[Congressional Record Volume 147, Number 20 (Tuesday, February 13, 2001)]
[Senate]
[Pages S1350-S1351]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
SENATE CONCURRENT RESOLUTION 10--EXPRESSING THE SENSE OF THE SENATE
REGARDING THE REPUBLIC OF KOREA'S UNLAWFUL BAILOUT OF HYUNDAI
ELECTRONICS
Mr. CRAIG (for himself, Mr. Lott, Mr. Crapo, and Mr. Bennett)
submitted the following concurrent resolution; which was referred to
the Committee on Finance.
S. Con. Res. 10
Whereas the Government of the Republic of Korea over many
years has supplied aid to the Korean semiconductor industry
enabling that industry to be the Republic of Korea's leading
exporter;
Whereas this assistance has occurred through a coordinated
series of government programs and policies, consisting of
preferential access to credit, low-interest loans, government
grants, preferential tax programs, government inducement of
private sector loans, tariff reductions, and other measures;
Whereas government assistance to the semiconductor industry
is part of the preferences, privileges, and support given by
the Korean government to corporate conglomerates, known as
chaebols, over several decades;
Whereas the policy of providing assistance to chaebols has
resulted in trade-distorting spending and capacity expansion
and resulted in massive corporate debt;
Whereas in December 1997, the United States, the
International Monetary Fund (IMF), other foreign government
entities, and a group of international financial institutions
assembled an unprecedented $58,000,000,000 financial package
to prevent the Korean economy from declaring bankruptcy;
Whereas as part of that rescue package, the Republic of
Korea agreed to put an end to corporate cronyism, and to
overhaul the banking and financial sectors;
Whereas Korea also pledged to permit and require banks to
run on market principles, to allow and enable bankruptcies
and workouts to occur rather than bailouts, and to end
subsidies;
Whereas the Republic of Korea agreed to all of these
provisions in the Stand-by Arrangement with the IMF dated
December 3, 1997;
Whereas section 602 of the Foreign Operations, Export
Financing, and Related Agencies Appropriations Act, 1999, as
enacted by section 101(d) of Division A of the Omnibus
Consolidated and Emergency Supplemental Appropriations Act
(Public Law 105-277; 112 Stat. 2681-220) specified that the
United States would not authorize further IMF payments to
Korea unless the Secretary of the Treasury certified that the
provisions of the IMF Standby Arrangement were adhered to;
Whereas the Secretary of the Treasury certified to Congress
on December 11, 1998, April 5, 1999, and July 2, 1999 that
the Stand-by Arrangement was being adhered to, and assured
Congress that consultations had been held with the Government
of the Republic of Korea in connection with the
certifications;
Whereas the Republic of Korea has acceded to the World
Trade Organization, and to the Agreement on Subsidies and
Countervailing Measures (as defined in section 101(d)(12) of
the Uruguay Round Agreements Act);
Whereas the Agreement on Subsidies and Countervailing
Measures specifically prohibits export subsidies, and makes
actionable other subsidies bestowed upon a specific
enterprise that causes adverse effects;
Whereas Hyundai Electronics is a major exporter of
semiconductor products from the Republic of Korea to the
United States; and
Whereas the Republic of Korea has now engaged in a massive
$2,100,000,000 bailout of Hyundai Electronics which
contravenes the commitments the Government of the Republic of
Korea made to the IMF, the World Trade Organization and other
agreements, and the understandings and certifications made to
Congress under the Omnibus Consolidated and Emergency
Supplemental Appropriations Act, 1999: Now, therefore, be it
Resolved by the Senate (the House of Representatives
concurring), That Congress--
(1) believes strongly that the relationship between the
United States and Republic of Korea has been and will
continue to be harmed significantly by the bailout of a major
exporter of products from Korea to the United States;
(2) calls on the Republic of Korea to immediately end the
bailout of Hyundai Electronics;
(3) calls on the Republic of Korea to comply immediately
with its commitments to the IMF, with its trade agreements,
and with the assurances it made to the Secretary of the
Treasury;
(4) calls on the Secretary of the Treasury, the Secretary
of Commerce, and the United States Trade Representative to
take immediately such action as is necessary to assure that
the unlawful bailout by the Republic of Korea is stopped, and
its effects fully offset or reversed; and
(5) calls on the United States Trade Representative and the
Secretary of Commerce to monitor and report to Congress on
steps that have been taken to end this bailout and reverse
its effects.
Mr. CRAIG. Mr. President, I rise to introduce a concurrent resolution
expressing the sense of the Senate regarding the Republic of Korea's
unlawful bailout of Hyundai Electronics, an issue of great concern to
me and, I believe, should be of concern to the Senate. I rise to
introduce this resolution with my colleagues Mr. Lott, Mr. Crapo, and
Mr. Bennett.
In 1997, the International Monetary Fund, in cooperation with the
United States and a group of financial institutions, put together an
unprecedented $58 billion financial package to prevent the Korean
economy from bankruptcy. As a part of that rescue package, the Korean
government agreed to implement specific reforms aimed at addressing the
problems that had led to the economic crisis in the first place.
In recent weeks, the Korean government has decided to break
completely with the policies that it has adopted over the past three
years and is promising to provide a $2.1 billion bailout of Hyundai
Electronics. This action not only runs contrary to the stated policy of
the Korean government but also flies in the face of the government's
clear assurances that this sort of wholesale bailout would not happen.
This resolution is necessary because the present actions of the
Korean government are a flagrant violation of Korean's international
commitments. The Hyundai bailout violates Korea's International
Monetary Fund Agreement; the World Trade Organization Agreement on
Subsidies and Countervailing Measures; U.S. legislation to stop
subsidies to the semiconductor industry in Korea; Section 301 of the
U.S. trade laws, and U.S. countervailing duty laws. This unlawful and
unwise bailout must be stopped.
The conditions of the IMF Agreement are clear. The corporate
governance provision of the IMF Agreement required Korea to end
government-directed lending companies; to stop government subsidized
support or tax privileges to bail out individual companies; to reduce
the high debt-to-equity ratios of corporations; to reduce mutual
guarantees within conglomerates; and to permit Korean bankruptcy laws
to operate without interference from the government.
The government's special waiver of the debt ceiling for Hyundai
Electronic is a violation of Korea's commitment not to interfere in the
lending practices of private banks and not to provide subsidies. The
audacious Korean
[[Page S1351]]
government announcement on January 3, 2001 dropped every pretense of
legitimacy by notifying the intend to provide for the outright bailout
of Hyundai. In a press statement, the government announced that the
Korean Development Bank, a Korean government agency, would purchase
$2.1 billion of Hyundai Electronic corporate bonds over the next twelve
months. The move was clearly aimed at keeping Hyundai from defaulting
on its massive debt. This action is outrageous and demands the
immediate attention of the Korean government as well as Congress and
the Administration.
The bailout violates Korea commitments under the World Trade
Organization Agreement on Subsidies and Countervailing Measures.
Korea's assistance to Hyundai Electronics, including the purchase of
Hyundai's corporate bonds, the waiver of the bank lending limitations,
and the increase in the limits on export loans, are all violative of
Korea's SCM commitments, and are subject to WTO dispute settlement
challenge. The assistance to Hyundai is a prohibited Export Subsidy,
and meets the Adverse Effects or ``injury'' test.
This bailout violates the conditions of the Omnibus Consolidated and
Emergency Supplemental Appropriations Act, Public Law 105-277. Section
602 required that the U.S. Secretary of the Treasury certify that Korea
was in compliance with its IMF Stand-By Arrangement provisions,
including those I mentioned earlier, and that no IMF funds were being
used to provide assistance to the semiconductor industry, among others.
In enacting this provision, the Congress acknowledged the risk that, in
the midst of the financial crisis, the Korean government would continue
to attempt to keep non-viable companies afloat through directed lending
and subsidies. The purpose of the provision was to create an
enforcement mechanism for the IMF reform provisions, by providing for
the withholding of U.S. support for further financial assistance to
Korea, if the government violated the provisions of Section 602.
The Treasury Secretary made several certifications pursuant to
Section 602, making them prior to each remaining disbursement of IMF
loans to Korea. In these certifications, Secretary Rubin certified to
Congress that Korea was implementing the reforms that it had agreed to
in its IMF loan agreement and also that IMF funds were not being used
to provide subsidies to the semiconductor industry. In recent weeks,
the Korean government has violated both the letter and the spirit of
Section 602, directly frustrating Congressional intent. The Korea
government has said that it will not make any further draws on the
stand-by credits from the IMF, so the U.S. government does not have the
leverage of threatening to stop future loan disbursements under the
current IMF program. In sum, they have taken American tax dollars and
run, without fulfilling the commitments they made. It's an outrage.
The assistance to Hyundai Electronics is a subsidy under the U.S.
countervailing duty law. The benefits received by Hyundai under the
Korea government's bailout program constitute a countervailable subsidy
under the U.S. countervailing duty law. Section 771(5) provides that a
subsidy is one that ``provides a financial contribution . . . to a
person and a benefit is thereby conferred.'' This financial
contribution can include ``the direct transfer of funds, such as
grants, loans, and equity infusions, or the potential direct transfer
of funds or liabilities, such as loan guarantees.'' The statute also
specifies that the determination of whether a subsidy exists shall be
made ``without regard to whether the subsidy is provided directly or
indirectly on the manufacture, production, or export or merchandise.''
Thus, a subsidy can exist even if the government does not directly
provide the subsidy, but directs a bank to provide the subsidy.
The statute also specifies that a benefit ``shall normally be treated
as conferred where there is a benefit to the recipient.'' In the case
of a loan, there is a benefit to a recipient ``if there is a difference
between the amount the recipient of the loan pays on the loan and the
amount the recipient would pay on a comparable commercial loan that the
recipient could actually obtain on the market,'' 19 U.S.C.
1677(5)(E)(ii). Thus, the Commerce Department, when determining whether
a program is a countervailable subsidy, looks to the benefit to the
recipient rather than the cost to the provider of the subsidy.
In the case of Hyundai Electronics, the company would not be able to
obtain any loans ``in the market'' absent government intervention.
Private concerns are reluctantly willing to roll over Hyundai's debt
only because the government is involved.
In short, because of the preferential financing Hyundai receives
under these government actions, and because of the very substantial
size of the loans in question, Commerce's investigation of these
programs in the course of a countervailing duty proceeding would be
almost certain to find substantial subsidy margins.
In conclusion, Mr. President, I am extremely disappointed in Korea's
actions in regards to this matter. It is clear that Korea is
purposefully circumventing the will and intent as well as the spirit
and letter of the IMF agreement the World Trade Organization Agreement
on Subsidies and Countervailing Measures, U.S. legislation to stop
subsidies to the semiconductor industry in Korea, and U.S.
countervailing duty laws.
Korea must not be permitted to backtrack on the reforms it made that
were requirements for IMF and U.S. assistance, just because it is no
longer drawing on those loans. The very purpose of the reform measure
was to put Korea on stable financial footing. Now Korea is unraveling
its reform measures, in order to prevent a failing company from going
bankrupt. Such actions cannot be overlooked, but should be dealt within
the strongest possible manner.
I am very disappointed that the Korean government has acted in bad
faith with respect to its commitments. The U.S. Administration and the
U.S. Congress must work together to find an effective and just response
to Korea's action. This bailout undermines Korea's credibility in
international financial circles and threatens the bilateral economic
relationship between the United States and Korea. It must be stopped.
Mr. President, I would not come to the floor and speak in these
terms, nor would I have gained the sponsorship by key leaders here in
the Senate that I have, if we did not think this was important.
American taxpayers willing to help stabilize the world economy and
willing to help stabilize its friends in the world by contributing $58
billion for those purposes, in working with the International Monetary
Fund and the World Trade Organization, should not now be ignored, nor
should what we have said be ignored in this process.
With that, I introduce this Senate concurrent resolution speaking to
that very issue.
____________________