## Facts

- The United States imposed countervailing duties of 44.29% on imports of DRAMS from Korea produced by Hynix Semiconductor Inc.
- The U.S. Department of Commerce found that the Government of Korea had “entrusted or directed” Korean private financial institutions to provide financial contributions (including restructuring, loans, and equity) to Hynix, conferring a countervailable subsidy.
- The U.S. International Trade Commission made an affirmative injury determination, and the duties were imposed.
- Korea challenged the U.S. determinations under the SCM Agreement and the DSU.
- A WTO panel found the U.S. measure inconsistent with, among other provisions, SCM Agreement Article 1.1(a)(1)(iv), and found flaws in the evaluation of evidence under DSU Article 11.
- The United States appealed several panel findings; Korea also appealed certain aspects as an “other appellant.”
- The Dispute Settlement Body adopted the Appellate Body and panel reports, as modified, on July 20, 2005.

## Issues

1. Whether Korea’s request for consultations satisfied DSU Article 4.4 by identifying the measures at issue and indicating the legal basis.
2. What constitutes government “entrust[ment] or direct[ion]” of a private body under SCM Agreement Article 1.1(a)(1)(iv).
3. Whether the panel failed to make an objective assessment of the matter under DSU Article 11 by applying an allegedly heightened “probative and compelling” evidentiary standard or by misappraising the evidence in the record.
4. Whether the panel’s treatment of “benefit” (SCM Article 1.1(b)) and “specificity” (SCM Article 2) was legally correct.

## Decision

- The Appellate Body upheld the panel’s conclusion that Korea’s consultations request met DSU Article 4.4 and that the panel was properly established.
- The Appellate Body clarified the meaning of “entrusts or directs” in SCM Article 1.1(a)(1)(iv), rejecting purely effects-based attribution of private conduct to a government.
- The Appellate Body ultimately upheld the panel’s conclusion that the United States did not demonstrate, on the record, that Korea entrusted or directed the financial institutions to provide the alleged financial contributions to Hynix within the meaning of Article 1.1(a)(1)(iv).
- The Appellate Body rejected the U.S. claim that the panel imposed an improper evidentiary threshold; the panel’s “probative and compelling” language did not create a new legal test and was consistent with DSU Article 11 when read in context.
- The Appellate Body upheld the panel’s findings on benefit and specificity to the extent necessary, and sustained the conclusion that the countervailing duty measure was inconsistent with the SCM Agreement because a qualifying government financial contribution via entrustment or direction was not established.

## Legal Principles

- DSU Article 4.4 requires consultations requests to give adequate notice by identifying the measures at issue and indicating the legal basis; some flexibility is permitted at the consultations stage.
- SCM Agreement Article 1.1(a)(1)(iv) functions as an anti-circumvention rule, treating certain private-body conduct as a government financial contribution only where a government “entrusts or directs” the private body to perform functions that would normally be vested in the government.
- “Entrusts” implies assignment of responsibility and conferral of authority; “directs” implies a command or instruction; both require a demonstrable link between governmental action and the private body’s conduct sufficient for effective attribution.
- Government influence, regulation, ownership interests, or sectoral involvement, without evidence of a genuine delegation or command regarding the specific financial contribution, is insufficient to establish entrustment or direction.
- Under DSU Article 11, panels must make an objective assessment of the facts and evidence; characterizing the strength of evidence needed on a record does not, by itself, create a heightened burden of proof.

## Conclusion

The Appellate Body sustained findings that the U.S. countervailing duties on Korean DRAMS were inconsistent with the SCM Agreement because the record did not support a determination that Korea entrusted or directed private financial institutions to provide the alleged financial contributions, and it confirmed that panels may critically review the evidentiary basis of such determinations while remaining within DSU Article 11’s objective-assessment requirement.


United States—Countervailing Duty Investigation on Dynamic Random Access Memory Semiconductors (DRAMS) from Korea, WT/DS296/AB/R (WTO App. Body 2005)