case that "the evidence relied upon by an investigating authority in making [a] determination [of entrustment or direction] must be 'probative and compelling'."
7.76.
Japan denies the existence of any evidentiary standard that imposes a qualitative standard higher than that contemplated by the SCM Agreement, and argues that the above finding by the Appellate Body did not set out any new evidentiary standard.
7.77.
In US – Countervailing Duty Investigation on DRAMS, the panel had stated that the evidence of entrustment and direction "must in all cases be probative and compelling".296 Although the Appellate Body upheld the standard applied by the panel, it suggested that the panel would have erroneously applied a qualitative standard higher than that contemplated by the SCM Agreement if the panel had interpreted "compelling" to mean "of such weight as to require the decision-maker to arrive at one given conclusion".297 The Appellate Body found that the panel had not applied such a qualitatively higher standard. According to the Appellate Body, "the Panel properly examined whether the USDOC's evidence could support its conclusion".298 The Appellate Body emphasised that "neither the SCM Agreement nor the DSU explicitly articulates a standard for the evidence required to substantiate a finding of entrustment or direction".299 The Appellate Body stated further that there is "no basis in the SCM Agreement or in the DSU to impose upon an investigating authority a particular standard for the evidence supporting its finding of entrustment or direction."300
7.78.
In light of the above guidance afforded by the Appellate Body in US – Countervailing Duty Investigation on DRAMS, we shall not be requiring the JIA's finding of entrustment or direction to have been based on a "probative and compelling" standard of evidence. Rather, we shall consider whether or not the JIA's evidence could support its conclusion.

(v) Positive Evidence

7.79.
In its First Written Submission, Korea claimed that there exists a general obligation for an investigating authority to identify "positive evidence demonstrating the existence of each element required for the imposition of antidumping or countervailing duties."301
7.80.
According to Japan, the "positive evidence" standard only applies to findings of specificity and injury (by virtue of Articles 2.4 and 15.1 of the SCM Agreement, respectively). Japan submits that this standard does not apply to findings of entrustment or direction.
7.81.
Whereas Article 2.4 of the SCM Agreement provides that "[a]ny determination of specificity... shall be clearly substantiated on the basis of positive evidence", and Article 15.1 provides that "[a] determination of injury... shall be based on positive evidence", no requirement for positive evidence is imposed in respect of findings of government entrustment or direction under Article 1.1(a)(1)(iv).302 Furthermore, we have already noted the Appellate Body's finding in US – Countervailing Duty Investigation on DRAMS that there is "no basis in the SCM Agreement or in the DSU to impose upon an investigating authority a particular standard for the evidence supporting its finding of entrustment or direction."303 Accordingly, we do not consider it appropriate to consider whether or not the JIA's finding of entrustment or direction was based on "positive evidence", in so far as the application of such a standard would exclude the possibility that circumstantial evidence could properly support the JIA's conclusion. Rather, in addressing the substantive arguments made by the parties in respect of Korea's claim against the JIA's determination of entrustment or direction, we shall simply examine whether or not the JIA's evidence could support its conclusion of entrustment or direction.
7.82.
It is to those substantive arguments that we now turn.

(b) The Alleged Presumption That No Rational Creditor Would Have Entered Into The Restructuring Transactions, In View Of Hynix's Poor, And Deteriorating, Financial Condition304

(i) Arguments of Korea

7.83.
Korea asserts that the JIA's analysis of "entrustment or direction" in connection with both the October 2001 and December 2002 restructurings began with the following statement:

[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

7.84.
Korea submits that this analysis is based explicitly on the assumption that "there was no investor that would invest in or make loans to Hynix in the general commercial market from a normal commercial perspective." Korea also submits that, more importantly, the JIA's description of its analysis makes clear that it used that assumption as the basis for its inference that "KEB, Woori Bank, Chohung Bank and NACF made financing decisions that were not based on commercial consideration."306 According to Korea, therefore, the finding that the individual banks did not act in accordance with commercial considerations was based on the assumption that "there was no investor that would invest in or make loans to Hynix in the general commercial market from a normal commercial perspective." Korea submits that if the JIA had not made that assumption — if it had assumed, instead, that creditors of insolvent banks operating from normal commercial perspectives often do agree to debt restructurings — then the outcome would have been completely different: the JIA would have had no logical basis for concluding that "KEB, Woori Bank, Chohung Bank and NACF made financing decisions that were not based on commercial consideration."
7.85.
Based on the allegedly different perspectives of "inside" investors (i.e., existing investors) and "outside" investors (i.e., potential new investors), Korea challenges the JIA's alleged presumption that no rational investor would have entered into the restructuring transactions. Korea argues that this presumption has no basis in economics or the evidence. Korea submits that rational, profit-maximizing creditors can have sound reasons to provide new loans, extend the maturities of existing loans, swap debt for equity, or forgive loans entirely, even when the borrower is insolvent. Korea further argues that there is ample support for the proposition that existing creditors acting solely from a "normal commercial perspective"307 do engage in restructuring transactions all the time.
7.86.
Korea submits that "inside" investors have different claims on the future income of a company than "outside" investors, who have not yet made any investments in the company. Korea asserts that when the borrowing company is insolvent, the difference in the pre-existing claims held by "inside" investors and "outside" investors becomes an important factor. Korea asserts that an insolvent company, by definition, cannot pay its outstanding debts in full — which means that some portion of the pre-existing claims held by the "inside" investors will not be met by the company's current operations. According to Korea, the "inside" investors will therefore have a claim on a portion of the additional returns from any new investments made in the company, whether those investments are made by "inside" or "outside" investors, due solely to their unsatisfied pre-existing claims. Korea submits that the need to share any returns from new investments with creditors holding pre-existing claims means that the investment arithmetic for "outside" investors is different from the investment arithmetic for "inside" investors. Korea submits that the JIA failed to take this difference into account, and wrongly presumed that because it was not economically rational for outside investors to participate in the Hynix restructurings, it was similarly irrational for Hynix's existing creditors to do so. Korea asserts that it was economically rational for Hynix's creditors to participate in the restructurings, since there was record evidence demonstrating that Hynix's going concern value exceeded its liquidation value.

(ii) Arguments of Japan

7.87.
Japan rejects Korea's assertion that the JIA arrived at its finding of entrustment or direction on the basis of an assumption that no rational investor would have entered into the restructuring transactions. According to Japan, the JIA did not make a determination that participation in the various programmes was per se irrational in the abstract. Rather, the JIA examined the actual decision-making processes of each financial institution on an institution-by-institution basis, including a review of the actual internal examination documents and the specific individual circumstances of each of the institutions. Japan asserts that the JIA neither applied a generic standard of inherent rationality nor a fixed economic model. Japan notes that the JIA accepted the "premise that existing creditors would possibly provide additional funding in order to maximize the recovery of credit."308 According to Japan, the JIA examined the actual decision-making processes of the creditors to assess whether their actions demonstrated that they were acting in accordance with this premise.

(iii) Evaluation by the Panel

7.88.
In support of its argument, Korea presented the Panel with a substantial volume of evidence and argument regarding the economics of corporate restructuring. As mentioned above, Korea's basic point is that "inside" investors, such as Hynix's creditors, have different claims on the future income of a company than "outside" investors, who have not yet made any investments in the company.
7.89.
We consider that there are two elements to Korea's arguments. First, we understand Korea to assert that the JIA presumed that it was not economically rational for outside investors to participate in the Hynix restructurings. Second, we understand Korea to argue that the JIA failed to consider the economic rationality of the restructurings from the perspective of Hynix's inside investors, i.e., its existing creditors.

The alleged presumption

7.90.
As noted by Korea, the JIA found that:

[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)

7.91.
We have emphasised the word "therefore" in the above extract because it demonstrates that the JIA's conclusion "that there was no investor that would invest in or make loans to Hynix in the general commercial market from a normal commercial perspective" (i.e., from an outside investor's perspective310), was premised on the JIA's statement, in the previous sentence, that "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 conclusion "that there was no investor that would invest in or make loans to Hynix in the general commercial market from a normal commercial perspective" was not, therefore, a presumption based on abstract economic theory.311 It was, instead, a finding of fact based on evidence regarding Hynix's inability to raise funds from potential outside investors.312 We therefore reject Korea's argument that the JIA presumed that it was not economically rational for outside investors to participate in the Hynix restructurings.

The inside investor perspective

7.92.
As noted above, the JIA made findings regarding the absence of new, outside investors. Elsewhere in its findings, the JIA also considered whether or not the decisions of existing creditors to participate in the restructurings were based on commercial considerations. In particular, the JIA made factual findings regarding the alleged reliance of Hynix's existing creditors on internal and external analyses of the viability of the October 2001 and December 2002 restructurings.313 The JIA did so because it explicitly accepted the "premise that existing creditors would possibly provide additional funding in order to maximize the recovery of credit."314 Japan has confirmed that this means that the JIA accepted "the notion that existing creditors might engage in restructuring measures that potential, outside investors would not".315 Furthermore, the JIA accepted that debt forgiveness by creditors might be "commercial" "[i]f such action is reasonably found to be unavoidable in order to maximize the debt recovery".316 Accordingly, we find that the JIA explicitly accepted that an inside investor standard was an appropriate standard to apply to the question of the commerciality, or otherwise, of the restructurings.
7.93.
For these reasons, we are not persuaded that the JIA failed to consider the economic rationality of the restructurings from the perspective of Hynix's inside investors, i.e., its existing creditors.

Conclusion

7.94.
In light of the above, we reject Korea's argument that the JIA's findings were exclusively based on presumptions concerning the perspective of outside investors.

(c) The Government of Korea's Alleged Intent To "Keep Hynix Alive"

7.95.
The JIA's determination of entrustment or direction was based in part on its intermediate factual conclusion that the Government of Korea had the political intent to save Hynix.317 Korea challenges that intermediate factual conclusion in order to impugn the validity of the JIA's determination of government entrustment or direction.

(i) The JIA's findings

7.96.
In respect of the October 2001 restructuring, the JIA found:

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

7.97.
Regarding the December 2002 restructuring, the JIA found similarly that:

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

(ii) Arguments of Korea

7.98.
Korea submits that the JIA's analysis of the Government of Korea's alleged intent was biased and inconsistent with the evidence, as none of the evidence cited by the JIA demonstrated a government desire to save Hynix at the expense of its creditors.
7.99.
According to Korea, the press reports and statements cited by the JIA do not demonstrate any intent of the Government of Korea to save Hynix. First, Korea asserts that, because there is no formal process for developing a government intent, the process of assigning meaning to government action is speculative. Korea asserts that no government is a single entity with a single mind. Korea suggests that, because of differences of view within a government, and inter-agency battles, a "healthy degree of skepticism"320 is required for any effort to discern a specific government intent from such reports.
7.100.
Second, Korea asserts that there is no indication whatsoever that the Government attempted to intervene to force the creditors to enter into transactions that were not in their own interests. Korea asserts that the reports cited by the JIA merely indicated that the Government of Korea viewed the restructurings as matters to be left to the creditors. Korea prepared Attachments 2 and 3 to its First Written Submission in support of this argument. Although Korea acknowledges that the Government of Korea was "keeping an eye on"321 developments, Korea asserts that this monitoring, and the expressed desire for expeditious resolution by the creditors, was entirely consistent with the government's prudential role in preventing serious harm to the overall financial sector.
7.101.
Third, Korea asserts that the JIA only reached the conclusion that the Government of Korea had the intent to save Hynix because of the JIA's alleged assumption that the creditors were not acting in their own interests. Korea asserts that if the JIA had believed, instead, that the restructurings were in the creditors' interest, the JIA would undoubtedly have viewed the Korean government's role differently — that any government encouragement of restructurings that really were the best deal possible for the creditors had nothing to do with a desire to save Hynix, and everything to do with an intent to save the banks. Korea submits that the JIA would not then have attributed the allegedly entrusted or directed creditors' participation in the restructurings to "some kind of external factor",322 namely the Government of Korea's intent to save Hynix.

(iii) Arguments of Japan

7.102.
Japan rejects Korea's argument that none of the press reports or stories cited by the JIA reported a government desire to save Hynix at the expense of its creditors. According to Japan, the JIA reached findings of fact based on the totality of the evidence with respect to the issue in question. These findings of fact took into account various pieces of evidence including, but not limited to,news reports. Japan asserts that Korea's approach seeks to evaluate each piece of evidence separately and to disregard those that do not directly prove a particular point, and should be rejected as inconsistent with the Appellate Body's clear guidance in US – Countervailing Duty Investigation on DRAMS on how WTO panels are to review the findings of an investigating authority relating to determinations that were made based on an assessment of the evidence in its totality.

(iv) Evaluation of the Panel

7.103.
We have identified three main elements to Korea's arguments: (1) the singularity of government intent; (2) the reports of the intent of the Government of Korea; and (3) the assumption regarding the commercial interests of the creditors. We shall examine each element in turn.

Singularity of Government Intent

7.105.
Upon review of the evidence relied on by the JIA in respect of the October 2001 restructuring, we consider that Korea has failed to establish a prima facie case that a reasonable and impartial investigating authority could not properly have concluded that the relevant reports demonstrated the Government of Korea's intent to save Hynix. In our view, the evidence of "Government Action" cited by the JIA323 could properly be interpreted as indicating that the Government of Korea had a preference for the continued existence of Hynix, and that the Government of Korea was prepared to intervene directly in the Hynix restructuring process.324
7.106.
In particular, the JIA noted that on 2 July 2001 the President of Korea hosted an Economic Ministers' Meeting at which the May 2001 restructuring of Hynix was reported as one of the achievements of the FSC – a government body - during the first half of 2001. This could properly be treated as evidence that the FSC, and therefore the Government of Korea, had been directly involved in the May 2001 restructuring, and that direct Government of Korea involvement in the October 2001 restructuring would not have been unprecedented.325
7.107.
In addition, the JIA observed that on 24 July 2001 the Economic Ministers announced their decision "to strongly promote the structural reform of the six companies subject to the KDB Program, including Hynix",326 and envisaged "additional restructuring measures"327 for those companies. Furthermore, it was decided that "the financial supervisory authorities [would] check the progress"328 made pursuant to these decisions. In our view, an objective and impartial investigating authority might properly interpret these reports, emanating from a government entity, as evidence that the Government of Korea intended to pursue the restructuring of Hynix beyond the May 2001 restructuring.
7.108.
Furthermore, the JIA noted that on 3 August 2001 the Deputy Prime Minister stated that "[i]f Hynix says it needs an additional KRW 1 trillion, and if the creditor group cannot make a decision whether or not to provide additional support, the financial authorities should decide",329 and that "[i]n the event that the creditor group is unable to resolve the Hynix Semiconductor issue, the government will come forward to make a quick decision".330 The JIA found that the Deputy Prime Minister also stated on 8 August 2001 that "[c]reditor banks will help settle the problem of several companies331 engaged in deals with foreign countries within this month, and in the case that it does not settle, the government will directly step in".332 We consider that these statements might properly be treated as further evidence that the Government of Korea was prepared to intervene directly in the Hynix restructuring process, and to "save Hynix" in one way or other.
7.109.
Regarding the December 2002 restructuring, the JIA found that at least one Hynix creditor complained of "the government's headlong approach toward the handling of Hynix".333 In addition, the JIA observes that on 15 November 2002 the 2002 Report of the National Audit Results stated that "KDB, through discussions with interested parties such as the government and the creditor group, should determine and implement an action plan for dealing with Hynix Semiconductors as soon as possible".334 In our view, an objective and impartial investigating authority might properly conclude from these statements, read in light of relevant evidence regarding the October 2001 restructuring, that the Government of Korea was directly involved in the December 2002 restructuring, and that this was because the Government of Korea's intent was that Hynix should be saved.
7.110.
According to Korea, the evidence collected by the JIA "consistently reported only that the government viewed the restructurings as matters to be left to the creditors".335 Korea refers in this regard to a 3 September 2001 statement by the Chairman of the FSC that "Hynix is the issue which should be assessed and determined by the creditor financial institution group", and his request to FSC officials "to take no part and even to refrain from expressing personal opinion".336 According to Korea, "[t]his statement clearly indicates the FSC's position that the resolution of Hynix's situation was to be left to the creditors, and that the government should not intervene."337 However, only five days later the very same government official was quoted as stating that "the government will determine how to treat the problems of Hynix... by the end of September".338 Not only is the first statement capable of suggesting to an objective and impartial investigating authority that the FSC Chairman had to instruct officials not to intervene in the Hynix process precisely because they had been doing so, but the second statement could reasonably be taken to demonstrate that the FSC Chairman himself acknowledged that the Government of Korea was prepared to intervene directly in the Hynix restructuring process. Korea's argument regarding the proper interpretation of the 3 September 2001 statement is therefore not persuasive.
7.111.
At the first substantive meeting, Korea submitted to the Panel a newspaper article dated 1 September 2001, in the form of Exhibit KOR-33. Korea asserted that the treatment of this report reveals a great deal about the JIA's approach to the evidence in this case. Korea also asserted that the JIA had ignored this article completely in Annex 1 (Essential Facts). Korea drew the Panel's attention to the following statements reported in the article:

· 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."

7.112.
In our view, this article is not sufficient to establish a prima facie case against the JIA's finding of a government intent to save Hynix. First, an investigating authority might reasonably conclude that the reported statements by the Presidents of two private banks were not indicative of the intent of the Government of Korea in respect of the Hynix restructurings. Second, regarding the statement of the Deputy Prime Minister, there is no doubt that there was some evidence on the JIA's record to the effect that the Government of Korea would let the creditors decide for themselves whether or not to restructure Hynix. However, this does not necessarily invalidate the JIA's determination, since the JIA might reasonably have found that there was also substantial evidence on the record to the effect that the Government of Korea intended to save Hynix, through direct intervention if necessary. Indeed, the JIA's record indicates that the very same Deputy Prime Minister was quoted only weeks earlier as stating that the Government of Korea would "step in"339 and resolve the Hynix issue if necessary. In addition, we note that the article was not ignored completely in Annex 1 (Essential Facts), as alleged by Korea. It was explicitly referred to by the JIA at para. 281 of Annex 1 (Essential Facts), in the context of the JIA's analysis of Woori Bank's internal examination of the October 2001 restructuring. For these reasons, we are not persuaded by Korea's arguments concerning the press report set forth in Exhibit KOR-33.
7.113.
We would emphasise that we do not mean to imply that all of the evidence before the JIA was consistent with the conclusion that the Government of Korea was prepared to intervene directly in the Hynix restructuring process. This would be unlikely in an investigation based in large part on circumstantial evidence. Nevertheless, the JIA could properly have concluded that the balance of the record evidence did indicate that the Government of Korea was prepared to intervene directly in the Hynix restructuring process. Furthermore, the JIA explicitly reviewed the record evidence in the context of earlier findings that the Government of Korea had "exerted pressure on certain banks when it implemented support measures such as KEIC's insurance on the D/A financing and KDB Program".340 These earlier findings, which dated from late 2000, and which concerned earlier measures safeguarding the continued viability of Hynix, have not been challenged by Korea in the present proceedings. In our view, the JIA properly reasoned that such findings from the recent past provide relevant context for interpreting the numerous reports of government intent and intervention in respect of the October 2001 and December 2002 restructurings.341 Faced with evidence of government pressure on Hynix creditors in the recent past, and evidence that the Government of Korea was prepared to intervene directly in order to preserve Hynix as a going concern at the time of the October 2001 and December 2002 restructurings, we consider that the JIA could properly have concluded that the Government of Korea had the political intent to save Hynix at the time of those restructurings – through direct intervention if necessary - even if not all of the record evidence pointed in this direction.342
7.114.
In light of the above, we find that the JIA could properly have concluded that the Government of Korea intended to save Hynix at the time of the October 2001 and December 2002 restructurings.

Assumption that the creditors were not acting in their own interests

7.115.
Korea asserts that the JIA only reached its conclusion on the Government of Korea having the intent to save Hynix because of the JIA's alleged assumption – based on an outside investor standard – that the creditors were not acting in their own interests. Korea further asserts that the conclusion therefore cannot be maintained, because the outside investor standard is not the standard that the JIA should have applied.
7.116.
We recall our finding that the JIA applied both an outside and inside investor standard, and that the JIA applied an inside investor standard because it explicitly acknowledged "that existing creditors would possibly provide additional funding in order to maximize the recovery of credit."343 The JIA also accepted that debt forgiveness by creditors might be "commercial" "[i]f such action is reasonably found to be unavoidable in order to maximize the debt recovery".344 We further recall our finding that the JIA did not rely on presumptions regarding the outside investor standard, but rather made factual findings regarding the lack of outside investors willing to invest in Hynix at the time of the restructurings.345 Thus, there is no basis to Korea's argument that the JIA only reached its conclusion on the Government of Korea having the intent to save Hynix because of the JIA's alleged assumption – based on an outside investor standard – that the creditors were not acting in their own interests.

Conclusion

7.117.
For the above reasons, we reject Korea's argument that the JIA's analysis of the Government of Korea's intent was biased and inconsistent with the evidence.346

(d) Commercial reasonableness: the JIA's analysis of the internal examinations of the restructurings by the Four Creditors

7.118.
A further element relied on by the JIA in finding that the Government of Korea had entrusted or directed the Four Creditors to participate in the restructurings was its intermediate factual conclusion that the Four Creditors had decided to participate in the restructurings on the basis of non-commercial considerations.
7.119.
Korea submits that the JIA's analysis of the internal examinations of the restructuring transactions by the creditor banks does not support its conclusions, since the evidence submitted by the individual creditors established that they had conducted a sufficient analysis of the various transactions before entering into them. Korea does not dispute that the commercial reasonableness of the creditors' actions might be relevant to a determination of government entrustment or direction.
7.120.
Japan asks the Panel to reject Korea's argument.

(i) Main Arguments of Korea

7.121.
Korea submits that the creditor banks that responded to the JIA's questionnaires told the JIA the same basic story: they had received the information needed to analyze the October 2001 and December 2002 restructuring transactions (in some cases, through draft versions of reports that were only finalized at the time the restructuring agreements were adopted); they had analyzed that information through their normal internal procedures; and they had concluded that the restructuring transactions were in their economic interests, especially in light of the available alternatives.
7.122.
According to Korea, the JIA rejected the banks' claims in large measure because the JIA applied an outside investor standard, and could not accept that any rational bank would have entered into those transactions. Korea asserts that, having already decided that the banks' decision-making processes must have been irrational (from an outside investor perspective), the JIA then considered the actual evidence of what the banks actually did. Korea asserts that the JIA's finding of subjective irrationality in the banks' decision-making processes was therefore based on the JIA's conclusion that the banks' decisions were objectively irrational, from an outside investor perspective.
7.123.
Korea submits that the JIA's discussion of the banks' decision-making processes was not an even-handed assessment of the evidence. Instead, it was a search for excuses to disregard evidence demonstrating that the banks had actually acted in a rational manner. According to Korea, this bias can be seen by looking at the specific issues that the JIA relied upon to discount the bank's statements concerning the October 2001 and December 2002 restructurings:

· 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.

(ii) Main Arguments of Japan

7.124.
Japan submits that the distinction drawn by Korea between objective and subjective rationality is artificial and not consistent with the approach of the JIA. Japan asserts that what Korea calls the objective and the subjective rationality of the creditor banks are not two separate elements but are rather mutually supporting aspects of the same overall intermediate findings that the creditor banks did not act in a commercially reasonable manner. Japan asserts that the JIA's finding was based on abundant evidence that there existed no investors, either new or existing creditors, in the general commercial market who would have invested in or provided loans to Hynix from an outsider investor's perspective. Japan argues that the JIA did not base its examination of the commercial reasonableness of the Four Creditors' actions exclusively from the perspective of outside investors, but also examined commercial reasonableness from the inside investor perspective.
7.125.
Regarding the JIA's examination of the commercial reasonableness of existing creditors' decisions to participate in the Hynix restructurings, Japan asserts that the JIA followed the same process for both the October 2001347 and December 2002348 restructurings. Japan asserts that the JIA explained this examination process in the following terms:

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

(iii) Evaluation by the Panel

7.126.
In the context of its claim regarding the JIA's intermediate factual conclusion that the decisions of the Four Creditors to participate in the restructurings were not commercially reasonable, Korea's arguments raise the question of whether or not the JIA improperly applied an outside investor standard. Korea's arguments also raise issues regarding the JIA's treatment of internal analyses and external reports prepared in respect of the October 2001 and December 2002 restructurings. We shall examine each of these issues in turn.

Outside / Inside Investor Perspective

7.127.
Korea asserts that the JIA rejected the Four Creditors' claims that their actions were commercially reasonable in large measure because the JIA applied an outside investor standard. Korea submits that the JIA's finding of subjective irrationality in the banks' decision-making processes was based on the JIA's conclusion that the banks' decisions were objectively irrational, from an outside investor perspective. Korea relies in this regard on the following statement by the JIA:

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

7.128.
Read in isolation, this statement by the JIA might well support Korea's interpretation of the JIA's analysis. However, the very next sentence in the JIA's Response to Comments states that "[i]t 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".351 This clarification was made by the JIA in Annex 3 (Rebuttals and Surrebuttals), in response to virtually the same argument that Korea has raised in the present proceedings. The JIA's full response352 to that argument reads:

(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)

7.129.
We understand Japan to argue that the JIA first established whether it was commercially reasonable for either outside or inside investors to participate in the restructurings from an outside investor perspective.353 Japan asserts that the JIA then assessed whether it was commercially reasonable for individual inside investors to participate in the restructurings from an inside investor perspective.354 This is consistent with the JIA's own description of its analysis, as detailed above.
7.130.
It is also consistent with the JIA's findings in Annex 1 (Essential Facts). In particular, having concluded that "Hynix was unable to raise funds from the commercial market, and [that] there existed no investors in the general market who would invest in Hynix or provide a loan to Hynix from a normal commercial perspective",355 the JIA examined the "situation of [the] credit examination by banks".356 With respect to Woori Bank's participation in the October 2001 restructuring,357 for example, the JIA made inter alia the following findings:

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)

7.131.
Thus, in addition to finding that it was not commercially reasonable for investors to participate in the October 2001 restructuring from an outside investor's perspective, based on objective considerations such as the poor financial state of Hynix, the JIA then considered inter alia Woori's participation from the inside investor's perspective, having regard to what Woori itself had indicated was "the basis for its judgment" (i.e., its internal analyses, the SSB Report, the Monitor Group Report, and the Anjin Accounting Report).
7.132.
In light of these distinct phases in the JIA's analysis, we reject Korea's argument that the JIA's finding of subjective irrationality in the banks' decision-making processes was based on its conclusion that the banks' decisions were objectively irrational from the perspective of outside investors.

Internal analyses of the October 2001 restructuring

7.133.
Korea submits that the JIA's review of the Four Creditors' internal analyses of the October 2001 restructuring does not support the JIA's conclusion that the decisions of the Four Creditors to participate were not based on commercial considerations. In particular, Korea asserts that the internal examinations of the October 2001 restructuring by Woori Bank and Chohung Bank explicitly considered the financial impact of the restructurings on those banks. Korea asserts that these banks based their decisions to participate in the restructurings on an assessment that doing so would minimize their losses because Hynix's going concern value exceeded its liquidation value.
7.134.
Japan notes that the JIA found that Woori Bank based its approval of the October 2001 Program on considerations of the public interest, "[[BCI]]".359 The JIA also found that Woori Bank opted for option [[BCI]]. On the basis of the JIA's review of Woori's internal analysis, together with other factors, the JIA reached an intermediate factual conclusion that "Woori Bank did not select Option [[BCI]] pursuant to a normal commercial judgment".360
7.135.
In our view, the JIA could properly have doubted the commercial reasonableness of Woori Bank's internal credit analysis on the basis of Woori's failure to consider options [[BCI]] in that analysis. Under such circumstances, Woori's analysis of the October 2001 restructuring, which involved a choice between three options, was incomplete. We also agree with the JIA's assessment that the commercial reasonableness of that analysis is further undermined by Woori Bank's consideration of "[[BCI]]", and its statement that "[[BCI]]".361 In its Final Comments, Korea attributes such "public interest" considerations to Woori's concern for "[[BCI]]".362 Although Woori did refer to the need to purchase a guarantee for a loan to a Hynix affiliate, this would not explain Woori's concern for [[BCI]]. Furthermore, Woori went so far as to estimate the [[BCI]] in the event that Hynix were liquidated, or entered into court receivership. Thus, the relationship between [[BCI]] and [[BCI]] has not been sufficiently explained by Korea.
7.136.
Korea also submits that "the first and most important factor identified by Woori [] is the difference between the estimated going-concern value of [[BCI]] trillion Won and the estimated liquidation value of [[BCI]] trillion Won. In light of these estimates, the Woori Bank analysis expressly stated that '[[BCI]].'"363 Although we acknowledge that Woori Bank did estimate that Hynix's going concern value would exceed its liquidation value, we note the JIA's finding that Woori's estimates were unsubstantiated, in the sense that Woori's analysis did not "record any basis for the estimate".364 We also note that there is nothing in Woori's internal analysis to suggest that its estimate that Hynix's going concern value exceeded its liquidation value was "the most important factor identified by Woori", as alleged by Korea. Given Woori's failure to examine options [[BCI]], and its consideration of non-commercial factors pertaining to the public interest, including especially [[BCI]], Korea has failed to establish a prima facie case that the JIA's review of Woori Bank's internal analysis was flawed simply by virtue of Woori's reference to an unsubstantiated estimate that [[BCI]].365
7.137.
Regarding Chohung Bank, the JIA found inter alia that:

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)

7.138.
Korea made no arguments regarding these specific findings by the JIA. Furthermore, regarding Chohung's alleged need to comply with its MOU, we note that the "synthesis opinion" in Chohung's internal analysis contains two bullet points, both of which refer to the MOU. The first bullet point states that "non-participation... results in the miscarriage of MOU for this period". The second bullet point contains the conclusion that "the participation is of help for CHB to achieve MOU". In addition, we note that there is no quantification of either the share price or the going concern value in Chohung's internal analysis of options 1 and 2. In light of these observations, there is no basis to conclude that the JIA's review of Chohung's internal analysis was flawed.
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