With regard to the tax exemptions, the complaint alleges that the Korean Government has recently passed a law (the "Law on Limiting Special Tax Treatment") on a special tax bailout of companies under restructuring. CESA claims that this special tax treatment was made available to only 68 Korean companies, 12 of which are part of the Daewoo group of companies. It is thus limited to certain enterprises and, therefore, "specific" to a group of enterprises or industries within the meaning of Article 2.1(a) ASCM. CESA claims that tax relief would squarely fall under the definition of a subsidy. There is financial contribution in the form of government revenue that is otherwise due which is foregone (Article 1.1(a)(1)(ii) of the ASCM), and a benefit equal to the amount of the taxes not paid. Since the measure is limited to the companies under reorganisation it is specific and, therefore in accordance with Article 1.2 of the ASCM, actionable.

　

The complainant alleged that Korean shipyards benefited from a large number of tax incentives under the Tax Exemption and Reduction Control Law (TERCL) and the Special Tax Treatment Control Law (STTCL) . The first legislation provides for a number of tax incentives mainly regarding investment and development activities while the latter designed a package of tax incentives regarding the fiscal implications of the restructuring.

　

Under the TERCL, eligible companies can claim tax credits and tax reserves for certain expenses.

　

Pursuant to Articles 16, 17 and 19 of the TERCL, companies could claim reserves for export losses, overseas business losses and overseas market development. However, these programmes were abolished in 1997 and no longer conferred any benefits to the companies.

　

Under Articles 8 to 11 of the TERCL, companies claim tax credits for technology development manpower development and the transfer of patent rights. Companies could also claim a number of tax credits for investments in specific facilities, for increasing productivity, for increasing employee welfare and investments regarding the development of manpower.

　

Although a number of shipyards benefited from these programmes, it appears that these tax credits are generally available. Furthermore, since the benefits under the se programmes are very small, it is doubtful whether these tax credits may have contributed to any injury sustained by the European industry.

　

The purpose of these tax incentives is to facilitate corporate and financial restructuring by reducing the additional tax burden incurred in the restructuring process. Under the STTCL, 3 different types of tax incentives are available to the eligible companies:

　

　

Pursuant to Article 37 of STTCL, the special additional tax on capital gain on the income obtained from the transfer of real estate is exempted.

　

In order to obtain the exemption, the company is required to transfer assets (which were acquired before June 1997) prior to 31 December 2000. In addition, the transfer needs to be approved by the Creditor Financial Institutions Committee of the company. Finally, the company is obliged to use the money received from the transfer to pay its debts to the financial institutions.

　

The verification revealed that Hanjin, Samsung and Hyundai Heavy benefited from this tax but the sums were negligible.

　

The programme constitutes a specific subsidy in the sense of Article 2.1(a) of the ASCM. The GOK has clearly limited access to the tax exemption to certain companies i.e. the companies that qualify for corporate restructuring in Korea. Furthermore , it appears that certain criteria cannot be qualified as objective and consequently, eligibility is not automatic. It seems that the approval process by the creditor banks renders the eligibility not automatic.

　

Pursuant to Article 38 of STTCL, a tax deferral benefit is granted to companies that made in-kind contributions of certain assets to a newly established company. In addition, the new company is exempt from acquisition and registration taxes pursuant to Article 119-7 and 120-6 of STTCL.

　

If a company makes an in-kind contribution, the company can defer the payment of corporate income taxes until the new company sells the assets.

　

Daewoo benefited from this programme.

　

This programme is only available for companies undergoing corporate workout. Therefore, the specificity assessment of this tax exemption is linked to the assessment regarding the corporate restructuring and workout.

　

Pursuant to Article 46 of the Corporate Tax Act and 45 STTCL, if a new company created after spin-off acquires the assets of the spun-off company, an amount equivalent to the gain on transfer of these assets is included as an expense in the computation of the corporate income tax.

　

The company is eligible to reduce its taxes through increased expense deduction if the spin-off meets following criteria:

　

　

Furthermore, the spin-off should occur in accordance with the workout plan approved by Creditor Financial Institutions Council or the Corporate Restructuring Committee. If a company meets the criteria for eligibility, it is allowed to claim the gain on assets as an expense in the calculation of the taxable income for the purposes of corporate income taxes.

　

Daewoo benefited from this programme. The combined benefit from this scheme and the Special taxation on in-kind contribution is estimated at won 78 billion.

　

This programme is only available for companies undergoing corporate workout.

Therefore, the specificity assessment of this tax exemption is linked to assessment regarding the corporate restructuring and workout.

　

The evidence available leads to the conclusion that the KEXIM programmes led to the granting of subsidies within the meaning of Article 1 of the ASCM to Korean shipbuilders.

　

Furthermore, the investigation shows that Korea has granted through corporate restructuring subsidies within the meaning of Article 1 of the ASCM to the following shipyards:

　

　

A subsidy has also been granted to Daewoo through taxation progpammes.

　

The KEXIM subsidies are de jure export contingent within the meaning of Article 3 of the ASCM and therefore, in accordance with Article 2.3, specific.

　

There is an indication that the corporate restructuring and taxation subsidies could be export contingent within the meaning of Article 3 of the ASCM and therefore, in accordance with Article 2.3, specific; they are in any event specific within the meaning of Article 2.1 of the ASCM.

　

The investigation will continue with a view to collect further information, in particular with regard to the export subsidies.