WTO Publishes Final Ruling In U.S.-Korea DRAMs Dispute
2005-02-25
International Trade
WTO Publishes Final Ruling
In U.S.-Korea DRAMs Dispute

GENEVA--A World Trade Organization dispute panel published a final ruling Feb. 21 faulting a U.S. Commerce Department investigation that led to the imposition of countervailing duties on imported dynamic random access memory semiconductors from Korea.
In its ruling, the panel agreed with South Korea that the U.S. duties were based on an erroneous conclusion by Commerce that banks and financial institutions participating in a bailout of the troubled Korean DRAMs manufacturer Hynix were doing so under the direction of the Korean government, thus constituting a countervailable subsidy.

The panel found that while four public financing bodies could be considered as having acted on the orders of the government, Commerce failed to adequately prove that the other nonpublic participating banks--including those where the state was the sole or largest single shareholder--were doing so under government instructions.

As a result, the panel concluded, the Commerce Department failed to show that the subsidies in question were the result of the Korean government's "entrusting or directing" a private entity to provide subsidies that would normally be invested in a government, as defined under Article 1.1(a) (1) of the WTO's Agreement on Subsidies and Countervailing Measures.

The panel also faulted one aspect of a U.S. International Trade Commission injury finding in the Hynix case, finding that the ITC failed to properly examine whether injury caused by another relevant factor--the contraction in demand for DRAMs--was not being unfairly attributed to subsidized imports, thus constituting a violation of Article 15.5 of the SCM Agreement.


Korea Welcomes Ruling

The Korean government welcomed the panel's findings Feb. 21, describing it as an important interpretation regarding the application of WTO rules to government restructuring programs. The Korean government also said it hoped the ruling would have a positive impact in regard to ongoing WTO proceedings in a separate complaint lodged by Seoul against the European Union's preliminary countervailing duties on Korean DRAMs as well as Japan's continuing countervailing investigation on the Hynix bailout.

The Korean government also called on the United States to lift its 44.71 percent countervailing duties on imported Hynix DRAMs, declaring that there was no longer any legal basis for maintaining the duties as a result of the panel's findings.


U.S. Has 60 Days to Appeal

U.S. officials did not respond to a request for comment. The United States will now have 60 days to decide whether to appeal the panel's findings.

The ruling, first issued to the parties Dec. 22, coincides with a generally favorable panel ruling for South Korea in a complaint brought by the EU against Korean shipbuilding subsidies. In that ruling, also issued to the parties on Dec. 22 (but not yet made public), the panel rejected the EU's claims that corporate restructuring aid provided by the Korean government to its shipbuilding industry qualified as a subsidy under WTO rules and had negatively affected the trade of competing European shipyards.

Both the Hynix aid and the shipbuilding aid were carried out in the context of bailouts organized by Seoul in the wake of the 1997 Asian financial crisis.


Complaint Filed by Micron Technologies

The Commerce Department subsidy investigation was initiated on a compliant filed by Idaho-based Micron Technologies, Hynix's chief competitor. The United States said in a submission to the WTO that the Hynix bailout totaled over $11 billion in less than one year, an amount nearly three times the total sales of all Hynix products in 2001 and equivalent to the total sale of all DRAMs worldwide in the same year.

Commerce concluded that countervailable financial contributions to Hynix were provided by four Korean government bodies (so-called Group A creditors) and a larger number of private financial bodies "entrusted or directed" by the Korean government. The latter included creditors where the government was the sole or largest single shareholder (so-called Group B creditors) and private entities where the government had much smaller or non-existent shareholdings (so-called Group C creditors). Commerce concluded that one Group C creditor, U.S.-based Citibank, was not acting under the entrustment or direction of the Korean government.

Korea did not challenge Commerce's finding that participation in the bailout by the four Group A creditors fell within the scope of SCM Agreement disciplines but said that Commerce was wrong to conclude that the Group B and C creditors were entrusted or directed by the Korean government to participate in the bailout. It also challenged Commerce's finding that the financial contributions in question conferred a benefit and were specific to an enterprise (i.e. Hynix).

In its ruling, the panel said that to prove "entrustment or direction" under Article 1.1(a) (1) of the SCM Agreement, Commerce was required to gather evidence of "affirmative" Korean government acts of delegation or command vis-à-vis the Group B and C private creditors. While Commerce established that the Korean government had the means to influence certain Group B creditors through government shareholdings and had certain regulatory authority over Group B and C creditors, it "has not properly established that the GOK actually exercised such influence or regulatory authority so as to entrust or direct Group B and C creditors to participate in the four restructuring financial contributions."

Evidence of government influence "does not amount to evidence of government entrustment or direction," the panel declared. "Government entrustment or direction is a higher standard than government influence. A government may "influence" creditors in a number of ways, without necessarily engaging in affirmative acts of delegation or command."

In addition, Commerce improperly found that one participating bank (Kookmin) was "entrusted or directed" by the Korean government, "despite expert evidence to the contrary, and despite an ostensibly commercial rationale for Kookmin's participation in the restructuring of Hynix," the panel said. And while Commerce concluded that a number of Group C creditors had been coerced by the Korean government to participate in the financial contributions, the panel said it found that only one creditor (Korea First Bank) had been coerced by the government to participate.

Furthermore, Commerce found that all four financial contributions in question should be treated as a "single program," enabling it to treat evidence of alleged entrustment or direction in respect to one financial contribution as evidence of alleged entrustment or direction in respect to other financial contributions. "We consider that [Commerce's] justification for adopting such an approach is also flawed," the panel declared.

As a result of its finding under Article 1.1(a) (1), the panel concluded that Commerce's findings that the financial contributions conferred a benefit on Hynix (in the form of lending terms more favorable than those obtainable on the market) and that the financial contribution was specific to Hynix were both flawed in regard to the Group B and C creditors.

The panel was asked by South Korea to recommend that the United States terminate the countervailing duty order on Hynix immediately if it found in favor of the Korean complaint. The panel concluded that any such recommendation is precluded by Article 19 of the WTO's Dispute Settlement Understanding, which restricts the panel to recommending that the United States bring the measure into conformity with the SCM Agreement.


[News Contact : TSIA Dior Chen +886-3-5913560 Email: dior@tsia.org.tw]