[Congressional Record (Bound Edition), Volume 147 (2001), Part 2]
[Senate]
[Pages 1796-1797]
[From the U.S. 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 submit 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 Korea'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 
Electronics is a violation of Korea's commitment not to interfere in 
the lending

[[Page 1797]]

practices of private banks and not to provide subsidies. The audacious 
Korean government announcement on January 3, 2001 dropped every 
pretense of legitimacy by notifying they 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 Electronics' 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 
Korean 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 of 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 with 
in 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.

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