USTR - United States Wins WTO Semiconductor Case
                 
The Office of the United States Trade Representative

United States Wins WTO Semiconductor Case
In Far Reaching Report, WTO Appellate Body Reverses Prior Panel Decision 06/27/2005


WASHINGTON – U.S. Trade Representative Rob Portman announced today a major WTO litigation win for the United States, as the WTO Appellate Body reversed a WTO panel and sided with the United States in a dispute involving subsidies provided by the Government of Korea to Hynix, a Korean manufacturer of memory semiconductors. In today’s report, the Appellate Body agreed with the United States that a WTO panel was incorrect in concluding that U.S. countervailing duties on Hynix semiconductors were improper. U.S. countervailing duty rates of 44 percent ad valorem will remain in place.

"This is an important turnaround for U.S. high-tech manufacturers, as well as the international trading system," said USTR Rob Portman. "The international trading system is built on fairness, and the Korean government unfairly subsidized a Korean company. The Appellate Body report will help to ensure that governments play by the rules. Governments shouldn’t be able to give unfair subsidies by pressuring banks to provide non-commercial loans. This is another example of how the Administration, day-in and day-out, is working aggressively to use U.S. trade laws to level the playing field and, when needed, to defend our actions at the WTO."

"We believe today’s decision will strengthen the ability of U.S. companies to compete against Korean firms on an equal footing in Korea and around the world," added Portman

The U.S. companies involved were Micron, with operations in Idaho, Utah, Virginia and Texas, and Infineon, with operations in Virginia.

The Appellate Body agreed with the United States that the WTO panel committed multiple errors in reviewing the U.S. determination that the Government of Korea subsidized Hynix by pressuring private creditors to provide financial assistance to the company. These panel errors included a failure to examine the record evidence in its totality; a refusal to consider evidence that was on the record of the underlying investigation and that was cited by the United States; and a key finding by the panel that was not supported by evidence on the record of the underlying investigation. Cumulatively, these errors amounted to a failure on the part of the panel to apply the correct standard of review. According to the Appellate Body, "the Panel essentially ‘second-guessed’ the investigating authority’s analysis of the evidence and thus overstepped the bounds of its review."

Under WTO rules, Appellate Body reports are not subject to further appeal.

Background

This dispute involves determinations by the U.S. Department of Commerce and the U.S. International Trade Commission (USITC) in the countervailing duty investigation on dynamic random access memory semiconductors (DRAMs) from Korea. In its determination, Commerce found that the Korean government directed creditors to bail out Hynix, a financially troubled Korean company that, at the time of the determination, was the number three producer of DRAMs in the world. As a result, Commerce also found that the assistance provided to Hynix under this government-directed bail-out constituted subsidies. The USITC subsequently found that imports of subsidized Hynix DRAMs caused injury to the U.S. DRAMs industry. As a result of these two determinations, on August 11, 2003, Commerce published a countervailing duty order requiring the imposition of "countervailing duties" of 44 percent ad valorem.

The purpose of a countervailing duty investigation is to determine whether subsidized imports cause or threaten injury to a competing U.S. industry. These investigations typically are conducted when a U.S. industry submits a petition, along with supporting evidence, that alleges the existence of injurious subsidization. The U.S. Department of Commerce is responsible for determining whether imports are subsidized, while the U.S. International Trade Commission (USITC) is responsible for determining whether subsidized imports cause or threaten injury. If both agencies make affirmative determinations, Commerce typically publishes a countervailing duty order, which requires the imposition of a special duty – known as a "countervailing duty" – to offset the amount of subsidization found to exist. The countervailing duty is in addition to normal customs duties.

On June 30, 2003, Korea first requested WTO consultations with the United States. Subsequently, Korea requested the establishment of a panel, alleging that both the Commerce and USITC determinations were inconsistent with WTO rules. A WTO dispute settlement panel was established on January 23, 2004. The panel circulated its final report on February 21, 2005.

With respect to Korea’s challenge to the USITC determination of injury, with one exception the panel agreed with the United States on all of the issues. The exception involved one minor aspect of the injury determination where the panel found that the USITC had not adequately explained its analysis. The United States did not appeal this panel finding. Under WTO rules, the United States will be allowed a "reasonable period of time" in which to take whatever action is necessary. The precise amount of time for such implementing action typically is determined either through agreement of the parties – in this case, the United States and Korea – or through WTO arbitration. In the meantime, imports of Hynix DRAMS will continue to be subject to countervailing duties.

With respect to Korea’s challenge to Commerce’s determination of subsidization, the panel essentially found that Commerce’s findings were not supported by sufficient evidence. The United States appealed the panel’s finding, alleging that it was the product of numerous legal errors.

The Appellate Body report helps ensure that governments cannot subsidize covertly by pressuring private companies to extend credit or make investments on non-commercial terms. The panel report, if it had been allowed to stand, would have made it very difficult to ever prove that a government engaged in such covert subsidization.

Under WTO rules, the Appellate Body report and the panel report, as modified by the Appellate Body report, will be formally adopted by the WTO Dispute Settlement Body within 30 days; i.e., by July 27.